Week in Review

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Week in Review

09/24/2011

For the week 9/19-9/23

Europe, Washington and Wall Street

It was the worst week for stocks, by some measurements, since the fall of 2008, as most major equity averages around the world fell 5% or more. There’s a reason why I’ve written so much on Europe the last 15 months or so in particular. It matters, plus this week the Federal Reserve weighed in with its own dire talk and the rout was back on.

The mood in Europe was perhaps best captured by two articles from last weekend’s Wall Street Journal. One spoke of pharma king Roche holding back drugs from Greek hospitals because of their large debts and Roche’s well-founded fears it wouldn’t be paid, and then a story out of Portugal.

Now Portugal is going through the European Union bailout program just like Greece and Ireland though it often gets lost in the shuffle, especially when you open up discussion further to the other two PIIGS, Italy and Spain.

“Portugal’s central bank said Madeira island, a small autonomous region, has underreported its debt since 2004, putting further pressure on the country to meet deficit targets under an international bailout.

“An evaluation conducted by Bank of Portugal of Madeira’s accounts showed it failed to report $1.53 billion in debt from 2008 to 2010 related to agreements between the government of Madeira and construction companies.

“Bank of Portugal on Friday [Sept. 16] called the omission ‘grave,’ adding it doesn’t know of any similar cases.”

Oh, they’re there. All over Europe. I’ve written countless stories on Spain, for example, and how the debts in its ‘regions’ are far greater than reported due to massive corruption between local governments and the developers that partook in its catastrophic real estate bubble.

I’ve noted how Europe’s debt crisis will just go on and on because there is zero transparency, and now everyone understands that when Greece inevitably defaults, only then will we truly find out the extent of the counterparty risks, the hit from derivatives, who owes who, and who has the ability to pay up. This crisis will not end without a major bank run or two, and that will result in massive chaos, anarchy, and major violence that, unless stopped right in its tracks could lead to war. I don’t flinch one bit from this long held prediction.

I mean just look at Greece. Why are they still unable to get their next slice of EU, ECB and IMF aid of 8 billion euro ($11 billion)? Because they are totally unable to collect taxes, they haven’t begun to bring in funds from selling state assets as the troika mandated, and they haven’t been close to meeting one deficit reduction target. In fact the deficit picture is exploding upward. Just look at the privatization efforts, for example. The state was supposed to bring in $50 billion from selling airports, railways and utilities, but you’d have to be nuts to pay top dollar for any of this. The country is a pile of rubble…always has been, always will. 

I’m sorry if I can’t even feel sorry for the Greek people. I know they are getting slammed beyond belief, salaries and pensions cut yet again, if not their jobs, while any assets they have, such as a home or business, is heading towards a zero valuation as well. But the heart only has room for so much sympathy and I’m saving what little I have left for those closer to home.

As for Europe’s political leaders, your editor pegged this ages ago. There’s a reason why so many politicians, around the globe, seem to be quoting Churchill more than ever these days, including in the United States. We’re all hurting, and crying for leadership that doesn’t exist.

The International Monetary Fund warned this week that the global financial system is more vulnerable than at any time since the 2008 crisis. The IMF, and its new leader, Christine Lagarde, continue to plead for Europe’s banks to recapitalize before it is too late.

The IMF also lowered its growth estimates around the world, including a reduced forecast of 1.6% growth for Europe this year and only 1.1% in 2012. [The IMF drastically cut their U.S. forecast from 2.5% for this year to 1.5%, and 1.8% for 2012 from 2.7%, with the reductions coming off June estimates…to give you a sense on the speed of the downturn.]

A combined reading of Euro area services and manufacturing fell to 49.2, below the dividing line of 50 between growth and contraction, for the first time since July 2009. Germany’s manufacturing index (PMI) dropped to 50.0, France’s down to 47.3.

Italy had its credit rating downgraded by S&P, while any thoughts that China would come to the rescue, either in Italy or elsewhere in Europe, were knocked down after a brief flurry of hope the previous week. China wouldn’t get involved in any significant way without a German guarantee on Beijing’s investments and that’s not happening, sports fans, while in France these days, 70% of the people are against further bailouts.

But bailouts, starting with Greece, must continue so once again we approach another week where Germany and the other northern Euro nations will decide whether Athens gets another slice of what was supposed to be up to $300 billion in aid through 2014. [Assuming Greek Bailout II ever gets approved.]

You know how for months I’ve been bringing up the point that many were just assuming this European Financial Stability Fund of 440 billion euro, one that was supposed to cover the EU’s exposure to Greece, Ireland and Portugal, wasn’t even approved yet? It’s been amazing to me how, until this week, the media wasn’t stating this fact because they didn’t understand the freakin’ process!

It’s not approved! I’ve been saying all 17 parliaments had to OK it, first, and lord knows when that will happen (Slovakia said it would move its parliamentary vote up to October from December…but no guarantee on what direction their vote will take).

But the EFSF of 440 billion was supposed to be just a first step towards a separate 500 billion euro facility which would then backstop Italy and Spain and put an end to the crisis. Fat chance that will see the light of day anytime soon so that’s why I could say with confidence, end of last year, that the Euro debt crisis was extending into 2012.

World Bank President Robert Zoellick had a number of things to say the past week, including:

“The world is in a danger zone.” His confidence in major economies avoiding another recession, he said, was “being eroded daily by the steady drip of difficult economic news.”

“There’s no silver bullet. There’s no panacea. Nobody is going to come in with a big bag of money to buy out the problem….

“These are European decisions. You can go either way, but you need to decide where you want to go. At a minimum, you need to know so that if you find yourself in a true crisis, you know where you want to steer” policy making.

“There has been a significant increase in the financial requirements of international intervention. You need a lot more firepower in order to be a circuit breaker. Look at how much the ECB has put in and ask yourself the question: has it created a circuit breaker? The answer is no, even though the amounts involved have been massive.”

Europe needed to act long ago when it came to Greece, so imagine what will happen when they finally go under. A story in the Financial Times described the coming nightmare perfectly.

“Public sector workers might not be paid, some social security benefits might fall short. The shock of default and the lack of money would send the economy reeling [further].

“At the same time as the Greek state ran out of money, the country’s banks would face collapse because their holdings of domestic sovereign bonds would be heavily written down. The European Central Bank could not accept defaulted bonds as collateral to lend to banks, since they would be worth little.

“The closure, even temporarily, of payment systems and cash machines would amplify the problems. To restart normal economic life, Greece would need to recapitalize its banks and balance its books on a day-to-day basis. If creditors were willing to lend fresh money to Athens, the direct consequences could stop there. But finding new lenders after default is not easy….

“The effects of any default would not be limited to Greece, however, since the investors would then question who was next. In a bid to avoid big loses, euros would flow from countries deemed at risk to those deemed safe. The sums are potentially huge, and the flows would reduce the value of sovereign debt of ‘at risk’ nations. Plunging bond prices would further undermine many European banks and confidence in eurozone economies.”

And that’s just for starters. Quickly, everyone would take to the streets and talk about a negative feedback loop. Nothing like television pictures of cracked skulls to dampen ye olde holiday spirits.

The London Times quoted a Greek industrialist who said of a scenario like the above, “Greeks are not silly [Ed. you’re worse]. They know that outside the euro would be hell. Greece would become socially destabilized – it would become like Libya.”

