| |
|
07/26/2008
For the week 7/21-7/25
[Posted 7:00 AM ET]
Wall Street
There are two poll numbers that stand out for their consistency
thus far in 2008; President Bush’s overall approval rating, 28 to
30 percent regardless of the poll, and the number of Americans
who think the country is on the right track, a mere 13 or 14
percent. This week’s NBC News/Wall Street Journal survey, for
example, had the figures at 30 and 13, while two polls from the
prior week were at 28 and 14.
So it was amusing to see the president’s YouTube moment. Not
because it was in the least bit embarrassing that he was caught
off guard, it wasn’t, but rather how once again he just didn’t get
it.
Bush said of the problems in the financial sector, “There’s no
question about it. Wall Street got drunk…it got drunk and now
it’s got a hangover. The question is how long will it sober up
and not try to do all these fancy financial instruments.”
I would submit, Mr. President, that the above leads one to ask,
“So where the heck were the regulators?” From the accounting
scandals of the Enron era to the chicanery on Wall Street and
with many in the mortgage community, those whose job it is to
monitor basic functions of both our markets and consumer
protection were asleep at the switch.
The result of this laissez-faire, anything goes era is a housing
bailout, or rescue package, take your pick depending on which
side of the bed you woke up on, that is designed to help
stabilize the mortgage market at a time of still soaring
delinquencies. No one can be against a little help for those truly
deserving of it, but the consequences of this potentially massive
program, whose eventual cost is anyone’s guess, will be talked
about for years, maybe decades. Fannie Mae and Freddie Mac,
the two prime beneficiaries, are privately held companies after
all, but you might as well stick their logos on the backs of our
currency because they are now wards of the state.
Some opinion follows, both on the housing bill (to be signed by
the president next week it appears) as well as the era in general.
Editorial / Wall Street Journal
“Combine a housing meltdown with election-year politics and
the results were not going to be pretty. Add a crisis in
confidence in Washington’s favorite quasipublic companies and
what we’re getting is a rout for taxpayers, especially those who
kept their heads during the housing mania….
“The White House has thrown its reservations overboard and is
begging to sign this boondoggle….
“Even conservative estimates by the Congressional Budget
Office say the cost for this bailout will run to $41.7 billion, with
$16.8 billion offset by higher taxes. No one has any idea of the
real cost. The most expensive provision gives the Treasury
temporary authority to pour money into Fannie Mae and Freddie
Mac. The CBO says this could cost $100 billion, or it could cost
‘nothing.’ So it threw a dart at the wall and assigned a $25
billion price tag to the Fan and Fred bailout.
“Likewise, the bill’s $300 billion to refinance and insure
distressed loans through the Federal Housing Administration will
supposedly cost just a few billion dollars. That assumes few
homeowners and lenders will sign up for the program because
lenders will have to take a 10% haircut to be eligible. If no one
needs this program, why is it there?....
“Alongside these big-ticket items, we suppose the $4 billion tax
credit for first-time home buyers, or the $4 billion in ‘community
development’ pork grants, or the $180 million for housing
counseling are merely routine outrages.
“On the other hand, the kid-glove treatment of Fannie Mae and
Freddie Mac is very much worth worrying about. On the floor of
the House yesterday, Democrats argued that this bill was the
least Congress could do ‘for the people,’ given the way the
government had ‘helped’ Bear Stearns. The cost borne by Bear
Stearns was having its shareholders all but wiped out and half its
employees pink-slipped. Countrywide was likewise sold at a fire
sale price. Not so these two government-chartered giants.
“Fannie and Freddie may well be too big to fail, as Treasury
Secretary Hank Paulson keeps reminding us. That is true in large
part because they were allowed – no, encouraged – to grow like
Topsy while Congress shielded them from oversight. At a
minimum, the cost of a lifeline ought to include some
accountability and assurance they cannot get into such a fix
again. Instead what we have is a promise that Fannie and
Freddie will pay us Tuesday for an explicit taxpayer guarantee
today. The Treasury will get unlimited authority to recapitalize
the mortgage giants, effective immediately, while a new
regulator will have to run a gauntlet of confirmation and
Congressional hazing over the companies’ portfolios of mortgage
securities the way a Supreme Court nominee has to handle Roe
v. Wade….
“If Fannie and Freddie can’t be brought to heel politically now,
when weeks ago their very survival was in doubt, not even a
newly empowered regulator will have any hope of reducing their
claims on the public fisc once the dust settles….
“(The) White House and Treasury are betting that this bill will
put a floor under the housing market and buoy bank stocks, and
thus avoid a deeper financial downturn. The rescue will only
delay a housing market bottom, and it may or may not help bank
stocks. The one certainty is that taxpayers are assuming a huge
new risk.”
Former Secretary of Labor Robert Reich / Newsweek
“What worries me is the complete lack of accountability by
Fannie’s and Freddie’s executives, as well as Wall Street
investment bankers also now being insured by taxpayers. We’ve
created the worst form of socialized capitalism – private gains
combined with public losses. These executives and bankers are
among the best paid in all of corporate America. Their
organizations are treated as if they’re giant investor-driven
private-sector entities as long as they’re healthy. But when they
start to go down the tubes they become public entities with
public responsibilities, and the rest of us have to bail them out.”
Former George W. Bush economic adviser Larry Lindsey /
Newsweek
“The plan advanced by Secretary Paulson provides an open-
ended source of funding for the government to buy the stock of
the companies and to lend them unlimited amounts of money.
While it may be a necessary last-ditch effort to save them, the
plan leaves existing management and directors in place and asks
for no explicit accountability for existing shareholders and other
investors. Unfortunately, this appears to be related to the
enormous political power Fannie and Freddie have developed
through decades of political contributions and management by
politically connected individuals like Franklin Raines [Clinton’s
OMB director and former chief of Fannie Mae] and Jim Johnson
[until recently an Obama adviser. Johnson was also chairman of
the Goldman Sachs board’s compensation committee while
Paulson was its CEO.]”
Larry Lindsey in an interview with the Sydney Morning Herald.
“Surely things are somewhat amiss when a country’s finance
minister [Paulson] plays bond salesman for a supposedly
privately-owned company.”
