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10/01/2011

For the week 9/26-9/30

[Posted 7:00 AM ET]

Europe, Washington and Wall Street

In looking at this week, it reminded me of the “Simpsons’” episodes where the family goes on vacation and within two minutes Bart is in the backseat going “Are we there yet? Are we there yet? Are we there yet?” as Homer stews.

And so this week, upon hearing that the German parliament approved its expanded share of the European Financial Stability Fund (EFSF), one might be tempted to ask “Is it over? Is it over? Is it over?”

No!!! The Euro debt crisis is not over.

It’s been a testy week around the world, you see. It started with President Barack Obama, that paragon of fiscal prudence, criticizing Europe’s leaders (rightfully, in this instance) for their failure to solve the crisis, after which German Chancellor Angela Merkel, facing a critical vote over the bailout, basically told Obama to stick it when the administration suggested Europe needed to reflate its economy to avert recession.

“The idea that you need to boost growth by taking on ever greater debt is the wrong idea. I am deeply convinced of that,” Ms. Merkel said.

Her finance minister, the irascible Wolfgang Schauble, was less diplomatic when it came to Obama’s charge that Europe’s failure to act was “scaring the world.” Schauble said:

“It is always much easier to give advice to others than to decide for yourself. I am well prepared to give advice to the U.S. Government. The USA is a huge continent, totally different.”

But with the Germans passing the EFSF revamp, and with just a few more of the 17 euro nations needing to grant their approval, let’s take a look at the remaining key dates courtesy of the Financial Times.

[Some of these may shift a bit]

Oct. 3…Eurozone finance ministers meet in Luxembourg
Oct. 11…Slovak parliament votes on the EFSF, the last eurozone member to do so
Oct. 13…Eurozone ministers could meet again to sign off on a Greek aid tranche
Oct. 14…G20 finance ministers meet in Paris
Oct. 15 (or thereabouts)…Greece runs out of money
Oct. 17-18…Herman Van Rompuy, European Council, president, will make proposals on fiscal union at an annual EU summit
Nov. 3-4…G20 summit in Cannes….niiiiiice!
Dec. …Talks begin on the next aid tranche for Athens
Dec. 9…EU summit at which leaders to discuss increasing EFSF and fiscal union
Dec. 25…Christmas at Trumbore’s! Domestic on tap!
Early 2012…German parliament votes on a permanent bailout fund to replace the EFSF

So you look at the calendar and a few things stick out. First, I have limited space on Christmas Day and there is only one seating. Second, as all 17 eurozone states must approve the expanded EFSF, Slovakia has always been seen as a wildcard. Some say it’s a lock they’ll approve. But this past Wednesday, Tampa Bay was down 7-0 with just six outs to go and who wudda thunk they’d win the wildcard in the American League and not Boston, then up in their game, let alone nine games up when the month started?

On Oct. 13, eurozone ministers are expected to approve the next 8 billion euro in aid for Greece, assuming Greece has convinced the troika (the IMF, European Commission, and European Central Bank) that they are back on track in meeting their deficit targets. Greece has said it would run out of cash a day or two later. I’ve written this before, but if you happen to be traveling in Greece around this time, whatever you do, have lots of U.S. dollars on hand, seriously, just in case.

Oct. 17-18 begins to set the stage for a new European Treaty and fiscal integration, but this process could take years.

Everything on the Greece and European debt crises is supposed to be wrapped up, at least the final process, by the Nov. 3-4 G20 summit. If not, then forget about any talks on a new round of aid for Greece come December.

But here’s the thing. Greece’s immediate issue is to convince the troika it is being transparent, so guess what?

On Friday, some workers at the official statistics agency walked off the job, while others were blocked from getting into their building by a massive civil service strike. As in the man in charge of the agency, who is to present the data to the troika, can’t do so. The workers walked off because they fear layoffs, seeing as they are public employees and this group is finally being targeted by the government, but if Greece doesn’t get the next 8 billion euro, they’re not only going to lose their jobs, they’re not going to be able to use their suddenly worthless euro for anything. [The bank operational issues I discussed the other week…ATMs shutting down, etc.] This is beyond pathetic. Greece must get this next tranche of aid. Period.

But let’s assume the statistics agency’s workers see the light by the time you read this and we at least get through the next two weeks largely without incident until decision day.

As for other details, the EFSF overhaul that is being approved by each parliament would consist of the 440 billion euro, I’ve long discussed, that could then be used to inject capital into banks and purchase bonds of distressed governments on the open market. But, again, as I’ve been writing, the 440 billion euro is only enough to cover bailouts for Greece, Ireland and Portugal, more or less. Not Italy and Spain…and Belgium…and France.

Minimum, you would need a second EFSF, or an expansion of the first one, of 500 billion euro to backstop Italy and Spain. But instead of a combined 940 billion, now you are seeing target figures of anywhere from 1.5 trillion to 4 trillion; the purpose being to have more money on the table than is necessary in a worst case scenario to finally convince the markets the EU has its act together, whereupon we could all go back to focusing on company and economic fundamentals instead of debt levels.

But look how difficult it’s been to get the 440 billion fund approved, assuming my fellow Slovaks behave (I’m half-Slovak, you see). How will you get these same 17 parliaments to approve another 500 billion+ when, for example, the latest polls in Germany show anywhere from 70 to 80 percent of the people resenting their nation’s contributions to bailing out the sick sisters? No way could Chancellor Merkel go back to the well again but that’s exactly what she’s going to have to do, sooner than later, and this as the Germans see their own economy slow to a crawl, with August retail sales reported to have fallen the most in four years, as released the other day.

The following is from a Washington Post article (I apologize that I clipped out the passage and forgot to write down the author).

“A recent IMF report hinted at the potential size of the problems the EFSF faces, among them: about $4 trillion in outstanding bonds of a half-dozen countries [Ed. adding Belgium to the PIIGS, not France] now regarded as heightened credit risks; perhaps $400 billion in losses faced by banks as a result of investments in government bonds and other financial institutions; and $200 billion in government bonds that the European Central Bank bought as a stopgap and may be eager to unload.”

It’s in November that eurozone officials are to have a comprehensive plan to “maximize the impact” of the EFSF in time for the G20 meeting. Yes, 940 billion isn’t enough. They have to come up with as much as 4 trillion potentially. As you’ll see below, Europe isn’t that wealthy.

And here we pause to allow it all to sink in….it’s more than a bit depressing. I fall in the camp that believes the European continent is in the midst of a Japanese style collapse where you’ll see some decent rallies, maybe spurred by a respectable economic number or two, like a story that Greece’s revenues are beginning to grow, but then you’ll just have another downturn. An unending cycle of pain. Further opinion…

Christopher Dickey / Newsweek

“Greece is a country where it’s said, only half in jest, that everyone rips everyone off because everyone feels somebody else is going to rip them off. And that includes, of course, their own government. When Papandreou took office in 2009 he discovered the books had been so cooked that the deficit turned out to be not 3 percent of GDP, which was the target, or 6 or 7 percent, which was claimed, but a whopping 13 percent. No, scratch that. It was 14 percent. No, wait a minute – the more the government finds out, the worse the picture looks, and the current calculation of the deficit Papandreou inherited is now stated as 15.5 percent of GDP.

“Papandreou ran on a platform of transparency, and when he started making these figures public, the markets were stunned…

“So the question of whether Papandreou really can transform international attitudes about the Greeks – and the Greeks’ attitudes about themselves – becomes almost as crucial as the numbers. ‘Economy is psychology,’ says Foreign Minister Lambrinidis. Greece has to convince the international community – especially the French and Germans, whose money is so vital to Greece – that it really is changing. If they don’t believe that’s the case, they can’t and won’t continue working to stave off default.

“But the Greeks are getting restive. They’ve never been shy about taking to the streets when they feel they’ve been wronged. (Harvard economist Richard) Parker went with Papandreou (a family friend) this past summer to a town-hall meeting in a remote village in the far west of the country. Papandreou listened for hours to complaints and suggestions from about 100 townspeople. This was the Greece of the taverna, deeply Mediterranean, deeply resistant to change that compromises its relaxed way of life. Papandreou talked about sacrifice. He never surrendered a point. He never lost his temper. And he took notes on his iPad.”

Robert Samuelson / Washington Post

“There’s too much debt. In the spring of 2010, the interest rates demanded by financial markets indicated that about 5 percent of the eurozone’s debt was considered highly risky, says the IMF. That represented only Greece. By late summer 2011, the portion judged risky was 46 percent and included Ireland, Portugal, Spain, Italy and Belgium. If financial markets added France to this group – a possibility – the share of threatened debt would rise to 66 percent.

“It’s implausible that the strong half or third of the eurozone (the 17 nations using the euro) could rescue all the weaker members, in part because ‘strong’ countries also have high debts. Everyone knows about the debts of Greece, Italy and Ireland, which are, respectively, 166 percent, 121 percent and 109 percent of their annual output (gross domestic product). It’s less well-known that Germany’s debt is 83 percent of GDP and France’s, 87 percent. (Americans should not smirk. The U.S. debt – using similar assumptions – is 100 percent of GDP).

