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For the week 8/29-9/2
Washington, Europe and Irene
It could be quite a week in the markets coming up, worldwide, as Congress is back; President Obama totally misuses the traditional forum of a nationally televised address to a joint session of the House and Senate to spell out a jobs program that now, over 2 ½ years into his term, is the one that will save us; and Europe has all kinds of important events as it struggles to maintain the union amidst its sovereign debt crisis.
As for Obama’s speech, which will now air right before Opening Night for the NFL and be filled with his now standard boilerplate garbage, we’re told the speech will contain three main components; an increase in infrastructure spending, for which it shouldn’t be difficult to identify new projects (just follow the path of Hurricane Irene), an aggressive plan to deal with housing foreclosures, and more clean energy boondoggles (see Street Bytes and the failure of Solyndra).
No doubt, some of what will be proposed is needed. I mean it’s kind of important if a bridge between two communities that have been around for centuries suddenly goes out, or is about to. And there will be no sustainable economic recovery without the same in housing.
But we can’t have another series of failures as we’ve witnessed since the Obama administration came into office (and on other fronts back to the George W. Bush era).
Nobel Prize-winning economist Gary Becker, who was long one of my favorites when he penned a regular column for the old BusinessWeek, could not have been more spot on than he was in a Wall Street Journal op-ed this week.
“This recession might well have been a deep one even with good government policies, but ‘government failure’ added greatly to its length and severity, including its continuation to the present. In the U.S., these government actions include an almost $1 trillion in federal spending that was supposed to stimulate the economy. Leading government economists, backed up by essentially no evidence, argued that this spending would stimulate the economy by enough to reduce unemployment rates to under 8%.
“Such predictions have been so far off the mark as to be embarrassing. Although definitive studies are not yet available about the stimulus package’s overall effects on the American economy, most everyone agrees that it was badly designed and executed. What the stimulus did produce is a sizable expansion of the federal deficit and debt….
“The expansion of government resulting from the stimulus and other government programs contributed to rising deficits and growing public debt just when the U.S. faced the prospect of big increases in future debt due to built-in commitments to raise government spending on entitlements. Social Security, Medicaid and Medicare already account for about 40% of total federal government spending, and this share will grow rapidly during the next couple of decades unless major reforms are adopted.
“A reasonably well-functioning government would try to sharply curtail the expected growth in entitlements, but such reform is not part of the budget deal between Congress and President Obama that led to a higher debt ceiling. Nor, given the looming 2012 elections, is such reform likely to be addressed seriously by the congressional panel set up to produce further reductions in federal spending.
“It is a commentary on the extent of government failure that despite the improvements during the past few decades in the mental and physical health of older men and women, no political agreement seems possible on delaying access to Medicare beyond age 65. No means testing (as in Rep. Paul Ryan’s budget roadmap) will be introduced to determine eligibility for full Medicare benefits, and most Social Security benefits will continue to start for individuals at age 65 or younger.
“In a nutshell, there is little political will to reduce spending on entitlements by limiting them mainly to persons in need.
“State and local governments also greatly increased their spending as tax revenues rolled in during the good economic times that preceded the collapse in 2008. This spending included extensive commitments to deferred benefits that could not be easily reduced after the recession hit, especially pensions and health-care benefits to retired government workers.
“Unless states like California and Illinois, and cities like Chicago, take drastic steps to reduce their deferred spending, their problems will multiply as their spending grows over time. A few newly elected governors, such as Scott Walker in Wisconsin, have pushed through reforms to curtail the power of unionized state employees. But most other governors have been afraid to take on the unions and their political supporters….
“The lesson is that it is crucial to consider whether government regulations and laws are likely to improve rather than worsen the performance of private markets. In an article ‘Competition and Democracy’ published more than 50 years ago, I said ‘monopoly and other imperfections are at least as important, and perhaps substantially more so, in the political sector as in the marketplace….Does the existence of market imperfections justify government intervention? The answer would be no, if the imperfections in government behavior were greater than those in the market.’
“The widespread demand after the financial crisis for radical modifications to capitalism typically paid little attention to whether in fact proposed government substitutes would do better, rather than worse, than markets.
“Government regulations and laws are obviously essential to any well-functioning economy. Still, when the performance of markets is compared systematically to government alternatives, markets usually come out looking pretty darn good.”
So we await the president, and then the supercommittee of 12 House and Senate members that must begin deliberations by Sept. 16 and come up with a deficit reduction plan of at least $1.2 trillion by Nov. 23.
And then you’ve got an increasingly contentious Federal Reserve, with some members upset Chairman Ben Bernanke set a specific time period for keeping interest rates at zero, and with an important two-day meeting coming up Sept. 20-21. Can Bernanke offer another quantitative easing program, QE3? What are these mystery tools he is said to possess? Targeting the 10-year and taking it to zero, too? Continuing to screw savers who now need to live to be 6,875 in order to double their money? [Just having fun with you ‘rule of 72’ junkies out there.]
Appearing on CNBC about ten days ago, one of my other favorite economists, Stephen Roach, blasted Bernanke for QE2, saying it “failed.” “Yeah, there was a pop in the stock market but the jobless problem is more severe than anyone thought.”
I didn’t see if Mr. Roach commented after Friday’s jobs report for August, but I imagine he had a look of disgust (as only he can come up with…love the guy) when the report revealed… unchanged! As in zero jobs created and a big revision down on the previous two months as well. The unemployment rate also remained unchanged at 9.1%, though we all know the unofficial rate is far higher.
It is sickening what is happening in this country. No doubt, some of us made some very poor decisions with our finances, but the great Middle Class that has long been the bulwark is sliding into the abyss.
Ditto the middle class in Europe. But aside from large reductions in pensions and social services as a result of needed austerity programs, Europe has an issue the United States has largely escaped; transparency, or lack thereof. For all the faults of the U.S. banking system, I at least have some confidence (call it a modicum) that our financial institutions are fairly transparent, post-Lehman et al.