“Interest rates on U.S., German and UK government bonds have fallen to all-time lows. Yields on 10-year U.S. Treasury securities, for example, are below two percent. That is the lowest recorded since the Federal Reserve began publishing market data in 1953. In addition, yields on the inflation-protected 10-year Treasuries are zero. These are nearly incomprehensible levels whose implications are profoundly negative. Namely that Tuesday’s International Monetary Fund report is quite correct to warn that America and Europe are on the verge of renewed recession. It is only the anticipation of negligible demand for capital and negligible inflation – both hallmarks of recession – that could drive rates this low.

“For the American and western European economies to decline again, when unemployment levels are already so high, would be disastrous. It would shock consumers, businesses and financial markets. Fearful, they would retrench further, causing the economic decline to accelerate. Weak labor markets would get even worse, as would the already swollen government deficits and debt. Overall, we could be in for a repeat of the experience of 1937, when America fell back into recession after three years of recovery from the Great Depression.”

Rosemary Righter / Newsweek [Ms. Righter is assoc. editor at the London Times]

 “Over the past 18 months, the fiction that chronically dysfunctional, spendthrift Greece could, even with massive handouts, reform its way back to economic health has cost Europe’s taxpayers billions. The money would have been better spent offsetting the costs of writing down the unpayable debts of a country of little importance. Worse still, the political pussyfooting over Greece has also cost government vital credibility at home and abroad and magnified the risks to the euro that they sought to avoid.

“If the idea was that pouring money into Greece would divert attention from Portugal, Spain, or Italy, the strategy backfired: financial markets reasoned that if politicians lacked the courage to face the facts in Greece, what confidence could there be that peer pressure would compel Italy or Spain to put their appalling finances in order, starting with demolishing their extravagant publicly funded networks of political patronage? The more (Angela) Merkel and (Nicolas) Sarkozy insist that Greece’s future lies squarely within the euro zone, the more they put the euro at risk….

“Rather than buckle down to restoring confidence, Europe’s politicians are bent on another time-consuming redesign. Jose Manual Barroso, the European Commission president, asserts that the ‘fight for the economic and political future of Europe’ requires ‘a new federal moment.’ What nonsense: it requires apologies to the euro zone’s furious voters. The Greek debacle is the result of yoking together incompatible economies. The euro cannot be dismantled without huge dangers in today’s turbulent conditions. Its long-term future is another matter. The colossal resentments generated by euro membership pose a bigger threat to Europe as an ideal. Euro-zone turmoil is a headache the world did not need. But headaches are seldom fatal.”

Meanwhile, across the pond in Washington, Congress is up to its old, tired tricks as the House and Senate can’t agree on a continuing funding bill to get the new fiscal year started on Oct. 1. The debate is over additional funds for disaster relief, seeing as how our nation is a disaster, and we need relief, but House Republicans and Senate Democrats can’t decide on how to pay for it; or rather Republicans want every increase in disaster relief to be paid for by cutting spending somewhere else, while Democrats just want the damn thing approved and they’ll borrow it like they always do.

Hopefully, by the time you read this the two sides will have come to an agreement because the last thing our incredibly fragile financial markets need is further uncertainty.

Speaking of uncertainty, is Federal Reserve Chairman Ben Bernanke missing some brain cells or what?! In announcing the launch of the highly anticipated “Operation Twist,” whereby the Fed is going to buy $400 billion of Treasuries with remaining maturities of six to 30 years in exchange for selling an equal amount of Treasuries of three years or less to run in an effort to drive down long-term interest rates further as a way of juicing the economy, the Fed added:

“Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. There are significant downside risks to the economic outlook, including strains in global financial markets.”

Well anyone reading this space, for one, already knew this but the addition of the word “significant” set off Wall Street and the Dow Jones lost 670 points in the day-and-a-half following the announcement.

No matter that bond yields on the long end dutifully dropped to further historic lows; I’m just wondering how it can be that Ben Bernanke with all that supposed brain power of his appears to just be getting how serious things are. [Of course, as documented in this space, he totally missed the housing bubble.]

The Fed has lost so much credibility that even the Brazilians, specifically their finance minister, Guido Mantega, a long-time critic of Fed actions, said “Monetary policy is overextended due to the absence of fiscal policy…One without the other is like a crippled duck,” in blaming President Obama and the U.S. Congress as well. Then again, Brazil itself fired the first shots in a possible trade war as it lowered the boom on China for “dumping” its exports on Brazil’s markets, while Brazil also raised taxes on foreign-built cars.

Oh, it’s a lovely time to be living in the Milky Way Galaxy. No wonder in a USA TODAY/Gallup Poll, 8 in 10 Americans believe the economy is in recession, while a survey of 100 economists has the U.S. housing market in the dumper through 2015.

And no wonder why U.S. non-financial corporations are holding $2 trillion in cash. Give them one good reason to go out and spend today…one good reason to hire someone. Hoarding cash is the prudent thing to do, and, sadly, it will only help keep us in the doldrums.

As for Barack Obama’s new deficit-reduction plan, I’ll let the following pick up that story.

“Barack Obama took office Jan. 20, 2009. That was 972 days ago this morning, almost to the hour when he finally offered his newest full-blown deficit reduction plan.

“If it’s Monday, the campaigning president must be issuing a new plan for something (before another $35,800 per ticket fundraiser in New York City). Last week it was his new Monday stimulus package, which was so urgent it’s been delayed….

“Today, it was how to pay for his new stimulus package plus how to start reducing overspending and paying down the $14,000,000,000,000+ in debt that someone else is responsible for accumulating in recent years.

 During this past decade, profligate spending in Washington, tax cuts for multimillionaires and billionaires, the cost of two wars and the recession turned a record surplus into a yawning deficit, and that left us with a big pile of IOUs.

“Everyone remembers his last deficit reduction plan in April. Back then he was determined ‘to shrink the deficit as a share of the economy, but not to do so so abruptly with spending cuts that would hamper growth or prevent us from helping small businesses and middle-class families get back on their feet.’

“Which struck many as suspiciously like not much of a shovel-ready deficit reduction program.

“Now that it’s autumn, it will surprise only children that the Democrat wants to increase taxes because we aren’t paying enough and need more to spend. He also details impressive, large-scale cuts that include $1 trillion that we don’t have and he says we won’t be spending on wars in Afghanistan and Iraq.

“According to this line of thinking, our spouse has been informed that we’ll be buying a Lamborghini (red) with the cuts we’ve made in not buying a corporate jet.

“ ‘This plan cuts $2 in spending for every dollar in new revenues,’ the president proclaimed. Reforms to…

“…agricultural subsidies, the billions that go to Fannie Mae and Freddie Mac, paybacks from financial firms, structural reforms to Medicare, maybe a complete tax code rewrite, elimination of tax loopholes and, of course, more taxes on the wealthy. Because Obama’s old pal Warren ‘There’s Not Much I Don’t Already Own’ Buffett doesn’t mind.

“Remember that ‘wealth distribution’ slip by candidate Obama chatting with Joe the Plumber in 2008?

“ ‘This is not class warfare,’ the president claimed today. ‘It’s math. The money is going to have to come from someplace.’ Obama’s decision to ratchet up taxes on the wealthy comes as Gallup finds for the first time this month the wealthy’s economic confidence is worse than other Americans.

“And although Obama didn’t have time to mention them, some of those places include the non-wealthy; you’ll pay more for airline ticket fees and mortgage fees and new fees for retired military’s healthcare, a total of $130 billion in such new ‘revenue,’ according to the Associated Press.”

