Week in Review

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Week in Review

01/15/2011

For the week 1/10-1/14

Wall Street…and Lebanon…and China

Two months after the Feb. 2005 assassination of former Lebanese prime minister Rafik Hariri (an attack that killed 22 others), I went to Beirut for the first time. My hotel room at the Phoenicia overlooked the bomb site. I hired out a driver one day to take me into Hizbullah territory, and the town of Baalbek, and described the drive as like going through Mordor, with banners every few hundred yards spread across the street with pictures of Ayatollah Khomenei and Hizbullah leader Sheikh Hassan Nasrallah.  The Hizbullah flag was all over the place, not exactly the stars and stripes but rather a clenched fist holding a Kalashnikov. I have been focused on Lebanon ever since Hariri’s assassination unlike few others, period.

This past April I returned to Beirut and started off my 4/24/10 column thusly:

“Of all the world’s hot spots, I have long argued this is as important as any of them, including Iran, because a region wide Middle East conflict could just as easily start in Lebanon.”

I was floored by the massive development in Beirut since my 2005 trip and questioned the sanity of it all, and then described my meeting with the preeminent analyst on the scene, Michael Young, author [“The Ghosts of Martyrs Square: An Eyewitness Account of Lebanon’s Life Struggle”] and an editor at the Daily Star.   Among my thoughts afterwards I wrote:

“Michael has experienced firsthand the impacts of the bombs of war (though his immediate neighborhood has remained largely intact), while I consider Lebanon just a massive powder-keg, for one primary reason alone, the presence of Hizbullah. It’s a situation totally unique to the world…where an armed militia, not the political leaders, and not the official military, really calls the shots. Until they are disarmed (which isn’t likely to happen in my lifetime unless Israel were to somehow totally wipe it out) it’s why we all need to pay attention to what happens here.”

Two weeks ago, 1/1/11, I reemphasized in looking at the year ahead:

“In the Middle East, I’ve written volumes on the potential for conflict in Lebanon with the pending results of the tribunal [the Special Tribunal for Lebanon, STL, looking into the assassination of Rafik Hariri]. Violence can yet be prevented. If not, Katy bar the door. The entire region could go up in flames.”

So here’s what happened this week. In a total humiliation, Prime Minister Saad Hariri (Rafik’s son) was in Washington for a visit on Wednesday with President Obama. At the same time, Hizbullah, a partner in the “unity government” that was formed after they almost caused a full-blown civil war in 2008 by taking over much of Beirut, pulled out of the government, thus causing it to collapse.

In the crazy machinations of this place, there are 30 cabinet ministers, but if a third, plus one, pulls out the government is dissolved…not that this pathetic excuse for a government has done anything to address the problems of the Lebanese people since it’s been in charge (I could write volumes on my experiences on the roads alone here), but nonetheless part of the original unity government agreement was to give Hizbullah 10 of the 30 cabinet seats, one-third, and to pull out they needed to find one other, which they did. Voila! No government…and in its place another tension convention as this sectarian country, unlike any other in the world, is comprised of like  neighborhoods and clans, each armed to the hilt. You know Obama’s line, taken from a movie, about bringing a knife or a gun to a fight? The Lebanese have RPGs under their beds.

The reason why Hizbullah pulled out now is because of the pending draft indictments (“draft” because they still have to be approved by a pre-trial judge) to be handed down by the STL in the Rafik Hariri investigation and everyone expects members of Hizbullah to be mentioned. Not that the suspects would then be arrested and stand trial, mind you, seeing as they would never allow themselves to be taken, but a mere indictment shatters Hizbullah’s reputation as being the defender of Lebanon against the aggressor on the other side of its southern border, Israel. [Hizbullah was founded as a result of Israel’s 1982 invasion of the country.] It would be pretty hard to call yourself a defender of the people when you assassinated a very popular prime minister who led Lebanon’s recovery from the devastating 1975-90 Civil War.

For years, Hizbullah has denied having a role in the heinous attack (one of the most powerful car bombs in history…as I can tell you from the crater it left) and has demanded that Prime Minister Saad Hariri absolve Hizbullah of any culpability in the killing of his father, while dissolving the STL by cutting off Lebanon’s funding of it. Well that has put Saad in quite a bind. He wants stability in this otherwise dysfunctional country but it’s his father we’re talking about…he also wants justice.

Justice is what the likes of the United States and France want as well, they being Hariri’s two biggest supporters (aside from Saudi Arabia…the billionaire Rafik having been a favored Sunni son with extensive business ties to the Kingdom in his heyday), and the STL was a creation of the U.N. Security Council, so, argues Washington and Paris, you can’t just dissolve the thing and what kind of message would that send, let alone look what it does to Hizbullah’s power?

Enter the Saudis and Syrians, who over the past year have tried to broker a deal, but it came to light in the past week had failed to do so, thus precipitating Hizbullah’s move to take over the government. Why Syria? It represents the Shia part of the deal, through Iran, the two being Hizbullah’s sponsors. Syria had been in effect running Lebanon following the end of the Civil War until they were booted out after Hariri’s assassination because of their suspected involvement in his death. [I specifically waited to go to Beirut in 2005 until a week after the last Syrian troops left.]

Yes, it’s complicated, and while details have never emerged of what the Saudis and Syrians were trying to broker between Hizbullah and Saad Hariri’s followers, it was assumed that Hariri would issue what Michael Young calls a “certificate of innocence,” which only the prime minister can do, in exchange for more political power for his ruling (and very feeble) coalition and some guarantees of stability.

So what happens next? Saad is technically leader of a caretaker government as I go to post but actual meetings on the formation of a new government are to be held Monday in Beirut (and then continue possibly at another site).

Hizbullah’s Sheikh Nasrallah promised that his followers do not want civil war, but the two sides are playing a giant game of chicken centered around the indictments. The U.S. vows to protect Hariri but the odds don’t favor him remaining in power, and/or he will be so emasculated (not that he wasn’t already) that Hizbullah will be running the entire show. Washington, and the U.N., also vow the work of the STL will continue but at what cost? A White House statement this week read:

“The efforts by the Hizbullah-led coalition to collapse the Lebanese government only demonstrate their own fear and determination to block the government’s ability to conduct its business and advance the aspirations of all of the Lebanese people.”

But the United States isn’t about to invade Lebanon should Hizbullah take over in order to protect our interests (nor is France).

We could, though, just be entering a period of protracted stalemate, fruitless negotiations while the people suffer. Some experts say Hizbullah would use this period to then foment public unrest under the guise of the people protesting over the lack of essential services, which would only heighten Hizbullah’s profile.

But with a nation armed as it is, one need only look to the history of the 1975-90 Civil War and how it was neighborhood against neighborhood (which I explored more fully during my last trip) to see how events could quickly spiral out of control.

Of course then you have Israel. A minor border skirmish precipitated the devastating 2006 Israeli-Hizbullah war and a similar event could do the same. Only this time Hizbullah has tens of thousands more rockets, plus more sophisticated weapons and communications systems across the board, while Israel is cockier than ever in thinking it has Hizbullah figured out in terms of how to fight the militia (don’t go down blind alleys, for one, like the IDF did in ‘06), and a war between these two would not only be incredibly deadly and destructive, and depressing for global financial markets, but this time it’s virtually a certainty other players such as Syria would be drawn into the fight. [Iran would be fighting through its proxy.]

Lastly, some say that Iran will prevent Hizbullah from taking on Israel now because Iran is saving Hizbullah for the day its attacked, upon which Iran would unleash Hizbullah against the Israelis in retaliation. But that’s too rational.

I would just add that it’s at times like these that all my stories going back five plus years concerning Hizbullah and Iranian sleeper cells in Venezuela are critically important. Anything can happen. 

Hu’s Coming to Washington

Chinese President Hu Jintao, that is, in a hugely important summit with President Obama. Former Secretary of State Henry Kissinger, who knows a thing or two about China, said in a Washington Post op-ed that the risks of a U.S.-China cold war are on the rise and must be avoided.

“The nature of globalization and the reach of modern technology oblige the United States and China to interact around the world. A Cold War between them would bring about an international choosing of sides, spreading disputes into internal politics of every region at a time when issues such as nuclear proliferation, the environment, energy and climate change require a comprehensive global solution.

“Sino-U.S. relations need not take such a turn. On most contemporary issues, the two countries cooperate adequately; what the two countries lack is an overarching concept for their interaction.”

“America’s exceptionalism finds it natural to condition its conduct toward other societies on their acceptance of American values. Most Chinese see their country’s rise not as a challenge to America but as heralding a return to the normal state of affairs when China was preeminent. In the Chinese view, it is the past 200 years of relative weakness – not China’s current resurgence – that represent an abnormality….