This is far from the case in Europe, as was pointed out this week when a shouting match broke out between the International Monetary Fund, the International Accounting Standards Board (IASB) and the European Central Bank; the first two saying that the European banks have not been properly writing down their Greek exposure (the IASB’s chief complaint), as well as the exposure to the other PIIGS…Portugal, Ireland, Italy and Spain (the IMF’s issue). The European Central Bank defended the accounting, touting the recent stress tests…which were a freakin’ joke!
As I wrote a long time ago regarding the handling of the Euro debt crisis, it really is about as pure an example of a Ponzi scheme as you’ll ever find; good money after bad, good money after bad…with each round. You need look no further than Greece. The EU/ECB/IMF are committed to some $286 billion in further funding through 2014 for the Greeks, yet now it is possible the debt-to-GDP ratio here will near 200% in 2012! The economy is sinking deeper and deeper into the Aegean…so let’s throw more money at it!
The thing is, as I’ve been pointing out ad nauseam, you hear these numbers bandied about…the $286 billion, the $440 billion for the European Financial Stability Facility, $500 billion for a second EFSF, and so on, but none of them have actually been formally approved! Oh, sure, officials got together and okayed a structure for saving the euro-17 on July 21, but it’s not official until all 17 parliaments approve it. You’ve heard it is…but try actually finding the money for these various facilities. I’m tellin’ ya, folks, it ain’t there yet, and Greece needs gobs of it for its funding purposes this month.
Germany’s parliament, for example, doesn’t vote on the second Greek bailout and the EFSF until Sept. 29, while on Sept. 7, the German High Court is to rule on a long-running legal challenge to the financial support already provided to other European states by the German Government and the ECB. If either decision went against German participation, Katia bar the door, though this week Chancellor Merkel appeared to shore up support in parliament.
[Merkel faces key elections in her home state on Sunday, and in Berlin on Sept. 18, which will be critical to her keeping her coalition, and thus participation in the eurozone rescue, intact.]
And I haven’t even begun talking about Finland, Austria and others now wanting collateral from Greece (whose last great asset was the late-actress, Melina Mercouri, who happened to be a communist, some say socialist, but I digress) before they’ll participate in the bailout.
Or the fact Italy’s government is suddenly waffling on an austerity program, demanded by the EU and ECB, that it just approved!
Among the only people speaking the truth these days on the continent is the IMF’s new director, Christine Lagarde, who as the Financial Times editorialized, “said publicly what most policymakers have avoided addressing since the crisis began. Using her new bully pulpit…she has conceded that the common problem facing the developed world is an excessive overhang of claims on debt that financed worthless investments. These claims will have to be liquidated, and the quicker the better.
“Ms. Lagarde deserves praise for spelling out the problem and issuing a call to action. But to resolve it also requires policymakers to decide where the losses should fall. She thinks they should land on taxpayers; this is wrongheaded. She focused on two big risks: the continuing frailty of European banks, and the continuing house price falls in the U.S. and the growing number of homeowners trapped in negative equity.
“Both threaten the recovery. Doubts about the health of European banks, could, if untreated, lead to another credit squeeze. The recent round of stress tests has not dispelled fears that undercapitalized institutions have been banking on a recovery to allow them to retain sufficient earnings to repair balance sheets. Meanwhile, the U.S. mortgage mess crimps consumer spending by saddling distressed homeowners with excessive liabilities and preventing them from moving to where the jobs are.”
Just wanted to give you the FT’s opinion. The issue is taxpayers vs. private investors, assuming the latter don’t go to the rescue of the banks.
The thing is none of the above would be a concern, including debt levels in the United States, if the economy was growing. But instead of a normal post-recession recovery of 3-4 percent in the developed world, or more (see the 1980s), Europe and the United States are perilously close to tipping over again, while Japan is back in recession.
The purchasing managers’ index in the eurozone fell below the 50 dividing line between contraction and expansion, 49.0, in August, with only Germany, 50.9, among the important players above water. Italy slid to 47.0. Greece down to 43.3. Just to pick a few other Euro continent factoids…the GDP estimate for 2011 in the U.K. continues to tumble, to 1.1% by one estimate as home prices are falling along with consumer confidence. Overall, Euro business confidence is at its lowest level since December 2008. Europe is struggling due to flagging Asian demand…and on and on.
Speaking of Asia, China’s government is hell-bent on taming inflation as the Central Bank raised reserve requirements on the leading financial institutions a 12th time since the beginning of 2010 in an effort to slow the pace of lending. Premier Wen Jiabao said the slowdown in the economy is “reasonable” as the official government PMI for August came in at 50.9, though HSBC has it at 49.9.
Elsewhere, unemployment ticked up in the aforementioned Japan, South Korea is slowing, Taiwan is…they all are in the region. India’s second quarter GDP came in at a robust 7.7%, but this is still a lower figure than before. Australia’s PMI for August was 43.3 (though retail sales surprised to the upside).
Canada’s GDP for Q2 fell, albeit at an annualized rate of 0.4%, when a gain was expected. And Brazil surprised everyone when it lowered interest rates after raising them five straight times amid concerns over the global slowdown and the impact on its economy.
Even back in the U.S., where the markets took solace early in the week with better than expected manufacturing readings out of Chicago and the ISM, they were still down from the prior reporting month.
Oh, there was some decent news out of the nation’s retailers in August, at least from some of them, and auto sales for August were a little better than projected, but hardly worth opening a new dealership on.
Finally, this is how I began last week’s commentary, posted at 6:00 AM ET, about 9 hours before Hurricane Irene’s rains began to pelt the New York City area.
“As my state of New Jersey prepares for Hurricane Irene to deliver the great flood, seeing as how the ground in these parts is already saturated from about ten inches of rain the previous week, and power failures, one can only hope that the storm’s wrath doesn’t deliver a depressing knockout punch when it comes to consumer and business confidence because it’s confidence that is so lacking in supply these days, around much of the world.”
I then concluded my opening segment with the following:
“For now, however, there is nothing to turn around the crisis in confidence and events like Irene only provide more fuel for the negative feedback loop that continues to infect much of the globe.”
Frankly, I nailed the storm. And I was incensed by some of the incredibly idiotic commentary, even Sunday morning, from local and national commentators.
