Week in Review

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Week in Review

04/30/2011

For the week 4/25-4/29

Wall Street, Washington and the World

I’m writing this Friday afternoon from my hotel room across the street from the beautiful Tuilleries (next to the Louvre). It’s day three of six here and the city is packed with tourists because of the May Day holiday. But first off, my thoughts and prayers go out to the victims of the latest catastrophic tornado outbreak in the Southeast. Let us hope May is far tamer, and succeeding years, or we have something far more serious on our plates. The severe record weather around the globe the past 15-18 months is getting a little unnerving, let alone the earthquake and volcano activity. 

On a separate topic, being in Paris I said I would cover the immigration issue and I will do so next time after I’ve been here another three days. I did have a taxi driver yesterday take me to some neighborhoods where as he put it “the homeless exiles” hang out and while he said I wouldn’t have any problems, let’s just say I won’t be going there at night for my Carlsberg.

I also watched the Royal Wedding while writing some of the below. I am an unabashed fan of the British monarchy, especially now that William and Harry are such cool representatives of it. And how can you not help but like Kate. By the way, the few Parisians I talked to Wednesday and Thursday about the wedding were all excited by it and a number of the French stations were carrying it so I flipped back and forth between their coverage and CNN.

My view about the Brits…and the French…has never changed. They’ve been our friends and generally great allies. Oh, sure, the French in particular have been prickly from time to time, but more often than not we can count on them; and in hindsight, some of the times we couldn’t we also proved to be wrong ourselves in the end.

This is also at least my sixth trip to Paris and I’m on record as saying I have never been treated poorly. When I’ve asked for help, the natives have done their best to grant it. I walked into a little restaurant Wednesday night, thought the waiter said he couldn’t take me for an hour, I started to walk out and he practically dragged me back and gave me a table. [I had totally misunderstood him.] He then proceeded to treat me like a king and I remembered one way to get them (any restaurant staff) on your side when dining at a new place is say, “Surprise me.” In this case with the appetizer.

Boy, you want to see someone take care of you. The waiter sat down next to me, asked me if I have food allergies, if I like spices, you can see his brain churning and a few minutes later the chef personally delivers a delicious dish. It’s little moments like this that make travel fun…and it’s why I’m going back to the same place for dinner Friday night.

But changing subjects, when I checked in Wednesday I flipped on the television and saw that President Obama was going to comment on the birth certificate issue so I listened to his statement.

I’ve previously stated my piece on this topic and not going to repeat it now.

But at the same time I couldn’t disagree more with Friday’s (at least the European edition) Wall Street Journal editorial that Obama deserved credit for releasing the document now, rather than wait for “a moment of maximum political convenience to his reelection campaign.”

He should have released this in 2009 when the issue began to bubble in earnest.

And don’t get me started on his incredibly arrogant statement that “I’ve got better stuff to do. We’ve got big problems to solve.”

Arrogant because I can think of two big topics, the Middle East/North Africa and our humongous deficits where he has done nothing. And it’s not because the other party has stood in the way. This guy hasn’t led! Iran, Syria, the Libya fiasco…or in terms of his wanting an “adult conversation” on the deficits, his utter failure to come up with a detailed plan of his own, a la Republican Paul Ryan’s. It’s pathetic. It’s also why our system of government is so hopelessly corrupt.

Maybe it’s why I have always had such a soft spot for the British, and even the French; far more than most of my American brethren. 

Take Winston Churchill and Charles de Gaulle. Both were deeply flawed, Churchill was hardly an early success, but dammit they led. The U.S. didn’t always like what they said, particularly in the case of the latter, but they led their people and obviously when it came to Churchill, he saved the world by leading the charge in the Battle of Britain.

So now I’m hopelessly off track and I’ve probably just ticked everyone off, especially in defending De Gaulle but he was a leader in the purest sense as well.

But let’s see if I can win some of you back…like the rock and rollers out there.

Guess whose grave I saw on Thursday? Jim Morrison’s, dudes. [Jim Morrison of The Doors for you older Lawrence Welk folk…not that there was anything wrong with the Champagne Music King, having grown up on the man myself…but I digress.] That is if Morrison’s really dead. I also got very lost in this massive place, Pere Lachaise cemetery, and almost didn’t find Morrison. I never did find Chopin’s resting place there, which bummed me out, but maybe I’ll go back another day. I just thought for contrast you couldn’t beat seeing Chopin’s and Morrison’s burial sites within minutes of each other. [I’d also venture to say that within about the last six weeks I’m the only person in the world who has been to the graves of Richard Nixon, Ronald Reagan and Morrison.]

The Wall Street Journal interviewed one of the great men of our time, 87-year-old Lee Kuan Yew, the former Singapore prime minister and founder of the modern state. Any time you see him grant a rare sit down it’s worth reading.

“Mr. Lee was clearly concerned about the prospect of a diminished U.S. global role, politically and financially, arguing that its international influence had been a cornerstone of Asia’s rapid economic rise….

“ ‘The world has developed because of the stability America established,’ he said. ‘If that stability is rocked, we are going to have a different situation.”

And we’re on the verge of the stability being rocked, if not now then 2012.

First off, the Federal Reserve at its latest Open Market Committee opted to hold the line on interest rates yet again as in the accompanying statement the Fed offered that the recovery is “moderate” and that higher commodity prices are “transitory.”