“American diplomacy pursues specific outcomes with single-minded determination. Chinese negotiators are more likely to view the process as combining political, economic and strategic elements and to seek outcomes via an extended process. American negotiators become restless and impatient with deadlocks; Chinese negotiators consider them the inevitable mechanism of negotiation. American negotiators represent a society that has never suffered national catastrophe – except the Civil War, which is not viewed as an international experience. Chinese negotiators cannot forget the century of humiliation when foreign armies exacted tribute from a prostrate China. Chinese leaders are extremely sensitive to the slightest implication of condescension and are apt to translate American insistence as lack of respect.”

Writing in a state paper on Friday, Wu Xinbo, out of Fudan University in Shanghai, said:

“With irreconcilable interests, it is impossible to eliminate policy differences, which limits the good relations. Today, China is disappointed, dissatisfied and confused by the series of hardline policies against China in the second year of the Obama administration. China is worried that this is a sign of a current or future major reversal in U.S. policy and strategy toward China.”

Defense Secretary Gates told Japanese students of his visit with Hu and defense officials a few days after his trip to Beijing.

While military relations between the two are better, Gates said, there is one big disagreement between the two sides: “freedom of navigation.” The U.S. believes it has the right to sail its ships in waters that China claims are restricted. Gates says since our nation’s founding, freedom of the seas and commerce are basic tenets.

And when it comes to China’s military, Gates said he has no doubt the communist party is in control, but “sometimes there are disconnects.” Gates was referring to the shocking disclosure that evidently President Hu did not know of the J-20 stealth fighter test flight being conducted the day Gates was in discussions with Hu.

Just an aside, I was going back through some old notes and on 4/21/07, after my first trip to see my investment in Fujian province, I wrote: “So when I see 11% GDP growth, such as that announced for the first quarter by China, it’s no longer a shock to me. It also shouldn’t be a shock to hear that tax revenues are up 25%. [More for China’s military…take note, Secretary Gates.]” It seems some in the Pentagon haven’t been paying attention until now.

In China, after meeting with his counterpart, Defense Minister Liang, Gates said:

“We are in strong agreement that in order to reduce the chances of miscommunication, misunderstanding or miscalculation, it is important that our military-to-military ties are solid, consistent and not subject to shifting political winds.”

But military ties are brittle, as are other aspects of the U.S.-China relationship. China, said Gates, had the potential to “put some of our capabilities at risk….We have to pay attention to them. We have to respond appropriately with our own programs.”

One big issue on the defense front is the United States’ ongoing arms sales to Taiwan. Liang said such sales “have jeopardized China’s core interests.” Liang, and China, need to chill out…. and the United States must stand firm when it comes to our ally.

All in all, Gates’ talks in Beijing went miserably, even as he did his best to put them in a favorable light.

But it’s not just Washington that is concerned about China’s intentions. Some in Europe (though not all) are concerned as well.

“The pictures of a Chinese stealth fighter jet, apparently making its first test flight yesterday, are one more indication of a concerted military build-up that makes nonsense of Beijing’s official defense expenditure figures. Along with its new anti-ship ballistic missile, whose speedy creation appears to have taken the Pentagon by surprise, the pictures demonstrate how China’s new economic prowess is enabling Beijing to project military power.”

So some in Europe see an opportunity selling arms to China, but since the Tiananmen Square Massacre of 1989, the EU has had an embargo on same, which some EU leaders want to see lifted, including the EU’s High Representative for Foreign Affairs and Security Policy (foreign minister).

“Yet for any EU country to reinstate weapons sales it would be a fundamental change in European policy and a major political and strategic decision….

“But China is nowhere near the level of transparency that is needed. It is in effect doubling its military expenditure, in apparent denial of what that means for policy. It is not sufficient to claim that Taiwan is the sole focus of its military ambitions.”

And look at China’s reaction to the awarding of the Nobel Peace Prize to Liu Xiaobo.

On the economic front, economist Irwin Stelzer commented in the Jan. 17 issue of The Weekly Standard.

“(By) the time they are forced to allow the (yuan) to appreciate significantly, the Chinese will have copied enough American and Western technology to be less in need of an undervalued currency – they will have made-in-China products, subsidized if necessary, that can dominate world markets even if their currency more closely approximates its market value.

“China’s leaders know that the exports that have been filling Wal-Mart’s shelves are becoming cheaper to make in other countries. So the idea is to replace them with more technologically sophisticated products. Every deal to allow a foreign company to tap China’s vast market comes with a requirement that it turn over technology. The initial orders satisfy American executives, their eyes focused on the next quarterly or analyst’s report. The Chinese, their eyes focused on 2020 and beyond, know that, the technology in hand, they can continue duplicating the factories and techniques and dispense with the American capitalists….

“The camels that trod the old Silk Road laden with spices and porcelain are being replaced by air and sea freighters hauling solar panels and all sorts of goods based on copied technologies and purloined intellectual property. Nothing seems to have changed since Lenin observed, ‘The capitalists will sell us the rope with which we will hang them.’”

“(China is pursuing a supremely rational strategy and it) intends to become the world’s dominant economic and military power. The regime is determined to acquire the knowhow to jump-start its own industries from foreign companies that seem willfully naïve about its disregard for intellectual property rights. It will retain legitimacy by providing its people with jobs and projecting its power internationally. It is acquiring metals and minerals critical to the manufacture of many Western products. Its clear-eyed view of its own national interest makes the West look dangerously amateur.”

On the other side, no doubt President Hu Jintao has questions of his own when he meets with President Obama. China’s foreign cash and securities reserves are now $2.85 trillion – an increase of 20% in one year. Seeing as how 50%-66% of it is in the United States (treasuries and other assets), Hu has a right to ask of Obama, ‘Are our assets secure? Are you going to get a handle on your deficit?’ It’s going to be a fascinating week coming up.

As for the week on Wall Street, let’s start with the inflation debate. For years I have correctly stated there is no inflation “when you look at the official numbers,” which is important because that is what the bond market focuses on. Yes, I’ve hastened to add, some very important prices are rising, such as for healthcare, college tuition, property taxes and such, and while not weighted in the official data the way they probably should be, they don’t move the bond market.

But they most definitely have an impact on consumer confidence, the wealth effect and consumer spending. If you tell me the U.S. economy is going to grow at 3.5%-4.0% this year, I have a hard time believing this with some of the price increases we’ve been seeing, case one these days being oil and the cost to fill one’s tank. If history is our guide, like in 2008 when oil spiked to $147 a barrel and over $4.00 a gallon, that helped stop the economy dead in its tracks, even before the financial crisis hit full bore. Today we’re at $3.10, nationally, much higher in some places, so it bears watching.

I’ve also been very clear, however, in focusing on wages. For all the talk of rising commodities prices, labor is still far and away the main component of the vast majority of products we purchase. Until you show me that wages are picking up in a big way, I’m not going to get too excited about the cost of most of what I buy, nor should you. [Individual commodities, like milk and eggs can be a different story.]

In the developing world, though, these commodity price spikes are incredibly painful and so this run on prices in Asia, in particular, the source of much of our growth, globally, is most worrisome as governments are forced to raise interest rates to try to bring prices down (and in the process slow their economies).

There are a ton of moving parts to today’s story, and I don’t pretend to cover them all each week (as much as I attempt to do). I recognize that part of the inflation problem is simple supply and demand when it comes to agricultural products, rising middle classes in Asia, apocalyptic weather patterns that have destroyed key harvests, etc. The U.S. Department of Agriculture cut its estimate on global harvests and at the same time raised its demand forecasts for stuff like corn, soybeans, and wheat, all three of these being up in excess of 50% since June. What the globe needs now more than anything is good weather. Yes, otherwise food inflation threatens to do a number on Asia, big time. 828 million in India still live on $2 a day and if the big food there, onions, is skyrocketing in price, it’s not a pretty picture for these folks.

And whereas the images this week were of biblical rain and flooding in Australia and Brazil, the World Economic Forum is warning of severe water shortages, as well as a potential food crisis. The U.N.’s Food and Agriculture Organization recently said food prices rose a record 25% in December over year ago figures.

But I’ve written all the above and the essential fact for what most interests me, and I’m assuming most of you because I know few of those earning $2 a day in India are reading this, is that the U.S. stock market keeps rocketing higher, up 23.5% on the S&P 500 since the Aug. 26 low, while despite all the concern over interest rates with the spike in December, the yield on the key 10-year Treasury sits at 3.33% and on 12/31/09, a little over a year ago, it was 3.83%.

Like why are we then foaming at the mouth on the topic of inflation?