I knew that at least in my area, the issue wasn’t wind and whether Irene was really a Cat 1 or just a tropical storm. Hell, the previous Wednesday night I was at a picnic with some buddies from a social organization I belong to and I told them I was leaving early to go shopping for water and food, because I knew by Friday, with the hype, that at least when it came to water, the shelves would be bare (which our own Dr. Bortrum found out…to which I couldn’t help but comment, “Ph.D.’s are so overrated.” “It stands for Piled Higher and Deeper,” replied the good doctor).
Alas, that’s the last bit of levity you’ll get from me on the topic. I myself made out fine. I didn’t lose power and the raging Passaic River, which is only about 300 yards from where I reside, inflicted its damage elsewhere, as did countless other rivers across the region, on into Vermont, as we are now all too aware.
I understand why the networks placed their assets on the coast. Not much of a story to put a high-paid reporter in an interior parking lot, waiting for ponding.
But for the clueless networks to then not get the real story, let alone the absolute total numskulls writing commentary, that when you pour 8-10 inches of rain on an already saturated ground of 10 inches (in Newark it was 8 inches on top of a previous 13 for the month), all-time record levels of precipitation across the region, from Philadelphia on up the coast, that there was going to be flooding. Lots of it.
Again, I haven’t even mentioned the wind yet, because that wasn’t the big factor. Gusts of 40-50 mph were the norm in my parts, not hurricane force, but the combination with the saturated ground led to more trees coming down than in any storm in memory…on top of the massive flooding. There are people five minutes from me who are still without power as I write. And they are furious…and they have every right to be because the utilities in the Greater New York region did a terrible job. Oh, there were assets deployed from as far as Colorado, but it was clear there was little coordination with local authorities.
But I want to comment on the performance of NBC anchor Brian Williams.
I’m an NBC guy from childhood. Most people grow up with a network and tend to stick with it when it comes to the national nightly news. Monday through Friday, I watch NBC.
On Monday, Brian Williams, who is known for his sense of humor but because of this is getting way too cute for his own good (no Tom Brokaw, Walter Cronkite, or Huntley-Brinkley is he), said in his opening summarizing the newscast:
“And finally…a stunning moment from a stunning woman that has the nation talking tonight.”
Beyonce’s pregnancy, announced Sunday on the MTV Video Music Awards.
Unbelievable, on so many different levels. The entire region was suffering and this incredibly overpaid ($13 million), supposedly serious newsman had the temerity to even bring this stupid topic up, instead of, perhaps, ending the program with a story of heroism, say, in Vermont.
If you don’t get where I’m coming from, so be it. Just understand that on Wednesday, as the full impact of an entire region underwater, and with hundreds and hundreds of bridges destroyed, sunk in, Williams put on his serious face again:
“For all the people who were wondering what the fuss was about…there is this…top ten costliest storm…45 dead…”
I’m sorry, friends, but I know some of this crap was going on at the other networks as well. I just happen to watch Brian Williams every night.
[On Friday, substitute anchor Harry Smith did end the newscast with a feel-good story from Woodstock, Vermont, an awesome place, by the way.]
I could also blast the likes of the New York Times’ Henry Fountain, too, for writing the following on Sunday evening, Aug. 28.
“But Irene’s fall – from potential storm of the century to an also-ran in hurricane lore – was greater than most.”
What?! Oh, Fountain went on to point out the death toll of 16, at the time, and he was talking about the “structure” of the storm, mostly, but still incredibly insensitive.
Here’s something Trader George passed on from the Lake Placid News, a fantastic region in New York State’s Adirondacks that many of us are most familiar with.
“Tropical Storm Irene hit the town of Keene hard causing the greatest recorded damage since the mid-19th Century. Monday morning residents woke to find their fire station ripped in half, nearly a half dozen bridges washed out, homes destroyed and every town road suffering damage primarily caused by flooding. Fortunately no lives were lost, but the cost to restore public and private property will be in the $millions.”
Keene is a small place. Multiply this experience by hundreds of communities. I feel for them. I know most of you, regardless of where you live, do as well.
The confidence factor I brought up last week is obviously in play for many in the region. When the networks and the politicians leave, the depression really sets in. Few are there to help. That’s where the churches play such a huge role.
I wish I had Warren Buffett money about now. I’d visit as many as I could, give them a hug, and a big wad of cash. Alas, that would only be a pleasant dream in my case. But all of us in the northeast can reach out to someone. Before yearend I’ll try and make an impact on someone’s life in the Catskills, another area already struggling mightily that got slammed anew.
For now…keep these people in your prayers. Just as I do with those in Tuscaloosa, Joplin, farmers in Texas and Oklahoma…heck, there’s not enough time in the day to pray for everyone these days. But that doesn’t mean you can’t try.
--After a very solid start on the seemingly better economic news, including a better than expected figure on consumer spending, stocks collapsed at week’s end owing to the awful employment report and renewed concerns over Europe. The Dow Jones fell 0.4% to 11240, while the S&P 500 lost 0.2% and Nasdaq picked up a fraction, though technically unchanged.
--U.S. Treasury Yields
6-mo. 0.05% 2-yr. 0.20% 10-yr. 1.99% 30-yr. 3.30%
Friday’s dire jobs report also led to the yield on the 10-year dropping to below 2%. Japan here we come. Oh goody.
[By the way, on Friday, the yield on the Greek 2-year note hit 50%...that’s 5-0…50.]
--The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, filed suits against some of the biggest banks, including Bank of America, JPMorgan Chase and Goldman Sachs, 17 in all, for misrepresenting the quality of mortgage securities they sold at the height of the housing bubble. Back in July, the agency went after UBS, seeking $900 million. For their part the banks said Fannie and Freddie “claimed to understand the risks inherent in investing in subprime securities” and yet were “now seeking to hold other market participants responsible for their losses.” Off with all their heads.
Concurrently, 50 state attorneys general are in the final stages of negotiating a settlement from the same group of banks that could result in a $20 billion settlement.
Ergo, if you think now is the time to bottom fish in financials, you’re on your own.
--Like you’re on your own if you think you have Bank of America figured out. The Feds, who still have oversight of BofA’s operations, are increasingly concerned that one day we’ll wake up and it’ll be “Holy, Toledo! These guys are in deep [merde!]”