But at the same time the Fed raised its estimate for consumer prices from a previous 1.0% to 1.3% for the year to 1.3% to 1.6%.

The Fed also lowered the growth forecast for 2011 from 3.4% to 3.9%...to 3.1% to 3.3%, a rather significant downward revision.

Of course a day later the official GDP data for the first quarter (the first estimate, which is followed by two revisions) came in at a paltry 1.8% when just about two months ago most economists were forecasting 3.0% to 3.5%. Ergo, a sizable miss for these generally overpaid sorts. 

Fed Chairman Ben Bernanke then followed with his “historic” news conference that yours truly watched after his great dinner Wednesday night and talk about a yawner. What really cracked me up was how the financial press types in the days leading up to this first-ever event acted like they were the Chosen Ones, truly special people who would ask the chairman the hard-hitting questions that Congress doesn’t, and yet the questions weren’t anything you or I couldn’t think of.

That’s partly because Bernanke wasn’t about to show his full hand with QE2 (quantitative easing) ending in June, though he admitted the Fed’s purchases of bonds would end on schedule and not before. It’s what comes after that is still up in the air and obviously there is a lot more data to digest, especially when the Fed is such a poor forecaster itself…in fact the very worst, see subprime disaster.

Bernanke did say that regarding items such as the above mentioned “transitory” commodity prices, as well as still high unemployment, they lead the Fed to believe no change in interest rates is warranted, which in turn led PIMCO’s Bill Gross to say that there will be no hike in rates until Jan. 2012 at the very earliest. So savers will continue to take it up the (Nile) in receiving zero recompense for doing the right thing. Why Americans aren’t marching on Washington over this issue is beyond me. The financial crisis is over! Normalize rates and allow the elderly to earn at least $1,500 or $2,000 on their $100,000 in savings for crying out loud. That can buy a lot of food, even with “transitory” hikes in commodity prices, Mr. Chairman. The economy won’t collapse because short-term rates are above zero. It can collapse for other reasons, however.

A few weeks back, economist Stephen Roach (who is not overpaid), said of Q1 GDP that “after a crisis a weak, anemic recovery is vulnerable to relapses,” and now with the 1.8% print on GDP his theory holds more water. Roach, in an appearance for CNBC I kept notes on but held off including in this space for various reasons, said the Fed, like the European Central Bank is in the process of doing, must normalize policy. Roach added that the Fed is also still in denial that it was at fault for the housing bubble in keeping rates so low, so long, and once again we have a Fed that is determined to drive up asset prices (see gold and silver, as well as equities), so what happens with the next bubble?

But the academic from Princeton, Bernanke, would have none of this argument. He’ll just point to the booming stock market since the lows of March 2009 and add that lower interest rates are helping corporations, but aside from the fact a key segment of the population is being screwed (savers), unemployment is still high (despite corporations raking it in), and housing, which was supposed to be the prime original beneficiary of Fed policy, remains dead in the water.

Then you have the plight of the dollar. Bernanke issued this highly predictable statement when queried on same.

“A strong and stable dollar is both in America’s interests and in the interest of the global economy.”

Bernanke then goes on to say the same thing he always has. If the economy continues to grow, that will eventually be good for the greenback. Certainly it’s good for U.S. multi-nationals who profit through higher exports, our goods being cheaper overseas, but it’s also fueling the asset bubble in commodities, which in turn threatens the developing world that spends a huge relative percentage of its income on food, which in turn threatens to take away some of our best markets.

And if we don’t get our fiscal house in order, soon (and on this the chairman understands the risks fully of course), the dollar will collapse a lot more than it already has.

[By the way, you shouldn’t be surprised I’m in a lousy mood when it comes to the dollar. I’m being slaughtered with the exchange rate and I’m also kicking myself for not loading up on euro at Newark Airport because of the four money booths I’ve been to, including Newark, they had the best exchange rate. The exchange desk at Charles de Gaulle Airport was a rip-off, one money exchange near my hotel was an even greater one with like three layers of commissions, but I finally found another where the kid cut me a break because I was laughing about our piece of crap currency and wasn’t being hostile. “Here, I gave you a better rate,” he said with a smile.]

Well, I’m rambling but back to inflation, we’ll see soon enough how the horrible U.S. weather impacts the planting of the harvest with the historic levels of rain in some parts. I was looking for a bumper crop of all kinds this year in the U.S. and elsewhere and it’s too soon to know exactly how everything is going to pan out, globally, in 2011 vs. 2010’s catastrophic conditions in the likes of Australia, Russia and Pakistan. 

As for Lee Kuan Yew’s comment that America’s stability risks being rocked, there are a few serious people in Washington who get it, like the Senate’s Gang of Six who are proposing a sweeping long-term deficit reduction plan (and tax reform) that has $3 in spending cuts for every $1 in increased revenues, the latter by scrapping tax breaks and limiting others such as the mortgage deduction and charitable giving.

One member of the gang, North Dakota Democrat Kent Conrad said the U.S. is “headed for a fiscal cliff” if it doesn’t address the deficit and that he wouldn’t support raising the government’s $14.3 trillion debt limit for more than a year “without a plan or a proposal or process in place to deal with the debt.” Conrad would vote for a short-term extension only. [The Treasury Dept. is still saying the cap on the debt is hit May 16, but that it could use emergency measures to avoid default until about July 8.]

Fellow Gang of Six member Tom Coburn, Republican from Oklahoma, said Medicare and Medicaid must be part of the solution if you are to have serious debt reduction.