Oh, I understand…believe me. We’re waiting for that day when the Federal Reserve finally wakes up and begins to hike rates and then everyone is going to say I told you so as they flee their bond funds and jump out the window.  I know the historic spread between the 2- and 30-year Treasury is telling us the bond market demands to be paid for future inflation risks.

Yours truly, though, will remain sanguine for a bit longer. On Friday the report on December capacity utilization was released and while it ticked up, it’s still just 76.0%, i.e., there remains a ton of slack in the U.S. economy and wake me when this particular figure hits 80.0%, at which point we might be talking of increasing labor costs (which aren’t necessarily a bad thing if you’re the one getting the raise, eh?).

You also have the following official data, released at week’s end as well. The December producer price index rose a substantial 1.1%, but ex-food and energy was up 0.2%. Year-over-year, the PPI is up a solid 4.0%, but the core rate is up only 1.3%. On the consumer price side, the figure was up a worrisome 0.5%, but ex-food and energy it was up 0.1%. Year-over-year, the CPI is up 1.5%, 0.8% core.

No doubt, if we see another 0.5% increase in the CPI and it’s not all oil related, alarm bells will be going off at the Fed, low capacity utilization rate or not.

But here’s my real bottom line. The price hikes you and I do have to deal with, not those that the bond market is focused on, are the same hikes that will limit growth, and putrid growth (bulls on this front get Q1 2011, but that’s about it) means price pressures will be ameliorated.  Yes, the Indonesian or Indian dealing with 7.0% and 8.3% inflation, respectively, is getting slammed with such a large portion of their income going to put onions and rice on the table. But as those governments slam the breaks, eventually prices will come down just like they always do (for those with a short memory, see 2008).

I’m also not prepared to say the world is running out of food, though in my own investing, particularly in emerging markets, I’m going to increasingly look at companies that may have solutions on this front. In China that can mean just using the land more efficiently and employing more modern methods of agriculture.

On the energy front, I also can’t help but remind you that if we get a big spike related to conflict in the Middle East, ‘short’ it! I mentioned long ago that when it comes to a topic like Iran, the Saudis have a ton of spare capacity and are capable of flooding the market to drive prices down. They don’t want a global double-dip and they’ll do everything they can to prevent one.

And a note on Europe. This week the euro rose after successful bond auctions in Portugal, Spain, and Italy. But I use the term loosely because the interest rates Portugal and Spain are paying, let alone Ireland and Greece, are unsustainable.

This coming week European monetary and political leaders are gathering again to come up with a better bailout plan, or more certainty, but regardless of what they agree to, the bottom line for much of the now euro-17 is they need growth. Not 2%, but 4%. If they get the latter, they can thread the needle on their crisis. If they are muddling at 1% to 2% (even Germany is projected to see its GDP go from a solid 3.6% in 2010 to 2.0% this year), the euro crisis will go on and on and on. There will be good weeks, like this one, and then 4-6 weeks later something else will pop up.

And as I wrote in my 2011 outlook two weeks ago, the transparency issue, or lack thereof, in Europe with their banks is huge. No one…no one…has a clue just what some of the exposures are within Europe’s major financial institutions. CNBC had an interview this week with Ian Cheshire, the CEO of Kingfisher Group, which is the world’s 3rd-largest home improvement company, and he said “lack of transparency” was a major worry and when it came to the banks, we need to know “what the true contingent liabilities are.”   Bless you, Mr. Cheshire.

Lastly, folks, there has just been so much to cover the last few months that I recognize I’m leaving things on the table week to week, like this time the muni market situation. I keep asking God to add just two more hours to each day but I’ve been rightfully rebuffed. There are other times recently when I just want to shout, “Stop the world! I want to get off!”

Street Bytes

--The Dow Jones and S&P 500 rose for a seventh straight week (Nasdaq 7 in 8) as this great rally continues, by some measurements the best since spring 2007. Earnings begin to come in fast and furious the next two weeks and I’m sure they will be good. I just continue to maintain other events will eventually overwhelm Wall Street. The Dow rose 1.0% to 11787, while the S&P added 1.7% and Nasdaq 1.9%. Bank stocks did well much of the week as the bigger ones should be getting permission from the Federal Reserve to raise dividends again. JPMorgan Chase’s earnings were solid. 

--U.S. Treasury Yields

6-mo. 0.17% 2-yr. 0.58% 10-yr. 3.33% 30-yr. 4.53%

The weekly jobless claims figure showed a large increase over the previous two reports but seasonality is making it hard to figure out the true picture. It will begin to smooth out next week.

--Intel reported strong earnings for the 4thquarter, with CEO Paul Otelini calling it the company’s best ever, predicting 2011 would be even better, yet shares dropped a bit after the news.

The problem is while Intel’s prime PC market saw shipments at their highest levels ever in 2010 according to market research firms, growth in the 4th quarter was slower than expected and Intel appears to have missed the boat in terms of the tablet and smart phone markets. It’s competing, but it’s behind bigger players in this area such as Qualcomm, Texas Instruments and Apple, which makes its own chips for the iPad.

--Aside from its earnings news, Intel is also having to cough up $1.5 billion ($300 million each of five years) to chipmaker Nvidia over a long-running patent infringement/licensing dispute.

--Rival AMD fired its CEO, Dirk Meyer, even as some said he was doing a solid job in turning the perennial also-ran around. The board felt otherwise and believed Meyer wasn’t moving fast enough to position AMD for growth in the tablet computer market, for starters.

--The Financial Times reported that “Goldman Sachs has revealed details of about $5 billion in investment losses suffered during the crisis for the first time this week, in a move that will deepen the debate over companies’ financial disclosures.

“The figures, issued as part of internal reforms aimed at silencing Goldman’s critics, show that the bank suffered $13.5 billion in losses from ‘investing and lending’ with its own funds in 2008.

“But Goldman’s regulatory filings and its executives’ comments to investors at the time pointed to about $8.5 billion of losses arising from its investments in debt and equity, as markets were rocked by the turmoil.”

This is really outrageous. This week Goldman launched a new campaign of “transparency” but we see yet another example of what really is fraud. Not reporting the truth in financial disclosures. Goldman says the revelation of further losses supports its claim it didn’t profit from the financial crisis. Lynn Turner, a former chief accountant for the SEC, told the Financial Times:

“This sets a good example that others should follow. But it does raise the question as to why the management did not provide this view back then and whether the SEC is going to do something about this discrepancy.”

--Groupon, the social buying site, appears to be pushing for an initial public offering in the spring that could value the company at $15 billion, according to the New York Times, this after it turned down a $6 billion offer last fall from Google. Groupon just raised $950 million from some rather large investors. [There’s a picture in the paper this morning of Goldman’s Lloyd Blankfein weasling his way into Groupon offices.] Twitter and LinkedIn have been feverishly raising money as well and the latter is preparing an IPO, too.

Meanwhile, Facebook, which is currently valued at $50 billion based on Goldman Sachs’ recent $450 million investment (with another $1.5 billion in shares for its wealthy clients to come), is staying pat, for now.

[You know who’s really irritating? The Winklevoss twins, who are now asking a three-judge panel of the U.S. Court of Appeals in San Francisco to void the 2008 agreement with Facebook founder Mark Zuckerberg that paid them $65 million in stock and cash. A lower court ruled then the accord was binding.]

--New Jersey Gov. Chris Christie learned a valuable lesson this week. At a town-hall meeting in Paramus, N.J., on Thursday, he told the audience that health-care costs “will bankrupt” the state. Well, this may be true but the same day the New Jersey Economic Development Authority had to cut its tax-exempt school-related bond offering by more than half to $712.3 million.

“It doesn’t help to try and sell a $1 billion deal on the same day the governor is talking about the state going bankrupt due to health-care costs,” said Mike Pietronico, a money manager. [Brendan A. McGrail / Bloomberg]

--As noted last time, The Economist’s Jan. 8 cover story was on the public vs. private sector debate. Some excerpts from an accompanying article.

“In America (public sector union density) has increased over the (last 50 years) from 11% to 36%. There are now more American workers in unions in the public sector (7.6m) than in the private sector (7.1m), although the private sector employs five times as many people. Union density is now higher in the public sector than it was in the private sector in its glory days, in the 1950s….

“Wage differentials are relatively small in the public sector. Lower-level workers, such as secretaries, are usually better paid than their private-sector equivalents, whereas higher-level workers are worse paid….

“At the same time, benefits are generous in the public sector. Governments tend to give their workers light workloads and generous pensions in lieu of higher wages (which have to come out of the current budget). In America teachers teach for a mere 180 days a year. In Brazil they have the right to take 40 days off a year – out of 200 working days – without giving an explanation or losing a centavo of pay. The defined-benefits revolution that has swept through the private sector has hardly touched the public one: 90% of American state- and local-government workers have defined-benefit plans, compared with 20% of private-sector workers….