Gretchen Morgenson / New York Times
“Borrowers who are in trouble on their mortgages have seen their
government move slowly – or not at all – to help them. But
banks and the executives who ran them are quickly deemed
worthy of taxpayer bailouts.”
Henry Paulson: “This is a very manageable situation.” At what
cost, Mr. Secretary?
James Grant / Wall Street Journal
“Have the stewards of other people’s money not made a hash of
high finance? Did they not enrich themselves in boom times,
only to pass the cup to us, the taxpayers, in the bust? Where is
the people’s wrath?”
I can’t help but add, where’s the revolution? It’s sickening how
there is zero accountability. I’m all for the Michael Dells or Bill
Gates or the Google boys making a killing off of their
entrepreneurship. But for some of Wall Street’s titans of finance
and marketing to escape scot-free with their $millions is beyond
scandalous, whereas those perpetrating mortgage fraud should be
locked up for life without parole. Our penalties for financial
crimes, as premeditated as any crime one can commit, need to be
brought into the 21st century. Actually, China has the right idea
in this regard, but punishment there is far from evenly applied.
So what of the economy overall? The latest housing data for
June was awful, with existing home sales (90% of the total)
hitting another low as inventories rose to 11 months supply. You
know the mantra by now. There is no sustainable recovery until
you first work off a large portion of the inventory….period.
Foreclosures continue to rocket higher, nationwide up over 120%
in the second quarter over a year earlier levels, and a 20-year
high for a key state such as California. In Stockton, California,
one in every 25 homes was foreclosed on…staggering. I get a
kick out of all those trying to pick the bottom in housing. Don’t
waste your time. As I’ve said for years now (and which even
PIMCO’s Bill Gross seems to have come around to recently),
when we do hit bottom, whether it is next month or early 2009,
we’ll just sit there for awhile.
It’s still all about affordability and despite the Federal Reserve’s
best efforts, rising mortgage rates aren’t helping matters. But
will the congressional bailout help? I doubt it, plus the above
discussed blowback in terms of the impact on the federal debt
and the pressures to finance it could make things even worse in
terms of ever higher rates.
Speaking of the Fed and interest rates in general, you still have a
number of Fed governors telling us that Ben Bernanke’s
wrecking crew “can’t wait” any further to raise rates because the
inflation genie is out of the bottle. Raising rates now would of
course be the worst thing the Fed could do. And I know it’s hard
to see today because prices (except for the recent break in
energy) appear to be marching ever higher, but within just the
next two or three months you’ll see the debate has shifted on this
front.
But this is important. The producer and consumer price picture
may begin to brighten in terms of official numbers, but costs
such as for tuition and healthcare will keep rising, which in turn
will further fuel the angst of the middle class, in broad terms, i.e.,
that meager 13 to 14 percent who believe the country is on the
right track isn’t about to rise significantly anytime soon.
As for the U.S. banking sector, it was another week of incredible
volatility as displayed further below. All manner of institutions
in releasing their earnings reports, such as with Wachovia and
Bank of America, added to their loan-loss reserves because of a
further deterioration in the consumer sector as the crisis evolves
from housing to home equity loans to auto loans and credit cards.
Separately, American Express shocked the Street by missing its
earnings forecast by a mile as “consumer spending slowed…
beyond expectations.”
Finally, the global economy continues to weaken. Britain is dead
in the water on a GDP basis and retail sales there plunged 4% in
June while officials warn of huge increases in utility costs this
coming winter.
In Ireland I couldn’t help but note this lead from The
Independent newspaper.
“Thousands of first-time buyers are being forced to pay out sky-
high mortgage rates because negative equity has trapped them
with their current lender.
“The new buyers, who purchased their houses with 100 percent
mortgages, are now unable to switch to a cheaper lender because
they have no equity built up in their homes.”
Meanwhile, German Chancellor Angela Merkel said a “clear
economic slowdown” appeared unavoidable with a “significant
fall” in growth likely in 2009, while all manner of consumer and
business sentiment readings in Germany, France and Italy have
hit new multi-year lows.
One key individual player, Vodafone, the world’s largest mobile
phone operator, talked of slowing global demand in its latest
earnings report, and even New Zealand’s central bank felt
compelled to lower interest rates despite current inflationary
pressures because the slowing economy there took precedence.
All in all, the global scene is tepid at best, just as I said it would
be in earlier forecasts.
So is there any good news out there? Why yes. Oil continued to
slide from its closing high of $145 (and intraday peak of $147+)
to finish the week at $123.50, quite a decline in less than three
weeks. Natural gas has taken an even greater header in
percentage terms, while gasoline futures plunged to the $3.00
level, a point at which $3.80 or so at the pump on a national basis
would be the norm were we to hold this mark for another few
weeks.
Such a break on energy prices can certainly be helpful for stocks,
if not on consumer spending overall, and it’s one reason why
I have seen no reason to change my original forecast for 2008
that the major indices will finish down 3 to 5 percent for the year
compared to far more sizable losses to date, but I still have
trouble raising my 80% cash / 20% equities split just yet, even if
the sentiment readings I’ve been discussing the past few weeks
are in a contrarian’s favor.
This isn’t a normal bear market as you’ve heard so many say by
now. It’s not a normal inventory led downturn, for example. It’s
a financial and housing led one, with an energy kicker. One
can’t begin to make heads or tails out of the investment banks for
fear of what lies inside their still opaque books, for starters, nor
do we know where the bottom truly is in the average American’s
number one asset, their home, and the securities attached
thereon, nor can you get too hopeful on the energy front, even
with ongoing demand destruction, because we’ve yet to enter the
peak of hurricane season and we are no closer to a resolution on
the Iran nuclear weapons front.
Street Bytes
[Late Friday, the Feds closed two more banks…1st National
Bank of Nevada and First Heritage Bank, operating in Nevada,
Arizona and California.]
--Stocks were mixed, with the Dow Jones falling 126 points to
11370, while Nasdaq tacked on 28 to 2310. Earnings reports
continued to flood in. Among the winners were Bank of
America, Caterpillar, DuPont, AT&T, General Dynamics,
McDonald’s, Amazon, Credit Suisse and 3M. The losers
included American Express, Apple (on its guidance), Texas
Instruments, Wachovia, Washington Mutual, UPS, Yahoo,
Boeing, and Dow Chemical.