But how the heck can our divided Congress, concerned with nothing more than getting reelected, save for a handful of dedicated public servants, come to agreement?

Republicans, for example, who have returned to their districts since voting to overhaul Medicare through the Ryan plan, have had trouble defending their move. 2/3s of Americans, as noted in a recent Washington Post/ABC News poll, want Medicare to remain as is. As one Republican official told the Washington Post the other day, “Republicans don’t want to be talking about Medicare every day for the next year and a half.”

So it seems the die is already cast. Don’t look for President Obama to provide leadership and a detailed plan, while Republicans like Paul Ryan who do come up with something (it’s flawed but better than nothing) are now looking like they have to back off for fear of getting voted off the District. We truly can be a nation of wimps sometimes.

Lastly, economist Robert Samuelson, from his perch at the Washington Post.

“(President Obama’s) recent budget speech at George Washington University was a telling model of evasion, contradiction and deception. He warned that by 2025 present tax levels would suffice only to pay for ‘Medicare and Medicaid, Social Security and the interest we owe on our debt…Every other national priority – education, transportation, even our national security – will have to be paid for with borrowed money.’ He noted that businesses may not invest in a country that seems ‘unable to balance its books.’

“Fine. But Obama has no plan to balance the budget – ever. He asserted ‘every kind of spending [is] on the table.’ But every kind of spending is not on the table. He virtually ruled out cutting Social Security, the government’s biggest program (2011 spending: $727 billion). For example, Social Security is excluded from a proposed ‘trigger’ that would automatically reduce spending and raise taxes if certain deficit targets weren’t met. He also put Medicare (2011 spending: $572 billion) largely off-limits.

“The president keeps promoting an ‘adult conversation’ about the budget, but that can’t happen if the First Adult doesn’t play his part. Obama is eager to be all things to all people. He’s against the debt and its adverse consequences, but he’s for preserving Social Security and Medicare without major changes. He’s for ‘tough cuts,’ but he’s against saying what they are and defending them. He pronounces ambitious goals without saying how they’d be reached. Mainly, he’s for scoring political points against Republicans….

“Given better health, longer life expectancy and wealthier elderly, why shouldn’t Social Security and Medicare eligibility ages be raised and means-testing broadened? The president doesn’t broach this debate. Farmers receive about $15 billion a year in crop subsidies to help offset the insecurities of weather and fluctuating prices. Considering that volatile markets impose similar insecurities on many Americans, why do farmers deserve special protection? The president doesn’t engage that debate. Might not a higher gasoline tax reduce budget deficits and oil imports? Obama is silent there, too.

“All this may be politically shrewd. Voters disdain hard choices. Liberal pundits loved Obama’s speech. But another audience is less impressed – global money managers. The Financial Times’ respected columnist Gillian Tett recently asked whether the administration’s ‘reassuring patter on debt’ could be believed. Not entirely, she concluded. Shortly thereafter, Standard & Poor’s warned that it might downgrade U.S. government debt. Obama is flirting with trouble, even if he doesn’t realize it.”

Europe: There is no starker example of the issues facing the euro-17 then a look at the unemployment rates of Germany, 7.1%, and Spain, 21.3%. The haves and the have nots. Germany continues to boom as a result of soaring exports, at the expense of the others. In a nutshell, it’s also rather clear that contagion risks remain when looking at someone like Spain, which along with the pitiful employment data released on Friday reported that retail sales in March were down a humongous 8.6% vs. year ago levels.

This week we also learned that Greece’s budget deficit for 2010 was 10.5% when 9.6% was expected, so how’s that austerity program workin’ out for you my Greek friends? The government’s heart is finally in the right place, but it comes down to tax collections and the Greeks still don’t like to pay them, it seems, so projected revenues continue to fall short.

Then you have these pesky True Finns, the party that received 19% of the vote in the recent parliamentary elections, good for third place and a place at the table in a new coalition government.   But, as I noted the other week, the True Finns don’t want to go along with any further bailout of Europe’s losers, including Portugal whose requested bailout still needs to be worked out on all sides. If the Finns refuse to compromise on their stance and Finland votes no, there is no bailout for the likes of Portugal and possibly Spain down the road. There would also be a crisis in the euro union on existing bailout terms for Greece and Ireland.

Meanwhile, outside the euro-17, Britain reported first quarter GDP came in at up 0.5%, which negates the 0.5% decline from the fourth quarter. So Britain has stagnated the last six months just as austerity is really beginning to bite. If nothing else the Royal Wedding hopefully provided a needed boost in confidence. At least the pubs and flag makers will have done well.

Japan: The news from here was dismal this week, not that readers of this space didn’t know such data was coming. The government announced that industrial production in March fell an incredible 15.3% in March over February, the biggest decline since records started being kept in 1953. The triple disaster hit March 11 but the impact was greater than the experts thought it would be. Toyota’s production in March was down 63% over a year ago. Household spending was down a whopping 8.5% for the month. The economy minister called the figures “stunning.” The supply chain issue, he said, was a matter of “life and death” and that companies were working “day and night” to recover.

As a result of such a stark reality check, the Bank of Japan lowered the GDP forecast for the nation to just 0.6% for all of 2011 vs. an earlier estimate of 1.6%, though the BoJ is now saying 2012 growth will rise to 2.9% as recovery kicks in. We’ll see. It should be no mystery that S&P downgraded its outlook on Japan from “stable” to “negative” owing to massive reconstruction costs that will now be heaped onto already ginormous piles of debt.