“Encouraged to go big, President Obama chose instead to go ‘medium,’ as Maya MacGuineas of the Committee for a Responsible Federal Budget aptly put it. Compared to the $1.2 trillion to $1.5 trillion in savings that the new congressional supercommittee on debt reduction is required to achieve, the debt reduction proposal Mr. Obama unveiled Monday involved significantly more in savings – some real, some bogus….Compared to what’s necessary in terms of long-term debt reduction, and in particular compared to the savings outlined by his debt-reduction commission, better known as Simpson-Bowles, the plan falls short….

“The administration’s claim to have come up with $4 trillion in deficit reduction is misleading. The more accurate amount is barely half that, including about $1 trillion in domestic and security spending cuts already agreed to as part of the debt ceiling deal, and $1.5 trillion in tax increases on the wealthy. The administration gives itself credit for another $1 trillion by counting savings – already incorporated in any realistic base line – from winding down military operations in Iraq and Afghanistan. The administration further pads its results by giving itself credit for $866 billion in ‘savings’ from letting the George W. Bush tax cuts expire for those making more than $250,000 a year.”

“(Obama) claimed we can afford future Medicare costs if we raise taxes on the rich. He repeated the old half-truth about millionaires not paying as much in taxes as their secretaries. (In reality, the top 10 percent of earners pay nearly 70 percent of all income taxes, according to the IRS. People in the richest 1 percent pay 31 percent of their income to the federal government while the average worker pays less than 14 percent, according to the Congressional Budget Office.)”

“Sure: Money-man Warren Buffett, who Obama says longs to pay more taxes (yet assiduously avoids them), gripes that his 17.4 percent rate is less than his secretary’s.

“That’s a claim we’d like to hear his secretary make – whoever that might be.

“Anyway, Buffett’s income comes largely from dividends and investment gains taxed nominally at 15 percent; much of that has already been taxed as corporate income, at 35 percent. Buffett’s actual bottom-line bill? North of 40 percent.

“Obama knows all this. But he thinks low- and middle-income voters will take the bait – and applaud his drive for ‘fairness.’

“But it’s more than a little sad that he finds it necessary to base his campaign on such a transparent lie.”

“In a 2008 debate, Charlie Gibson asked Barack Obama about his support for raising capital gains taxes, given the historical record of government losing net revenue as a result. Obama persevered: ‘Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.’

“A most revealing window into our president’s political core: To impose a tax that actually impoverishes our communal bank account (the U.S. Treasury) is ridiculous. It is nothing but punitive. It benefits no one – not the rich, not the poor, not the government. For Obama, however, it brings fairness, which is priceless.

“Now that he’s president, Obama has actually gone and done it. He’s just proposed a $1.5 trillion tsunami of tax hikes featuring a ‘Buffett rule’ that, although as yet deliberately still fuzzy, clearly includes raising capital gains taxes.

“He also insists again upon raising marginal rates on ‘millionaire’ couples making $250,000 or more. But roughly half the income of small businesses (i.e., those filing individual returns) would be hit by this tax increase. Therefore, if we are to believe Obama’s own logic that his proposed business tax credits would increase hiring, then surely this tax hike will reduce small-business hiring.

“But what are jobs when fairness is at stake? Fairness trumps growth. Fairness trumps revenues. Fairness trumps economic logic.”

Of course when Obama was before a partisan crowd on Thursday, like the lemmings they were, they mindlessly chanted “Pass this bill! Pass this bill!” as the president then pointed them into the swollen Ohio River. I didn’t see the casualty figure.

Street Bytes

--As noted above, the Dow Jones had its worst week since October 2008, down 6.4% to 10771. The S&P 500 fell 6.5% and Nasdaq declined 5.3%. The few earnings reports of note were mixed, with FedEx shares getting slammed as the company cut its full-year profit forecast, while Oracle posted solid numbers and said it was doing fine in Europe.

Among the biggest losers on the week was anything commodities related as the broad-based CRB Index fell 8.5%. Gold finished the week at $1639, down $175! Gold’s two-day rout on Thursday and Friday was its worst since 1983. Silver suffered its largest decline on Friday in 32 years. Copper had its worst week in three years.

Of all my predictions in the 12+ years I’ve been writing this column, I’m pretty sure that when I look back on 2011, I’ll be most proud of my call on commodities. It was early in the year, with the CRB at 370 and already up over 10%, and with everyone and their mother crying “Buy commodities!” that I said the CRB would finish down for the year, the 12/31/10 close being 332.80. We finished on Friday at 301.87, though I’m the first to add the year is far from over.

My call wasn’t against gold (on which I have been a total agnostic), or any other single commodity, but rather I told you the entire sector was basically in a bubble and it made little sense if you believed the global economy was going to slow down.

This week’s supposed main trigger, however, a weak manufacturing number in China, may not be quite as bad as some would have you believe. I have been in the soft-landing camp on China and while I’m more than a little skittish these days, given my dire outlook on everything else in the world, I think China hangs in there. [My favorite economist, Morgan Stanley’s Stephen Roach, echoed these sentiments this week.] So if China is perceived over the coming month or two to have stabilized, commodities could stage a nice rally. It’s just that like in any other bubble, some hedge funds and speculators got their clocks cleaned this week.

Elsewhere, if you’re looking for a glimmer of hope, it’s in news like Oracle’s, and even though FedEx lowered estimates, it is still forecasting growth over year ago levels. Railroad operator CSX was another to say things aren’t that bad.

I would just counter that even among the optimists, sentiment can change in the blink of an eye and it won’t be at all unusual, if we formally double-dip, for earnings to then slide 20% or more in 2012, which is the big battle being waged between the Street’s strategists these days.

One other item. ShopperTrak, which measures retail store traffic, is projecting the Christmas shopping season will come in up 3.0% for November and December. Earlier, the National Retail Federation came in with a similar figure, both below last year’s 4.1% gain.

--U.S. Treasury Yields

6-mo. 0.01% 2-yr. 0.22% 10-yr. 1.83% 30-yr. 2.90%

Post the announcement of Operation Twist, the 10-year fell to 1.67% before yields rose at week’s end on hopes the G-20 finance ministers, meeting this weekend, will come up with some sort of solution for what ails the planet. 

Of course savers continue to take it up the butt, and that is an outright national tragedy. I’ve been arguing that we would have been better off with short rates of 2% so that the elderly could at least get $2,000 a year off $100,000 in savings instead of zero. It’s an intellectual exercise without an answer, but you’d have a hard time convincing me I’m wrong.

One other note on this general topic, China boosted its holdings of U.S. Treasuries in July to the highest level in nine months, $1.17 trillion. Total overseas holdings fell to $4.48 trillion in June, the latest available reading, from a record $4.51 trillion in May.

--After just ten months at the helm, Hewlett-Packard fired CEO Leo Apotheker and replaced him with former eBay chief executive Meg Whitman after what was clearly a hurried search, raising even more questions for an amazingly dysfunctional board.

The thing is, the board approves of the strategy changes that Apotheker instituted, the members just apparently didn’t like his style of communication.  Otherwise, sorry if I just don’t give a damn.

Hong Kong’s Hang Seng Index was down 9.2%, its worst week since October 2008, over fears of the global slowdown.

Premier Wen Jiabao said he “cannot relax” due to soaring prices, particularly the steep rise in the cost of food.

The government’s efforts to cool the property market are working with more cities reporting lower or unchanged prices in August.