“Europe is hostage to financial markets because maturing loans and outgoing deficits mean many countries must regularly borrow huge amounts. Already, Greece, Ireland and Portugal have been excluded from private markets; lenders demanded crushing interest rates. That fate could await others. Some countries face staggering 2012 borrowing needs. The IMF estimates that Italy requires new loans equal to one-fourth of its GDP; for Spain and France, the amounts are about one-fifth of GDP.

“Europe is caught in an economic pincer: slow-growth assaults from one side; fickle financial markets from the other.”

Editorial / London Times

“The fundamental flaw in the original scheme for a single currency is that it lacked a mechanism for transferring funds from stronger to weaker members. British opponents of euro membership have long maintained that monetary union would eventually require fiscal union too, and that this would be a necessarily undemocratic arrangement. The debt crisis that has spread from Greece and now endangers even so large an economy as Italy proves them right.

“Decisions over national budgets should be taken exclusively by national parliaments accountable to their electorates. They pay the taxes and should be able to vote on how politicians spend the money. But a successful currency union cannot work like that. Hence, prudent German taxpayers are being required to give money to rescue Greece from the legacy of prolonged profligacy. They have every reason to feel aggrieved. There really is no option for the eurozone, however, but to introduce belatedly greater centralization in fiscal policy.

“Eurozone members need now to demonstrate resolution in doing so and preserving the euro before the entire arrangement falls apart….

“The significance of Ms. Merkel’s success in securing the parliamentary vote, against dissent within the parties of her governing coalition, should not be overstated, however. European and especially German policymakers have been late in acknowledging the scale of the crisis. The EFSF needs to be big enough to contain the damage so that it does not spread further to Spain and Italy.

“That requires not just more money but a mandate to provide guarantees for large purchases of Italian and Spanish government bonds. Such a policy will be highly unpopular with German taxpayers, who would almost certainly end up paying for any losses on those investments.

“Why should German policymakers agree to this? The reason is that if the euro fell apart, a new German currency could be expected to appreciate dramatically. The damage to export earnings would be huge. It would almost certainly be cheaper to contribute now to the Greek bailout. An arrangement that manages to be both messy and centralist is far from ideal. But so is the misshapen monetary union that cannot now be undone without colossal damage, and that needs urgent repair.”

Editorial / The Economist

“In dark days, people naturally seek glimmers of hope. So it was that financial markets, long battered by the ever-worsening euro crisis, rallied early this week amid speculation that Europe’s leaders had been bullied by the rest of the world into at last putting together a ‘big plan’ to save the single currency. Investors ventured out from safe-haven bonds into riskier assets. Stock prices jumped: those of embattled French banks soared by almost 20% in just two days.

“But those hopes are likely to fade, for three reasons. First, for all the breathless headlines from the IMF/World Bank meetings in Washington, D.C., Europe’s leaders are a long way from a deal on how to save the euro. The best that can be said is that they now have a plan to have a plan, probably by early November. Second, even if a catastrophe in Europe is avoided, the prospects for the world economy are darkening, as the rich world’s fiscal austerity intensifies and slowing emerging economies provide less of a cushion for global growth. Third, America’s politicians are, once again, threatening to wreck the recovery with irresponsible fiscal brinkmanship. Together, these developments point to a perilous period ahead….

“Now, more often than not, policymakers seem to be getting it wrong. Their mistakes vary, but two sorts stand out. One is an overwhelming emphasis on short-term fiscal austerity over growth. Fixing that means different things in different places: Germany could loosen fiscal policy, while in Britain the reins should merely be tightened more slowly. But the collective obsession with short-term austerity across the rich world is hurting.

“The second failure is one of honesty. Too many rich-world politicians have failed to tell voters the scale of the problem. In Germany, where the jobless rate is lower than in 2008, people tend to think the crisis is about lazy Greeks and Italians. Mrs. Merkel needs to explain clearly that it also includes Germany’s own banks – and that Germany faces a choice between a costly solution and a ruinous one. In America, the Republicans are guilty of outrageous obstructionism and misleading simplification, while Mr. Obama has favored class warfare over fiscal leadership. At a time of enormous problems, the politicians seem Lilliputian. That’s the real reason to be afraid.”

Washington and Wall Street

There was some good economic news this week in the United States. August durable goods (big ticket items) were off only 0.1% when a 0.5% decline was expected; the September Chicago purchasing managers index came in hotter than forecast at 60.4, solidly in expansion mode and above the 56.5 reading for August; and the weekly jobless claims figure was back below the benchmark 400,000 level…391,000…the lowest number since early April. Plus the final figure for second quarter GDP came in at 1.3%, better than the first estimate of 1.0% and above the expected 1.2%.

Isn’t this all great? The flip side was that August personal income declined 0.1%, the first such negative reading in two years; August new home sales could still be counted on just two hands, with the median price declining 7.7% over year ago levels; and a survey of CEOs for the Business Roundtable showed them lowering their expectations when it comes to capital expenditures and hiring over the coming year, though, importantly, as a group they weren’t forecasting an outright recession.

So here’s the thing. Warren Buffett was on CNBC, Friday, and he too said there will be no recession, as classically defined, two negative quarters in a row, but as I’ve been writing it really doesn’t matter. We haven’t been in a recession since the last one ran its course, officially, but it’s felt like one for years. And it’s that lousy sentiment that impacts decision-making for both large and small corporations when it comes to their hiring and expansion plans. It’s that simple.

The stock market, though, is a different animal and you can have some terrific rallies in a slow growth environment.    So I’m of the belief it will feel like a recession, but the jury is out on stocks. We’ll learn a lot with the coming earnings reports and projections going forward. Certainly Friday’s announcement by diversified machinery player Ingersoll Rand, that it was lowering its earnings and revenue guidance ostensibly because of the dire housing picture, wasn’t a good sign if you were hopeful for a solid earnings season. [IR stock closed at $28, off its May 52-week high of $52.]

Elsewhere, the bipartisan supercommittee that is supposed to come up with $1.5 trillion in deficit-reduction by Nov. 23 has commenced negotiations, but Sen. Lindsay Graham wants legislation to protect the defense department from further cuts than already agreed upon earlier in the year, which means that if enough senators felt this way the negotiations would be over before they started because not only does defense need to be cut even more, but if the supercommittee doesn’t do their job, the trigger mechanism comes into play and of $1.2 trillion in automatic cuts that are then mandated by law, half could be from defense.

Ergo, if you’re looking for miracles, try Major League Baseball. You’re not likely to find them in Washington.

Lastly, Federal Reserve Chairman Ben Bernanke said the issue of long-term unemployment in our country is a “national crisis” that Congress must act on, as well as do something about housing. 45% of those unemployed have been out of work at least six months. As Bernanke told an audience this week, “This has never happened in post-war America.” He also told us that monetary policy, i.e., setting interest rates, is “not a panacea.” That Bernanke is just a real Dr. Ben Casey.

Street Bytes

--The third quarter is over. You can finally come out of hiding and it’s safe to emerge from your bunkers at long last. Then again, now it’s that traditionally scary month of October.

The Dow Jones had its worst quarter since Q1 2009, down 12%, while the S&P 500 (-14%) and Nasdaq (-13%) had their worst performances since the fourth quarter of 2008. London’s FT-SE benchmark also fell 14%, while Paris and Frankfurt posted declines of more than 25%! Sacre bleu!

On the week, stocks were mixed with the Dow Jones rising 1.3% to 10913, but the S&P fell 0.4% and Nasdaq lost 2.7%.

--U.S. Treasury Yields

6-mo. 0.05% 2-yr. 0.24% 10-yr. 1.92% 30-yr. 2.91%

Part of the reason for Friday’s decline in the stock market was word that the eurozone’s inflation rate for September hit 3%, or a full point above the ECB ‘s 2% inflation target. Thus some say the ECB won’t be in a position to lower interest rates next week in Jean-Claude Trichet’s swan song as leader of the institution. I disagree. The ECB is convinced inflation will be much lower next year and they’ll lower rates to try and stimulate the economy.

--Much was said about China this week and the state of its economy. I’m long on record as saying that we will see a soft landing there, though I’ve also said I’m going to be watching casino revenues on Macau closely, viewing this as a key barometer (casino traffic being a good way to measure the growth of China’s middle class, for one), and so I couldn’t help but take note that casino shares took a header this week as everyone and their mother suddenly called for a hard landing in China.

I have one thought for now. What kind of cracks me up is that when you see experts interviewed on CNBC, 9 out of 10 who have actually been there recently say there will be no hard landing. Conversely, 9 out of 10 sitting in their offices in New York or Chicago call for Armageddon, and usually cite the shape of the banks, an inevitable collapse in China’s housing bubble, etc.

[A Bloomberg Global Poll of investors, analysts and traders revealed that 59% believe China’s GDP will fall from its current 9.5% pace of the second quarter to less than 5% annually by 2016.]

I not only have been there a few times myself, and not just to hang out in a luxury hotel and attend one or two business meetings, but I respect the opinions of the likes of economist Stephen Roach and legendary investor Mark Mobius, both of whom remain highly confident in China’s ability to manage its way through the turmoil.

No doubt, this is the ultimate test. But let me say this about the topic of housing, the developers and bad bank loans.