BofA, in frantically trying to raise capital despite claims from way in over his head CEO Brian Moynihan that the bank isn’t, is now looking to unload a mortgage servicing arm of its Countrywide subsidiary, the acquisition for which (before Moynihan took the helm) continues to destroy value. No one will touch anything that has to do with Countrywide, so when no buyers emerge, 1,400 jobs will be lost, according to the Los Angeles Times.
Finally, as I hinted at last time, BofA sold more than half of its investment in China Construction Bank Corp. for $8 billion, after that bank’s shares had fallen 30% from their highs this year. Yes, BofA made a profit but you’d like to think they would have done far better by holding on for 5-10 more years. Alas, it couldn’t.
--Staying in the banking sector, Bank of New York Mellon Corp.’s chairman and CEO, Robert “Machine Gun” Kelly (just sounds good…not his nickname) was forced to resign “due to differences in approach to managing the company,” as a statement by the company’s board put it. In other words, what has emerged is Kelly was a true a-hole. [I have some good friends at this bank, in senior positions, but I am purposefully not trying to contact them. They have enough to deal with as it is.] Gerald Hassell was named to replace Kelly. BK stock has been a total dog for years. Kelly’s dismissal was more than warranted, but he’s picking up $33 million in parting gifts.
“President Obama is expected to seek another $250 billion or so in new stimulus funds next week, with plenty of money for clean energy and the creation of so-called green jobs.
“Never mind that no one can seem to find many Americans who got green jobs as a result of the original stimulus spending. Consider (this story).
“In the 2009 stimulus, the feds gave nearly $3.2 million in green-energy grants to my county of Arlington, Va., with almost $300,000 used to install solar paneling on the roof of our local library. (Don’t ask why the feds are giving one of the five wealthiest counties in America free money.)
“Arlington officials boast the project will save $14,000 in annual electricity costs, but the solar panels have a life span of no more than 10 to 15 years. So the feds spent $300,000 to shave at most $150,000 off the net present value of Arlington’s electric bills. Some 3,000 counties across the country received federal funds for the same kind of negative-return energy conservation ‘investments.’ This is the kind of ‘clean energy’ program the administration wants to expand.”
Along these lines, going back a few years, I had personal investments in the solar and electric car battery market. Now that I’m long out of them, I’ll name ‘em…Akeena Solar, which I lost about 60% of my investment on after missing a very brief window (like two days) to get a double, and Ener1, the car battery maker that I broke even on.
I was thinking of both this week because of a Journal story on the shakeout in the car battery market, and the turmoil going on in the U.S. solar industry.
So I hadn’t looked at Ener1 in ages and a stock I got out of at $4.00 (split-adjusted) is now at 35 cents! Akeena, which I got out of at an average of about $3.50, is below $1.00. You have the same story across the board, though at least these two are still around, if barely.
Of course this week’s huge story was the demise of Silicon Valley solar panel maker Solyndra, which was promised $535 million in loans from the Energy Department in a high-profile, Obama administration showcase. 1,100 jobs will be lost…those clean-energy jobs so highly touted by both Obama and Vice President Biden. It was the third U.S. solar company to seek Chapter 11 bankruptcy in August; another example of failed stimulus in the minds of many. It is reported that the Energy Department has committed $18 billion in guarantees to such projects, with $billions more in the pipeline as the program finishes end of September. Once again, we go to correspondent Charlie Brown, a Silicon Valley resident, for some comment.
“Another day, another stimulus burnout. On Wednesday, solar panel maker and White House favorite Solyndra announced plans to suspend business and file for bankruptcy. Its demise is a reminder of the perils of politically directed investment.
“This wasn’t supposed to be the storyline. In March 2009, Solyndra was the first company to get an Energy Department loan guarantee, worth $535 million. Vice President Joe Biden spoke via closed circuit TV at the groundbreaking of the company’s Fremont, California plant, and President Obama touted the thousands of jobs the stimulus money would create. Such investments were all the better, Mr. Obama said at a visit to the plant last spring, because ‘The true engine of economic growth will always be companies like Solyndra.’ You know, ‘green jobs.’…
“Solyndra’s story is more evidence that trendy, politically directed investments don’t make for efficient allocation of capital. Beyond the immediate losses, they mean the money wasn’t available for market-directed investment with a better chance to succeed. This is how you get a 1% recovery.”
--Chrysler reported its auto sales in August surged 31%, Ford’s were up 11%, GM’s up 18%, Nissan’s ahead 19% and Hyundai’s up 9%. But Toyota and Honda fell, down 13% and 24%, respectively.
--The Wall Street Journal had a story about how Russia’s grain cargoes are all backed up because the terminals can’t handle the load that is to be exported, so buyers are being forced to look elsewhere, including the U.S., which is good for prices.
But it also means that Russia has seen a strong recovery in its harvest since last year’s severe drought (as my sources/readers have informed me…and remember, my sources told me Ukraine was having a healthy harvest, too, which I passed on to you, and now Ukraine is slated to become the world’s third-largest corn exporter). Russia has to catch up on the infrastructure front, specifically the port facilities that can’t keep up with demand.
--Exxon Mobil signed a deal with Russian state-owned oil firm Rosneft to jointly develop the Arctic, thus ending any hope BP had of doing the same. Exxon CEO Rex Tillerson signed the agreement in the presence of Prime Minister Vladimir Putin. Part of the deal is that Rosneft will now be allowed to develop fields in the Gulf of Mexico and Texas, so rig workers there may have some illegal sturgeon on their dining tables in the future. The total to be spent on deep-sea exploration in the Arctic, as well as in the Russian Black Sea and western Siberia, is said to be $3.2 billion.
[As for BP, they suffered a further humiliation when the day after Exxon signed the deal, BP’s office in Moscow was raided by at least 15 men, including special forces, tied to a lawsuit filed by minority shareholders in TNK-BP, its existing Russian joint venture, who are suing for collapse of a similar proposed tie-up between BP and Rosneft that fell apart this year.]
--Back to the farm industry, estimates for the U.S. corn harvest continue to be lowered to potentially the lowest level since 2005.
--The Justice Department has challenged AT&T’s proposed $39 billion takeover of T-Mobile USA Inc. amid concerns that consumers would be hit with higher prices, worse service and dwindling phone options.