China’s authorities temporarily shut down a solar plant in Zhejiang Province after hundreds protested over the plant’s supposed responsibility for fouling the air and water. The company, JinkoSolar, is listed on the New York Stock Exchange and was blamed for spreading toxic emissions. The government is increasingly taking steps to address resident complaints on such matters.

--In the Solyndra scandal, new e-mails reveal that the company was seeking $535 million in loan guarantees during the latter stages of the Bush administration, but the CFO of the Energy Department then put the project up for further review, saying it “appears to have merit,” but the “apparent haste in recommending” funding left some questions unanswered. The department’s credit committee asked for an independent market analysis. It then endorsed the app two months later during the Obama administration, with the loan being awarded in September 2009.

But when it comes to the Obama team’s actions, as the New York Post editorialized:

“Incredibly, (Office of Management and Budget) staffers had estimated that keeping Solyndra alive but struggling – as the administration did – instead of allowing it to liquidate last January would cost taxpayers an extra $168 million.”

And so it is that Solyndra executives invoked the Fifth Amendment at a Congressional hearing on Friday. Solyndra will be a buzzword through Nov. 2012.

--According to consulting firm Mercer, U.S. employers expect their healthcare expenses to rise 5.4% on average next year, which would be the smallest increase since 1997, reflecting cost-cutting efforts by the companies; i.e., lower-cost health plans or slashing expenses by raising deductibles, so the cost of actual benefits for workers will outpace their earnings.

--General Motors and the United Auto Workers reached agreement on a four-year contract and it was hardly news, which is pretty amazing, but also a sign of the times. The 112,500 employees should be fired up just to keep their jobs, at this point, plus they gained improvements in profit-sharing and promises of new jobs and better healthcare benefits. In return, workers will cooperate with management on cutting costs. Sounds like a good deal all around and it will serve as the template for upcoming negotiations with Ford and Chrysler.

--In another bad sign for the economy, the New York Times Co. reported that ad revenue during the July to September period was expected to fall by 8% from the same time last year, more than initially estimated.

--The jobless rate in the month of August increased in 26 states, fell in 12 and remained unchanged in the other 12. Nevada continues to have the highest unemployment rate at 13.4%, up from 12.9% in July. North Dakota has the lowest at 3.5%, up from 3.3% in July.

--Incomes across New York City fell 5% last year, according to Census data. Median household income in Manhattan dropped 9%. But what is truly distressing is that childhood poverty in the Big Apple is up to 30%, higher in the Bronx and Brooklyn. The overall poverty rate in Gotham is 20.1%.

--And in a further sign of distress in Ireland’s housing market, the most expensive house in the country, a mansion in Dublin, is up for sale for 15 million euro. In 2005 it sold for a record 58 million. And get this, despite it having 1.8 acres in a highly exclusive area, “the interior of the house is in dire need of renovation and refurbishment.” Ergo, the 15 million is too high.

--United Technologies is acquiring Goodrich, a maker of aircraft components, for $16.5 billion in cash; the largest acquisition for UTC, which also owns Sikorsky, Pratt & Whitney, and Hamilton Sundstrand, a component supplier.

--Royal Dutch Shell CEO Peter Voser told the Financial Times:

“We will have a lot of volatility ahead of us that we cannot avoid…for energy prices in general….

“We most probably will see a tightening of the supply-demand balance and hence rising energy prices for the long term. I think we should just get used to that.”

The problem is not a lack of oil and gas in the ground, but rather inadequate investment.

“While demand tends to pick up in one or two years, a typical cycle for a good big oil and gas project is six to eight years.”

Developing Iraq and Russia, Voser said, are two big keys.

--The New York Post had a bit on how despite all the problems UBS has had, the latest rather large issue being the $2.3 billion lost by rogue trader Kweku Adoboli, it was time for the annual wining and dining of the bank’s big hitters and clients at Pebble Beach. Up to $2,600 a night for a room, $500 for a round of golf. Just like the old days!

It was reported that Adoboli, by the way, disguised his lossmaking positions with fictitious counter-trades. As one senior UBS executive told the Financial Times, it was like “a terrorist attack” that was impossible to prevent. The fake hedging positions simply escaped detection.

“The positions taken were within the normal business flow of a large global equity trading house as part of a properly hedged portfolio.

“The true magnitude of the risk exposure was distorted because the positions had been offset in our systems with fictitious, forward settling, cash exchange traded fund positions, allegedly executed by the trader.”

--In Forbes’ latest list of the 400 richest Americans, Bill Gates tops it for an 18th year in a row at $59 billion, while Warren Buffett is No. 2 at $39 billion. Oracle CEO Larry Ellison is third at $33 billion. Facebook founder Mark Zuckerberg is No. 14 at $17.5 billion.

As for the richest man in the world, Mexican telecom mogul Carlos Slim, I was startled to see a blurb in the New York Post that he attended a performance of “Spider Man” on Wednesday night with just two friends (no apparent security) and “Slim was also seen Monday night entering a Metropolitan Club gala with no entourage at all.” Boy, I truly admire this, but I really wish he would have at least one bodyguard.

--Full Tilt Poker denies the claims of the U.S. Justice Department that it ran a massive “Ponzi scheme” that allegedly took $300 million from Internet poker players. FTP’s defense, though, appears more than weak as it tries to portray itself as a problematic bank.

The Justice Department charges Full Tilt’s owners with paying themselves $444 million out of funds owed to players. FTP board member Chris “Jesus” Ferguson is one of the high-profile backers of the site and is alleged to have pulled out $25 million for his own use, while another big name in the sport, Howard “the Professor” Lederer, received payouts of $42 million, according to the Feds.

--It seems a certainty that the U.S. Postal Service will be shelving Saturday delivery in its effort to stay solvent…so just do it now!

--Walt Disney is going to create an Avatar theme park in Florida that will cost $400 million to construct…so there is a private sector jobs program that seems more shovel-ready than anything the White House is talking about. Director James Cameron, meanwhile, who is part of the new venture, is working on two sequels for the blockbuster film.

--According to BloombergBusinessweek, America’s favorite condiment is not ketchup, but mayonnaise; specifically Hellmann’s (“Make gooood things hap-pen…”).

Tostito’s Salsa is No. 2 (by sales), followed by Heinz Ketchup, Best Foods Mayonnaise, and Kraft Miracle Whip. Always had a problem with Miracle Whip.

McIlhenny’s Tabasco Sauce should be No. 1. The only thing I don’t put it on is my morning chocolate donut.

--Australia’s biggest brewer, Foster’s, finally succumbed to the takeover attempt of SABMiller for about $12 billion after Foster’s board accepted a sweetened bid. Personally, I like three of Foster’s local brands, VB, Cascade and Crown Lager, having quaffed a few of each last year in the country. But I didn’t realize Foster’s holds the Aussie rights to foreign brands Asahi, Corona, and Stella Artois. I like Asahi, Corona is Corona, and Stella Artois I’ve decided is better than I used to give it credit for.

--I couldn’t agree more with the following, from Newsweek’s Niall Ferguson:

“The good news is that today’s teenagers are avid readers and prolific writers. The bad news is that what they are reading and writing are text messages.

“According to a survey carried out last year by Nielsen, Americans between the ages of 13 and 17 send and receive an average of 3,339 texts per month. Teenage girls send and receive more than 4,000.