Street Bytes

--April was a cruel one for many Americans and their storm-ravaged communities, but life goes on and for U.S. financial markets it was a good month with the Dow Jones finishing up 4%, 2.4% for the week, to close at 12810, or less than 10% from its all-time high. Pretty remarkable. 

This week’s rally, which included 2% gains for the S&P and Nasdaq, was fueled by strong corporate earnings from the likes of Ford, 3M, Caterpillar and UPS. Exxon Mobil also reported it made a cool $10.65 billion for the quarter, the most since the third quarter of 2008 when oil was hitting $147 a barrel.

Bonds rallied anew, Treasury yields plunged, on the lousy GDP number and the Fed saying it was going to keep interest rates low until it forces the appearance of the Antichrist.

--The IMF is projecting that China will become the world’s largest economy by 2016 with GDP of $19 trillion. Back in 1980, China accounted for just 2.2% of global output and today it is 14%, heading to 18% by 2016, with the U.S. then down to 17.7%. Many, however, dispute the IMF’s call.

[Separately, China told its five biggest banks to increase lending reserve requirements even further in the government’s ongoing effort to slow the economy.]

--European regulators launched two investigations into some of the world’s largest banks, including JPMorgan Chase and Goldman Sachs, and their roles in the derivatives market; particularly as their actions pertain to monopolizing the pricing and rating of these securities and the roles played in the financial crisis.

Said the EU’s competition commissioner, “Lack of transparency in markets can lead to abusive behavior and facilitate violations of competition rules.”

--A Pew Center on the States study finds that as of the end of fiscal 2009, the states had a cumulative shortfall for pension and health-care benefits to retired teachers, and millions of other public workers of some $1.26 trillion. No doubt the big rally in the financial markets in 2010 and thus far in 2011 has helped reduce the gap, but the shortfall is still massive, driven largely by inadequate state contributions.

[I just realized I have overused “massive” and “humongous” in the column, but we have massive and humongous problems, kids!]

--Microsoft’s earnings were disappointing as PC shipments unexpectedly fell 3.2% in the quarter, affecting Windows revenues. Microsoft is late to the game (again) when coming up with an operating system to compete with Apple and Google on tablet computers.

--The board of Berkshire Hathaway issued a scathing rebuke of former Warren Buffett heir David Sokol in saying Sokol deceived Buffett when pitching Lubrizol. Buffett will have a lot to say himself, it is hoped, at his Omaha confab this weekend.

--McDonald’s ended up hiring 62,000 on its April 19 hiring day, not the anticipated 50,000 as the chain looks to expand to 24-hours in most locations. It’s not known how many are full- vs. part-time. There were some one million applications for the positions. At yearend 2010, McDonald’s had 400,000 employees worldwide.

--Evidence shows the job market improving greatly for 2011 graduates vs. the 2008-09 period. Citigroup, for one, is looking to hire 500 bankers and traders.

--But the above grads probably won’t be applying for jobs at Panasonic as the company looks to cut 17,000 positions, 35,000 over three years, in reducing the total workforce for the electronics giant to 350,000 by March 2013.

--And Nokia is eliminating 7,000 jobs, more than expected and 12% of the total work force, with 4,000 of the cuts coming in Britain, Denmark and Finland. Another 3,000 are being transferred to Accenture, the global technology consultant to businesses, who for all I know may have the Nokia people picking up trash and such.

--Google’s Android operating system powers half of all smartphones purchased in the U.S. the past six months. This is double Apple’s 25% share. Research in Motion’s BlackBerry had 15%, and then on Thursday, RIM lowered its earnings forecast and the stock got clobbered as investors are fuming at RIM management’s lack of credibility.

But back to Android, the number of phone makers selecting it is fragmenting the operating system, making it harder to develop apps for it, say vs. Apple.

--A hacker broke into the Sony PlayStation Network and potentially scooped up credit-card numbers. Sony was forced to shut down its Internet gaming service as a result. Yours truly still hasn’t played a classic video game in his life (a modern game that is). This is one thing I will not regret as I lie on my death bed. [Hopefully not for another 25 years, you understand. I got things to do…people to see…my Mets in a pennant race in 15 years…]

--Here’s some good news. For the week ending last Sunday, Broadway’s box office totaled $28.9 million in sales vs. $23.8 million the week before, and this was without Spidey, which is going through a revamp. But I saw the original version that really sucked, so there.

--Amazon shares rallied big after an initial drop on its earnings news. Revenues beat but earnings fell short. At the end of the week, though, the stock still trades at an outlandish 84 multiple and essentially at its all-time high.

--Ford reported a profit of $2.55 billion, far ahead of expectations for the quarter. It was the automaker’s most profitable first quarter since 1998. And Chrysler Group announced it is getting ready to repay $7.5 billion in loans it received from the U.S. and Canadian governments, while deepening its alliance with Fiat which will acquire an additional stake, bringing it to 46% of the company. Some don’t want to admit the government’s auto bailout was the right thing to do, but it’s worked. [My own attitude back in the day was we had to do something because of the 100s of thousands of jobs at stake.]

Meanwhile, Ford CEO Allan Mulally was one of those execs given large stock option grants at the height of the financial crisis in lieu of sizable cash compensation, and with the recovery in Ford’s share price, what was once a $16 million initial option award is now valued at $202 million or thereabouts. Good for him, though hopefully he uses most of it to make a difference in some lives.