The administration also argues that the combined operation would result in the loss of 20,000 jobs, which if you believe this makes AT&T’s statement that it would add 5,000 upon completion by bringing back call center jobs from overseas rather disingenuous.
But AT&T also argues that $8 billion in future investment as part of the merger would create 96,000 jobs. This figure is from a study commissioned by the Communications Workers of America, which represents AT&T workers and has been a big supporter of the merger. Then again, the CWA wants to add members, seeing as the 42,000 employees at T-Mobile are not unionized.
--My ultimate China indicator, gambling revenues in Macau, is once again flashing “soft landing” for the overall Chinese economy. Receipts were up 57% in August! It’s a mainland China story, and the junkets that keep busses streaming across the causeway (a site I’ve described from my past visits there). But as I noted last time, now I’m eager to see September and October’s figures.
--China has just one awful industrial accident after another as it is far and away the world’s greatest threat to the environment. The latest example is a huge fire at a PetroChina refinery in Dalian. The government estimated 1,500 tons of oil poured into the Yellow Sea before the fire was extinguished. Greenpeace says 60 times that amount was released. On matters like this, I go with Greenpeace. This comes after the huge oil spill off China’s east coast from platforms owned by CNOOC and ConocoPhillips.
--The World Health Organization is warning we can’t let down our guard regarding bird flu, as a mutant strain, immune to existing treatments, could be spreading in Asia, particularly Vietnam, Thailand, Malaysia and Cambodia. The virus was eliminated from most of the 63 countries infected at the 2006 peak, but remains a problem in the above-mentioned states, as well as China, Egypt and Indonesia.
--With new home sales headed towards their worst year since record keeping began in 1963, the Journal correctly asks, how long can some of the homebuilders hold out? Familiar names, like Hovnanian and Beazer, continue to bleed cash despite their best efforts to slash costs.
--In a study for Time magazine, put together through various sources, 51 million homes in the U.S. have mortgages. Of these 28 million are in good shape. The other 23 million are either underwater (14 million+), seriously delinquent, or in foreclosure or sold in distressed sales.
--A U.S. judge overturned a $1.3 billion jury award handed Oracle against rival software company SAP, saying Oracle was entitled to no more than $272 million in damages. This had to do with unauthorized access gained by an SAP subsidiary to Oracle’s computer systems. SAP admitted it had copied large amounts of software code it wasn’t entitled to.
Meanwhile, the FBI and Justice Department are looking into whether Oracle violated federal anti-bribery laws, specifically with its dealings in Africa.
--I have voiced skepticism about the long-term potential for sites like Groupon and now online analytics firm Compete showed that overall visits to daily-deals sites were down 25% last week compared with the second week in June. Groupon, which wants to go public and has turned down multi-$billion deals, actually had its first month-over-month drop in traffic this year in July, according to ComScore.
“With so many new entrants saturating the daily-deals space, deal fatigue may be setting in with consumers,” said an official at Compete.
--Talk about a tragedy, one of India’s best-known private equity chiefs was walking with his wife during heavy monsoon rains when a coconut tree fell on him, killing Ved Prakash Arya. His wife escaped serious injury.
--My portfolio: The Fujian holding is not helped by the resignation of Sino-Forest chairman and CEO Allen Chan as the Chinese forestry group deals with serious fraud allegations, which the company continues to deny, even as Canadian regulators allege senior executives “appear” to have misrepresented revenues and to have exaggerated timber holdings.
--Saturday morning before Irene hit, I went back to the grocery store just to see what was left on the shelves and in the ultimate test of consumer tastes, the one cereal that was totally sold out was Honey Nut Cheerios, which stands to reason since it is handily the No.1-selling brand in the U.S.
Libya: As I go to post, the deadline for Moammar Gaddafi and his loyalists to surrender is expiring as one son, Saif, promised victory and another sought negotiation, which the new interim government said is not in the cards. For his part, Gaddafi said in an audio message, “If Libya goes up in flames, who will be able to govern it? Let it burn. They don’t want to rule Libya. They cannot rule it as long as we are armed.”
Mahmoud Jibril, the new prime minister, said all the right things after meeting with world leaders such as France’s Sarkozy and Britain’s Cameron in Paris.
“The world bet on the Libyans and the Libyans showed their courage and made their dream real,” Jibril said.
“We need to have stability, security, tolerance and forgiveness. Islam encourages forgiveness,” said Mustaf Abdel Jalil, the chairman of the Libyan National Transitional Council.
For his part, Prime Minster Cameron took a shot at critics of the NATO operation: “So far, the cynics and the armchair generals have been proved wrong.”
Hey, Mr. Prime Minister, some of us just think that what was accomplished could have been done so about four months earlier.
Two things are certain in the new environment, however. Tribal reprisals are now the order of the day as each group jockeys for position and power in the new government. Second, the race is on to capture the oil business and other commercial opportunities. The National Transitional Council has promised that countries that backed Libya’s revolt will be rewarded. French companies are already on the ground. Others are waiting until the security situation improves.
Speaking of which, the first big issue was the promotion of former Libyan Army general Shkal to be the chief of the capital’s security. Already, a main rebel force is refusing to accept his appointment. Under pressure, it is said Jabril then rescinded the move to elevate Shkal.
Lastly, back to the Gaddafi family, Moammar’s wife and three of their children took refuge in Algeria, along with some loyalists, it seems. The rebels aren’t happy Algeria has given them asylum, while the interim government just wants them to go away and is not seeking to make a stink over it.
“Libya was no sideshow but a critical part of the regional evolution. Had Gaddafi conquered Benghazi, crushed the rebels and carried out his promise to kill every last opponent of the regime, it would have sent a terrible signal to others in the region. Instead, his fall encourages rulers and ruled alike to seek peaceful transitions, especially, one hopes, in Syria, where pressure on the Assad regime will surely grow. Even some of the conservative Gulf Arab states had backed the rebels in Libya; now they are lending their weight to the anti-Assad push.