What have Chinese officials been doing for over a year now? Continually increasing reserve requirements for the banks, demanding they stop lending to smaller developers, while at the same time making it harder for those trying to speculate in the market, whether it is 30% down for a new home, or all cash for a third one. On this front, China is doing everything we didn’t do!

The other thing is China wants the smaller developers to fail or be swallowed up by the larger ones. The government isn’t going to bail them out. One Chinese official told the South China Morning Post that consolidation is “very necessary.”

Sure, there are going to be some ugly headlines, and it’s possible the government may have to backstop a large bank or two to avoid systemic failure, but China has the resources to do so (unlike Europe without great effort).

At the same time I can’t ignore the action in the Shanghai stock market, which has been dismal, but for now my opinion remains firm, with one caveat. Obviously, if the U.S. and Europe double-dip, taking away China’s best export markets, then Beijing will have a tough time maneuvering through such stormy waters, but until that time I’m staying the course.

[Friday night, China reported its purchasing managers index for September, 51.2, not exactly a hard landing reading.]

 --But speaking of Chinese equities, and for those of you like me who have a position or two there, it has been one bad news story after another as fraud is uncovered. It’s downright depressing, because while I remain convinced there isn’t an issue with my Fujian company (and there hasn’t been the slightest hint in the share price action there is), I wouldn’t be saying that if I hadn’t been there twice to see the operation firsthand. The good/legitimate companies are being thrown under the bus with the bad ones and the only thing that changes sentiment is time…and I can’t wait forever.

This week, Robert Khuzami, the director of enforcement at the SEC, confirmed the U.S. Justice Department was considering launching a fraud investigation against some Chinese companies listed here, as well as the reverse merger process, the announcement of which pummeled Chinese internet stocks, for one, such as Baidu.

Aside from my own personal experiences traveling, I also know a little about the history of the place ever since China started feeling its oats under Deng Xiaoping, and the Chinese often adopt an attitude of ‘We can do anything we want and try stopping us.’ You see this in their blatant disregard (until recently) for the environment and basic workplace safety, to cite two prime examples. [Some of you may think OSHA is too powerful in the U.S., but go to a Chinese construction site and you’ll be glad we have a lot of the regulations we do.] And so it also is with some of China’s corporations and accounting standards.

But now it is pile on time when it comes to Chinese companies. They aren’t all bad, of course. Nor is the United States innocent in this regard, either. Think Enron and WorldCom, or look at how at least $60 billion in taxpayer money disappeared among the crooked contractors of Iraq and Afghanistan. Or the still budding Solyndra case, where the FBI is officially investigating the bankrupt solar-panel maker for accounting fraud.

[Energy Secretary Steven Chu acknowledged he made the final decision to allow struggling Solyndra to continue to receive taxpayer money even after technically defaulting on the $535 million loan guarantee.]

What have I said since Day One of StocksandNews? Corruption makes the world go ‘round. Like the corruption between Spain’s local governments and real estate developers, or Russia’s entire business community. And, yes, the massive corruption in China, perhaps best exemplified by the overruns in the high-speed rail project, let alone turning a blind eye to safety. That’s invariably one result of corruption.

So we’ll see how this plays out, but regarding my primary holding I’m as frustrated as the rest of you. [Funny thing is it actually finished up for the quarter.]

--Because Britain isn’t part of the euro-17, the fate of its economy often gets lost in the shuffle as Prime Minister Cameron plows ahead with his austerity program to cut their own deficits, but a YouGov survey in the Sunday Times of London pretty well summed up attitudes there these days. 79% of Brits believe the economy is “bad,” while only 3% believe it is “good.”

--The latest S&P/Case-Shiller housing data showed that property values in 20 cities fell 4.1% in July from year ago levels. The supply overhang of existing homes in or entering foreclosure will be a hindrance on the price front for a long time to come. 

The worst one-year performance among the 20 major metropolitan areas surveyed was Minneapolis, -9.1%. The best? Detroit, +1.2%! “Alex, I’ll go with Motown for $100…”

--Commodities, as measured by the diversified CRB index, continued to take it on the chin. The CRB is at 298, well below its 12/31/10 close of 332, which is how I’m grading myself. This week corn and wheat were clobbered, in part by better than expected inventory data from the U.S. Dept. of Agriculture. Corn had a record monthly decline of 23% in September.

--Just like the airlines, banks are now piling on the fees, with Bank of America announcing it would start charging customers a $5 monthly fee when they used their debit cards for purchases. Wells Fargo and Chase are testing $3 monthly debit card fees. SunTrust is charging $4. This is in response to the Durbin amendment, named for Sen. Richard Durbin, that is part of the Dodd-Frank financial overhaul law that limits fees the banks can levy on merchants when a consumer uses a debit card. The Durbin amendment cut the allowable fee per transaction, which will cost the banks an estimated $6.6 billion in revenue a year, so they’re trying to make it up elsewhere.

--In another look at healthcare costs, the Kaiser Family Foundation, in conjunction with the Health Research and Educational Trust, released its annual closely followed survey of employers and found that the premiums they pay rose a whopping 9% this year, with the average annual cost of family coverage passing the $15,000 mark for a first time; even as companies and employees are limiting the use of medical services. Last year, family premiums rose just 3%.

“The Kaiser survey’s researchers estimated that only around 1.5 percentage points of the 9% increase was tied to provisions of the federal health-care overhaul, which mandated changes to plans, including the addition of children up to the age of 26 to their parents’ plans and an end to out-of-pocket costs for certain preventive-care benefits.” [Anna Wilde Mathews / Wall Street Journal]

But this is largely because 56% of the plans had been “grandfathered.” The real test, as we all know, will come in 2014.

--Energy expert Daniel Yergin, in an interview for TIME.

Q: How are you feeling about nuclear energy?

Yergin: I think Fukushima has definitely changed the nuclear story. Prior to that, people were talking about a nuclear renaissance. The Japanese government did a report after [the accident] in which they said, ‘We did research, we understood earthquakes, but for tsunamis, we were dependent upon fables.’

Q: Do the chemicals used in extracting gas from shale pollute the water table?

Yergin: I was on a committee that just did a report on this for the Department of Energy. So far, we have not seen evidence of the chemicals that are used for the fracking migrating through this very dense rock into the water supply.

--Shares in Eastman Kodak Co. closed on Friday at $0.78 as the 131-year-old camera/printer maker hired two law firms to discuss options, including bankruptcy. Some believe the company could also be sold for its patent portfolio, which is substantial. Regardless, it’s an American tragedy, and another blow to Rochester, New York, where Kodak is headquartered, as thousands more will be losing their jobs.

--Eric Dash of the New York Times had a story on the severance packages still being handed top corporate executives, and how outrageous it is that just-departed Hewlett-Packard CEO Leo Apotheker, at the helm less than a year, is receiving $13.2 million in cash and prizes. H-P, though, has a history in this regard, handing Carly Fiorina $21 million in 2007, and then her successor, Mark Hurd, $12.2 million.

Bank of New York’s former CEO Robert Kelly received $17.2 million in cash and stock, though he had been there awhile. Oswald Grubel, though, the CEO at UBS who just stepped down last weekend amid the rogue trader scandal, will only receive $1.6 million.

Then again, Burger King’s recently departed John Chidsey took the box with Carol Merrill’s image on it (Merrill herself no longer being with us), and walked away with $20 million despite doing a most lousy job.

--Talk about a broken stock, shares in Netflix hit a high of $304 this past July 13.    NFLX finished the week at $113. 2/3s of its value, poof, in 10 weeks. Netflix has made a number of corporate blunders in its pricing, plus now the competition, such as Amazon and Microsoft, is chomping at the bit, the latter in tying up agreements with cable operators to offer programming through the Xbox gaming device.

--Meanwhile, Amazon unveiled the new Kindle Fire tablet computer and after some initial excitement, investors are beginning to question the wisdom of offering the Fire at $199, less than half the price of Apple’s cheapest iPad, with Amazon reportedly then losing up to $50 a device. [Others say less.] Investors also want more transparency from Amazon in disclosing actual sales, which it is loathe to do, vs. the detailed information Apple provides on its various devices.

--Nokia is slashing another 3,500 jobs and closing a plant in Romania, which I just bring up because you can imagine the distress in the city of Cluj. I mention this because five years ago, when I went to Romania and Bulgaria, I hired out a driver for a day in Sofia. Tony was a cool kid, and every now and then he surprises me with an e-mail. I warned him back then to be wary of local real estate, which was in its own bubble in Bulgaria at the time, and sure enough I learned from him this week he got slaughtered. The pain of the global slowdown/recession is being felt all over, that’s for sure.

--But, despite the slowdown, BHP Billiton has predicted that Australia’s resources industry will need an extra 170,000 workers over the coming five years, including both permanent and temporary construction employment, as companies rapidly invest in coal, iron ore and liquefied natural gas.

So, and I am not being facetious, if you are a skilled worker finding it difficult to get a job in America, western Australia in particular is a place to look (sounds like electricians are in big demand, for one). There’s no language barrier and the beer is premium.

Remember last year when I was in Cairns, Australia, and I told you of meeting a woman who had a company that “cleaned” the mines (like a cleaning service for your house)? Tracie said her business was booming. [I’m staring at her card…been meaning to call her for a little ‘channel check.’]