“As the gold price moved past $1,500 per troy ounce last week, the impoverished villagers of Shizi in China’s Hunan province could bear it no more.

“For years there were rumors that the mountains were full of gold-bearing ore – a source of resentment as the communist authorities never exploited this or allowed the villagers to mine it.

“With gold fever burning more fiercely than ever, three men and a woman crept into the mountains to find the village its rightful fortune. All four were found dead hours later, overwhelmed by the fumes of toxic chemicals that they took to liquefy the ore.”

Which is why, sports fans, at StocksandNews we recommend you leave it to professionals to do the actual mining and just buy the gold through a reputable channel.

--900,000 Irish workers, mainly in the private sector, have no pension, which is why so many are furious that some former bank executives who helped cause Ireland’s collapse, are receiving annual pensions of $165,000 to $900,000; on top of huge termination payments and tax-free golden handshakes. It is estimated that the top ten will cost the government some $80 million over the course of their retirement. This is insane.

--The tsunami in Japan has hastened the decline of the fishing industry as a look at those first photos made rather clear. It’s going to take years to repair the ports, let alone replace the boats, and that’s assuming the various villages and towns involved even maintain a presence in the sector. In one town, Kesennuma, with a population of 73,000, fishing accounted for 85% of the jobs but it’s estimated it will take up to five years to rebuild the port and market. [2,000 died and/or are missing here.]

Bloomberg notes that Japanese eat more fish per capita than any other developed country, 128 pounds annually compared with a global average of about 40 pounds, according to the U.N., but now they will be importing a large percentage of their daily needs, imports already being on the rise prior to the tsunami.

--Ukraine marked the 25th anniversary of the world’s worst nuclear accident at Chernobyl, April 26, 1986. A 19-mile exclusion zone still exists, while the cost to finally build a permanent sarcophagus to replace the temporary one has risen to $1 billion.

--To give you a sense of how rapidly Macau is outstripping Las Vegas, and a further reflection of China’s rapid growth in its middle class who are increasingly flocking to Macau, the Financial Times looks at a key variable, revenue-per-available-room rates. In the first quarter of 2008, Wynn Resorts reported revpar of $285 in Vegas and $244 in Macau. In the first quarter of 2011, the figures were $211 to $272 in Macau’s favor. Gross gaming receipts in Macau totaled $2.5 billion in March, more than three times that of 2008.

--Speaking of Vegas, Bloomberg had a story titled “Wealthy Leaving Las Vegas Mansions as Foreclosure Pain Spreads.”

Like actor Nicolas Cage, who bought a seven-bedroom mansion overlooking the strip in 2006 for $8.5 million. By January 2010, it was in foreclosure.

“The next owner, who property records show paid $4.2 million, has put the house on the market for $7.9 million,” an unrealistic price according to the broker handling the listing.

“In the 15 months through March, at least 25 houses in the Las Vegas area changed hands for more than $3 million, with at least seven doing so through foreclosure or by selling at a loss….

“In the first quarter, 30 Clark County homes with loans exceeding $1 million were repossessed by banks or bought by third-parties in foreclosure sales, up from 20 homes a year earlier.”

Said the broker, Zar Zanganeh, “You feel like a sucker if you’re paying a $5 million mortgage on a house that’s worth $2 million.”

Las Vegas home values plunged 58% from the 2006 high-water mark through February and are the lowest since June 1999, according to S&P/Case-Shiller. Almost 70% of Vegas-area homeowners have mortgages that are underwater as of the end of last year.

--The New York City Marathon generated at least $340 million for Gotham in 2010, it was just reported, with the average overseas participant staying six nights.

--Just as has been the case in New York City and London, home prices in Paris have largely escaped the ravages of the real estate bubble (so far, at least) with the average home price here up 18% in 2010 after being down just 4% in 2009. They are up 40% since 2005 and totally disconnected from the rest of France.

To France’s credit, they have very conservative mortgage policies, starting with fixed, not variable rate offerings.

Foreign Affairs

Israel: It was a terrible week for Israelis as Hamas and Fatah have agreed to give power-sharing a chance in a lead up to new Palestinian elections, a move that Israeli Prime Minister Benjamin Netanyahu called “outrageous” as Israel won’t deal with a government that contains Hamas. The United States and the European Union are now questioning whether they can continue to give the Palestinians aid as well because of this move. 

Meanwhile, in Syria, the crackdown has now claimed over 450 lives since anti-government protests began on March 15, while the Assad regime has rounded up at least 500. Then on Thursday, the banned Muslim Brotherhood, for the first time during the crisis, issued a call to take to the streets to demand freedom. “Chant with one voice…Do not allow the tyrant to enslave you. God is great.” As bad as Assad is, Israel felt it knew what it was dealing with, including, as the International Atomic Energy Agency concluded this week, the fact Syria was indeed building a nuclear reactor that Israel then took out five years ago.. What the future holds, however, is anyone’s guess but it could be even worse for Jerusalem.

Another case in point being Egypt. As part of a Pew Global Attitudes Project survey, 31% of Egyptians say they sympathize with fundamentalists, while 30% say they sympathize with those who disagree with fundamentalists, important with the September parliamentary elections coming up, followed by the expected November vote for president.