“This was a major triumph for the Atlantic alliance. For all its glaring weaknesses, NATO did save the people of Libya and kept alive the momentum of the Arab Spring. It also disproved the increasingly common notion that the world’s great democracies are in terminal decline. They are still powerful and capable of acting together when their interests and ideals are threatened. They toppled Gaddafi despite having tied at least one hand behind their own backs. Just imagine if they came with the full power of the United States.
“Too bad they didn’t, but the destruction of Gaddafi’s regime is still a great accomplishment for the Obama administration and for the president personally. It’s a shame that some officials are playing down the U.S. role, absurdly trying to turn the ‘leading from behind’ gaffe into some kind of Obama doctrine. In fact, the United States did not lead from behind.
“By far the most important decision any world leader made in this affair was when President Obama decided that the world could not stand by and see the people of Benghazi massacred. That turned the tide. All praise to France’s Nicolas Sarkozy and Britain’s David Cameron for being ahead of Obama in seeing the need for armed action – just as Margaret Thatcher was ahead of George H.W. Bush in seeing the need for action against Saddam Hussein in 1990.”
But Kagan also notes, “The Libyan intervention will join the Kosovo campaign under the historical heading ‘Winning Ugly.’ The president was slow to act.”
Syria: Nothing changed here this week. But as the Washington Post’s Joby Warrick reported, there is growing concern over Syria’s substantial chemical weapons threat. Would Assad use them on his own people, or, more likely, would a collapse of the regime mean a breakdown in controls over the weapons? As opposed to Libya’s primitive chemical arsenal, Syria’s is highly weaponized, “dispersed in thousands of artillery shells and warheads that are easy to transport.”
Plus Syria’s preferred poison isn’t mustard gas, but rather, sarin, the deadly nerve agent. “Sarin…deadly if inhaled even in minute quantities, can also be used to contaminate water and food supplies.”
So while Assad isn’t likely to hand these weapons to terrorists, they “could vanish amid the chaos of an uprising that destroys Syria’s vaunted security services, which safeguard munitions.”
And back to Libya. Remember when I said the U.S. had hired contractors to find the hundreds of shoulder-fired antiaircraft missiles that are floating around? The Washington Post reports they have destroyed five so far…five…of hundreds.
Again, one or two of these fired at commercial aircraft in the next few months could send the global economy hurtling into depression.
Iran: Foreign Minister Salehi warned Syria’s Assad that he needed to listen to some of his people’s “legitimate demands,” this as Salehi added a power vacuum in Damascus could spark a regional crisis of unprecedented proportions. Previously, Iran had talked of a “foreign conspiracy” in Syria, so a shift in tone, albeit slight.
And Supreme Leader Ayatollah Ali Khamenei said this in a speech broadcast on Iran’s state TV to mark the end of Ramadan.
“Muslim nations in Egypt, Libya, Tunisia, Yemen or other countries need vigilance today. They should not allow enemies to confiscate the victories they’ve achieved They should not forget that those who have come to the scene in Libya (U.S. and NATO) today and consider themselves owners of the uprising are the same people who used to sit and drink with those who once suppressed the Libyan nation.”
Iran is claiming it is sending humanitarian supplies to the new government in Libya.
Separately, the UN’s nuclear agency is now saying Iran’s new centrifuges have greatly enhanced its uranium enrichment efforts and thus its potential nuclear weapons capability.
Afghanistan: A record 67 Americans lost their lives here in August, including 30 in the downed Chinook incident. And for the record, on a topic I’ve written about on a number of occasions, Congress’ Commission on Wartime Contracting has concluded at least $60 billion has been lost to waste and fraud in Iraq and Afghanistan through lax oversight and payoffs to various parties. Just remember this when someone tells you we cannot cut the Pentagon’s budget.
Separately, a statement supposedly signed by Taliban leader Mullah Omar, predicts imminent victory for his group as the Taliban becomes more familiar with NATO tactics and as the coalition withdraws its forces. One-eyed Omar has been leading the Taliban for 15 years now.
Lastly, one dicey career path in Afghanistan is that of police officer. Over the past year, 1,550 have been killed, or more than twice the number of Afghan soldiers. In the same period, 474 U.S. soldiers died here.
Pakistan: One story lost in the coverage of Hurricane Irene was the killing of al-Qaeda’s No. 2, Atiyah Abd al-Rahman, further evidence that, as Defense Secretary Leon Panetta put it last month, al-Qaeda is increasingly crippled as a major threat. Atiyah was evidently critical to Ayman al-Zawahiri’s success. The U.S. won’t say how Atiyah was killed but it is believed to be by a drone.
Turkey: In a highly important gesture, the government has agreed to station a U.S. radar on its territory, part of the missile defense system designed to protect Europe from Iran’s long-range ballistic missiles. Aside from showing cooperation with its fellow NATO members, this sends a very clear signal from Turkey to Iran, don’t mess with us. The U.S. desperately needs a strong Turkey to stand up to Syria (as it has been) as well as Iran and I would consider this one of the Obama administration’s big victories if it holds.
[Turkey has been concerned over whether data collected from the radar would be shared with Israel, these two still having major differences, and on Friday Turkey expelled Israel’s ambassador over last year’s flotilla incident and its aftermath.]
Japan: Yohihiko Noda became Japan’s sixth prime minister in five years. As finance minister he oversaw three currency interventions in the past year, which were far from successful, though now his focus is on restoring and rebuilding the northeast coast after the triple disasters of March 11.
But Noda faces a highly divided ruling party so the question is, how long does he last? After all, five months after 3/11, 84% of the Japanese people believe the economy is in poor shape, and 44% believe children born today will be worse off when they grow up than people are now; staggering numbers not normally associated with Japan in terms of public opinion. For all the economic malaise of the past two decades, the Japanese are normally surprisingly upbeat. The Japanese military, for instance, is supported by nine in 10. [AP-GfK survey]
Of course some of the above shouldn’t be too much of a surprise when you get stories like this:
In the first comprehensive study of soil contamination within a 62-mile radius of the Fukushima Daiichi nuclear plant, long-lasting radioactive cesium-137 was found in 30 locations. The levels are in excess of standards set after Chernobyl in terms of forced resettlement. Now that’s depressing. Cesium-137 has a half-life of 30 years, meaning its radioactivity will decline only by half after 30 years.