“It’s an unmissable trend. Even if you don’t have teenage kids, you’ll see other people’s offspring slouching around, eyes averted, tapping away, oblivious to their surroundings. Take a group of teenagers to see the Seven Wonders of the World. They’ll be texting all the way. Show a teenager Botticelli’s Adoration of the Magi. You might get a cursory glance before a buzz signals the arrival of the latest SMS. Seconds before the earth is hit by a gigantic asteroid or engulfed by a super tsunami, millions of lithe young fingers will be typing the human race’s last inane words to itself:

By the way, separately, Nielsen reported that just 2.6% of Web use goes to current events and global news. Nielsen placed online porn into the “Other” group, so as TIME magazine wrote, this leaves “people to speculate how much smut makes up that category’s list-leading 35.1%.”

We are so screwed…and of course we are doing it all to ourselves, just as Man always has, which is why as a species we are so incredibly overrated, currently No. 147 on the All-Species List by my count. If you’re unfamiliar with my highly proprietary index, Dog is handily No. 1.

[Ever notice how when you’re jogging through a park, only half the people make eye contact, while 100% of dogs do?]

Foreign Affairs

Israel / Palestinians: Palestinian Authority President Mahmoud Abbas defied President Obama and many Western leaders in opting to go ahead and submit Palestine’s bid for recognition as an independent state by filing an official application for U.N. membership. Abbas took the request before the Security Council, which could take months to rule on the application before an inevitable U.S. veto that would then send the Palestinians to the General Assembly. So this will take time to play out, but the damage has been done and it is considerable.

So now the U.S., Britain, France and others will furiously try to get Israel and the Palestinians back to the negotiating table. French President Nicolas Sarkozy, circumventing Washington, which speaks volumes about what outsiders think of Obama these days, said France would back Palestinian calls for observer status at the U.N., but this could still potentially mean that Israel could then be taken to the International Criminal Court by the Palestinians, which opens up another can of worms.

For its part the United States is hoping that the Palestinians’ application does not get nine out of 15 votes in the Security Council, which would mean the White House wouldn’t have to use its veto. Last I saw, the Palestinians claim to have the votes of Russia, China, Brazil, India, South Africa, Nigeria, Lebanon and Gabon. Bosnia-Herzegovina is on the fence, though I’ve seen where Nigeria was in play, too. Only Germany and Colombia have explicitly said they’d side with Washington. Britain and France may actually abstain in order to keep their credentials in the region rather than being seen siding with the U.S. Not sure on Portugal.

At least President Obama said the right words during his U.N. speech on Wednesday. Some, rightfully, said it was a speech designed for voters in the U.S. more than anything else; the defense of Israel so many in America, let alone Israel itself, have been waiting to hear from Obama for over 2 ½ years. Regardless, words matter…sometimes…and these were good.

“Let’s be honest – Israel is surrounded by neighbors that have waged repeated wars against it. Israel’s citizens have been killed by rockets fired at their houses and [by] suicide bombers on their buses. Israel’s children come of age knowing that throughout the region other children are taught to hate them.

“Israel, a small country of less than 8 million people, looks out at a world where leaders of much larger nations threaten to wipe it off the map. The Jewish people carry the burden of centuries of exile, persecution and the fresh memory of knowing that 6 million people were killed simply because of who they were.”

A BBC-GlobeScan poll of 19 countries found that 49% support U.N. recognition of Palestine as an independent state, while 21% said their government should oppose it. Interestingly, in the three large EU member states, the results were the same.

France (54% support, 20% opposition), Germany (53% vs. 28%) and the UK (53% vs. 26%).

So as we wait to see what happens next, one option for Israel is to stop money and tax transfers to Ramallah, the latter collected by Israel on behalf of the PA.

But Israeli defense officials say this would be a big mistake because it could lead to the collapse of the PA, anarchy and increased violence above and beyond what could already be expected.

Egypt: In another bad sign for Israel, Egypt is now pressing International Atomic Energy Agency member nations to pressure the IAEA to inspect Israel’s atomic sites on a broader basis, something Egypt never really demanded before.

Arab countries had reportedly agreed not to pursue a resolution at an IAEA conference urging Israel to sign onto the Nuclear Nonproliferation Treaty, as, historically, the United States and other Western powers have argued targeting Israel over its nuclear arms would undermine efforts to prohibit weapons of mass destruction from the likes of Iran, which makes Egypt’s pronouncement troubling.

Overall, Amir Taheri commented in an op-ed in the New York Post on what peace with Israel has done for Egypt.

“Egypt would do well to seize this moment of freedom and take a serious look at the issue (of the peace treaty between the two). A public and sober debate would show that peace with Israel is primarily good for Egypt – in fact essential for its democratic development.

“The Camp David Accord that shaped the lukewarm peace also let Egypt recover the Sinai Peninsula, which Israel had seized in the 1967 war. That meant regaining over 60,000 square miles of territory, and an area that holds more than 80 percent of the nation’s oil and natural-gas resources – which provide Egypt’s top source of revenue after tourism. The return of the Sinai also meant the re-opening of the Suez Canal, the nation’s No. 3 income source.

“Peace also brought $2 billion a year in U.S. aid, as well as gifts from Europe. Thus, over the past 30 years, Egypt has received over $100 billion in peace dividends.

“Needless to say, without peace it would have been impossible for Egypt to develop its tourism industry and its hundreds of thousands of jobs.  The ‘Egyptian Riviera’ on the Red Sea would remain a forlorn desert.

“Peace with Israel enabled Egypt to attract direct foreign investment on a scale few Egyptians had dreamt of. By 2010, in the Middle East, Egypt was second only to Turkey on that score, having attracted more than $50 billion – which helped the country achieve yearly economic growth rates of up to 8 percent for much of the past decade.

“But Egypt’s biggest peace dividend came in the shape of a sharp reduction in the military budget. Between the mid-‘60s and mid-‘70s, it spent around 15 percent of GDP on its military. The inevitable effect was lack of resources to spend on education, health and economic development.

“Worse still, the military made a deal with Islamist fanatics to suffocate Egypt’s democratic aspirations in the name of one day ‘eliminating the Zionist enemy.’

“The myth of an eventual victory over Israel enabled the inefficient and corrupt military elite to hold the Egyptian people hostage. With peace in place, at least on paper, the military could no longer claim legitimacy for its despotic rule. Peace with Israel was an essential first step toward freedom from despotic rule in Egypt.

“It would be healthy to bring the peace issue into the open so that those still dreaming of war and revenge could be exposed as enemies, primarily, of the Egyptian people.”

Iran: The two American hikers were released a day before President Ahmadinejad arrived in New York for his U.N. address, which was most convenient, but if he ever had thoughts of being seen as a peacemaker, the little guy with the Members Only jacket attacked America and the West in his usual vitriol, branding the West in general as “arrogant powers” who had abduct ted tens of millions of Africans for the slave trade, for their readiness “to drop thousands of bombs on other countries,” and for dominating the Security Council. He then singled the U.S. out for using a nuclear weapon on Japan and supporting military dictatorships around the world.

So the United States delegation walked out, followed by all 27 European Union delegations, Australia, New Zealand, Somalia, Liechtenstein, Monaco, San Marino and Macedonia.

In appreciation, it’s our duty as Americans to drink one beer from each of these countries by year end. 

Sorry to make light of Ahmadinejad’s latest diatribe because the thing is, he’s actually the lesser of two evils. If we were to learn he had been replaced, which was the rumor in July, that would mean the Supreme Council’s hardliners had installed their own figure. Believe it or not, Ahmadinejad is a wacko ‘moderate’ compared to the Evil Ayatollahs really running the show these days. [Now that Rafsanjani has been shunted aside.]