There were two positives on the economy that helped stocks out
a bit on Friday, barely, those being a bounce in consumer
confidence off a 28-year low and a solid durable goods (big
ticket items) number for June that some analysts made way too
much of. As I write from time to time, there is no more volatile
data point than this one but the Street has been giving it way too
much respect, both up and down. You need to string at least two
of these together to glean anything truly meaningful.
--U.S. Treasury Yields
6-mo. 1.93% 2-yr. 2.71% 10-yr. 4.10% 30-yr. 4.68%
The Federal Reserve’s beige book on regional economic activity
contained no surprises; slowing growth and rising inflationary
pressures. But as alluded to above, there is no way the Fed hikes
rates at least until the fourth quarter, if at all this year.
--James Tisch / CEO Loews Corp. in an op-ed for the
Washington Post
“Bob Dylan said it best: ‘The answer is blowin’ in the wind.’
While politicians and environmentalists have been busy arguing
about how best to require that greenhouse gases be curtailed, the
world around them has changed. The precipitous rise in oil and
gas prices over the past year has made the debate on greenhouse
gas emissions moot. The reduction in the output of those gases
will move forward at warp speed, not because of rules,
regulations and cap-and-trade decrees but because of free
markets and economics.
“Two factors are driving this sea change. First, the price of our
traditional fuels – oil, gas and coal – has risen dramatically.
Second, the silent and inexorable march of technology has
dramatically reduced the costs of clean alternative energy
sources such as wind turbines and photovoltaics, which converts
sunlight into electricity. The result will be a dramatic reduction
in the emission of greenhouse gases – without politicians passing
a single additional piece of legislation….
“Today, wind energy is economic at about 7 cents per kilowatt
hour, and that is without factoring in production tax credits. A
few years ago, that cost was 15 to 20 cents. Compare the 7 cents
for wind energy with the 12 cents per kilowatt hour required to
build a gas-fired power plant, and you can see why there is a
veritable land rush to harness wind energy….
“The cost of (solar) has fallen over the past few decades and is
about ready for prime time. That retail electricity prices are
increasing by as much as 30 percent this year will only accelerate
the arrival of the ‘liftoff’ phase of photovoltaics. Also, retail
electricity prices in New York may soon be headed to 30 cents
per kilowatt hour. At those prices, an investment in a
photovoltaic array on the rooftop of a house will pay for itself in
fewer than 10 years, resulting in a greater than 10 percent return
on one’s capital cost. Compared to the sub-5 percent yield on
municipal bonds, this return represents an extraordinary
investment.”
But as I’ve noted, we still need the credits extended for just
another 5 to 10 years to solidify the gains already made and
really take alternative energy to the next level. [And to take my
own investments in same up three- to five-fold, darn it.]
--We still need oil and gas in the meantime, however, and a four-
year study by the U.S. Geological Survey found that the area
north of the Arctic Circle contains about 90 billion barrels of oil,
and three times the natural gas equivalent.
So you couple this finding with the fact the Arctic is increasingly
ice free in the summer and it’s no wonder there is a race between
the five circumpolar states – the U.S., Canada, Denmark,
Norway and Russia – to stake their claims, with Russia having
already planted its flag 14,000 feet under the North Pole.
[Hopefully it was devoured by a giant squid.] Separately,
Russian President Medvedev said the Kremlin will select the
companies to develop their Arctic reserves to ensure only state-
owned operators are involved. Which leads me to….
--The struggle between a giant joint energy venture, TNK-BP,
and the Kremlin is getting nastier and nastier. Vladimir Putin
and the boys want BP out and BP announced its last 60
employees in Russia will be leaving soon, with CEO Robert
Dudley leaving on Thursday three days before his visa expired.
The company initially had 150 employees there but they have
continually been harassed on the visa and work permit front.
Last March BP’s offices in Russia were raided.
So BP is fighting back in the best way it can by blocking the
payment of $1.8 billion in dividends to its partners in TNK-BP,
specifically four Russian billionaires and their cronies. A BP
spokesman said “They’re there for the cash.” Like try $18
billion in dividends paid out to this group since 2003. Two
oligarchs alone have received $4.5 billion each. Yes, with a ‘b.’
Talk about insane.
But this wasn’t the only story in the Russian markets this week.
Stocks plunged on Friday to the tune of over 5% as Vladimir
Putin severely criticized a large steel company, Mechel, which
some read to mean he is out to grab the assets, a la the seizure of
Yukos. This may not turn out to be the case, but as I’ve never
said Russia was a safe place to invest, and for long stretches I’ve
looked bad as stocks soared here as a result of rising energy
prices, one thing is for sure; Russia is a vile place with a
leadership that is looking more Stalinesque by the minute.
--Ford posted its largest loss ever, $8.7 billion in the second
quarter, most of which was a writedown of its North American
assets as well as losses on the credit co.’s lease portfolio.
Revenue fell from $44.2 billion a year ago to $38.6 billion.
But Ford also announced it will bring six European small car
models to North America by the end of 2012 in response to high
gasoline prices. All of us who have traveled over the years, to
Europe or Asia, for example, have had the same thought when
seeing small cars overseas that you know are made by Ford and
GM. ‘Why don’t they sell them here?’ Well, Detroit has finally
learned its lesson.
For its part on Friday, Chrysler announced it would no longer
offer auto leases through Chrysler Financial because it is simply
uneconomic to do them amidst plunging resale values for less
fuel-efficient vehicles such as trucks and SUVs. Coincidentally,
an article in the 8/4/08 edition of BusinessWeek addresses this
very issue with one expert labeling it a $4.7 billion industry-wide
problem.
--Meanwhile, Daimler and Renault cited deteriorating conditions
in Europe for lowering their respective forecasts. As a result
Renault is cutting 4,700 jobs in Europe.
--But Honda Motor Co. reported a record profit for its quarter,
$1.68 billion. Revenues dipped slightly due to a rising yen,
though it sold a record 962,000 vehicles worldwide. Demand is
particularly strong in Asia and Brazil, while in the U.S. for the
month of June, Honda had been the only automaker to record
better sales here than a year ago.