“Add to this the fact that any public-sector worker can hide behind union power to game the system – 825 of senior California Highway Patrol officers discover a disabling injury about a year before they retire – and you have a dysfunctional mess.

“Unions have also made it almost impossible to sack incompetent workers. In Greece there is a law against sacking government workers solely on grounds of poor performance. In other countries there might as well be. Mary Jo McGrath, a California lawyer, says that ‘getting rid of a problem teacher can make the O.J. trial look like a cakewalk.’ In 2000-10 the Los Angeles school district spent $3.5 million trying to get rid of seven of its 33,000 teachers, and succeeded with only five….

“Incompetence is so endemic that several countries have invented phrases to deal with it. Brazilians joke that public-sector workers turn up on the first day, hang their jackets on the back of the chair, and are never seen again. The Greeks talk about putting incompetents ‘in the fridge’ – giving them pretend jobs. In France it is the cupboard. Americans refer to ‘the dance of the lemons’ – the practice of reassigning bad teachers to new schools rather than getting rid of them. They also refer to the ‘rubber room’ where incompetent or criminal teachers bounce around, often for years, while administrators and unions haggle over what is to be done with them.”

But now governments are forced to fight back, and cut back on public spending. Will they have the courage to tackle the biggest immediate issue, pensions? And as the Economist concludes, “If (government is to) claim victory in the coming fight, they need not just to restore the public finances to health. They also need to breathe the spirit of innovation into Leviathan.”

--Want another example of the above? The Wall Street Journal reported that “Randi Weingarten, the former head of the New York City teachers’ union, received $194,188 last year from the United Federation of Teachers for unused sick days and vacation time accrued before she left to become president of the American Federation of Teachers, boosting her total compensation to more than $600,000 in 2010.” As a labor professor put it, the payment is “not out of whack with general practice” among labor unions and municipal employees, not that yours truly hasn’t been documenting this particular aspect for years now.

And so I repeat. In 16 years on Wall Street, I did not take one sick day. Yeah, I’m proud of this. But the real point is I didn’t receive extra pay for sick days not taken, nor should I have. I had lunch with an old friend from my first Street job this week and we were talking about the public-private debate and he related how an acquaintance working for the New Jersey Turnpike Authority receives 22 sick days a year! I knew it was a lot…I had no idea it was Brazil-like. This is pathetic. 

It’s also, bottom line, about corruption and politicians, who for decades bought votes by giving away the store when negotiating public sector contracts.

--The 2011 Index of Economic Freedom, released annually by the Heritage Foundation and the Wall Street Journal, reveals the U.S. dropped to 9th place when it comes to measuring items such as fiscal soundness, openness to trade and investment, government size, and business and labor regulation. Hong Kong again tops the list.

1. Hong Kong
2. Singapore
3. Australia
4. New Zealand
5. Switzerland
6. Canada
7. Ireland
8. Denmark
9. U.S.
10. Bahrain
16. U.K.
20. Japan
23. Germany
87. Italy
88. Greece
113. Brazil
135. China
143. Russia
175. Venezuela

177. Cuba
178. Zimbabwe
179. North Korea

--Granted, China has over 1.3 billion people, but it’s still pretty staggering to note it has 190 traffic fatalities a day. As much as they’ve been working on their road network, they are still among the most dangerous in the world and a big reason, according to experts, is the failure to obey simple traffic laws. [I learned of these stats in reading a story on a Henan province accident this week where 16 were killed when a coach hit two cars that had already collided, “smashed through the highway’s safety barrier and careered down a slope, flipping over.”]

--Shanghai overtook Singapore as the world’s busiest container port last year. Hong Kong is third but neighbor Shenzhen is catching up quickly. And if you’re looking for another clue on China’s growth, cargo tonnage grew 17.3% at Shanghai, however, Dec. volume growth slowed to 3.2% year on year, according to Nomura.

--Hong Kong is rightfully concerned over worsening congestion. A record 36 million people visited the place last year, up 21.8% from 2009, and this meant soaring hotel room rates, traffic congestion, and more pollution.

--Monday saw the biggest one-day decline in the 55-year history of the Bangladesh stock market, off 9.25% in less than an hour after losses of 6.7% on Sunday (yes, they are open then). There were violent protests in response as small-scale investors, who had been flooding the market the past year, got hit hard. But regulators were concerned over what was clearly a bubble so they decided to limit the amount of deposits that banks could invest in the stock market, institutional investors then began cashing in, and a panic ensued.

--Going through some of my archives, this is what I said about housing.

On 8/16/08, I wrote, “when we bottom, and that will happen over the next year (which is the first time I’ve actually gone this far), we’ll just sit there. No V-shaped recovery.”

On 11/29/08, I refined it: “(Housing), nationwide, will bottom next April. Of course you won’t know this for a while as it’s happening, and the decline before then over the next five months could be severe, but that’s my story and I’m sticking to it. I also hasten to add that I’m sticking with my theory that once a bottom is reached, we just sit there awhile.”

It was back on 4/2/05…4/2/05…that I wrote, “Remember, the bubble (in housing) isn’t just a U.S. story, it’s global.”

--Revenue at Atlantic City’s casinos plunged 9.6% in 2010 and in just four years, A.C. has lost about a third of its revenues as Pennsylvania’s gaming industry took off. The hotels and Boardwalk Hall (concerts mostly) are doing well, it’s just that people are spending far less. The Christmas week blizzard didn’t help, either.

--Update: Renault executives say the industrial spying case involving the automaker could have been much worse, though Renault suspects the final recipient of the stolen information was a Chinese rival. While the theft included details on costs for its multi-billion electric vehicle program, the company doesn’t believe the “golden nuggets” of its technology, were stolen. Three executives have been fingered.

--On Thursday, Cunard Line had its three star attractions berthed in Manhattan; the Queen Mary 2, Queen Elizabeth and Queen Victoria, and, coincidentally, the city said spending in the city by cruise passengers and crew members increased to $144.6 million last year, up 54% from $93.8 million a year ago.”

At the same time, cruise ships out of Los Angeles that service Mexican resort cities are pulling out due to the turmoil in Mexico and reduced demand. [More on this below.]

--At the recent Consumer Electronics Show in Las Vegas, the Los Angeles Times reports that “Booth models are back”! Repeat. Booth models are back!

“It’s nice to be getting back into the business and feeling the good energy,” said Zoe Portanova, 21, who was dressed in a body-tight nurse costume and standing in front of the booth for IDesia, a heart health technology company. Zoe said she is getting more gigs…so we have the booth babe indicator…or BBI. At least I have just come up with this, though the Chicago Board of Trade is free to pilfer it for the purpose of coming up with some futures contracts on same.

Booth models earn about $20 an hour plus hotel and travel expenses. Parents, frankly I wouldn’t push this line of work when discussing your daughters’ futures.

--I missed something last week I just need to insert for the archives (and future research), the important statistic that Best Buy’s December same-store sales fell 4%, which wasn’t as bad as some analysts feared, but Best Buy overall is facing stiffer competition from the likes of Amazon and Wal-Mart.

--What a mess…the opening for the Broadway version of “Spider-Man” has been pushed back again, now to March 15, with a co-producer saying, “We simply need more time to fully execute the creative team’s vision before freezing the show.” I have tickets for prior to this new date and I’m not happy.

--So I switched to Nestle Pure Life from Poland Spring water and I really can taste the difference. And the water source is Allentown, Pa.! But you see, kids, Nestle uses “reverse osmosis” in its purification process. Why that’s enough for me.

--I noted a few weeks ago that I’ve never invested in Amazon because of its valuation, which of course has cost me, but that the shares almost always corrected a little post-holidays and that has not been the case the first two weeks of 2011…so…just for the record, Amazon finished up 2010 at $180 and is $188.75 as of Friday’s close.

--It’s been a long time since I mentioned the Lucent lawn indicator. For 16 years I lived a few blocks from the old Bell Labs headquarters in Murray Hill, N.J., and when it became Lucent and as the company had all kinds of problems after the tech bubble burst, the vast lawn always looked like crap as the company clearly wasn’t spending any money on upkeep.

So I drive by on Tuesday, before our latest snowstorm hit, and I was startled. There was still snow on the ground leftover from the Christmas blizzard, but there were big landscaping vehicles ripping it up! Why this bears watching. The Murray Hill site is now officially Alcatel-Lucent Bell Labs. I might have to get our own Dr. Bortrum, who called it home for 30 years or so, to snoop around. I’ll get you some snowshoes, Bortrum.