But this is what is more distressing for Israel. 75% of Egyptians are positive about the Muslim Brotherhood, though 70% feel positively about the youth-based April 6 movement that is mostly secular. Egyptians also believe the U.S. response to the revolt was negative by a 39-22 margin, even as only 13% have positive views of Hosni Mubarak. [General Tantawi, head of the military council, receives a 90% approval rating.]

It’s the following one in particular, though, that spells real trouble for Israel. By a 54-36 margin, Egyptians want to annul the peace treaty with Israel, and with the Muslim Brotherhood expected to win a majority in September’s election, that margin will undoubtedly widen. Also unhelpful, this week the government permanently reopened the crossing with Gaza, allowing a freer flow of people, goods, and inevitably arms. [And militants blew up a natural gas pipeline between Egypt and Israel for a second time.]

“Massacres on this scale usually prompt a strong response from Western democracies, as they should. Ambassadors are withdrawn; resolutions are introduced at the U.N. Security Council; international investigations are mounted and sanctions applied. In Syria’s case, none of this has happened*. The Obama administration has denounced the violence – a presidential statement called (last Friday’s) acts of repression ‘outrageous’ – but otherwise remained passive. Even the ambassador it dispatched to Damascus during a congressional recess last year remains on post.

“The administration has sat on its hands despite the fact that the Assad regime is one of the most implacable U.S. adversaries in the Middle East. It is Iran’s closest ally; it supplies Iranian weapons to Hizbullah in Lebanon and Hamas in the Gaza Strip for use against Israel. Since 2003 it has helped thousands of jihadists from across the Arab world travel to Iraq to attack American soldiers. It sought to build a secret nuclear reactor with the help of North Korea and destabilized the pro-Western government of neighboring Lebanon by sponsoring a series of assassinations….

“Yet the Obama administration has effectively sided with the regime against the protesters. Rather than repudiate Mr. Assad and take tangible steps to weaken his regime, it has proposed, with increasing implausibility, that his government ‘implement meaningful reforms,’ as the president’s latest statement put it….

“As a moral matter, the stance of the United States is shameful. To stand by passively while hundreds of people seeking freedom are gunned down by their government makes a mockery of the U.S. commitment to human rights. In recent months President Obama has pledged repeatedly that he would support the aspiration of Arabs for greater freedom. In Syria, he has not kept his word.”

*On Friday, the White House announced it was levying financial sanctions on three Syrian officials but the action is pathetic in terms of the crimes being committed. Suffice it to say, the Obama administration didn’t frighten Assad with the move.

“(The Obama administration’s) record of serial indecision has damaged American interests. The administration initially stood aloof from the Iranian Green Revolution, even though democratic regime change may be the only realistic alternative to American confrontation with the Tehran regime over its nuclear ambitions. In Libya, Obama waited until Benghazi was in the shadow of genocide before an incremental response. Obama has deployed American credibility in Libya – eventually supporting regime change – while pursuing policies that seem designed to result in stalemate. In Syria, the administration calls for ‘meaningful reforms’ while Damascus employs mass violence against mass protests. Apart from moral considerations, wouldn’t the coldest pragmatists see benefit in the overthrow of Iran’s main ally in the Middle East?....

“Now the Arab revolt has led to a predictable counterreaction – the attempt by regimes such as Libya and Syria to prove the efficacy of brutality. Their success would undermine American interests for decades. Presidential administrations don’t get to choose their historical challenges. But they can firmly take a side.”

Iran: Of course Tehran is scared to death with what is transpiring in Syria. Syria is Iran’s enabler, after all, in Lebanon and in the Gaza Strip. But as Shadi Hamid of The Brookings Doha Center in Qatar observed:

“The problem is that Iran’s foreign policy has become quite inconsistent.” It does have other options, including its close ties with Iraq’s Shiite-led government and overtures to both Turkey and post-revolutionary Egypt.

But the loss of Syria would be a huge blow to Iran nonetheless. It’s also too early to assess the impact of the Muslim Brotherhood in Syria. It could prove to be a rival more than an ally should it gain influence.

Meanwhile, the growing cold war between Iran and Saudi Arabia is complicating matters across the region, with the Saudis blaming Iran for the problems in Bahrain and Yemen. In Bahrain, the New York Times reported last weekend that at least 30 medical workers have gone missing following interrogations by security forces, while the regime reiterated its complaints that Hizbullah is training the Bahraini opposition. The U.S. State Department, though, says the opposition has legitimate demands.

While in Yemen, the last I’ve seen is President Saleh agreed to cede power after 30 days, allowing the opposition to move in and reform the constitution in preparation for new elections. In return Saleh and his family would receive immunity. Initially, the opposition insisted Saleh and company be prosecuted but they now appear to have accepted the terms.

As for Lebanon, the unrest in Syria is hurting it big time. Retired Lebanese Army Gen. Elias Hanna told the Daily Star:

“Lebanon’s and Syria’s security is organically linked. If the situation in Syria drifts to instability and chaos, this will spill over to Lebanon. Instability in Syria will definitely leave its political, security, economic and social repercussions on Lebanon.”

Another expert, Talal Atrissi, cautioned that if chaos reigned in Syria, “there are fears of it spreading to Lebanon, as well as to Syria’s borders with Jordan, Iraq and even Turkey,” as no one would be able to control the borders.