--Apple beat Wall Street’s earnings expectations for the quarter
as it shipped more Macs than ever before – 2.5 million, with
desktop shipments actually growing faster than laptops. Sales of
iPods rose 12 percent and the company is confident it will sell 10
million iPhones over the next 12 months.
But the shares dropped not only on lackluster guidance for the
current quarter but also growing concerns over Steve Jobs’ health
and a possible return of his pancreatic cancer. Aside from
looking much thinner at a recent appearance, he did not join this
week’s conference call with investors and CFO Peter
Oppenheimer declined to answer questions on his health, calling
it a “private matter.”
--While some try and convince you Las Vegas is immune to the
problems in the economy, yet another high-profile project, Lake
Las Vegas, a massive resort community under development, was
placed in bankruptcy amidst a lack of cash and $800 million in
debt. Only 1,600 of 9,000 planned homes have been built.
--Research into Vytorin, the cholesterol drug that is a joint
venture of Merck and Schering-Plough, found a disturbing link
to cancer; this on top of failing to prevent complications from
heart valve disease. Shares in both plummeted on the news.
Vytorin does slash cholesterol levels, 61 percent vs. those taking
the placebo, but there were basically the same number of
complications in both groups plus the elevated cancer threat.
--New York Attorney General Andrew Cuomo filed a civil
lawsuit against UBS, the Swiss banking giant, for deceptive
marketing of auction-rate securities, sold as money-market
alternatives only to see the auction market that enabled the game
dry up amidst the credit crunch. UBS executives are also under
the gun for dumping $21 million in personal holdings as the
market collapsed, even as the firm was still selling the
investments to clients. UBS “continued the fraud after they knew
the fraud was revealed for what it was,” said Cuomo. UBS
customers are holding a staggering $25 billion in the now-illiquid
paper. Other securities firms are under the microscope as well.
Big names…very big names. For its part, UBS said it did
nothing wrong. Right.
--Talk about volatility:
Washington Mutual…5/2 $13; 7/14 $3; 7/21 $6.50; 7/25 $3.80
Wachovia…5/2 $31; 7/15 $7.80; 7/23 $19.50; 7/25 $14.50
Merrill Lynch…5/2 $54; 7/15 $23.50; 7/23 $37; 7/25 $27.50
Fannie Mae…5/2 $31.50; 7/11 $6.70; 7/21 $18.50; 7/25 $11.50
--The combination of Sirius Satellite Radio and XM was first
proposed in February 2007 and finally, 18 months later, it has
received the approval of the FCC by a 3-2 vote.
--Yahoo gave up three board seats to activist investor Carl Icahn
in its ongoing attempt to stay independent and, coupled with a
poor earnings report, the shares slipped further to $21 and
change, well below Microsoft’s initial $34 bid for the company.
--The New York Times saw yet another drastic fall in advertising
revenues, down 16.4 percent in June. One sector that is killing
media, both old and new, is a plunge in real estate classified ads.
Yes, the housing sector is hurting the likes of Google too. In the
UK, for example, overall ad revenues on Google fell from $800
million in the first quarter to $780 million in the second.
[Approximate figures.] This may not seem like much but Google
is supposed to be a growth story.
--Do you want to go to the Olympics? If you can get a flight
there are ample hotel rooms with some in Beijing slashing rates
by as much as 30 percent because demand didn’t materialize.
Officials were expecting 500,000 foreign guests but many are
being scared off by high prices and difficulty in getting visas.
Some of the security measures the government is taking are also
a bit unnerving, like the stationing of a ground-to-air missile
battery just 1,000 feet from one Olympic venue.
--And if you are an investor in Macau, be aware the Chinese
government is cracking down on the number of resident visits
from neighboring Guangdong. Despite the people having a
reputation for gambling, like all Asians for that matter, the
central government is anti-gambling. Prime Minister Wen Jiabao
has warned Macao against “putting all its eggs in one basket,”
and as Fox Yi Hu of the South China Morning Post opined,
“history tells us that the central government does not tolerate
disobedience by local governments.” Some merchants and
casino operators say business is suddenly off 30 to 40 percent.
--Mark R. says he now knows why Brett Favre is so desperate to
get back into football. He’s been ‘long’ financials.
--On Thursday before the market opened, Jim Cramer said “we
hit the bottom (in the stock market) ten days ago…forever.”
Cramer deserves credit for being spot on in his coverage of the
Fed, Fannie et al, but such reckless b.s. as the preceding is what
makes him look like a clown.
--Kind of funny how I slammed CNBC’s Erin Burnett last
Saturday and then the next day the New York Times had a
glowing story on the rising star. I maintain her viewers are often
being treated like chumps.
--Finally, how unnerving was that Qantas Airways story; being
forced down from 40,000 feet due to a large hole suddenly
appearing in the fuselage? 346 passengers and a crew of 19 were
diverted to Manila after leaving Hong Kong. Aside from the 9-
foot hole next to the wing, part of the flooring and ceiling
collapsed. Passengers described hearing a large bang and felt a
rush of wind and debris through the cabin. The crew, however,
received major kudos for its professionalism.
Foreign Affairs
Iraq: President Bush and Prime Minister Maliki, in an attempt to
end-run the yearend U.N. deadline for the withdrawal of all
foreign troops, have agreed on a “general time horizon” as a way
of dragging out a formal “status of forces” agreement. But
despite Maliki’s seeming endorsement of Barack Obama’s
timetable, which he then quickly denied, Maliki’s own aides
concede they are looking for 2010 as the time when Iraq’s
military should be in a position to stand on its own. At the same
time, Iraq’s military leaders want the U.S. to stay well beyond
2010. It boils down to Iraq’s upcoming provincial and
parliamentary elections, the latter slated for next year while the
former are now a question mark for this fall. Appearing to set a
timetable, even a general time horizon, allows certain Iraqi
political factions to claim they are being tough on the United
States. At least this week Gen. David Petraeus got to put in his
own two cents during Obama’s visit to the country. [More on
The Chosen One later.]
Admiral Mike Mullen, chairman of the Joint Chiefs of Staff, on
withdrawing all combat troops from Iraq within two years.