--U.S. News & World Report’s newsletter had an extensive story on bed bugs and how the concerns are real. I’ve told you that the easiest thing you can do is put your suitcase on the rack provided and whatever you do don’t put the bag on the floor. But I didn’t realize the best place is actually the floor of the bathroom… “since bedbugs dislike linoleum and tile.”

Also, when you get home make sure you immediately wash your clothes in hot water “and vacuum suitcases.” Shares in Black and Decker should soar. And change the Dustbuster name to BedBugBuster. [Uh oh…then what do you do with the bugs thus collected in your BedBugBuster? Never mind.]

“Mayor Michael Bloomberg released a 23-step plan Friday (Jan. 7) to overhaul civil service work rules and make it easier for the city to fire and discipline workers – drawing immediate fire from municipal union leaders.” [Crain’s New York Business]

--My portfolio: I’ve had a good run the past 5-6 months. I’m holding my remaining position in the uranium company that operates out of Texas after selling the first 2/3s for a 133% profit. I’ve told you of a rare earth company I’ve been building a position in and this week the Canadian/Russian outfit had a very positive announcement on future production at some former Soviet properties and it’s up 100% in just a few months. I’ve been building a position in a Chinese organic food company and am even on this one, but it is so thinly traded it often takes me a full day to get the price I want. And then there’s the specialty chemical/biodiesel play in Fujian (the big enchilada) and the company has been making some significant moves on the corporate governance front, adding two Americans to the board and placing one in charge of a new audit committee. This is very positive, but the stock is kind of stuck in neutral until it announces fourth quarter numbers which won’t be for another few months (it’s also the annual report so it takes longer). Maybe they’ll preannounce, but I have no inside scoop on this (which of course would be illegal if they gave it to me…especially seeing as how I own a sizable percentage of the shares). So overall, I’m happy. I just need the China economy to hang in there and for our two nations to get along reasonably well for two years and the hoped for payoff.

[As to the Chinese travel company I told you about, it’s up 40% but I have not added to my position because I want to go over there first and I’m holding off on making the trip. As I mentioned when I first got into it, if it runs away from me, so be it. I just don’t feel like taking such a long flight after my extensive travels last fall.]

Foreign Affairs

Pakistan: Vice President Biden warned the government it had to fight religious extremism after the assassination of Salman Taseer, the provincial governor of Punjab.

But it’s incredibly depressing that the volume of support for the man who killed Taseer is as high as it is and it calls into question the safety of Pakistan’s nuclear arsenal. The killer, Qadri, has been showered with praise. Yet for Qadri to have received security clearance to be Taseer’s bodyguard, you wonder how many extremists around the nuclear program have the same. But if you’re thinking there could be a military coup, they actually have it good. The United States is pumping $billions into the Pakistani Army while they can sit back and watch the civilian government catch all the flak.

David Sanger of the New York Times goes so far as to say the assassination of Taseer proves “that a civil war is underway in Pakistan, one not confined to the border regions where the Taliban and al-Qaeda operate….the battle is joined between those Pakistanis who believe their nation should be essentially a secular Islamic state, and religious extremists with visions of taking over the country.”

Fareed Zakaria writes in an op-ed for the Washington Post:

“Just as troubling is that in the wake of the assassination, Pakistan’s liberals and moderates have been silent and scared. Taseer’s only ally in parliament, Sherry Rehman, has gone underground. While mullahs, politicians and even some journalists openly declare that Taseer’s murder was justified because of his liberal views, few speak out in support of him. That is the dilemma of Pakistan’s society: Islamic extremist parties have never gotten more than a few percent of the public’s votes, yet elites bow to the bigots. Taseer was a charismatic and popular politician. His enemies were unelected thugs. He had the votes, but they had the guns. Ever since the 1970s, when then-dictator Muhammad Zia ul-Haq decided that the military gained credibility by allying with Islamic radicals, the country’s political institutions have been deeply compromised by extremism.”

“The Islamists aren’t an enemy of the state – they virtually are the state.”

I mean, again, guess how many came out to support the assassin? Try “tens of thousands,” while 500 Islamic scholars praised Qadri’s action.

This nation’s total collapse would appear to be far sooner than even I might have thought.

Iran: Talks over Iran’s nuclear program are scheduled again for this week in Istanbul. Iran said it was the West’s “last chance” as Iran’s ambassador to the International Atomic Energy Agency said that once Iran is able to make its own fuel for a medical research reactor, it may not see a need for further discussions. Another official said Iran had continued to make big advances in its program, a probable exaggeration meant to gain leverage in talks.

But by many accounts Iran continues to have major problems with its centrifuges, including breakdowns, technical difficulties, the impact of the Stuxnet computer virus, and a lack of supply of a certain kind of steel needed to make new centrifuges to replace the old or broken down ones. Many have reached the conclusion that the West has bought a lot more time than once thought, which if true is good. It’s just that Western intelligence has been sorely lacking in so many instances the past decade or so.

Israeli Prime Minister Benjamin Netanyahu also disputed former Mossad head Meir Dagan’s appraisal that Iran is incapable of getting the bomb until about 2015.

“I think that intelligence estimates are exactly that, estimates,” Netanyahu said. “They range from best case to worst case possibilities, and there is a range there, there is room for differing assessments.”

Speaking of Israel, the European Union and Washington are pushing for it to stop putting up new settlements in disputed East Jerusalem, which in any successful negotiations is slated to become the capital of a Palestinian state. The EU, among many steps it is taking, is recommending that Jewish settlers with a record of violence be barred from entering EU countries.

Palestinian chief negotiator Saeb Erakat said: “While Netanyahu continues his public relations campaign regarding the peace process, on the ground he is rapidly moving to prevent the establishment of a sovereign Palestinian state.”

Secretary of State Hillary Clinton said: “(This) move contradicts the logic of a reasonable and necessary agreement between the parties on the status of Jerusalem.”

So the Palestinians are now demanding a U.N. resolution ordering Israel to stop all settlement activities after the Obama administration failed to accomplish this, while Chile became the latest Latin American country to officially recognize Palestinian statehood, though Chile’s statement acknowledged Israel’s right to security. Nonetheless, this is significant because Chile has a right-leaning government, as opposed to the leftists who have recognized Palestinian statehood thus far; Brazil, Argentina, Uruguay, Bolivia and Ecuador.

On another issue in Israel, opposition Kadima party leader Tzipi Livni, stated:

“An evil wave has been sweeping over the country. The Natanyahu-Lieberman government fans the flames of fire, either alone or in partnership with some Knesset members. I object to the activity of these [left-wing] organizations, and will criticize them while acting against foreign interference, but we have a duty to stand up against this wave. Stopping this evil wave is not only the duty of the left but of all those who are committed to Israel and its values.”

Lieberman has attacked left-wing NGOs (non-government organizations) and defended his party’s initiative to go after left-wing groups, saying such “organizations help terrorists.”

Another parliament member said of Lieberman’s efforts, “It is the duty of the democratic camp to join an intense public reaction” against Lieberman’s comments.

Dov Hanin added: “Incitement against human rights organizations grows from day to day. Lieberman and Netanyahu are responsible for the dangerous attack on democracy and the potentially serious consequences of this. If we do not protect democracy now – there will be no democracy to protect us later.”

Along these lines, reader Bob S. passed along a piece from AFP concerning a recent topic of mine; the situation involving the ultra-Orthodox in the country.

“Israel’s cabinet on Sunday voted to double the number of ultra-Orthodox Jewish men called up for compulsory military service, a move described as revolutionary by Prime Minister Benjamin Netanyahu.”

But this move is not about the number of far-right soldiers who would be enforcing the dismantling of settlements, for example, which I’ve said would lead to insubordination, but rather the issue of how many of the ultra-Orthodox aren’t working and just living off handouts granted by the state that go back to post-Holocaust/Israeli independence days, when the new state was in need of such religious leaders whose population had been decimated during World War II.

Most, I recently wrote, were exempted from military service on the grounds of full-time religious study but Netanyahu is actually taking a reasoned step to bring those in the ultra-Orthodox community more into the mainstream. In the military they will perform “alternative forms of national service outside the military” such as working in hospitals and the police force.

But this is different from the growing far-right influence in the IDF that many Israelis find so troubling.

Iraq: After I went to post last Saturday morning, the full extent of radical cleric Moqtada al-Sadr’s first comments on his return from self-imposed exile in Iran that day became clearer. 

Sadr started out by blaming U.S. troops for the sectarian slaughter in Iraq and he asked his followers to denounce both the U.S. and Israel.

He did say, however, that “The Iraqi government has been formed. If it serves the Iraqi people, and provides services, we will stand by it....we must give it a chance.”

But if it doesn’t, “there are political – only political – ways to reform the government.”

What? No arms? Why Moqtada, you’ve changed!