--The world’s biggest publicly traded hedge fund, Britain’s Man Group, said it would cut 400 employees by the first quarter of 2012 after seeing assets tumble about $6 billion. 

--According to the World Health Organization’s first global survey of air pollution, cities in Iran, India and Pakistan and the capital of Mongolia rank among the worst on the planet, while those in Canada and the U.S. are among the best. You can thank Richard Nixon for this, he having had the foresight, and political smarts, to form the EPA at a time when the U.S. was a sewer and we were choking on our smoke.   Yeah, Richard Nixon. Of course now some say the EPA has gone a little overboard with some of its regulations.

The worst city in the world, by the way, is the southwestern Iranian metropolis of Ahvaz, which I’ve now crossed off my bucket list. Ahvaz is overwhelmed with pollution-belching heavy industry and low-quality vehicle fuel, as I saw in an accompanying article in the South China Morning Post.

--Japanese carrier All Nippon Airways became the first to take delivery of a passenger-ready Boeing 787 Dreamliner. The plane will cost $185 million to $218 million, depending on the version ordered, and will seat 210 to 290, depending on the configuration. 

The Dreamliner was once set for delivery in 2008 and it has been one delay and problem after another. It has been, though, a boon for suppliers and there are 821 orders for it thus far from around the world.

--The Federal Trade Commission said that Reebok, a unit of Adidas, agreed to pay $25 million in customer refunds to purchasers of its EasyTone walking shoes and RunTone running brand after the company falsely claimed that the shoes had been proven to lead to 28% more strength and tone in the buttock muscles, and 11% more strength and tone in the hamstring and calf muscles.

Personally, I never buy a product unless it promises at least 50% improvement in these categories.

You know, the other day on a Mets broadcast, former ballplayer Keith Hernandez was asked about his off-season training regimen when he was a player, Hernandez not being known as a workout fiend in the day, and Keith said as he got older and realized he couldn’t just show up at spring training overweight and gradually work it off, the single best exercise he found was long distance running. Not weights, circuit training, etc., just running.  Seeing as this is what your editor attempts to do on a semi-regular basis, I heartily concur. It’s definitely the best way to lose weight.

Foreign Affairs

Yemen: In another terrific victory in the war on terror, U.S.-born Islamic terrorist Anwar al-Awlaki was taken out, along with six other terrorists, in a drone attack in Yemen on Friday. Awlaki was the English language voice of al-Qaeda and a mastermind of attempts on the U.S. such as the underwear bomber in Dec. 2009. He also inspired the shooting rampage at Fort Hood that killed 13 last year. It was just last week I cited reports that the U.S. was picking up the pace of activity on the drone front in Yemen and Somalia. 

Meanwhile, President Saleh returned from Saudi Arabia and now refuses to give up power, which continues to complicate matters in this hell-hole. However, with the death of Awlaki, it will be interesting to see if al-Qaeda can maintain control of its southern stronghold in the country.

Israel / Palestinians: The U.N. Security Council agreed to take up the Palestinian Authority’s application for statehood but it could be weeks, or more, before a vote. The Palestinians need nine out of 15 votes in order for the application to be handed to the General Assembly for final approval, but the U.S. would issue its veto at the Council level. The U.S. is hoping only 8 approve, which would mean it could then abstain and save a little face in the Middle East. The Palestinians want a state comprised of Gaza and the West Bank, with East Jerusalem as its capital.

The European Parliament unanimously approved a resolution declaring the Palestinian people’s “legitimate right to create an independent state,” while at the same time stressing that EU states, and the international community, needed to step up and commit to the security of Israel.

But this week, Prime Minister Benjamin Netanyahu, the smartest man in the world when it comes to pure brain power, once again mucked things up by allowing for the building of 1,100 new housing units in an East Jerusalem neighborhood, which is in total disregard of the requests of the U.S. and the other members of the Quartet (the EU, U.N. and Russia) for a halt in settlement construction as a condition of peace talks; the Palestinians having walked out of talks a year ago after Netanyahu refused to extend a 10-month Israeli moratorium on settlement construction.

Netanyahu, under extreme political pressure from the right, refuses to issue a new moratorium, saying the Palestinians wasted the last one in failing to negotiate, and he reiterated he wants direct talks with no preconditions. Palestinian President Mahmoud Abbas said he will not negotiate unless there is a complete halt to construction.

With Abbas’ bid for statehood, he is enjoying a surge in popularity as he has finally emerged from under the shadow of the late Yasser Arafat. Even Hamas, which rules Gaza and had criticized Abbas’ move in the U.N., is now saying it could accept a Palestinian state within the 1967 borders, but that it would be a temporary arrangement, seeing as Hamas’ charter still calls for the destruction of Israel.

Back to the crucial issue of east Jerusalem, Netanyahu said he will never relinquish it, while the Palestinians have vowed they will not accept a state without key parts of the area as its capital. Currently, about 200,000 Jews live in east Jerusalem neighborhoods (that the Palestinians call settlements,) while amongst them are 250,000 Palestinians.

Meanwhile, out in the Sinai, where terrorists masquerading as Bedouin roam, the natural gas pipeline between Egypt and Israel was attacked for the fifth time this year.

And Hizbullah leader Sheikh Nasrallah said “If Israelis come near Tehran, we will destroy Tel Aviv,” calling himself “a cadet of Ayatollah Khamenei’s school.”

Lastly, President Obama succeeded with his speech to the U.N. in terms of recapturing public opinion in Israel. Back on May 27, a Jerusalem Post sponsored poll showed that only 12% of Israeli Jews considered the Obama administration’s policies more pro-Israel vs. 40% who said they were more pro-Palestinian, the others either not expressing an opinion or calling it neutral.

Now, 54% say Obama’s policies were more favorable toward Israel vs. 19% who said they were more pro-Palestinian.

Separately, the same survey found 50% view Netanyahu favorably, 45% unfavorably.

Egypt: Not for nothing, but the ruling military council is not giving up its power as originally agreed upon following the ouster of Hosni Mubarak. Recall that the new parliamentary elections were initially to be held in August, but the reformers convinced the council to hold off until November to give them a better chance to organize into real political parties to compete against the already well-organized Muslim Brotherhood. Fair enough. The presidential election was to then be held two months after.

But now the supreme council said the elections for parliament won’t be held until next March, at the earliest, and the presidential vote wouldn’t then be held until September 2012!

This is outrageous. The U.S. should be applying maximum pressure to get the military rulers to speed up the process or risk losing our aid. The vaunted Arab Spring has turned into an Arab Sandstorm. 

Iran: The International Atomic Energy Agency has concluded that Iran has not only boosted production of enriched uranium, it has upgraded the level from 3.5% to 20%, the hardest part. Moving from there to 90% enrichment, necessary for weapons-grade material, is a far easier step which is why you’ll increasingly hear the term “break out,” meaning if Iran is perceived to be breaking out in terms of its uranium enrichment program, that means if not stopped it would have enough for a bomb in as little as six months time. As former weapons inspector David Albright told the London Times the other day, “They’ve done this right in front of our faces.”

What’s pathetic is the international community has allowed Iran to ignore four sets of U.N. Security Council resolutions since 2006 demanding Iran cease such activities.

According to the Jerusalem Post, Iran has also begun mass producing a cruise missile for the Navy that has a reported range of 200 kilometers, 120 miles. The Russian news agency Ria Novosti quoted the Islamic Republic’s naval chief as saying Tehran planned on sending ships off the U.S. coastline.

“The Iranian Navy will have a powerful presence near the United States borders,” said Rear Admiral Habibollah Sayarri.

Syria: Turkish Prime Minister Erdogan said that Syrian President Assad will be ousted “sooner or later” by his own people.

“You can never remain in power through cruelty. You can never stand before the will of the people,” Erdogan told CNN.

This week, though, we saw the first signs of a true opposition military response as at least seven Syrian soldiers and police were killed by forces opposed to Assad, i.e., soldiers who’ve defected. There have been increasing reports of “mass defections” to the side of the rebels and weapons are being smuggled in from Lebanon and Iraq.

Meanwhile, U.S. Ambassador Robert Ford was pelted with eggs by supporters of Assad in Damascus, as Ford met with an opposition figure. Secretary of State Hillary Clinton condemned the attack “in the strongest possible terms” in also praising Ford’s courage.

Michael Young / Daily Star

“As the situation worsens, it is improbable that the Assads will gain the upper hand in a decisive way. What is more likely to happen is a radicalization of the conflict, something that may already be inevitable in the face of the utter savagery displayed by the Syrian army, security services, and predominantly Alawite armed gangs

“All future options may be bad for Syria. If the army falls apart, then we will move squarely toward armed resistance and civil war; and if the army remains relatively united and the largely peaceful protests continue, then we could see open-ended carnage. Both situations have a better than even chance of ceding the initiative to those wanting to pick up weapons. That may be the Assads’ wager. They feel that such a development would favor Sunni Islamists. An armed Islamist rebellion would polarize Syria, rally many inside Syria and out to the regime’s side, and justify a policy of eradication, as in Algeria during the 1990s, against an enemy the Assads essentially created.”