“I think the consequences could be very dangerous. It’s hard to
say exactly what would happen. I’d worry about any kind of
rapid movement out and creating instability where we have
stability. We’re engaged very much right now with the Iraqi
people. The Iraqi leadership is starting to generate the kind of
political progress that we need to make.” [AP]
Iran: At the much anticipated meeting in Geneva with the EU-3
plus two (the five permanent members of the U.N. Security
Council plus Germany, with the U.S. sending a diplomat for the
purposes of ‘listening’), Iran was to respond to the latest
incentive package of rewards for disabling its uranium
enrichment program, but instead the Iranians countered with a
whopping two-page document that was said to be full of
misspellings. Totally bush league, pardon the pun. Needless to
say, Iran is not interested in freezing its program but now has
about another week to give a better response or it could see a
new round of sanctions (assuming Russia and China cooperate),
not that the previous three rounds have had any impact.
Editorial / Wall Street Journal
“Diplomacy has its uses, and the U.S. can do more to support the
Iranian peoples’ struggling to shake off their oppressive
theocracy….
“But diplomacy also means getting something for giving
something. That’s not how it has worked here. Mr. Bush has
conceded Iran’s supposed ‘right’ to build nuclear reactors,
despite the fact that Tehran forfeited that right when the U.N.
found it to be in material breach of the Nuclear Nonproliferation
Treaty. Mr. Bush has also offered to negotiate directly with
Tehran on the sole condition – the only ‘precondition,’ as Barack
Obama refers to it – that Iran stop enriching uranium. Yet Iran
continues to enrich.
“The Iranians understand that the fondest wish of America’s
foreign policy establishment is to strike what is often called a
‘grand bargain’ that would lead to the normalization of relations
between the two states. We would not be opposed to such a
bargain, provided it required Iran to verifiably abandon all its
nuclear programs, including the so-called civilian ones; stop
supplying arms to militias that are killing our soldiers in Iraq;
end its support for terrorist groups and hand over the suspects in
the 1996 Khobar Towers bombings, in which 19 U.S. servicemen
died.
“Instead, Iran is having it both ways, behaving like a rogue state
even as it is increasingly accorded the respect due a normal
one….
“We know from our Israeli friends, too, that they sense the
accommodationist drift of our Iran policy and are drawing
conclusions of their own. Unlike the Bush administration in its
legacy-hunting days, inconstancy is not a policy option they can
afford.”
Michael Rubin / Wall Street Journal
“Diplomacy is not wrong, but President Bush’s reversal is
diplomatic malpractice on a Carteresque level that is breathing
new life into a failing regime….
“The State Department places its about-face in the context of
multilateralism. This is nonsense. By agreeing to suspend its
demand for a cessation of uranium enrichment, Washington is
signaling to Tehran that it need not adhere to three current U.N.
Security Council resolutions. Rather than reinforce diplomacy,
the White House reveals that its red lines are illusionary.
“While European diplomats hope regime pragmatists might re-
inject responsibility into the Iranian debate, Ms. Rice’s State
Department has bolstered Ahmadinejad and his fellow travelers.
As Ahmadinejad begins his reelection campaign, he can say he
has successfully brought Washington to its knees through blunt
defiance, murder of U.S. troops in Iraq, and Holocaust denial.
Should he win reelection in 2009, he will have Mr. Bush’s
whiplash diplomacy to thank for his greatest – and, given the
state of his economy, perhaps only – victory.”
Stephen F. Hayes / The Weekly Standard
“In the weeks leading up to the State Department’s
announcement [that it was sending a diplomat for direct meetings
with Iran’s nuclear negotiators], Iran had been deliberately
provocative. At a Kuala Lumpur summit for developing nations,
Iranian president Ahmadinejad warned of George W. Bush’s
‘satanic desires.’ Iran test-fired long-range missiles, including
the Shahab-3, which is capable of striking Israel. And a few
days after that, it rejected a generous aid offer from our European
allies – backed by the State Department – that included nuclear
fuel, assistance on a nuclear reactor, and improved trade and
diplomatic relations, if the Iranian regime would simply suspend
its uranium enrichment program.
“The State Department response wasn’t to get tough. Instead,
Condoleezza Rice directed her diplomats to simply drop the one
precondition for engagement that we had insisted on for years
and in effect reward these provocations….
“[Including our action on the North Korean front it] has been a
dispiriting few weeks. Several conservative political appointees
have said that they are embarrassed to be working in the Bush
administration. One called the new policies ‘preemptive
capitulation.’ Another suggested that whatever credit the Bush
administration deserved for keeping Americans safe in the seven
years after 9/11 would be offset by the blame the administration
will have earned for emboldening America’s enemies with its
reflexive weakness. And a former adviser to Condoleezza Rice
said: ‘This is stunningly shameful.’”
But here’s a positive comment from the editorial board of
Lebanon’s Daily Star.
“(It) is now obvious that the American move [to negotiate with
Iran] has completely altered the appearance of the diplomatic
process. Readjustments in the U.S. stance have made the
Americans appear to be the more flexible party in the Iranian-
American cold war, whereas before the lack of progress could be
blamed on a duo of obstinate rivals. Even the most pro-Iranian
observer cannot deny that the Americans have now gone 180
degrees and more than 6,550 kilometers from Washington to
Geneva, while the Iranians are still talking about progressing in
millimeters.”
Israel: Amidst all that is on this country’s plate these days, an
indictment of Prime Minister Olmert on corruption charges is
said to be imminent, but at the same time the key prosecution
witness is now slated for a final round of cross-examination
around Sept. 1 and Olmert is being interviewed again next week
as this whole process drags on and on and on.
Separately, Israel took a lot of heat for once again going back on
its promises concerning settlements in the West Bank.
But of course it’s really all about Iran these days, as well as
waiting to see if an emboldened Hizbullah decides to make a
move of some kind. Departing Israeli Ambassador to the U.N.
Dan Gillerman was interviewed by a number of folks on various
issues.
Q: The Bush administration, it seems, has not done much to
advance the Mideast peace process, would you agree?