Libya: Italy agreed to participate in airstrikes, a significant move in that Libya has been a long-time major trade partner. Human rights groups estimate the death toll during the civil war here at 10,000 to 30,000, with more than 1,000 killed in Misrata alone. NATO appears to be targeting Moammar Gaddafi directly with some of its strikes but the dictator keeps popping back up.

Russian Foreign Minister Sergei Lavrov expressed a counterview in saying that in siding with the Libyan rebels, the West is creating an expectation among all rebel groups in the Middle East that foreign countries would help them overthrow their governments.

“This creates a very dangerous mood,” said Lavrov.  “Unfortunately, it is probably contagious and it’s popping up amongst protesters in other countries of this region with the hopes that they just need to aggravate the situation and then the international community will come to help, will take their side.”

Afghanistan: What a terrible week here. Eight American soldiers and one U.S. contractor were killed when an Afghan pilot turned on them at a meeting. The pilot was killed. Earlier, at least 470 inmates (many Taliban) escaped a prison in Kandahar, tunneling some 1,050 feet in an operation that took five months to plan and complete. It was so secret, one Taliban fighter said he didn’t know of it until a fellow inmate told him that night. Only 65 were recaptured, last I saw. The only good news this week was word that NATO troops had killed a senior al-Qaeda leader, but then we’ve killed a few hundred “senior al-Qaeda leaders,” haven’t we? And yet we’re still as concerned with the group, and its many offshoots, like al-Qaeda in the Arabian Peninsula, as before, which is why some of us will continue to sleep with one eye open.

Pakistan: Speaking of Afghanistan, our terrific friends the Pakistanis have been lobbying Afghan President Hamid Karzai against establishing a long-term relationship with Washington, and instead looking to Pakistan and China for help in striking a peace deal with the Taliban. Pakistani Prime Minister Gilani told Karzai at a recent meeting that the Americans had failed them both, as reported by the Wall Street Journal. Gilani emphasized that Karzai should not allow a long-term U.S. military presence. A senior Pakistani official told the Journal that “Pakistan is sole guarantor of its own interest. We’re not looking for anyone else to protect us, especially the U.S. If they’re leaving, they’re leaving and they should go.”

Morocco: Back in 2003, 12 suicide bombers launched a series of attacks in Casablanca that killed 45. On Thursday, in the historic town of Marrakesh (where your editor was a few years ago…the picture of me with snakes draped around my neck), a suspected al-Qaeda linked attack, probably by remote control, claimed 15 lives at a popular café on the main square, at least 11 of which were foreigners. This is a dangerous development as the king here has been able to largely keep the peace.

China: The United States is more than a bit upset over China’s recent crackdown on dissidents and Christians, the latter including the blocking of an Easter service in Beijing. And now Washington is looking to make it more difficult for China’s elite to receive visas following a number of diplomatic snubs on the part of Beijing, canceling various bilateral academic and cultural programs hosted by the U.S. China was ticked that outgoing U.S. ambassador Jon Huntsman was photographed in Beijing, near where anonymous internet users had called for a “jasmine revolution” in China. Three of the children of China’s elite, including that of Xi Jinping, expected to become China’s next president in 2012, are enrolled at Harvard, though it’s not known if they will be targeted on the visa front. The elite have been granted an “expedited” visa channel and perhaps the children and their parents would have to wait in line with the others from here on. Just guessing.

But the Chinese government was able to quell the trucker job action in Shanghai as fees were cut and trouble was defused. Many truckers didn’t blame the government as much as the fiercely competitive marketplace (too many drivers for the number of jobs available) which is holding down wages.

And across on Taiwan, President Ma announced he would indeed seek a second term in next January’s election. While the economy is doing well, and Ma can take credit for improved relations with the mainland, the widening gap between rich and poor on Taiwan, as well as ongoing tales of corruption, make his reelection not exactly a sure thing.

From China’s standpoint, they will continue to target Taiwan with missiles, despite the improving diplomatic climate, until Ma is reelected.

North Korea: Jimmy Carter was back here, stirring things up, and claiming afterwards that Kim Jong-il is ready to talk again about the North’s nuclear weapons program. But Carter and his party of political “elders,” former statesmen, were not granted a private audience with Kim. For their part the U.S. and South Korean governments were wary of Carter’s unofficial mission.

India: Back in 2008, the United States and the Indian government negotiated a landmark agreement on exchanging civil nuclear know-how. It was then hoped the U.S. would have a leg up on a large order for Indian multi-purpose fighter jets, a contract for 126 of them, but India snubbed Washington and is going to choose between two European alternatives instead. Needless to say, the White House is torqued off. In my own protest I will not purchase any Slurpees from 7-Eleven this summer.

Indonesia: Talk about a close call. The country went on “high alert” following the discovery on Good Friday of a terror plot involving a 330-pound explosive device that had been placed atop an underground gas pipeline about 100 yards from a Roman Catholic Church outside Jakarta that can hold up to 3,000 people. It was set to go off Good Friday during services. The only reason why the plot was uncovered is because police had earlier rounded up 19 terror suspects and they started to sing.

Random Musings

--In a move praised by leading Republicans such as Senate Minority Leader Mitch McConnell, President Obama rearranged his security team as a result of Defense Secretary Robert Gates’ departure, slated for June 30. Leon Panetta moves to Defense from the CIA and General David Petraeus replaces Panetta, setting further moves in motion including the appointment of former Iraqi ambassador Ryan Crocker to be our new representative in Kabul. [I’m sure the highly-regarded Crocker is just thrilled. “Ryan, we need you in Kabul.” “@#$%!”]