Libya: As the Libyan interim prime minister told the U.N. Security Council, Moammar Gaddafi should be viewed as a growing international terrorist threat while he remains free.

“Gaddafi’s battalions continue to kill innocent civilians in different regions of our country,” said Mahmoud Jibril.

Afghanistan: President Hamid Karzai said his government will no longer hold peace talks with the Taliban following the assassination of Rabbani, and instead he will focus on dialogue with Pakistan.

Separately, the U.N. reported that the monthly average of armed clashes, roadside bombings and other violence in the country is running 39% ahead of last year’s figure, with the attacks being more complex in employing multiple bombers and gunmen.

So the day after the U.N. report was issued, NATO rushed out its own data showing violence trending downward in their favor as NATO is concerned with public opinion undermining its mission as it eyes the withdrawal of all combat troops by the end of 2014.

NATO said attacks were down 2% in the first eight months of the year vs. the same period in 2010. Over this time, 405 international troops were killed, or 16% fewer than the 483 over the first eight months of last year.

It does seem 200 more Afghan civilians have been killed thus far in 2011…1,462 vs. 1,271, mostly by roadside bombs.

Pakistan: As the Financial Times reports, Pakistan’s military and civilian leaders are closing ranks against U.S. pressure on them to cut ties with Afghan militants, such as the Haqqani network using Pakistan as a base of operations against Afghanistan.

Editorial / Wall Street Journal

“No doubt it would be in the long-term strategic interests of both countries to remain allies. But there is a larger reality. The U.S. cannot be seen before the world, or more especially by the American people, turning a blind eye to Pakistan’s complicity in the murder of U.S. citizens serving in Afghanistan.

“The U.S. now has a range of options available, from designating the Haqqani network a foreign terrorist organization (as a prelude to hitting its finances); withholding $1 billion in military aid to Pakistan in the absence of antiterrorist cooperation; or hitting the Haqqanis ourselves. Pakistan’s leadership, among its myriad delusions, believes its status as a nuclear power somehow frees it to reduce its relationship with the U.S. to the same crude and cynical status as its relations with the homicidal Haqqanis.

“That’s false, and the Obama administration deserves credit for publicly putting Pakistan’s impossible-to-tolerate behavior on the table.”

Separately, Pakistan suffered a huge blow when a Chinese mining company abandoned a $19 billion project over fears for worker safety after recent bombings in Pakistan’s major cities. A number of Chinese workers have been killed in the country and China has complained about lax security not just for its workers but also the investments themselves. Pakistan was using its relationship with China as a counterweight to both the U.S. and India (for different reasons).

Russia: As I went to post last Saturday morning, there was a little confusion on events here as Prime Minister Vladimir Putin gave an impromptu speech before his formal address later that day in front of the United Russia party convention and he didn’t say whether or not he was running for president again in 2012. Instead, he told delegates in his first speech that Russia’s plunging stock market and crumbling currency foretold hard times and that “bitter pills” would have to be swallowed and that the government can’t pour honey on every problem, as the Washington Post’s Will Englund put it. 

But then Saturday afternoon, both Putin and President Dmitry Medvedev, in a carefully choreographed display, agreed to switch positions next spring, assuming Putin wins his election, as everyone on the planet expects seeing as how it’s rigged, plus Putin remains popular among the majority.

So Putin runs for president on March 4, and Medvedev would then take over the government functions as prime minister. 

As described by the Moscow Times’ Nikolaus von Twickel:

“Putin was the first to address the attendees, including 639 delegates.

“He told them that Medvedev, his protégé, should head the electoral list for the Dec. 4 Duma elections, saying it would be best not to break with the practice of past elections that the incumbent president leads United Russia’s list.

“ ‘I believe this will raise the party’s authority and ensure its expected and just victory,’ he told the cheering convention.

“Medvedev then took to the stage to say he accepted Putin’s proposal and, in return, endorsed the prime minister as his successor.

“ ‘In light of the proposal that I head the party list, engage in party work and my willingness to engage in government work if we do well in the elections, I think the party convention should support the candidacy of party chairman Vladimir Putin as the country’s president,’ Medvedev said.

“When the convention burst into applause, he added, ‘This means I don’t need to explain the experience and authority commanded by Vladimir Vladimirovich Putin.’

“After receiving Medvedev’s embrace, Putin returned to the stage to deliver an hour long, dry speech about past achievements and future tasks, dwelling mainly on economic and social politics.”

Then Medvedev came out and gave a second speech and…had I been in the audience I would be sound asleep, drooling all over myself.

What a country! What a democracy!

Liberal opposition leader Boris Nemtsov, the leading Kremlin critic, said: “This is a catastrophic scenario for Russia. We should expect capital flight, emigration and dependence on natural resources.”

Andrei Piontkovsky, a political scientist at the Russian Academy of Sciences, said, “This is stagnation and decay for another 12 years, this is the Brezhnev era revisited.”

Putin and Medvedev tried to convince everyone this switch had been in the works since 2007, which is in serious question because two days later Medvedev sacked the long-time (12 years), and highly respected finance minister, Alexei Kudrin, who was said to be interested in being prime minister if his friend Putin went back to the presidency. Putin, under this scenario, would have allowed Medvedev to sack Kudrin to save face.

But Medvedev humiliated Kudrin on national television.

“If, Alexei Leonidovich, you disagree with the course of the President, there is only one course of action and you know it: to resign. It’s necessary to answer here and now: will you write a resignation letter?’” Medvedev demanded.

Kudrin said he would respond only after consulting Putin. Medvedev retorted: “You may consult with anyone you like, including the Prime Minister. But I am still the President and such decisions are taken by me.”

Kudrin resigned after meeting Putin.

Meanwhile, billionaire (and New Jersey, soon-to-be Brooklyn, Nets owner) Mikhail Prokhorov said the Kremlin-orchestrated coup will lead to “tectonic upheavals among the ruling elites.”

I read a ton on this topic the past week and I am more convinced than ever that we will see a different kind of coup (on top of the one just orchestrated). There are many powerful figures inside and outside the Kremlin who are furious over how this all went down. Vladimir Putin, after all, could now rule Russia for another 12 years (remember, he changed the constitution to allow for two, six-year terms instead of the two, four-year term limits both he and Medvedev were under until the change). Putin will only turn 72 in 2024.

Michael Bohm / Moscow Times

“Prime Minister Vladimir Putin and President Dmitry Medvedev taught us a good lesson on truth and honesty.

“The two spent the last year playing charades, trying to inject suspense and drama into the question of which tandem member might run for president. On Saturday, Putin revealed his dirty little secret during his speech at the United Russia convention: He and Medvedev had secretly agreed on the tandem switch ‘several years ago.’ Medvedev said the pact was made before he became president in 2008. Even ministers and the two leaders’ top advisers were unaware of the deal.

“ ‘Every story should have its own intrigue,’ Medvedev said with a grin at the St. Petersburg International Economic Forum in June in answer to the umpteenth question from a journalist about which tandem member might run for president next year. ‘Otherwise life would be boring, so let’s enjoy it a little longer.’

“And enjoy they did.

“What a ruse the two pulled on many world leaders, analysts and, yes, journalists who took close notice of every sign of Medvedev’s ‘liberalism’ and what this might mean for the democratization and modernization of Russia. They must feel a bit foolish now….

“As it turns out, it was all a hoax…The most distasteful aspect, however, was that Putin was not even bashful of publicly admitting during his convention speech on Saturday that the secret deal was sealed years ago. On the contrary, it appeared that he was relishing the trick he played on everyone, as if to underscore his contempt for those gullible to fall for it.

“This behavior shows all the markings of a megalomaniac who has enjoyed uncontested power far too long. Or a con artist who outsmarted the police and everyone else and can’t resist boasting about it to friends and acquaintances.”

I don’t necessarily agree with the above, but it’s a prevalent opinion.

Editorial / Washington Post

“We’d like to congratulate Vladimir Putin on his exciting, come-from-behind victory to become Russia’s next president. After barnstorming across steppe and taiga, presenting a detailed program for the next six years, Mr. Putin won the enthusiastic support of ….

“Oh, no, wait. That’s not how things work in Russia today. Actually, the story is simpler: Vladimir Putin decided that he would like to be president again, and so he will be.”

It’s bad news for President Obama and his “reset” of relations where he had invested heavily in his relationship with Medvedev, which was good, particularly since Putin is not a fan of the U.S.-backed missile defense system that Medvedev was acquiescing on.

Ralph Peters / Washington Post

“There is one incontestably great actor on the world stage today, and he has no interest in following our script. Russian Prime Minister Vladimir Putin – soon to be Russia’s president again – has proven remarkably effective at playing the weak strategic hand he inherited, chalking up triumph after triumph while confirming himself as the strong leader Russians crave. Not one of his international peers evidences so profound an understanding of his or her people, or possesses Putin’s canny ability to size up counterparts.

“Putin’s genius – and it is nothing less – begins with an insight into governance that eluded the ‘great’ dictators of the last century: You need control only public life, not personal lives. Putin grasped that human beings need to let off steam about the world’s ills, and that letting them do so around the kitchen table, over a bottle of vodka, does no harm to the state. His tacit compact with the Russian people is that they may do or say what they like behind closed doors, as long as they don’t take it into the streets. He saw that an authoritarian state that stops at the front door is not only tolerable but also more efficient.