Gillerman: I think the key is in the Arab world. The
Palestinians’ real tragedy is that they have not been able to
produce a Nelson Mandela. Every single day, Muslims are killed
by Muslims. You do not see a single Muslim leader get up and
say, ‘Enough is enough.’ It’s nearly as if we live in a world
where if Christians kill Muslims, it’s a crusade. If Jews kill
Muslims, it’s a massacre. And when Muslims kill Muslims, it’s
the Weather Channel. Nobody cares.
Q: Is Israel going to do something to prevent Iran from
becoming a nuclear power?
Gillerman: I think Israel should do everything in its power,
literally everything, to prevent that mad regime in Tehran…from
achieving nuclear weapons. I believe it is Israel’s responsibility
to its people, but I believe also it is the responsibility of the
international community. Iran is a threat not just to Israel but to
world peace and security. It is up to the international community
to act rather than to expect Israel to act.
Q: Do you think that Saudi Arabia is building a nuclear program?
Gillerman: I have no doubt that if Iran is allowed to develop its
nuclear program, many other countries in the region – including
Saudi Arabia and Egypt – will follow suit. Saudi Arabia is
probably more threatened by Iran than Israel is. Iran has designs
on Saudi Arabian oil.
Q: [On Hizbullah and the failure to disarm]
Gillerman: Hizbullah is back to its prewar strength and maybe
even beyond it because it has not been made to disarm. The
situation in southern Lebanon and on our northern border is very
fragile – literally explosive.
Afghanistan: The halo over President Hamid Karzai’s head has
long since dimmed and now some former State Department
officials have come forward to say Karzai is protecting the drug
lords. Thomas Schweich told the New York Times “narco-
corruption went to the top of the Afghan government.” But it’s
also true that the U.S. and Britain see the Taliban, not poppy
suppression, as the primary goal today, as it should be, but with
90% of the world’s opium/heroin coming from here, what kind
of government are we really supporting?
India/Pakistan: The government of Indian Prime Minister Singh
narrowly survived a no-confidence vote in parliament, 275-256,
that would have forced an early election and torpedoed the U.S.-
Indian nuclear technology cooperation agreement that brought
this all on in the first place.
But Pakistan isn’t happy as it warned the U.S.-India deal will
accelerate the nuclear arms race between Delhi and Islamabad
and is attempting to block approval of the International Atomic
Energy Agency and Nuclear Suppliers’ Group nations, which is
necessary before the agreement can go into effect. [Assuming
the U.S. Congress also signs off.]
[India’s high-tech capital of Bangalore was hit by seven
simultaneous explosions on Friday, killing one, but as of this
writing authorities couldn’t identify the group responsible.]
Russia: An anonymous air force official told Russia’s state
paper, Izvestia, that Russia could deploy nuke-capable strategic
bombers in Cuba if the United States goes through with missile
defense deployment in Eastern Europe.
China: Some of us, going back years, have talked about the
coming wars over energy in Asia and so it’s important to keep an
eye on a growing dispute between China and Vietnam involving
exploration in the South China Sea off Vietnam’s south and
central coasts. China is protesting a proposed Vietnamese
venture involving ExxonMobil and Exxon has to be careful
because it doesn’t want to be shut out of future projects in China.
But the reason why I placed this item here rather than in the
discussion of energy in Street Bytes is because I didn’t realize a
number of months ago that in a diplomatic communiqué between
the U.S. and Vietnam, Washington said it would support Hanoi’s
“national sovereignty.” The item was purposefully buried.
Of course the United States has also vowed in the past to protect
Taiwan, the sincerity of which I have often questioned. Last
review I wrote of how the Bush administration has decided to
hold off on an earlier agreed upon arms shipment to Taiwan and
this week Dan Blumenthal, Aaron Friedberg, Randall Schriver
and Ashley J. Tellis commented in an op-ed in the Wall Street
Journal.
“While defense experts in Taipei and Washington debated the
utility of some of these systems for Taiwan’s defense, as a
package they constituted a powerful signal of America’s long-
standing commitment to Taiwan’s defense and contained
important elements of a stronger Taiwanese deterrent against
potential Chinese aggression. The offer made good on Mr.
Bush’s promise that the U.S. would ‘do whatever it takes’ to
defend Taiwan….
“The Bush administration now appears unwilling to follow
through on its side of the bargain. [Ed. note: Remember, the
White House didn’t notify Taipei first; Taiwanese President Ma
had to learn of our reneging on the arms deal in the press.]
“Why the volte-face? Following its initial offer of assistance, the
Bush administration came to regard former Taiwanese President
Chen Shui-bian as a reckless provocateur….Fearful that selling
Mr. Chen arms would only embolden him, some administration
officials were quietly thankful for the continuing turmoil and
indecision in Taipei.
“Whatever the validity of these concerns, they no longer apply.
In May 2008, the Taiwanese people elected opposition leader Ma
Ying-jeou to the presidency. Mr. Ma is dedicated to improving
cross-straits ties and eschews Mr. Chen’s inflammatory rhetoric.
But, like his predecessor, he is committed to strengthening
Taiwan’s self-defense capabilities.
“Since Sept. 11, 2001, the Bush administration has been anxious
to avoid antagonizing Beijing and eager to win its support on a
variety of issues, especially its continuing efforts to denuclearize
North Korea. Though the extent to which China has actually
been helpful is debatable, the administration has increasingly
subordinated many aspects of its Asia policy to the overarching
aim of not offending Beijing.
“The policy of not offending China, no matter what the costs,
does not serve U.S. interests in the Taiwan Straits. First, it
undermines Mr. Ma’s ability to deal with Beijing from a position
of strength, and to that extent it undermines the common
objective of peaceful reunification, should the Taiwanese desire
it….
“At stake is not only the defense of a democratic friend, but the
credibility of the Ma government. Also at stake are America’s
commitment to protect its long-term interests throughout the
Asia-Pacific, and Mr. Bush’s determination to defend freedom.
Failure to act would also set a dangerous precedent. For the first
time since its opening to China, the U.S. government would have
sidestepped its obligation to assist Taiwan in hopes of appeasing
Beijing. Now is the time to change policy and move forward:
both principle and pragmatism demand it.”
Serbia: Bosnian Serb war criminal Radovan Karadzic, living in
Belgrade for years under disguise as an alternative medicine
expert, was finally picked up by the West-leaning government.