I also approve of the moves in the name of continuity, but at the same time Panetta had done by all accounts a solid job at the CIA and as I noted a few weeks ago, Petraeus wanted to be chairman of the Joint Chiefs of Staff. Panetta is now expected to be Obama’s point man for the painful cuts to defense spending that are looming, while Petraeus once again is the good soldier but his skillset is more geared to the defense job, or the joint chiefs.

--In a surprise move (especially to Newsweek which ran a lengthy piece on him in the current issue), Haley Barbour has opted not to run for president, while Ron Paul launched his obligatory exploratory committee, signaling his candidacy. The Republican field is beyond pathetic at this point. 

Meanwhile, in a USA TODAY/Gallup poll, 63% of Americans, including 46% of Republicans, say they definitely will not vote for Donald Trump for president. 46% say they definitely will not vote for Obama, which isn’t good for him either.

Prior to Obama releasing his birth certificate, only 38% of Americans in the USA TODAY survey said Obama definitely was born in the USA, and 18% say he probably was. Republicans said he was born abroad by a 43-35 margin.

--A U.S. Homeland Security Department report says that terrorists could exploit disorder caused by a hurricane by striking emergency exit routes, or noting emergency response measures for planning a later assault on an atomic plant or other site.

After a hurricane, “a threatened bomb detonation or biological material release could heighten public anxiety, further strain medical resources and heighten the issuer’s public profile, according to the document.” [Global Security Newswire]

--The number of college graduates with large amounts of debt is skyrocketing, from less than half in 1993 to two-thirds in 2008. And the Department of Education notes that the average debt rose to $23,200 in 2008 from $18,650 just four years earlier. 15% of borrowers had defaulted.

--On Sunday, Pope Benedict XVI will preside over the beatification of Pope John Paul II with many believing this process has been way too fast, John Paul II having presided in the era of the sex scandal in the church. The pope helped bring down communism, but allegations exist that he protected cardinals, bishops and priests who were accused of paedophilia and other sex crimes and this should have been investigated further. 

--For the archives, at last word there were at least 137 reported tornadoes in Wednesday’s outbreak and some 300 since last Friday, or far more than the previous April record for an entire month. Some property was found 50 miles away. With the death toll at 337 as I write, and with scores still missing, the final tally already exceeds the 310 killed in the April 3-4, 1974 outbreak, which I vividly remember for the devastation of Xenia, Ohio, as well as a storm that killed 332 in Alabama in 1932. From here on, we’ll be thinking Tuscaloosa.

Or Smithville, Mississippi, where an EF-5 hit with winds estimated at 205 mph. As an official there said, “At 200 mph there’s not a whole lot you can do.”

--A joint study by an Icelandic-Danish team of scientists has concluded that the volcanic ash cloud from 2010’s Iceland volcano did indeed pose a threat to air traffic, especially the particles from early in the eruption that were particularly sharp and abrasive. The right decision was made to exhibit the high degree of caution air traffic systems did during the crisis.

--Time magazine selected Newark Mayor Cory Booker as one of its most influential people in the world, specifically No. 10, if you can believe it, with Oprah Winfrey writing a glowing essay on him.

But as my brother pointed out, Newark had the following chronology.

Of course Oprah doesn’t have a word about Newark’s ongoing crime problems. No one does when the topic of Booker comes up. Why he’s so talented! [My friends in Newark are convinced Sharpe James is going to make a comeback after serving out his 27-month prison sentence.]

--A pair of four-day weekends in Britain led many to bolt the U.K. for an 11-day vacation, while an estimated 250,000 tourists flocked in for the Royal Wedding. Nothing against William and Kate, but when you can take advantage of a long break, you grab it.

One thing that was great for Britain was in keeping the Royals safe the security forces proved they can handle the 2012 Olympics. 

--Word here in Paris is that First Lady Carla Bruni, 43, feels “Trapped in the Elysee,” as one recent headline put it. She may have to avoid Cannes this year so as not to be seen showing off while the little people suffer as her hubby faces an uphill fight, to say the least, for reelection in 2012. Carla is said to be tired of sacrificing for President Sarkozy, whose approval rating hit an all-time low of 22%. Carla is also not allowed to release a new album until after the election, so she’s miserable.

But I was told the other night that she sometimes can be seen at a hotel bar nearby so I’m going to have to check that out, though she hasn’t been out in public in some time.

--I did go back to the above mentioned restaurant, Ferdi, for Friday’s dinner; different waiter, same friendliness, including from the chef…and awesome foie gras. My sympathies to the family of the goose that was force fed and became my meal…then again I imagine the goose has no relatives left.   And on that politically incorrect note, au revoir!

Pray for the men and women of our armed forces, and all the fallen.

Gold closed at $1562...another new high
Oil, $113.78

Returns for the week 4/25-4/29

Dow Jones 2.4% [12810]
S&P 500 +2.0% [1363]
S&P MidCap +2.0%
Russell 2000 +2.3%
Nasdaq +1.9% [2873]

Returns for the period 1/1/11-4/29/11

Dow Jones +10.6%
S&P 500 +8.4%
S&P MidCap +11.9%
Russell 2000 +10.4%
Nasdaq +8.3%

Bulls 54.3
Bears 18.5 [Source: Chartcraft / Investors Intelligence]

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