Afghanistan: In an incredibly depressing development, former President Rabbani (1992-96, prior to the Taliban taking over) was assassinated by a man hiding explosives in his turban who had attempted to see Rabbani for days and finally convinced guards to let him personally plead his case that a CD he had in his possession contained a legitimate peace offer from the Taliban; Rabbani being the Karzai government’s chief negotiator with the militants. Afghanistan’s intelligence agency blamed the Taliban’s senior leadership in Pakistan, claiming the plot had been in the works for four months. As U.S. Ambassador Ryan Crocker (a true American hero, by the way) put it, the attack “raises very serious questions” about the Taliban’s commitment to peace talks; Crocker long being skeptical anyway. Any further outreach to the Taliban is over for probably a lengthy period.

I’ve always been of the opinion, why would the Taliban ever want to negotiate? To lay down their arms? Allow little girls to go to school? The Taliban?

Pakistan: The week started out with the U.S. and Pakistan agreeing to limit the number of American troops, a compromise to allow 100 to 150 in the country, or about half of what had been there, with the number of special operations trainers dropping from fewer than 140 to less than 10, which was better than zero, by Washington’s thinking. But then by week’s end relations between the two exploded, almost literally, as the U.S. stepped up its claims that the Pakistani intelligence agency, the ISI, closely supports the Haqqani Taliban faction that was responsible for the latest attacks in Afghanistan, including on the U.S. Embassy compound in Kabul. U.S. Joint Chiefs of Staff Chairman Admiral Mike Mullen, who is leaving at month’s end, accused Islamabad of playing a double game in the war against the Taliban, to which Foreign Minister Khar responded, “You will lose an ally.”

“You cannot afford to alienate Pakistan,” said Khar, “you cannot afford to alienate the Pakistani people. If you are choosing to do so and if they are choosing to do so it will be at their (the United States’) own cost.”

Needless to say, this bears watching. The first target, should Pakistan choose to respond more harshly, would be use of the supply routes from Pakistan into Afghanistan, plus as a base for unmanned drones, though these operations have been shifting to Afghanistan anyway.

Relations have always been edgy between our two nations, but they took a turn for the worse with the raid to take out bin Laden.

Iraq: Opinion on the possible cutback to just 3,000 U.S. troops here.

“Reports that the U.S. intends by year’s end to reduce the U.S. presence to 3,000 troops in Iraq, down from the current 45,000, has been noticed and remarked on mainly by specialists on the subject. Beyond that, President Obama’s intention to drastically reduce the U.S. presence there passed in and out of sight within a day.

“Arguably this reflects public weariness with Iraq, but it’s the job of a nation’s political leadership to see clearly the needs and implications of its overseas commitments. By this standard, Mr. Obama is ill-serving our interests or Iraq’s….

“(The) administration’s troop reduction…looks more than anything like President Obama is trying to fulfill his 2008 campaign promise to leave Iraq….

“At great cost, the U.S. has made enormous gains in Iraq since the surge began in 2007. With the steady diplomacy that has shaped our relations with other postwar allies, the U.S. stood to make more gains by strengthening its association with a frontline state in this vital region. Instead the U.S. looks like it is taking the easy way out of a postwar commitment. Normally we stay to protect a U.S. ally and to enhance regional stability [Ed. i.e., South Korea]. Unless the U.S. acts quickly to change the negotiations, we’ll soon find out how well going from 45,000 troops to next to zero serves U.S. interests.”

John McCain, Joseph I. Lieberman and Lindsey O. Graham / Washington Post

“The mission perhaps most critical to Iraq’s stability is in northern Iraq, where tensions between Arabs and Kurds run high. On several occasions, most recently in February, these tensions nearly turned violent. Only the stabilizing presence of U.S. forces has averted the outbreak of conflict that could spark a new civil war. To avoid that terrible outcome, it is essential for U.S. troops to retain a presence in these disputed territories after 2011. As a matter of military math, this mission will not be possible with only 3,000 troops.”

“Clearly Obama envisions running for a second term as he did for his first term – as the ‘antiwar’ candidate. The sad irony, however, is that an American drawdown in both [Iraq and Afghanistan] makes continued war – and with it the possibility of a catastrophic American defeat – more likely by emboldening our enemies and disheartening our friends.”

Libya: Anybody here…seen my old friend Moammar?…Can you tell me where he’s gone?…He killed a lot of people and he still lives onnn….Mugabe, Saleh and Moa-marrrr.

The new Libyan Transitional Council did find a depot housing chemical warfare materials this week, a chief concern of many of us, though it’s not known how many other sites exist. This one was 435 miles south of Tripoli. As best I can ascertain, CNN’s Ben Wedeman said he found a stash of yellowcake uranium (not your mother’s Angel Food Cake) at a different location.

Of more immediate concern to me are the hundreds of loose shoulder-fired missiles floating around not just Libya, but undoubtedly the rest of the region at this point. [Every time I write this, I think of all the locations I know of in Beirut from which a commercial aircraft could easily be taken out.]

Yemen: Out of nowhere, and four months after being severely burned in an assassination attempt on his life, President Ali Abdullah Saleh returned to Yemen from Saudi Arabia where he had been recuperating in a week that saw the country convulsed in violence. Warfare broke out in the capital, Sana, and at least 80 have died there this week. The nation itself has broken up into various tribal blocs, with al-Qaeda also controlling a major region of its own in the south.

[On a related note, the Washington Post and others reported that the U.S. is establishing drone bases in Ethiopia, the Seychelles, and Djibouti, in order to go after al-Qaeda affiliates in Yemen and Somalia.]

Lebanon: The same tensions exist here as in the spring and summer, only events are getting overshadowed elsewhere in the region. It would just take one incident for this place to blow. One who has not been helpful is Maronite Patriarch Beshara Rai, who has allowed himself to be feted by Hizbullah (in my favorite place, Baalbek) because he has essentially sanctioned their weapons, linking Hizbullah’s arms to an overall Middle East peace settlement, rather than recognizing that the central government, and military, should be the official organs of power for the state. 

Meanwhile, remember the kidnapping of the seven Estonian cyclists who were later released? The Lebanese Army killed two of the kidnappers this week and arrested four more suspects, an encouraging step on a number of levels. It turns out the hostage taking had led to a series of copycat kidnappings of foreigners in the Bekaa Valley in particular.

China / Taiwan: The United States agreed to sell Taiwan a package of arms valued at $5.9 billion, but it largely consists of upgrades to 145 F-16 fighter jets rather than 66 new ones as Taipei as requested for years going back to the George W. Bush administration.

In response, Beijing called in U.S. Ambassador Gary Locke for a tongue-lashing.

“The wrongdoing by the U.S. side will inevitably undermine bilateral relations as well as exchanges and cooperation in military and security areas,” said Zhang Zhijun, a Chinese vice-foreign minister. 

“China strongly urges the U.S. to be fully aware of the high sensitivity and serious harm of the issue, seriously treat the solemn stance of China, honor its commitment and immediately cancel the wrong decision,” Zhang added.

However, this was as bad as the rhetoric got, at least formally, and as of now there has not been a suspension of direct military exchanges between Washington and Beijing as was the case a year ago when the administration sold Taiwan arms.

Taiwan, though, is not happy. The old F-16s were initially sold to it in 1992 and a group in the U.S. Senate was hoping to override President Obama and authorize sale of the new aircraft, but that bid was rejected on Thursday in a 48-48 tie, with sixty votes needed for approval. Nonetheless, a large portion in Congress feel like the U.S. is selling out an ally.