“(We) target only the occupier with all the means of resistance. We are still resisters and we are still resisting the occupier militarily and culturally and by all the means of resistance.”

Ah, but “The resistance does not mean that everyone can carry a weapon. The weapon is only for the people of the weapons” – fighters. [Sources: Los Angeles Times, BBC, AP]

It’s not known if Sadr is even sticking around or heading back to Iran.

[I see on Sat. morning that 12 militants tied to al-Qaeda simply walked out of a prison in Basra.]

Afghanistan: Vice President Joe Biden traveled here after meetings in Pakistan and told the Kabul government, ‘Hey, you know that 2014 deadline for all NATO forces to leave? If you still need us, we’ll stick around.’ That’s our Joe!

North Korea: Defense Sec. Gates said disarmament talks with North Korea are only possible if Pyongyang backs off its recent aggression and demonstrates it is prepared to act in good faith.

“When or if North Korea’s actions show cause to believe negotiations could be productive or conducted in good faith, then we could see a return” to six-party talks. South Korea’s defense minister told Gates he feels like his country is under attack. Kim Kwan-Jin said, “Many expect North Korea to conduct more provocation this year.”

Gates later discussed in Japan that “North Korea’s ability to launch another conventional ground invasion is much degraded from even a decade ago, but in other respects it has grown more lethal and more destabilizing,” referring to its missile technology, and posed a direct threat to the U.S. in five years.

Russia: The Russian branch of Amnesty International expressed concern over the growing number of “arbitrary restrictions of the right to freedom of assembly” and the “increasingly harsh sentencing to which peaceful protesters are being subjected by the authorities in Russia.” Former Deputy Prime Minister Boris Nemtsov was detained on New Year’s Eve for “disobeying police” and is serving 15 days in jail.

Britain: The London Times released an extensive investigation on how hundreds of young British girls have been sexually exploited by “criminal pimping gangs.”

“Most of the victims are white and most of the convicted offenders are of Pakistani heritage, unlike other known models of child-sex offending in Britain.”

Of 56 arrested, three were white, 53 were Asian. Of those, 50 were Muslim and a majority were members of the British Pakistani community.

Former British home secretary Jack Straw accused some Pakistani men in Britain of seeing white girls as “easy meat” for sexual abuse.

“We need to get the Pakistani community to think much more clearly about why this is going on and to be more open about the problems that are leading to a number of Pakistani heritage men thinking it is OK to target white girls in this way.”

“These young men are in a western society, in any event, they act like any other young men, they’re fizzing and popping with testosterone, they want some outlet for that, but Pakistani heritage girls are off-limits and they are expected to marry a Pakistani girl from Pakistan, typically,” he said. So they seek other avenues and now the Times has uncovered the result. Needless to say it’s a sensitive topic in Britain. Straw showed courage in speaking out the way he did.

Tunisia: President Ben Ali, 74, has been in power for 23 years and this week the citizenry announced they had had enough. Frustrations among the young, clamoring for jobs, boiled over and at least 25 were killed in rioting that was watched closely across the region. Riots in Algeria were for similar reasons.

So Ben Ali finally took to the airwaves and promised his people he would not run again when his term expires in 2014. It was evidently an emotional speech and he blamed those he said had tricked him.

“I have been deceived, they deceived me. I am not the sun which shines over everything….I won’t accept that another drop of blood of a Tunisian be spilled.” [Daily Star]

For a few hours the people celebrated, then they resumed their protests. Ben Ali must go, they shouted. On Friday, a declaration of a state of emergency was suddenly called, the prime minister assumed power, and Ben Ali fled to Saudi Arabia.

The army took control of security and gatherings of more than three people are banned. To be continued.

Brazil: Over 500 have died in flooding and mudslides near Rio de Janeiro amid torrential downpours that equaled months worth of normal rainfall.

Australia: We wish our Aussie friends the best in the unbelievable cleanup operation to come in cities like Brisbane. The depression at times will be severe. It’s bad enough to have to deal with a flooded home. It’s even worse that many homeowners will find poisonous snakes and insects in them. 

And I can’t imagine how awful the coastal waters will be in some spots with the runoff of sewage, debris and toxic chemicals.

But as an editorial in the London Times said of their cousins, Australia will benefit from its characteristic fortitude in the months to come.

“As Charles M. Schulz, the creator of Peanuts, once quipped: ‘Don’t worry about the world coming to an end today. In Australia, it’s already tomorrow.’”

Haiti: This week marked one year since the earthquake that has claimed 316,000 lives and reconstruction is going poorly. The prime minister has criticized international donors for slow progress in meeting its obligations, but I would say to the gentleman, Mr. Bellerive, what of the $1 billion that is unaccounted for?

Mexico: No wonder cruise ship traffic out of Los Angeles is dropping. Would you want to take one that included a stop in Acapulco these days? It was last Saturday that the bodies of 30 were found there, 15 of them sans heads, though to be fair most of the violence (but far from all) in this resort is on the outskirts and away from the tourist strip. The Sinaloa cartel claimed responsibility. Overall, the drug war in Mexico claimed a staggering 15,273 lives last year, or roughly three times U.S. deaths in Iraq and Afghanistan, combined, for the entire length of those conflicts.

Random Musings

--A USA TODAY/Gallup Poll found that 53% reject the suggestion that inflammatory political language by well-known conservatives was partly responsible for the Tucson tragedy. 35% said it was a legitimate point about how dangerous language can be. 72% say stricter gun-control laws in Arizona wouldn’t have prevented it. The poll was taken Tuesday.

Meanwhile, 53% say Republicans and their followers have gone too far in using inflammatory language to criticize their political opponents, and 51% say that of Democrats and their followers. 49% say the Tea Party has gone too far, though you can see the differences with the other two aren’t statistically significant.

--And so let’s talk about Tucson and the shooting that claimed six lives and wounded Arizona Democratic Congresswoman Gabrielle Giffords.

I’m the guy whose mantra is “wait 24 hours.” Oh, how I wish in times like this everyone else would follow the rule. Had the shooting occurred on Friday afternoon, as I was writing my column (rather than Saturday after I had posted), I can guarantee I would have written, “You know my rule…I refuse to comment on this until more facts are in.”

I’ll never forget 9/11 from a site standpoint. My traffic that day soared to levels I know I haven’t hit since…like at least ten times normal. But that was a Tuesday, you’ll recall, and I made one of the smarter decisions of my life, even if it cost me readers. I said I wouldn’t comment until the normal Saturday write-up. Think back to all the false information and rumors (like bombs going off in D.C.) that people were putting out there and fanning.

I’d like to think that if I was doing this back in the day of the Oklahoma City bombing, I would have reacted the same way. Wait 24 hours. Remember the initial reaction to that one? It had to be Islamic extremists. Just had to be.

Saturday afternoons, for maybe 4 or 5 hours, I try not to turn the news on or check the Web for anything but sports. It’s the one little break from the grind I afford myself all week. And so I didn’t know for about five hours what had happened in Tucson and when I found out I hope you understand when I say I wasn’t in the least bit shocked or surprised. I didn’t have a pit in my stomach, or shed a tear. [With Oklahoma City, on the other hand, I’ll never forget how I was at a conference and learned of the bombing before I was to give a presentation and that was as sick I’ve felt about anything, save 9/11, in my life. It’s why I’ve been to OKC twice to pay my respects.]

What Jared Loughner did was the act of a deranged man. But on Saturday night and Sunday I listened to the rhetoric that was streaming through the airwaves and it was absurd, and unbelievably irresponsible, such as that coming from Pima County Sheriff Clarence Dupnik (D):

“The anger, the hatred, the bigotry that goes on in this country is getting to be outrageous, and unfortunately Arizona has become sort of the capital. We have become the mecca for prejudice and bigotry.”

First off, I’ve been to Arizona a bunch of times and love the state. Good people. [And one of the coolest museums in the world…the Sonora Desert Museum outside Tucson…the views from which are classic Western movie vistas.]

I know Arizona has some very serious issues, starting first and foremost with immigration and the crime that has inflicted some border towns as well as Phoenix and Tucson. 

But in those first 24 hours I just wanted to scream, ‘Geezuz, would you shut up and just wait for a few facts to emerge before you start blaming every card-carrying conservative or Tea Partier?!’

Thankfully, we had some leaders in Washington who set the proper tone…namely President Obama and Speaker Boehner.

The Wall Street Journal also put things in proper perspective as the week went on.

“On all available evidence, Jared Lee Loughner is a mentally disturbed man who targeted Congresswoman Gabrielle Giffords and anyone near her in Tucson on Saturday because she was prominent and they were tragically accessible. He joins Sirhan Sirhan, John Hinckley Jr. and many others whose derangement led them to horrible acts of violence. Whatever confused political motives he expressed seem merely to be part of the maelstrom of his mental sickness.