Twice Karadzic has been indicted by the U.N. war crimes
tribunal and eventually he will stand trial in The Hague like his
buddy, the late Slobodan Milosevic. Karadzic was responsible,
along with fellow fugitive General Mladic (still at large) for the
1995 massacre of 7,500 Bosnian Muslims at Srebrenica as well
as the tragic shelling of Sarajevo.
But the clips of the man on the street in Belgrade are more than a
bit disturbing as Karadzic still has a ton of support.
Zimbabwe: Robert Mugabe and opposition leader Morgan
Tsvangirai met face to face for the first time in 10 years in an
initial attempt to forge talks aimed at some sort of power-sharing
arrangement. South African President Thabo Mbeki mediated
the deal. To say the least, I’m underwhelmed.
Thailand/Cambodia: A border dispute out of nowhere between
these two has become a mini-hot spot that is about to go before
the U.N. Security Council. The ancient temple of Preah Vihear
has long been claimed by both, even after being awarded to
Cambodia in 1962 by the U.N. But what has everyone on the
Thai side all riled up now is that Preah Vihear has been listed
as a U.N. World Heritage Site, in Cambodia. [Interesting list,
by the way. Look it up.]
Egypt: I was just skimming over some papers from the region
and an article caught my eye. Egypt and Iran haven’t had full
diplomatic relations since 1979 when Sadat hosted the deposed
shah as Ayatollah Khomeini took power, but just when things
were looking up between the two, today a movie out of Iran
praising the assassins of Sadat has many in Egypt’s government
(but not necessarily the man on the street) in an uproar.
Understand that the reason why Iranians would glorify Sadat’s
killers is because he was responsible for the peace deal with
Israel. [More so than a Sunni/Shia dynamic.] Said one Egyptian
editor, “This simply gives Egyptians another reason to hate
Iranians.”
Britain: One of Prime Minister Gordon Brown’s senior advisers
was the victim of a “honeytrap” operation by Chinese
intelligence agents. The poor sap’s BlackBerry was stolen after
he was picked up by a Chinese woman who approached him in a
hotel disco and the two went off to his room and…you know….
the BlackBerry was missing the next day. Huh.
Venezuela: President Hugo Chavez was in Moscow to pick up a
reported $2 billion in arms. He also asked for Russia’s
protection from the United States.
Mexico: The navy seized six tons of cocaine found inside a 31-
foot makeshift sub in the Pacific Ocean. U.S. intelligence helped
in the operation. Four Colombian crew members were taken into
custody. This is the first intercept of such a craft, though U.S.
and Mexican officials have known they are out there.
Random Musings
--While Barack Obama is flitting around overseas, the latest
polling data continues to show the race between himself and
John McCain tightening. The NBC/Wall Street Journal poll
confirmed earlier mainstream data in showing just a six-point
lead for Obama, while, importantly, the same survey revealed
that 55 percent of those polled see Obama as the riskier choice
vs. only 35 percent who view McCain that way. I’m among
those who is surprised at McCain’s strength, as reflected further
in battleground states such as Michigan, Minnesota and Colorado
where Obama has seen strong leads virtually evaporate.
That said, I watched Obama's speech in Berlin and there is nothing
wrong with attracting a massive crowd that walks away with a
better feeling of America. On this though, I have to correct some
of the commentary that hit afterwards. As in I heard Chris
Matthews on his “Hardball” program say he was surprised how
many Germans seemed to understand what Obama was saying.
How many times have I told you in this space that the best
people to meet in my travels are Germans because they all speak
English, and most better than we do?!
But I’ve also noted that Europeans don’t hate America. They
just hate President Bush. I know I’ve never had a bad experience
in Europe because I was American. I’ve been treated great.
[Only in Slovenia did I feel the least bit uncomfortable, but that’s
a Balkan thing. See reaction to Karadzic’s arrest above.]
So then what to make of the polls? We all agreed this was going
to be a fascinating race, but I for one didn’t think it would be
close and with everything in Obama’s favor, especially a sick
economy, I really expected a 55-45 rout. Maybe that will still be
the case, especially if blacks and young people hit the voting
booths in numbers far greater than past experience indicates, but
I’m as befuddled as the next guy. It’s not as if John McCain has
run a great campaign. It’s been truly pitiful thus far, actually.
But for now it’s The Chosen One who has struck a nerve on a
number of levels, be it race or perceived arrogance.
David Brooks / New York Times…on Obama’s Berlin moment.
“Obama’s tone (Thursday) was serious. But he pulled out his
‘this is our moment’ rhetoric and offered visions of a world
transformed. Obama speeches almost always have the same
narrative arc. Some problem threatens. The odds are against the
forces of righteousness. But then people of good faith unite and
walls come tumbling down. Obama used the word ‘walls’ 16
times in the Berlin speech, and in 11 of those cases, he was
talking about walls coming down.
“The Berlin blockade was thwarted because people came
together. Apartheid ended because people came together and
walls tumbled. Winning the cold war was the same…. ‘there is
no challenge too great for a world that stands as one.’
“When I first heard this sort of radically optimistic speech in
Iowa, I have to confess my American soul was stirred. It seemed
like the overture for a new yet quintessentially American
campaign.
“But now it is more than half a year on, and the post-partisanship
of Iowa has given way to the post-nationalism of Berlin, and it
turns out that the vague overture is the entire symphony. The
golden rhetoric impresses less, the evasion of hard choices
strikes one more.
“When John F. Kennedy and Ronald Reagan went to Berlin,
their rhetoric soared, but their optimism was grounded in the
reality of politics, conflict and hard choices. Kennedy didn’t
dream of the universal brotherhood of man. He drew lines that
reflected hard realities: ‘There are some who say, in Europe and
elsewhere, we can work with the Communists. Let them come to
Berlin.’ Reagan didn’t call for a kumbaya moment. He cited
tough policies that sparked harsh political disagreements – the
deployment of U.S. missiles in response to the Soviet SS-20s –
but still worked….
“Much of (Obama’s speech) fed the illusion that we could solve
our problems if only people mystically come together….
“The great illusion of the 1990s was that we were entering an era
of global convergence in which politics and power didn’t matter.