Rep. Howard Berman of California, the ranking Democrat on the House Foreign Affairs Committee, said, “Everyone, including this administration, acknowledges that the military balance across the Straits has tilted far too heavily toward China.”

Russia: By the time you read this, it’s possible we’ll finally know who is running for the presidency next spring…Vladimir Putin or Dmitry Medvedev…or both…or none.*

Rumors are rampant as both speak at a United Russia convention, Prime Minister Putin being the head of it, though not a member (typical), while Medvedev belongs to no party.

Most would expect Putin to run, and not Medvedev, but now there are two theories that Putin could run and Medvedev drop down to speaker of the Duma, state parliament.

Or, and this one is really interesting, Putin will announce a constitutional change from a presidential to a parliamentary republic, using the German model, whereby the prime minister holds the power and the president is a figurehead.

It’s also possible that Putin will wait until after the Dec. 4 parliamentary elections to declare his decision, which is what he did in 2007.

*I just saw that Putin spoke and did not say if he was running, while Medvedev will wait for Putin to take the first step it appears.

Former Soviet leader Mikhail Gorbachev called for a new perestroika and the dismantlement of the country’s “power vertical” that gives too much authority to the executive.

“The degradation of the state and demoralization of society are becoming a universally accepted diagnosis” for Russia, Gorby wrote in a Russian journal.

Russia is sliding back to Brezhnev-era stagnation, he added, made worse by a widening gap between the impoverished and the “fattening glamorous crowd.” After just two minutes walking around Moscow you can conclude this, like the first time crossing the street when you’re almost hit by 20 black Mercedes as you can’t believe the incredibly gorgeous woman who has just passed you by and the drunk in rags stumbling close behind.

And in a letter from prison, former Yukos CEO Mikhail Khodorkovsky wrote that the hopes for reform will be extinguished and the country’s brightest will leave in droves if Vladimir Putin remains in power.

“The hopes for internal reform of the current system of power would disappear. Emigration of socially active and intellectual Russians would accelerate.”

Reuters submitted the questions to the former oligarch and Khodorkovsky did not deny he expects reprisals.

“I am not scared for my life, but I do not exclude that there are grounds for such fears.”

[Meanwhile, the European Court of Human Rights dealt Khodorkovsky a blow when it cleared Russia of plotting to destroy Yukos; that the Russian Government did not misuse its powers in pursuing the company. But then it also ruled that authorities violated Yukos’ right to a fair trial by giving it too little time to prepare a defense in proceedings over the $3.4 billion tax claim for the year 2000, as reported by the London Times. A totally screwed up verdict.]

And boy does it appear your editor nailed it last week when I wrote of Mikhail Prokhorov’s leaving his Right Cause party, “This is nothing more than farce, as I see it. Something’s fishy…something isn’t right. It can’t be this cut and dry.”

“After his dramatic resignation from the Right Cause party last week, billionaire Mikhail Prokhorov has backtracked by saying he is not challenging the country’s leadership but just one of two competing Kremlin camps.”

Ergo, he suddenly realized his vast business interests would be put at risk. Or is it still more than that?

“Just days after ousting (Prokhorov), members of the Right Cause party are apparently considering bringing him back as chairman.”

And then we learned Prokhorov had wanted to organize Orange Revolution-style tent camps “in a faux opposition drive to win seats in the State Duma elections,” a senior party official said on Tuesday.

Separately, the World Bank warned Russia that its dependence on oil for its economy could lead to recession if global oil demand falls sharply following recession in Europe and the United States, i.e., Russia is not immune as it likes to believe.

And, finally, a June plane crash that killed 47 was blamed in no small part on a “drunken flight navigator” who gave improper instructions while the pilot attempted to land in heavy fog. [His blood alcohol level, however, was barely over the legal limit.] Remember, Russia has had seven commercial plane disasters this year, the last one being the tragedy that wiped out the Lokomotiv hockey team. I haven’t seen a conclusion on this one yet. I did see that a crash in Dagestan back in December was blamed on pilot error.

South / North Korea: When I was in Seoul years ago, I was aware there were literally thousands and thousands of secret agents walking the streets, from both sides (plus you have full military bases, behind walls, in the center of the city), and so I couldn’t help but note that South Korean intelligence arrested a former North Korean commando there who was plotting to assassinate an anti-Pyongyang activist with a poison-tipped needle. The anti-espionage unit was able to alert the activist not to meet the North Korean agent at an agreed upon subway stop and instead they swooped in. This goes on virtually every day in Seoul and elsewhere in the country.

Mexico: So picture you’re driving home from work when traffic is stopped and gunmen get out of two trucks and dump 35 bodies in the road before pointing their guns at you and then driving off. Such was the case on Tuesday in Veracruz State. I think I’d pour myself a stiff drink when I got home.

Random Musings

--According to a new USA TODAY/Gallup poll, for the first time in his term, a majority of Americans say that President Obama bears responsibility for the state of the U.S. economy. Granted, President George W. Bush still gets more of the blame than Obama, but the Bush numbers are going down. 69% now blame Bush “a great deal” or “a moderate amount,” while 53% blame Obama in the two categories.

It’s about the trend, if you’re the White House, and the potential for it to get progressively worse over the next 13 ½ months.

Separately, Rick Perry leads Mitt Romney, 31-24, in a USA TODAY/Gallup Poll of Republican voters. Ron Paul is at 13%, while Michele Bachmann is down to 5%. Well, she had her fifteen minutes of fame. Of course the numbers for the top two could change significantly following Thursday’s debate. But first…

“He can go a long way just by demonstrating he’s a fighter in the mold of a Sarah Palin or a Donald Trump. That means making the occasional incendiary comment, never apologizing, earning the hatred of the elites and not sweating the details. All of this, Perry has nailed.

“But to become president of the United States, he’ll have to reach persuadables who don’t value outrageousness for its own sake. If he’s never willing to back down, he’ll have to go – should he win the nomination – all the way to November 2012 defending the notion that Federal Reserve Chairman Ben Bernanke is possibly guilty of treason.

“On Social Security, he’s managed to take what turns out to be his thoroughly conventional Republican view that the program should stay the same for seniors and near-retirees while it’s reformed for younger people and make it radioactive through his choice of words and his theoretical musings.

“His campaign so far has no policy except generalized statements celebrating Texas and condemning the federal government.

“Tellingly, his weakest moments in the debates have come when he’s been attacked from the right and can’t fight back with brassy, crowd-pleasing one-liners.

“He’s made uncomfortable by his streak of pragmatism as Texas governor. For all his self-portrayal as an anti-government purist, he’s adept at marshaling and using power. When he says he’s pro-business, he’s not kidding. Republicans will have to quickly drop the phrase ‘crony capitalism’ from their vocabulary if he’s the nominee.

“In this year of populist discontent, the blunt outsider Rick Perry has a natural call on the Republican heart. The question is whether he can maintain enough appeal over time to the Republican mind, which will eventually calculate the odds of a prospective nominee vanquishing the incumbent.

“Whether Perry makes it or not, he’ll never be dull. If success were solely a matter of animal spirits, he’d be a lead-pipe cinch.”

The above was written prior to Thursday’s event. Also prior, my Texas confidant, Liz S., who is not a Perry fan, made this observation about Jon Huntsman:   “Once everyone gets by all the flash – they may start to listen to him more. I think its Huntsman for the win.”