China: Reuters reports that “China has put the brakes on oil and gas investments in Iran, drawing ire from Tehran over a pullback that officials and executives said reflected Beijing’s efforts to appease Washington and avoid U.S. sanctions on its big energy firms….
“The slowing of China’s energy investments in Iran was prompted, at least partly, by Beijing’s efforts since late 2010 to ease tensions with the Obama administration and cut the risk of Chinese oil firms being hit by U.S. sanctions that Congress has vigorously backed, said officials.”
“A proposed change in the Chinese criminal code that would allow authorities to detain suspects for up to six months in a secret location is a dangerous step backwards for the country, activists said.
“The change would essentially enshrine what has become a common practice silencing dissidents, many of whom have disappeared for months without formal charges being filed. Under the change, the suspects can be held without their family members or lawyers being notified.”
One other item: Donations to charitable foundations on the mainland have dropped 80% in the wake of a series of scandals at charity groups. That’s staggering, but at least the scandals saw the light of day.
Russia: Terror returned to Chechnya as three suicide bombers launched an attack near the parliament building in Grozny, killing at least nine. Two of the attackers struck after emergency workers arrived on the scene.
And remember former Yukos chief Mikhail Khodorkovsky? Evidently, any hopes he had of parole from his second trumped up sentence on tax evasion is out the window because he received two reprimands from prison officials for petty violations involving cigarettes. This is today’s Russia. Remember this when some try to convince you that President Medvedev is a reformer. We have long known what Putin represents.
Mexico: Authorities now believe the fatal casino fire that took 52 lives in August was probably the result of an extortion plot involving the brother of the mayor of Monterrey. Separately, two journalists, both women, were killed, their bodies bound and discovered in a field behind a cemetery. Dozens of journalists have been killed in Mexico, but what made these two different was they were slain in normally safe Mexico City.
--Editorial / New York Post…prior to the move in time of Obama’s upcoming address.
“Leave it to the White House to transform a critical policy opportunity into yet another partisan squabble – and to cheapen a time-honored presidential privilege in the process.
“A presidential address to a joint session of Congress is a historically rare event, signaling moments of critical national consequence. Maybe no more.
“That President Obama has asked for an opportunity to speak to lawmakers about jobs suggests that he’s finally ready to get serious about the subject.
“But then came the specifics: Obama can find the time to make the speech only next Wednesday at 8 p.m., precisely when a long-scheduled Republican presidential debate was to begin.
“ ‘Coincidental,’ said White House Press Secretary Jay Carney – adding that the president will ‘carry forward’ regardless of ‘whatever the competing opportunities on television are, whether it’s the Wildlife Channel or the Cooking Channel.’
“Translation: Obama needs a campaign platform, and expects Congress to provide it. As it no doubt will – even though it doesn’t have to.
“Fine. Respect for the presidency as an institution is a fine thing – even if the president himself clearly considers Congress to be chopped liver.
“Hitherto, presidents went before Congress to seek declarations of war, or to propose equally weighty programs and policies.
“But now Team Obama has set up a blatantly political event with the added ‘benefit’ of undercutting the opposition party’s previously scheduled debate.
“Or, as GOP Chairman Reince Priebus put it: ‘This White House is all politics, all the time.’”
--In a national Quinnipiac poll, Mitt Romney is in a 45-45 dead heat with President Obama, while Rick Perry trails 45-42. Michele Bachmann is nine points back, 48-39. Yes, it’s early, but this isn’t exactly great news for the pachyderms. Perry is favored 24 to 18 percent over Romney among Republican voters.
Republicans should be doing better against Obama when you consider that the average weekly job approval rating for the Gallup daily tracking poll is at a low of 40 percent approval for the president. It was 50 percent among all Americans the week of May 30 to June 5.
“The Texas Miracle that Perry embraces and Democrats say they loathe would make a presidential contest between the governor and President Obama more interesting than these things usually are. Voters could at last confront the tradeoff they’ve been trying to avoid since the Great Society, maybe since the New Deal. On the one hand, we might have job-generating economic growth with all its necessary disruptions and uncertainties and stark inequalities of income and living standards; on the other, free health insurance, generous labor guarantees, less income inequality, a pristinely regulated natural environment, high unemployment, and declining national wealth.
“A majority of American voters may reject the first for the second, as voters have in Europe for half a century. At least in Perry vs. Obama, the choice would be clear. We can be France or we can be Texas.”
--From an AP-GfK poll, in the first three months of his presidency, 56 percent of whites approved of the job Barack Obama was doing. Today, that figure has plummeted to 36 percent. Just 50 percent of women now say he deserves re-election when in the first 100 days, he had 68 percent approval from them.
“(On) the matter of Mr. Obama’s character, today’s left now sounds like the right of three years ago. They have begun to see through the man and are surprised at how little is there.
“Yet there is something more than inexperience or lack of character that defines this presidency: Mr. Obama came of age in a bubble of post-‘60s liberalism that conditioned him to be an adversary of American exceptionalism. In this liberalism America’s exceptional status in the world follows from a bargain with the devil – an indulgence in militarism, racism, sexism, corporate greed, and environmental disregard as the means to a broad economic, military, and even cultural supremacy in the world. And therefore America’s greatness is as much the fruit of evil as of a devotion to freedom.
“Mr. Obama did not explicitly run on an anti-exceptionalism platform. Yet once he was elected it became clear that his idea of how and where to apply presidential power was shaped precisely by this brand of liberalism. There was his devotion to big government, his passion for redistribution, and his scolding and scapegoating of Wall Street – as if his mandate was somehow to overcome, or at least subdue, American capitalism itself.
“Anti-exceptionalism has clearly shaped his ‘leading from behind’ profile abroad – an offer of self-effacement to offset the presumed American evil of swaggering cowboyism. Once in office his ‘hope and change’ campaign slogan came to look like the ‘hope’ of overcoming American exceptionalism and ‘change’ away from it.
“So, in Mr. Obama, America gained a president with ambivalence, if not some antipathy, toward the singular greatness of the nation he had been elected to lead….