“In a better world, no one would attempt to exploit his madness for political gain. We would instead focus on the contributions of Ms. Giffords, by all accounts a laudable public servant….

“But the shooting news had barely hit the wires on Saturday before the media’s instant psychoanalysis put the American body politic on the couch instead of Mr. Loughner. ‘Bloodshed Puts New Focus on Vitriol in Politics,’ declared a story in the New York Times, which focused primarily on the tea party and Sarah Palin in the context of mass murder.”

“President Obama rose to the occasion yesterday evening at the memorial ceremony for the victims of Saturday’s murders in Tucson, not least because he spoke to the better angels of our democracy.

“To an audience seeking consolation, the President honored the lives of the slain, praised the heroism of those who saved lives, in some cases by sacrificing their own, and wisely explained that some acts of violence are not subject to easy blame, much less partisan explanation.

“ ‘But at a time when our discourse has become so sharply polarized – at a time when we are far too eager to lay the blame for all that ails the world at the feet of those who think differently than we do – it’s important for us to pause for a moment and make sure that we are talking with each other in a way that heals, not a way that wounds,’ Mr. Obama said.

“ ‘Scripture tells us that there is evil in the world, and that terrible things happen for reasons that defy human understanding. In the words of Job, ‘when I looked for light, then came darkness.’ Bad things happen, and we must guard against simple explanations in the aftermath.’

“This is good counsel, and we take it as an implicit rebuke of those who have sought to blame Jared Loughner’s violence on the give and take of democratic debate. We can hope those voices will be embarrassed enough from now on to keep silent.

“Mr. Obama’s invocation of the example of nine-year-old victim Christina Taylor Green was especially moving, as he asked Americans ‘to live up to her expectations,’ adding that ‘I want our democracy to be as good as she imagined it.’ So do we all.”

I also agree with Charles Krauthammer’s instant analysis on Fox after Obama’s speech that “I wouldn’t underestimate the impact.”

And I liked Speaker Boehner’s line from the House floor, “We (the People) will have the last word.”

--But for the record I want to submit the thoughts of a few others over the debate that ensued following the shootings.

“(Since) we really don’t know a thing about Loughner’s motivations, the chattering-class conversation quickly came to center in the hours after the event on the notion that he had emerged like an evil Golem from the clay of the ‘violent rhetoric’ of the political discussions of the last few years.

“This led to some moments of comic interest, as when Keith Olbermann, apparently having forgotten his 15-minute rants against George W. Bush for destroying democracy, demanded an end to incendiary rhetoric in politics.

“The novelist Ayelet Waldman asked me on Twitter to inform her of the occasions on which I had denounced violent rhetoric only an hour after she had demanded of the House speaker, ‘Crying yet, you sc—bag?’ and referred to the ‘evil political hackery of the RNC.’ She is, she wrote, ‘a Jew with a sense of history,’ though evidently that sense of history lasts approximately the time it takes to write a tweet.”

Podhoretz commented in a separate op-ed following Obama’s speech.

“Never before in the annals of national moments of mourning have the words spoken been so wildly mismatched by the spirit in which they were received.

“The sentences and paragraphs of President Obama’s speech last night were beautiful and moving and powerful. But for the most part they didn’t quite transcend the wildly inappropriate setting in which he delivered them.

“There was something about the choice of place, a college arena with the appropriate name of the McKale Memorial Center that made the event turn literally sophomoric….

“(The) president’s stunning speech was marred by the feeling of the evening that surrounded it and the appalling behavior of the crowd in Tucson listening to it.

“It was as though no one in the arena but the immediate mourners and sufferers had the least notion of displaying respectful solemnity in the face of breathtaking loss and terrifying evil….

“There’s been a great deal of talk in the wake of the massacre about the need for a national conversation about civility. Maybe what we need is a national conversation about elementary manners.”

“The charge: the Tucson massacre is a consequence of the ‘climate of hate’ created by Sarah Palin, the Tea Party, Glenn Beck, Obamacare opponents and sundry other liberal bêtes noires.

“The verdict: Rarely in American political discourse has there been a charge so reckless, so scurrilous and so unsupported by evidence.

“As killers go, Jared Loughner is not reticent. Yet among all his writings, postings, videos and other ravings – and in all the testimony from all the people who knew him – there is not a single reference to any of these supposed accessories to murder.

“Not only is there no evidence that Loughner was impelled to violence by any of those upon whom Paul Krugman, Keith Olbermann, the New York Times, the Tucson sheriff and other rabid partisans are fixated. There is no evidence that he was responding to anything, political or otherwise, outside of his own head.”

“It would be merciful if, when tragedies such as Tucson’s occur, there were a moratorium on sociology. But respites from half-baked explanations, often serving political opportunism, are impossible because of a timeless human craving and a characteristic of many modern minds.

“The craving is for banishing randomness and the inexplicable from human experience. Time was, the gods were useful. What is thunder? The gods are angry. Polytheism was explanatory. People postulated causations.

“And still do. Hence: The Tucson shooter was (pick your verb) provoked, triggered, unhinged by today’s (pick your noun) rhetoric, vitriol, extremism, ‘climate of hate.’….

“Last year, New York Times columnist Charles Blow explained that ‘the optics must be irritating’ to conservatives: Barack Obama is black, Nancy Pelosi is female, Rep. Barney Frank is gay, Rep. Anthony Weiner (an unimportant Democrat, listed to serve Blow’s purposes) is Jewish. ‘It’s enough,’ Blow said, ‘to make a good old boy go crazy.’ The Times, which after the Tucson shooting said that ‘many on the right’ are guilty of ‘demonizing’ people and of exploiting ‘arguments of division,’ apparently was comfortable with Blow’s insinuation that conservatives are misogynistic, homophobic, racist anti-Semites.

“On Sunday, the Times explained Tucson: ‘It is facile and mistaken to attribute this particular madman’s act directly to Republicans or Tea Party members. But…’ The ‘directly’ is priceless….

“This McCarthyism of the left – devoid of intellectual content, unsupported by data – is a mental tic, not an idea but a tactic for avoiding engagement with ideas. It expresses limitless contempt for the American people, who have reciprocated by reducing liberalism to its current characteristics of electoral weakness and bad sociology.”

As for Sarah Palin and the efforts to demonize her, and then her own insertion of foot in mouth, I’ve said my piece on this woman. She had a 50% “disapproval” rating in some polls before Tucson, which is astounding given a politician of her stature, and that figure certainly isn’t going to improve with her video.  The clock on her gig is approaching midnight. Her 58 minutes of fame has but two left.

--On the first business day following the Tucson shooting, handgun sales exploded in many states, including Arizona. Needless to say many of them were the Glock 9mm, also used by the Virginia Tech killer. Gabrielle Giffords once billed herself as a “Glock-carrying Democrat.” 

But for some of us the big mystery is why the manufacturer of the Glock sells 30-round magazines to civilians.

--In 2010, New York City police shot fewer people, just eight fatalities, than in any year since they started keeping records four decades ago. By comparison, the year the police began detailing shootings, the NYPD shot and killed 93 people. Police commissioner Ray Kelly says that when he joined the force in 1967, police shot 200 to 300 people annually, but this was a time when groups like the Black Panthers were targeting cops. “Every job you went out on you were concerned about an ambush,” Kelly said. [Wall Street Journal]

--Jeffrey Goldberg has a story in the January/February issue of The Atlantic that should scare everyone. It concerns the lack of security at “general aviation” airports. For example, a place like Teterboro Airport, situated in the New Jersey Meadowlands, with general being a euphemism for “private.”

Goldberg was in Manhattan, taping The Colbert Report, and a friend afterwards offered him a ride home to Washington, D.C., on a private plane that evening out of Teterboro, which is about a 20-minute ride from midtown Manhattan if the traffic cooperates.

So Goldberg and his friend drive up to the airport gate. 

“A private security guard asked my friend for the tail number of our plane. He provided the number – or he provided a few digits of the number – and we were waved through, without an identification check. The plane, I should point out, didn’t belong to my friend; it belonged to a company with which my friend’s business does business. We drove to the terminal – operated by Signature Flight Support, a leading provider of general-aviation services – where we met our co-pilot, who escorted us to the plane.

“ ‘Okay, the e-mail must have gotten cut off or something.’

“We continued to the plane. I asked my friend – let’s refer to him as ‘Osama bin La’ – if there would be any security check whatsoever before we went wheels-up. He laughed. ‘I think the law says we have to pat each other down.’

“ ‘ Do these pilots know you well?’ I asked. ‘Is that why they trust you to bring me along?’