“As for the defiant, he kills or imprisons them. But there are no great purges, no Gulag – only carefully chosen, exemplary victims, such as anti-corruption activist Sergei Magnitsky, who died in police custody, or the disobedient billionaire Mikhail Khodorkovsky, imprisoned on charges Russians regard as black humor….

“Domestically, Putin’s tactile sense of his people is matchless. His bare-chested poses seem ludicrous to us, but Russians see a nastoyashi muzhik, a ‘real man.’ And his sobriety makes him the fantasy husband of Russia’s beleaguered wives.

“Not least, Putin has renewed Russian confidence in the country’s greatness….

“He has restored, if briefly, a fallen glory.

“Demographically, economically, developmentally, militarily, even educationally, Russia appears doomed to a fierce decline. But one man of genius has brought his people a last, autumnal reprieve. Vladimir Putin is a dangerous man, but a splendid czar.”

China: In response to Washington’s arms sales to Taiwan, China canceled or postponed some U.S.-China military exchanges, but Beijing’s overall response has been far more restrained than last year when it cut off military ties entirely for a number of months.

But an editorial in the mouthpiece of the Communist Party, the People’s Daily, warned Asian countries against provoking it.

“Certain countries think as long as they can balance China with the help of U.S. military power, they are free to do whatever they want.”

This comes after Japan and the Philippines pledged to boost maritime security ties and the peaceful settlement of disputes in the resource-rich South China Sea, home to several territorial disputes involving China.

Australia and the U.S. are also looking into stepping up military cooperation in the area, including granting the U.S. access to Australia’s bases if need be.

France: President Nicolas Sarkozy’s reelection hopes suffered a blow as the opposition Socialist party won a majority in the Senate, the upper house of parliament, for the first time in more than 50 years.

Bulgaria: There were large-scale protests in the capital, Sofia, against the country’s large Roma (Gypsy) population. 160 were arrested.

This is a classic demonstration of what I have talked about for years. Bulgaria’s economy, as noted above, is a mess and the immigrant gypsies (who truth be told I can’t stand either from my dealings with them in my travels…very nasty people) are being blamed by the native Bulgarians for taking their jobs, the increase in crime, and so on.

Saudi Arabia: King Abdullah granted women the right to vote and run in municipal elections, a historic first, but they still can’t drive. One woman was sentenced on Monday to 10 lashes for defying the ban. 

Random Musings

--I keep talking about an Andrew Cuomo-Chris Christie potential race in 2016 because Gov. Christie isn’t ready this go ‘round, as he himself has said on more than one occasion. One prominent campaign player told the New York Daily News’ Thomas Defrank that “Chris has the good common sense to know that two years as a governor is not enough experience to make you ready to be president. President Obama has proved that once and for all.”

Christie just doesn’t have the organization and money. It’s too late.

But suddenly, after his speech at the Reagan Presidential Library, there is talk Christie is seriously reconsidering and will make a decision shortly.

Editorial / Wall Street Journal

“The political class is doing the will-he-won’t-he dance over a 2012 Chris Christie presidential run, but today we’d like to focus on the speech he delivered Tuesday evening…It’s the best thematic statement from any Republican recently on how to transcend the calcifying ambitions of the Obama era.

“The New Jersey Governor spoke about the obligations of leadership, especially presidential leadership, but his larger theme was the meaning of ‘American exceptionalism.’ He defined that oft-abused phrase not in the context of assertive American power overseas, as the left likes to caricature it, but as the power of America’s example that flows from economic and political success at home. ‘Earned American exceptionalism,’ he called it.

“ ‘There is no better way to reinforce the likelihood that others in the world will opt for more open societies and economies than to demonstrate that our own system is working,’ Mr. Christie said. ‘Unfortunately, through our own domestic political conduct of late, we have failed to live up to our own tradition of exceptionalism. Today, our role and ability to affect change has been diminished because of our own problems and our inability to effectively deal with them.’….

“Mr. Christie is onto something that is likely to resonate with Americans who are worried about their economic prospects and increasingly disappointed with President Obama’s response. As Mr. Christie put it, Mr. Obama ran on themes of postpartisan inspiration and U.S. revival in 2008. But ‘now, three years later, President Obama prepares to divide our nation to achieve re-election. This is not a leadership style. This is a re-election strategy.’”

A few other Christie quotes from the Reagan Library speech:

“We watch a president who once talked about the courage of his convictions, but still has not yet found the courage to lead. We watch a Congress at war with itself because they are unwilling to leave campaign style politics at the Capitol’s door….

“There is no better way to reinforce the likelihood that others in the world will opt for more open societies and economies than to demonstrate that our own system is working. Without strong leadership at home, without our domestic house in order, we are taking ourselves out of the equation.”

Bottom line, Christie called President Obama a “bystander.”

By the way, President Obama’s approval numbers in New Jersey have dropped. In May, the Fairleigh Dickinson University PublicMind poll had 55% approving of Obama’s job performance and 36% disapproving. But today it’s split 47-47.

As for Gov. Christie, the same poll shows 54% of New Jersey voters approving of his performance, while 36% disapprove. Last May it was split 44-44.

--In a Fox News poll, Mitt Romney regained the lead with 23%, while Rick Perry fell to 19% (10 points lower than the last Fox poll), and Herman Cain, buoyed by his debate performances and his win in the Florida straw poll (37% to Perry’s 15% and Romney’s 14%), sits in third at 17%. Newt Gingrich rose to 11%, while Ron Paul slipped to just 6%. Lastly, Michele Bachmann captured only 3%. Beset by money problems, she should quit now.

As for Obama, he would beat Romney by 3 points and Perry by 8 points according to the Fox News survey.

--Back to Cain, this week he said that he could take one-third of the black vote from Obama, as stated in his upcoming memoir.

“Whenever President Obama is criticized over policy mistakes, his surrogates tend to play the race card, as if there’s supposed to be something inherently morally wrong in such criticism,” he writes.

As for the Congressional Black Caucus, Rep. Maxine Waters said Obama’s remark to the group last weekend that blacks needed to “Take off your bedroom slippers. Put on your marching shoes. Shake it off. Stop complainin’. Stop grumblin’. Stop cryin’…” was “not appropriate,” according to Waters, whose entire career has essentially been inappropriate in its own right.

--I just kind of threw it out there last week that Herman Cain makes for an intriguing vice presidential pick, but party leaders appear to have their eyes set on Florida Senator Marco Rubio, the son of Cuban exiles and a Tea Party favorite when it comes to the second slot. As Vin Weber, a former Republican congressman and now leading strategist puts it:

“He’s the real deal. He is a significant figure in Florida [a swing state] and among Hispanics, and he can animate the base without alienating moderates.”

--Fred Barnes / The Weekly Standard

“It’s come to this: The president touted for his brainpower, idealism, and global esteem has been reduced to leading captive audiences in chants of ‘Pass this bill,’ a measure that Republicans loathe, Democrats regard warily, and Congress is unlikely to approve even in truncated form.

“The Obama presidency has entered the pathetic phase. This occurs when a president acts in a demeaning fashion while trying to rebuild his popularity and political strength. It’s a product of desperation.”

--Irwin Stelzer / London Times

“Willie Sutton stole more than $2 million from over 100 banks before he was finally incarcerated in 1952.

“When asked why he robbed banks, he is said to have responded: ‘Because that’s where the money is.’

“Apparently, politicians round the world now want to tax the rich because, they believe, or say they do, that’s where the money is.

“They’re wrong.

“The simple fact is that there aren’t enough of the ‘millionaires and billionaires’ who are the target of President Barack Obama’s campaign trail scorn to make the tiniest dent in America’s deficit, or in the deficits of Italy, France, Greece, Spain, Portugal and Great Britain. In addition to the political popularity of such a move in countries less tolerant of inequality than America, hitting the rich deflects attention from a failure to cut bloated public sectors….

“For the president (taxation should) aim at fairness, a rather elastic concept but one that plays well on the campaign trail….

“The practical question is whether politicians following the Willie Sutton approach are likely to achieve their goal of cutting the deficit. In America, at least, they won’t. Their American idol, the billionaire investor Warren Buffett, is simply wrong when he generalizes from his own experience of having a lower effective tax rate than his secretary to a conclusion that all millionaires pay lower rates than the middle class, a view jumped on by Obama, who defends his proposed tax increases by arguing that ‘people making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay.’

“ ‘Facts are stubborn things,’ said Founding Father and later President John Adams in 1770, ‘and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence.’ Obama ignores the stubborn fact that people earning more than $1m are subject to an effective individual tax rate of 28.9% of their income (total federal taxes, including income taxes, payroll taxes and other taxes), while households making between $50,000 and $75,000 face an average rate of 20% (data from Tax Policy Center)….

“(Obama’s) proposals are seen as a campaign ploy to please his sullen Democratic base and to put the Republicans in the position of defending ‘the rich.’ The last candidate to run as a class warrior was Al Gore, and he is now reduced to searching for audiences for his increasingly vitriolic, profanity-laden presentations on global warming.”