What Obama offered in Berlin flowed right out of this mind-set.
This was the end of history on acid.
“Since then, autocracies have arisen, the competition for
resources has grown fiercer, Russia has clamped down, Iran is on
the march. It will take politics and power to address these
challenges, the two factors that dare not speak their name in
Obama’s lofty peroration….
“Obama has benefited from a week of good images. But
substantively, optimism without reality isn’t eloquence. It’s just
Disney.”
On the segment of Obama’s trip dealing with Afghanistan and
Iraq……Editorial / Washington Post
“(Mr.) Obama’s account of his strategic vision remains eccentric.
He insists that Afghanistan is ‘the central front’ for the United
States, along with the border areas of Pakistan. But there are no
known al-Qaeda bases in Afghanistan, and any additional U.S.
forces sent there would not be able to operate in the Pakistani
territories where Osama bin Laden is headquartered. While the
United States has an interest in preventing the resurgence of the
Afghan Taliban, the country’s strategic importance pales beside
that of Iraq, which lies at the geopolitical center of the Middle
East and contains some of the world’s largest oil reserves. If Mr.
Obama’s antiwar stance has blinded him to those realities, that
could prove far more debilitating to him as president than any
particular timetable.”
--A German opinion poll gave Obama 76 percent and McCain
just 10.
--Last week I wrote that McCain needed to swing for the fences
and select 37-year-old Louisiana Gov. Bobby Jindal as his
running mate. The latest polls say differently.
--Barack Obama wants to tax the rich, and regardless of who is in
office I believe some taxes are going up. But the Journal looked
at the latest data from the IRS for 2006 and it is kind of startling
that while the top 1% earned 22% of all reported income, they
paid 40% of all income taxes. As the Journal editorializes:
“Barack Obama says he’s going to cut taxes for those at the
bottom, but that’s also going to be a challenge because
Americans with an income below the median paid a record low
2.9% of all income taxes, while the top 50% paid 97.1%.
Perhaps he thinks half the country should pay all the taxes to
support the other half.”
--Sign of the Apocalypse: A survey by the New Jersey Division
of Highway Traffic Safety revealed that 51% of those in my state
between the ages of 17 and 29 have sent text messages while
driving.
--Bill Gates and New York Mayor Michael Bloomberg have
launched a $375 million global effort to fight smoking.
Bloomberg’s $250 million and Gates’ $125 million will support
projects that raise tobacco taxes, help smokers quit, ban tobacco
advertising and protect nonsmokers from exposure to smoke.
--The Rev. Al Sharpton has settled with the feds on his tax issue
and he’ll be responsible for somewhere between $2 million and
$9 million in back taxes, with Sharpton already ponying up $1
million of his own money. “I make money, so I can pay,” said
the Rev.
--Following is one topic I cannot bite my tongue on and just a
warning, it’s not for the squeamish.
From Jon Swain of the London Times:
“The game scouts looking for a black rhinoceros wounded by
poachers in Zimbabwe’s Save Valley Conservancy could hear
her snoring but could not see her through the long grass.
“Eventually, by making a lot of noise, they forced the rhino to
stand up and were greeted by a sight so appalling that it took
them a few moments to realize what they were looking at.
“The whole face of the 16-month-old calf had been removed,
including her eyes, in an attempt by the poachers to take off her
small horns.
“The ‘snoring’ was coming through a hole in the nasal bone. She
was very weak and lay down again. One of the scouts crept
forward and darted her with M99 tranquillizing agent, but the
dart bounced off her hide and she did not get a full dose.”
[She was given another and died.]
“The nature of the wounds to her face suggested that the
poachers had thought the young rhino was dead and proceeded to
remove the horns when she suddenly revived….In any case,
another of Zimbabwe’s black rhinos had fallen victim to
poaching.
“At independence in 1980 Zimbabwe had 2,000 rhinos, one of
the largest groups in Africa. But a wave of poaching driven by
demand for their horns in the Far East and the Arab world has
drastically reduced the population to about 500. In the Far East
the horns are desired as a traditional Chinese medicine for fevers
and as a sexual stimulant….”
Well, you know the rest. In Yemen the horns are used for
ornamental daggers. But in the case of the Chinese, if they would
freakin’ keep their water and air cleaner, maybe they wouldn’t
get so many fevers. I just see this as yet another example of my
theory that half the world is bad and in the case of Zimbabwe, on
top of all their other problems, poaching in the game parks has
been rampant since Robert Mugabe’s policy of invading white-
owned farms eight years ago and the so-called war veterans,
nothing more than a bunch of Crips or Bloods, now poach with
abandon.
In one of the game reserves set aside for the rhino, three were
recently shot dead by members of the “army,” armed with
AK47s. Each rhino had a guard with it but they were beaten and
tied up, and the killings were senseless because the rhino had
been dehorned so they wouldn’t have any value to poachers in
the first place.
But this barbarism goes on because bastards in the Middle East
and China will pay as much as $120,000 for one rhino horn!
--Edward J. Weiler, one of the founders of NASA’s astrobiology
program and now chief of the agency’s science division, on the
search for life beyond Earth.
“We now know the number of stars in the universe is something
like 1 followed by 23 zeroes. Given that number, how arrogant
to think ours is the only sun with a planet that supports life, and
that it’s in the only solar system with intelligent life.”
I just hope we find it in my lifetime.
---
Pray for the men and women of our armed forces.
God bless America.
---
Gold closed at $926
Oil, $123.42…lowest weekly close since 5/2/08
Returns for the week 7/21-7/25
Dow Jones -1.1% [11370]
S&P 500 -0.2% [1257]
S&P MidCap -0.6%
Russell 2000 +2.5%
Nasdaq +1.2% [2310]
Returns for the period 1/1/08-7/25/08
Dow Jones -14.3%
S&P 500 -14.3%
S&P MidCap -7.3%
Russell 2000 -7.3%
Nasdaq -12.9%
Bulls 29.2
Bears 49.4 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Happy 65th birthday to Mick Jagger. Goodness gracious.
Note: Next time you’ll notice a few changes. But don’t worry,
unlike the Wall Street Journal and the New York Times, we
aren’t raising our price.
Brian Trumbore
|
|
|