“He first met them that morning, he said, when they flew him to Teterboro.

“We climbed aboard the eight-seat twin-engine plane. The pilot greeted us, took my bag from me, and placed it on a seat. I noticed that no door separated the cabin from the cockpit.

“We took off a few minutes later and headed south, in the direction of the Pentagon, the White House, and the United States Capitol complex.

“ ‘So let’s just say that I’m a terrorist pilot,’ I said, ‘and I have a bag filled with handguns and I shoot these two pilots and then I take control of the plane and steer it into the headquarters of the CIA,’ near which we would soon be flying. ‘What’s stopping me?’

“ ‘There’s nothing stopping you,’ my friend said. ‘All you need is money to buy a plane, or a charter.’”

As Mr. Goldberg put it, luckily for America he wasn’t a terrorist.

--With all my musings on the handling of New York City’s blizzard, how about the situation in Atlanta this week? The city has 10 snowplows? [Some stories said 8.] Granted, it was as much of an ice storm as it was snow that did the place in, but how can you excuse the busiest airport in the world not having the proper equipment on hand either? One Ohio resident stranded at Hartsfield observed, “They used things that we use for our driveways here trying to get the airport cleaned up.”

I did notice many Atlanta residents using golf clubs to break up the ice. Finally, we have an appropriate use for a 1-iron. [One of my few good golf moments in my life was a brief period about 20 years ago when I mastered hitting this club off the tee…but then poof!   It left me. Very depressing.]

--The autism vaccine hoax was officially put to bed a few weeks ago but I wanted to get the thoughts of the Wall Street Journal’s editorial board, as noted in last weekend’s edition, on the record. It isn’t a topic I followed closely except for during the years when I listened to radio’s Don Imus as his insufferable wife, Deirdre, latched on to the vaccine theory and Imus spent way too much time on the topic. I don’t listen to him anymore, but I’m assuming Deirdre Imus was muzzled.

“Twelve years late, the media and medical community may finally be digging a grave for one of the more damaging medical scares in history. The spreading of the vaccines-cause-autism panic, the burial of which cannot come too soon.

“The British Medical Journal this week published an article and editorial explaining that the 1998 study that provoked the vaccine scare was an ‘elaborate fraud.’ That study, published in the (once) respected journal ‘The Lancet,’ was by British doctor Andrew Wakefield and other researchers, who claimed that the widely used measles, mumps and rubella vaccine was linked to autism. Around the same time, U.S parents and opportunistic lawyers latched on to a related theory that vaccination shots containing a mercury compound called thimerosal caused autism.

“Despite broad evidence even in the 1990s that these claims were unfounded, the medical community was slow to push back. Nervous public-health groups inspired a panic by rushing to get thimerosal out of vaccines….

“By 2004, Britain’s immunization rates had dropped to a low of 80%; the rates have recovered only slightly. The Centers for Disease Control says that in the U.S. 40% of parents have delayed or declined at least one of their children’s shots. This has led to the needless re-emergence of once-conquered diseases.

“Measles is now endemic in England and Wales. California recently suffered a whooping cough outbreak that sickened 7,800 people and killed 10 babies….

“It took the Lancet until last year to offer a full retraction of the 1998 study, and that came only after Britain’s medical regulator had ruled that Mr. Wakefield had acted ‘dishonestly and irresponsibly.’….

“This is a start, but the health community and media have a long way to go to restore public trust in immunizations. They also bear some responsibility for the dollars that have been diverted from research into finding the real causes of the terrible affliction that is autism. Let’s hope they now broadcast the vaccine truth as much as they encouraged the vaccine panic.”

--2010 tied 2005 as the world’s warmest on record, according to the National Climatic Data Center, whose records go back to 1880. It was also the wettest year on record globally (think Pakistan and all the tropical storms…and 2011 isn’t looking good with the floods in Australia and South America).

2010 was also supposedly the 34th consecutive year where the global temperature was above average, so say the Climatic Data Center folks, but others say if you draw a trend line from the data it’s flat over the last 12 years.

--Rudy Giuliani and New Jersey Gov. Chris Christie are good friends, but in a television appearance last week, Giuliani criticized Christie for not returning from his vacation to deal with the blizzard. “They elected you governor, they’ve got an emergency, they expect you to be there.” Christie replied on a different program, “Well, he’s wrong. I mean, he’s wrong. It’s easy when you are out of office to be shooting from the peanut gallery when you no longer have any responsibility, but I have a responsibility to my family.” You know my feeling on this one. State trumps family, Governor.

--Former U.S. House Majority Leader Tom DeLay, a.k.a. “The Hammer”, was sentenced to three years in prison for influence peddling and conspiracy to commit money laundering for using a political action committee to illegally send corporate donations to Texas House candidates in 2002. DeLay is appealing.

--I was reading a piece in Smithsonian on the American presidency and this struck me in particular regarding President John F. Kennedy and the Bay of Pigs disaster. The White House issued a statement to counter perceptions of poor leadership saying, “President Kennedy has stated from the beginning that as President he bears sole responsibility.” Then JFK declared, “I’m the responsible officer of the Government.”

So the nation rallied behind him and “two weeks after the debacle, 61% of the respondents to an opinion survey said that they backed the president’s ‘handling [of] the situation in Cuba,’ and his overall approval rating was 83%. Kennedy joked, ‘The worse I do, the more popular I get.’

“Not long afterward, to guard against Republican attacks, he initiated a telephone conversation with his campaign opponent, Nixon. ‘It really is true that foreign affairs is the only important issue for a President to handle, isn’t it?’ he asked rhetorically. ‘I mean, who gives a s--- if the minimum wage is $1.15 or $1.25, in comparison to something like this?’”

And that’s why I spend so much time on foreign affairs, sports fans!

--So you know how in the aftermath of the Christmas blizzard I ranted about the idiots calling 911 in New York City instead of 311 (designated for non-emergencies), which then flooded the system and played a role in at least two deaths? The January 9 edition of the New York Post highlighted some of these folks who really should have their Human Being membership cards taken away.

“(One) EMS unit got called to a family home in Brooklyn for a sick kid – but it turned out the parents’ primary complaint was that their son wouldn’t do his homework. They hoped the EMTs could force him to finish it.

“Other crazy calls included one from a Bronx man with stomach pains who eventually admitted to medics that ‘he’d eaten a pizza with everything on it about 20 minutes ago,’ said one EMT. The patient needed antacids….

“A Staten Island resident waiting two hours for a bus called 911 because ‘he was freezing,’ an EMS worker said.

“Crews showed up to the stop on Bradley Avenue, and the man wanted to sit in the ambulance and warm up, the workers said….

“Another caller stubbed his toe and told EMTs ‘it’s been hurting for over an hour.’

“There was even a call for difficulty breathing that turned out to be a young Brooklynite who had a stuffy nose.

“ ‘He kept complaining to us that he could only breathe out of one nostril,’ said an EMT, who estimated about 25% of the 911 calls he handled over the three days of the storm were ‘for absolute b.s.’”

God was no doubt just looking down on this all and shaking his head. ‘I sent New York a blizzard to test their emergency preparedness and some of these fools react like this?’ He mused. ‘No more World Series for the Yankees.’ [Well the players are always thanking God!]

--NASA astronomers have found “the first indisputably rocky planet outside our solar system, lifting expectations that planets with rocky cores like Earth fill many alien solar systems.” [USA TODAY]  

Identified by the Kepler space telescope, it’s been dubbed Kepler-10b. 

Send me! Send me!

Oops, it’s 560 light-years away, or 560 Xs 5.9 trillion miles. Sorry, I have other stuff to do I now realize.

But next time you’re looking up in the sky, realizing how truly insignificant you are, consider that the $600 million Kepler spacecraft, launched in 2009, “relies on a wide-field camera capable of looking at 170,000 stars at once within 3,000 light-years of Earth. The spacecraft watches for regular drops in light from those stars, triggered by planets orbiting in front of them.”

And so we thank our astronomers and scientists for bringing us such wonders.

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

Gold closed at $1361
Oil, $91.67

Returns for the week 1/10-1/14

Dow Jones +1.0% [11787]
S&P 500 +1.7% [1293]
S&P MidCap +2.3%
Russell 2000 +2.5%
Nasdaq +1.9% [2755]

Returns for the period 1/1/11-1/14/11

Dow Jones +1.8%
S&P 500 +2.8%
S&P MidCap +2.6%
Russell 2000 +3.0%
Nasdaq +3.9%

Bulls 57.3
Bears 19.1 [Source: Chartcraft / Investors Intelligence…the spread between the two is back to worrisome levels for contrarians, but this is but one indicator, as we’ve seen for some time now.]

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