--Speaking of Warren Buffett, New York City Mayor Michael Bloomberg said on “Meet the Press” that Buffett’s call for higher taxes on the super-rich “is just theatrics.”

“If Warren Buffett made his money from ordinary income rather than capital gains his tax rate would be a lot higher than his secretaries. And in fact a very small percentage of people in this country pay a big chunk of the taxes,” said Mayor Mike.

--Here’s an embarrassing anecdote concerning Republican presidential candidate Mitt Romney, as told by Andrew Romano of Newsweek.

“What is Mitt Romney? It is very hard to tell. Put him on a debate stage, and he can outshine the klieg lights….

“And yet, away from the stage, and the lights, and the shrink-wrapped soundbites, where real human beings aren’t kept at a respectful distance, and resumes and factoids matter less, Romney isn’t quite as luminous. Consider his visit, in August, to the Iowa State Fair. As Romney arrived at the Varied Industries Building, an aide emerged from the crowd with lunch: a pork chop on a stick. The boss took a bite, and then, still chewing, struck up a conversation with the nearest retiree, if ‘conversation’ is the right word for what Romney does with voters, which usually involves repeating whatever they say to him immediately after they say it.

“ ‘That’s the best thing at the fair,’ the retiree said, pointing to the pork.*

“ ‘Is that the best thing at the fair?’ Romney replied. He pivoted to the retiree’s granddaughter. ‘What are you, about 7?’

“ ‘Eight,’ she said.

“ ‘Eight,’ Romney confirmed. He swiveled back to the retiree. ‘You in the ag world?’

“ ‘The insurance business,’ the retiree said.

“ ‘Insurance business,’ Romney responded. He seemed determined to reveal nothing – except for how little he was willing, or able, to reveal. The retiree went on to mention that he ‘lived in Clear Lake,’ up near the Minnesota border, ‘for years.’

“ ‘Beautiful area,’ Romney said. ‘I love water.’ He took another bite of his pork chop.

“ ‘Well, we better let you go,’ the retiree finally said, glancing at the cameras. ‘We’re getting more air time than you are.’”

Yikes! But two comments on my part. First, as I told readers in another column I write, when I was at the Iowa State Fair, the pork chop on a stick was indeed the best item. Out of this world delicious. Second, Romney should have said, “Clear Lake…Clear Lake…isn’t that where Buddy Holly played his last concert? The Day the Music Died?”

--Details are still emerging, and will over the coming days, but Florida has really screwed up the Republican nominating process. On Friday it announced it was officially setting Jan. 31 as the date of the state’s primary. Currently, the Iowa caucuses are slated for Feb. 6, the New Hampshire primary for Feb. 14, the Nevada caucuses for Feb. 18 and the South Carolina primary, Feb. 28.

But Florida’s move forces the first four (whose order was long agreed upon by the Republican National Committee) to move up their dates. Iowa, as I write, is looking at mid-  to late-December, while New Hampshire could be in December as well. Man, this sucks! I wanted to go to New Hampshire in January, myself. Florida thus becomes a candidate for “A-hole State of the Year.”

--So there’s been a little talk out there that Hillary Clinton and Joe Biden would swap jobs. The president has time on that one, like until spring, but if it’s basically status quo come April, that would be an intriguing move.

--The listeria outbreak that has claimed at least 16 lives from Maryland to Colorado and New Mexico is scary. Back in 1998, twenty-one died in an outbreak of listeria poisoning traced to contaminated hot dogs and possibly deli meats, and in 1985, a listeria outbreak killed 52 and was linked to Mexican-style soft cheese.

The CDC says one in five that contracts the disease can die, though the median age of those sickened is 78. A big problem in the current outbreak, believed to be from contaminated cantaloupes traced to Jensen Farms in Holly, Colo., is that it has a long incubation period.

--Medal of Honor recipient Dakota Meyer, out of nowhere, expressed the desire to be a New York City firefighter. Talk about a PR coup for the FDNY, right?

Wrong. It turned into a messy deal, seeing as how Meyer technically missed the filing deadline for the January exam, which was a few days earlier. Easy to take care of, seeing as Meyer is a living hero of the first order, right?

Wrong. For reasons I won’t bore you with, Brooklyn Federal Judge Nicholas Garaufis is in charge of these things and he initially wasn’t going to budge until NYC officials, including Mayor Bloomberg, urged him to grant an exemption in Meyer’s case, which he was prepared to do, lauding his “exceptional military service,” but Garaufis wouldn’t grant the filing extension to everyone else so Meyer said that it wouldn’t be right for him to get a break when no one else did and he didn’t want the special treatment.

As the Daily News reported, “A firefighters group that has clashed with Garaufis blasted his decision not to reopen the deadline for all as ‘nonsensical.’

“ ‘This is a no-brainer,’ said Paul Mannix, an FDNY battalion chief. ‘It’s so easy just to do the right thing.’”

Talk about frustrating. You see, it came down to racism, believe it or not, and Judge Garaufis having a bug up his ass because he says minorities are substantially underrepresented in the ranks of the FDNY and….oh, never mind. You just want to scream.

On one hand America produces the likes of Dakota Meyer…on the other hand we continue to be a nation of idiots.

[Imagine how Mayor Bloomberg was pulling his hair out on this one.]

--Sorry to bring up the following depressing item, but I came across it in this week’s Army Times and it’s just something we all should be aware of.

As reported by Joe Gould:

“Though more soldiers are surviving blast injuries, amputations and genital injuries have risen sharply, shattering lives and damaging moral….

“ ‘(The wounds) call into question a person’s entire future and the way they perceive themselves. These are lifelong injuries our soldiers will live with for the next 60-plus years,’ said Brig. Gen. Joseph Caravalho Jr., chairman of the task force (exploring the issue).

“Many of these injuries occurred as the military has stepped up foot patrols as part of its counterinsurgency strategy, leaving troops vulnerable to homemade bombs and other explosives commonly employed by militants in Iraq and Afghanistan.

“Medical care, armored vehicles and protective gear are better able to keep soldiers alive despite increasingly severe wounds. Fatality rates have decreased and burn injuries have ‘nearly disappeared,’ the report states.

“However, the number of U.S. troops who lost limbs rose from 86 in 2009 to 187 in 2010 and 147 so far this year, military officials said.”

Thus far in 2011, 77 have lost two or three limbs.

And so, as always, we pray for the men and women of our armed forces, the wounded, and all the fallen. 

A donation to the Wounded Warrior Project would be appropriate.

God bless America.
---

Gold closed at $1625
Oil, $78.64

Returns for the week 9/26-9/30

Dow Jones +1.3% [10913]
S&P 500 -0.4% [1131]
S&P MidCap -1.7%
Russell 2000 -1.3%
Nasdaq -2.7% [2415]

Returns for the period 1/1/11-9/30/11

Dow Jones -5.7%
S&P 500 -10.0%
S&P MidCap -13.9%
Russell 2000 -17.8%
Nasdaq -8.9%

Bulls 37.6
Bears 40.9 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

*I’m headed to Ireland today for a quick trip. I should have some new insight for you next time.

Brian Trumbore



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Week in Review

10/01/2011

For the week 9/26-9/30

[Posted 7:00 AM ET]

Europe, Washington and Wall Street

In looking at this week, it reminded me of the “Simpsons’” episodes where the family goes on vacation and within two minutes Bart is in the backseat going “Are we there yet? Are we there yet? Are we there yet?” as Homer stews.

And so this week, upon hearing that the German parliament approved its expanded share of the European Financial Stability Fund (EFSF), one might be tempted to ask “Is it over? Is it over? Is it over?”

No!!! The Euro debt crisis is not over.

It’s been a testy week around the world, you see. It started with President Barack Obama, that paragon of fiscal prudence, criticizing Europe’s leaders (rightfully, in this instance) for their failure to solve the crisis, after which German Chancellor Angela Merkel, facing a critical vote over the bailout, basically told Obama to stick it when the administration suggested Europe needed to reflate its economy to avert recession.

“The idea that you need to boost growth by taking on ever greater debt is the wrong idea. I am deeply convinced of that,” Ms. Merkel said.

Her finance minister, the irascible Wolfgang Schauble, was less diplomatic when it came to Obama’s charge that Europe’s failure to act was “scaring the world.” Schauble said:

“It is always much easier to give advice to others than to decide for yourself. I am well prepared to give advice to the U.S. Government. The USA is a huge continent, totally different.”

But with the Germans passing the EFSF revamp, and with just a few more of the 17 euro nations needing to grant their approval, let’s take a look at the remaining key dates courtesy of the Financial Times.