So we get to Thursday. I watched the full debate and was impressed by the ‘second tier’ candidates compared to the performances of Perry (unsettling if you’re a supporter) and Mitt Romney (OK…but still questions, such as in he likes to lie). Herman Cain’s personal story on battling colon and liver cancer and relating it to what would have happened under Obamacare is super powerful. He’s become intriguing as a veep candidate, frankly. [Could he handle the lone debate between veep nominees? Sure. I’ll coach him on foreign policy against Biden.]

And with each debate, and solid No. 3 ranking in many of the polls, it’s clear Ron Paul fits the bill as a classic Third Party candidate, though he would probably receive a John Andersonesque 7 percent in the general election and nothing more.

As the debate was in Florida, a Quinnipiac University poll showed 57% of Sunshine State voters disapprove of the job President Obama is doing, with only 39% approving. Devastating should this hold as Obama took Florida in 2008 with 50.9% of the vote.

“We’re not just in the economic doldrums; we’re not just possibly in or on the way to a recession. As President Obama’s remarks yesterday indicated, everyone in this country is trapped inside the movie ‘Groundhog Day.’….

“What we don’t know is if we’ll make something positive out of this repetitive eternity, as Murray eventually does, or whether this country is on track to fulfill the ‘winter prediction’ Murray’s character issues in the depth of his despair. ‘It’s gonna be cold, it’s gonna be gray and it’s gonna last you for the rest of your life.’

“We were told the president was going to release the details of a new deficit-reduction plan yesterday. He said he’d do so in the speech he gave on jobs before a joint session of Congress 12 days ago. But the details were released in a document. Yesterday’s speech turned out to be almost exactly the same one he gave before Congress.

“The new policy prescriptions, it turned out, were the same as the ones he outlined on Sept. 8. Again, he said all his new spending in his proposed jobs bill was ‘fully paid for,’ though it isn’t, so I have to figure he thinks saying it over and over again will hypnotize people into believing it is.

“He talked, then and now, about ‘a balanced approach,’ which is Obama-speak for higher taxes. He went into an extended riff about Warren Buffett’s secretary, now the most famous anonymous person in America since ‘Joe the Plumber.’

“So much was the same, I experienced déjà vu of the ‘I know I’ve heard that before’ kind.

“Example: ‘This isn’t class warfare,’ Obama said yesterday of the need for tax hikes. ‘This is math.’ Thrilled, the Washington Post’s Chris Cillizza tweeted one word: ‘Zing!’

“Really? That had as much zing as a Coke left out for 11 days. On Sept. 8, Obama used exactly the same words, plus one: ‘This isn’t class warfare. This is simple math.’

“The déjà vu began with the very first lines. On Sept. 8, he kicked off with ‘Tonight we meet at an urgent time for our country.’ Yesterday morning: ‘This continues to be a time of challenge for our country.’

“On Sept. 8, he moved to the plight of ‘millions of Americans’ who ‘grew up with faith in an America where hard work and responsibility paid off. They believed in a country where everyone gets a fair shake and does their fair share.’

“Yesterday: ‘These men and women grew up in an America where hard work and responsibility paid off. They believed in a country where everyone gets a fair shake and does their fair share.’….

“One reason Obama is acting like he’s giving a stump speech is that he is, literally: He doesn’t think the plan he promulgated yesterday has a chance of passage. He issued it as a campaign starter.

“But one other ‘Groundhog Day’ possibility suggests itself: Barack Obama is actually the one trapped in a karmic prison of his own making. And he would deserve it, too. The problem is we’re all trapped there with him until such time as we can escape – through the ballot box in November 2012.”

--I’m on record as saying the 2016 election is already a lock…Chris Christie vs. Andrew Cuomo. It would be a helluva race. Cuomo’s approval rating as governor of New York is now up to a record 66%.

[I just don’t see Hillary in 2016, much as everyone else does.]

--A Military Times poll surveyed active-duty members of the Armed Forces and found that 61% believed there would be ‘no’ or ‘minor’ impact on their unit with the official repeal of “don’t ask, don’t tell,” while 39% said ‘some’ or ‘major.’

“Hospitals are struggling to hold back a wave of deadly infection-causing superbugs, new figures show….

“Almost every hospital had rates of patients with blood infections from golden staph exceeding national benchmarks at some time….

“Peter Collignon, an infectious diseases physician and microbiologist at the Australian National University, said golden staph killed about 20% of people it infected. ‘That is a huge number of people who have got quite sick or even died,’ he said.”

Geezuz. I’ll say.

“Last year there were more than 500 golden staph blood infections in 46 NSW [New South Wales] hospitals. There were also 467 cases of drug-resistant golden staph in intensive care units….

“Professor Collignon said in at least half of all cases an identifiable and preventable reason for infection could be found.”

Yup, keep your hospital stays short as possible. Better yet, exercise and don’t smoke.

--And here’s another item designed to give you a warm and fuzzy feeling. The Transportation Security Administration fired 28 employees at Honolulu International Airport for failing to properly screen bags. Another 15 were suspended. It was in March that Honolulu’s KITV 4 News reported that TSA officers assigned to the morning shift routinely let bags onto nine daily flights without screening for explosives. CNN confirmed the investigation.

“Rwandan President Paul Kagame is living in luxury during the United Nations General Assembly, staying in the $16,000-per-night presidential suite at the Mandarin Oriental.

“Kagame’s rooms have ‘panoramic views of Central Park, the Hudson River and the Manhattan skyline,’ says the hotel’s Web site. Rwanda’s average annual income last year was $1,150, according to the World Bank.”

--The city of Newark, New Jersey actually had 10 fewer murders in the summer months, June 1 through Aug. 31, vs. last year…25 from 35. Yippee! But for the year the tally is 65 vs. 60 in 2010.

Police cite the arrest of a number of key Bloods lieutenants for the decline in the summer killing.

Do Bloods have funded pension plans? And since they don’t have real jobs, when they retire, do they still get to cash in unused vacation time?

“On Monday, (NBC’s) Brian Williams, who is known for his sense of humor but because of this is getting way too cute for his own good…”

I was complaining about Williams’ inclusion of a piece on Beyonce’s pregnancy in what was an otherwise very serious news day.

“Brian Williams has an ‘unhealthy infatuation’ with comedy, a source says.

“As the NBC News anchor’s prime-time TV show, ‘Rock Center With Brian Williams,’ takes shape, so is buzz that the square-jawed anchor has his eye on Jay Leno’s desk – or the equivalent.”

--Lastly, a shameless plug for my niece, Dale Trumbore, who has collaborated with soprano Gillian Hollis on a new CD, “Snow White Turns Sixty,” that has just been released. It’s different…a series of song cycles. The two are going to be on a year-long concert tour. Gillian is phenomenal. Dale is going to win an Oscar for Best Film Score some day.

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

Gold closed at $1639…still well above 12/31/10 close of $1421
Oil, $79.85…first weekly close below $80 since 9/10

Returns for the week 9/19-9/23

Dow Jones -6.4% [10771]
S&P 500 -6.5% [1136]
S&P MidCap -8.3%
Russell 2000 -8.7%
Nasdaq -5.3% [2483]

Returns for the period 1/1/11-9/23/11

Dow Jones -7.0%
S&P 500 -9.6%
S&P MidCap -12.4%
Russell 2000 -16.7%
Nasdaq -6.4%

Bulls 37.6
Bears 39.8 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

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