“America seems to be facing a pivotal moment: Do we move ahead by advancing or by receding – by reaffirming the values that made us exceptional or by letting go of those values, so that a creeping mediocrity begins to spare us the burdens of greatness?
“As a president, Barack Obama has been a force for mediocrity. He has banked more on the hopeless interventions of government than on the exceptionalism of the people. His greatest weakness as a president is a limp confidence in his countrymen. He is afraid to ask difficult things of them.
“Like me, he is black, and it was the government that in part saved us from the ignorances of the people. So the concept of the exceptionalism – the genius for freedom – of the American people may still be a stretch for him. But in fact he was elected to make that stretch. It should be held against him that he has failed to do so.”
--Last time when I posted, I didn’t realize that hours earlier George Pataki had announced he would not run for president when he was supposed to announce in Iowa that Saturday. I feel awful I missed this….no I don’t. It was about time this guy faced reality.
--According to a USA TODAY/Gallup Poll, back in January 2002, 47% of respondents said they were willing to have the government violate their “basic civil liberties” in order to prevent additional acts of terrorism. When asked last month, only 25% said they favored such a trade-off.
“Just about everything has changed since the terrorist attacks on New York and Washington D.C. 10 year ago. The contours of the geopolitical and economic landscapes have been redrawn. The curious thing is how little the changes owe to 9/11.
“This sounds counterintuitive after the tumult of the past decade. The U.S. waged war in Afghanistan and Iraq. Violent Islamism transformed America’s view of the world, and the world’s view of America. Everything stood still for George W. Bush’s ‘war on terror’ – or so it seemed. Al-Qaeda is still with us; so is Guantanamo.
“During a visit to Washington in the spring of 2003, I heard a senior U.S. official explain how the invasion of Iraq would establish the new rules of the international game. Forget all that mush about multilateralism, this official told an audience of (mostly mushy) Europeans. This was the age of the single superpower. With or without allies, the U.S. would avenge the felling of the twin towers. We were present, I wrote them, at the destruction of the multilateral order.
“Yet for all the upheaval, it now turns out that the geopolitical forces shaping the present century will bear only slight connection to 9/11. Osama bin Laden grabbed a decade’s worth of headlines, but the future was being written in Beijing, Delhi, Rio and beyond….
“The unipolar moment soon passed. Bin Laden is dead, and the U.S. is leaving Iraq. Afghanistan is to be returned to the Afghans. The always curious notion of a ‘war on terror’ has been quietly dropped. Islamist extremism is indisputably a serious threat – witness Pakistan, Yemen and Somalia. This is not, though, the Manichean struggle imagined by the likes of Britain’s Tony Blair.
“The Middle East has indeed proved ripe for democracy, but not at the point of a cruise missile. Arabs are reclaiming their own future, careless of the views of U.S. neoconservatives and of al-Qaeda alike….
“American power is contested to a degree unimaginable after the fall of Baghdad. By any measure, the U.S. remains the sole superpower, but few imagine it can any longer set the direction of global events on its own.
“The world has indeed been turned upside down, but Afghanistan, Iraq and the badlands of Waziristan have been a smokescreen, obscuring the bigger story of the past decade. The changes that have mattered have been in the rising states of Asia and Latin America. Ten years on, the strategic challenge to the U.S. comes from the rapid reallocation of power.
“The wars in Iraq and Afghanistan have cost the U.S. more than a $1,000bn in cash and just as much in global prestige. They have ended up showing the limits, rather than the reach, of military might. Cruise missiles do not work against improvised explosive devices.
“What we are left with is a world betwixt and between. The sweep of history will record the past decade as a parenthesis – separating a brief period of unparalleled U.S. might from a new, and chaotic, multipolar world. Al-Qaeda had to be defeated. But for all the horror he inflicted on 9/11, bin Laden did not really change very much at all.”
--In the first substantive research on the topic, firefighters who worked at Ground Zero are 19% more likely to have cancer than their colleagues who didn’t. The leader of the study, though, cautioned against broad-based conclusions. “This is not an epidemic but an increased risk,” said Dr. David Prezant.
Regardless, those who were on the pile deserve benefits.
--So I wrote last time that Russia had its first mishap out of 44 missions with its Progress M-12M cargo ship that was to dock with the International Space Station, and now Russia has delayed the launch of its next manned mission, which delays the return of three crew members, though three others are returning in mid-September. There’s a chance the ISS may have to be totally abandoned for a spell down the road.
--So this was too much. Poet and author Maya Angelou (professor at my alma mater, Wake Forest), is furious with the Martin Luther King Jr. memorial because one of the quotes inscribed is taken out of context and makes the preacher seem “arrogant.”
Shortly before his death, King gave a sermon where he imagined what his own eulogy would sound like.
“If you want to say that I was a drum major, say that I was a drum major for justice. Say that I was a drum major for peace. I was a drum major for righteousness. And all of the other shallow things will not matter.”
But the inscription, one of 12, if I remember correctly, says:
I was a drum major for justice, peace and righteousness…
Geezuz. No wonder Ms. Angelou is furious. As she puts it, taking out the “if clause” at the beginning of the quote makes King sound conceited.
Angelou, ironically, was on a committee that selected the quotes but she didn’t attend any of the meetings. But the historians with her on the panel chose the entire quote, not the shortened version memorial officials eventually selected.
And then you have the statue itself, as I quoted Charles Krauthammer on last week, which was sculpted by an artist from China. I told a friend that the pose, King with arms folded, made him look like a union supervisor…one who then takes the state for $hundreds of thousands in back vacation pay when he retires early.
Pray for the men and women of our armed forces, and all the fallen.
Gold closed at $1876…rockin’ all over again…highest weekly close ever
Returns for the week 8/29-9/2
Dow Jones -0.4% 
S&P 500 -0.2% 
S&P MidCap -0.3%
Russell 2000 -1.2%
Nasdaq +0.0 
Returns for the period 1/1/11-9/2/11
Dow Jones -2.9%
S&P 500 -6.6%
S&P MidCap -8.2%
Russell 2000 -12.8%
Bulls 40.9 (unch.)
Bears 36.6 [Source: Chartcraft / Investors Intelligence]
*Dr. Bortrum posted a new column.
Have a great Labor Day weekend. I appreciate your support.