[Some of these may shift a bit]

Oct. 3…Eurozone finance ministers meet in Luxembourg
Oct. 11…Slovak parliament votes on the EFSF, the last eurozone member to do so
Oct. 13…Eurozone ministers could meet again to sign off on a Greek aid tranche
Oct. 14…G20 finance ministers meet in Paris
Oct. 15 (or thereabouts)…Greece runs out of money
Oct. 17-18…Herman Van Rompuy, European Council, president, will make proposals on fiscal union at an annual EU summit
Nov. 3-4…G20 summit in Cannes….niiiiiice!
Dec. …Talks begin on the next aid tranche for Athens
Dec. 9…EU summit at which leaders to discuss increasing EFSF and fiscal union
Dec. 25…Christmas at Trumbore’s! Domestic on tap!
Early 2012…German parliament votes on a permanent bailout fund to replace the EFSF

So you look at the calendar and a few things stick out. First, I have limited space on Christmas Day and there is only one seating. Second, as all 17 eurozone states must approve the expanded EFSF, Slovakia has always been seen as a wildcard. Some say it’s a lock they’ll approve. But this past Wednesday, Tampa Bay was down 7-0 with just six outs to go and who wudda thunk they’d win the wildcard in the American League and not Boston, then up in their game, let alone nine games up when the month started?

On Oct. 13, eurozone ministers are expected to approve the next 8 billion euro in aid for Greece, assuming Greece has convinced the troika (the IMF, European Commission, and European Central Bank) that they are back on track in meeting their deficit targets. Greece has said it would run out of cash a day or two later. I’ve written this before, but if you happen to be traveling in Greece around this time, whatever you do, have lots of U.S. dollars on hand, seriously, just in case.

Oct. 17-18 begins to set the stage for a new European Treaty and fiscal integration, but this process could take years.

Everything on the Greece and European debt crises is supposed to be wrapped up, at least the final process, by the Nov. 3-4 G20 summit. If not, then forget about any talks on a new round of aid for Greece come December.

But here’s the thing. Greece’s immediate issue is to convince the troika it is being transparent, so guess what?

On Friday, some workers at the official statistics agency walked off the job, while others were blocked from getting into their building by a massive civil service strike. As in the man in charge of the agency, who is to present the data to the troika, can’t do so. The workers walked off because they fear layoffs, seeing as they are public employees and this group is finally being targeted by the government, but if Greece doesn’t get the next 8 billion euro, they’re not only going to lose their jobs, they’re not going to be able to use their suddenly worthless euro for anything. [The bank operational issues I discussed the other week…ATMs shutting down, etc.] This is beyond pathetic. Greece must get this next tranche of aid. Period.

But let’s assume the statistics agency’s workers see the light by the time you read this and we at least get through the next two weeks largely without incident until decision day.

As for other details, the EFSF overhaul that is being approved by each parliament would consist of the 440 billion euro, I’ve long discussed, that could then be used to inject capital into banks and purchase bonds of distressed governments on the open market. But, again, as I’ve been writing, the 440 billion euro is only enough to cover bailouts for Greece, Ireland and Portugal, more or less. Not Italy and Spain…and Belgium…and France.

Minimum, you would need a second EFSF, or an expansion of the first one, of 500 billion euro to backstop Italy and Spain. But instead of a combined 940 billion, now you are seeing target figures of anywhere from 1.5 trillion to 4 trillion; the purpose being to have more money on the table than is necessary in a worst case scenario to finally convince the markets the EU has its act together, whereupon we could all go back to focusing on company and economic fundamentals instead of debt levels.

But look how difficult it’s been to get the 440 billion fund approved, assuming my fellow Slovaks behave (I’m half-Slovak, you see). How will you get these same 17 parliaments to approve another 500 billion+ when, for example, the latest polls in Germany show anywhere from 70 to 80 percent of the people resenting their nation’s contributions to bailing out the sick sisters? No way could Chancellor Merkel go back to the well again but that’s exactly what she’s going to have to do, sooner than later, and this as the Germans see their own economy slow to a crawl, with August retail sales reported to have fallen the most in four years, as released the other day.

The following is from a Washington Post article (I apologize that I clipped out the passage and forgot to write down the author).

“A recent IMF report hinted at the potential size of the problems the EFSF faces, among them: about $4 trillion in outstanding bonds of a half-dozen countries [Ed. adding Belgium to the PIIGS, not France] now regarded as heightened credit risks; perhaps $400 billion in losses faced by banks as a result of investments in government bonds and other financial institutions; and $200 billion in government bonds that the European Central Bank bought as a stopgap and may be eager to unload.”

It’s in November that eurozone officials are to have a comprehensive plan to “maximize the impact” of the EFSF in time for the G20 meeting. Yes, 940 billion isn’t enough. They have to come up with as much as 4 trillion potentially. As you’ll see below, Europe isn’t that wealthy.

And here we pause to allow it all to sink in….it’s more than a bit depressing. I fall in the camp that believes the European continent is in the midst of a Japanese style collapse where you’ll see some decent rallies, maybe spurred by a respectable economic number or two, like a story that Greece’s revenues are beginning to grow, but then you’ll just have another downturn. An unending cycle of pain. Further opinion…

Christopher Dickey / Newsweek

“Greece is a country where it’s said, only half in jest, that everyone rips everyone off because everyone feels somebody else is going to rip them off. And that includes, of course, their own government. When Papandreou took office in 2009 he discovered the books had been so cooked that the deficit turned out to be not 3 percent of GDP, which was the target, or 6 or 7 percent, which was claimed, but a whopping 13 percent. No, scratch that. It was 14 percent. No, wait a minute – the more the government finds out, the worse the picture looks, and the current calculation of the deficit Papandreou inherited is now stated as 15.5 percent of GDP.

“Papandreou ran on a platform of transparency, and when he started making these figures public, the markets were stunned…

“So the question of whether Papandreou really can transform international attitudes about the Greeks – and the Greeks’ attitudes about themselves – becomes almost as crucial as the numbers. ‘Economy is psychology,’ says Foreign Minister Lambrinidis. Greece has to convince the international community – especially the French and Germans, whose money is so vital to Greece – that it really is changing. If they don’t believe that’s the case, they can’t and won’t continue working to stave off default.

“But the Greeks are getting restive. They’ve never been shy about taking to the streets when they feel they’ve been wronged. (Harvard economist Richard) Parker went with Papandreou (a family friend) this past summer to a town-hall meeting in a remote village in the far west of the country. Papandreou listened for hours to complaints and suggestions from about 100 townspeople. This was the Greece of the taverna, deeply Mediterranean, deeply resistant to change that compromises its relaxed way of life. Papandreou talked about sacrifice. He never surrendered a point. He never lost his temper. And he took notes on his iPad.”

Robert Samuelson / Washington Post

“There’s too much debt. In the spring of 2010, the interest rates demanded by financial markets indicated that about 5 percent of the eurozone’s debt was considered highly risky, says the IMF. That represented only Greece. By late summer 2011, the portion judged risky was 46 percent and included Ireland, Portugal, Spain, Italy and Belgium. If financial markets added France to this group – a possibility – the share of threatened debt would rise to 66 percent.

“It’s implausible that the strong half or third of the eurozone (the 17 nations using the euro) could rescue all the weaker members, in part because ‘strong’ countries also have high debts. Everyone knows about the debts of Greece, Italy and Ireland, which are, respectively, 166 percent, 121 percent and 109 percent of their annual output (gross domestic product). It’s less well-known that Germany’s debt is 83 percent of GDP and France’s, 87 percent. (Americans should not smirk. The U.S. debt – using similar assumptions – is 100 percent of GDP).

“Europe is hostage to financial markets because maturing loans and outgoing deficits mean many countries must regularly borrow huge amounts. Already, Greece, Ireland and Portugal have been excluded from private markets; lenders demanded crushing interest rates. That fate could await others. Some countries face staggering 2012 borrowing needs. The IMF estimates that Italy requires new loans equal to one-fourth of its GDP; for Spain and France, the amounts are about one-fifth of GDP.

“Europe is caught in an economic pincer: slow-growth assaults from one side; fickle financial markets from the other.”

Editorial / London Times

“The fundamental flaw in the original scheme for a single currency is that it lacked a mechanism for transferring funds from stronger to weaker members. British opponents of euro membership have long maintained that monetary union would eventually require fiscal union too, and that this would be a necessarily undemocratic arrangement. The debt crisis that has spread from Greece and now endangers even so large an economy as Italy proves them right.

“Decisions over national budgets should be taken exclusively by national parliaments accountable to their electorates. They pay the taxes and should be able to vote on how politicians spend the money. But a successful currency union cannot work like that. Hence, prudent German taxpayers are being required to give money to rescue Greece from the legacy of prolonged profligacy. They have every reason to feel aggrieved. There really is no option for the eurozone, however, but to introduce belatedly greater centralization in fiscal policy.

“Eurozone members need now to demonstrate resolution in doing so and preserving the euro before the entire arrangement falls apart….

“The significance of Ms. Merkel’s success in securing the parliamentary vote, against dissent within the parties of her governing coalition, should not be overstated, however. European and especially German policymakers have been late in acknowledging the scale of the crisis. The EFSF needs to be big enough to contain the damage so that it does not spread further to Spain and Italy.

“That requires not just more money but a mandate to provide guarantees for large purchases of Italian and Spanish government bonds. Such a policy will be highly unpopular with German taxpayers, who would almost certainly end up paying for any losses on those investments.

“Why should German policymakers agree to this? The reason is that if the euro fell apart, a new German currency could be expected to appreciate dramatically. The damage to export earnings would be huge. It would almost certainly be cheaper to contribute now to the Greek bailout. An arrangement that manages to be both messy and centralist is far from ideal. But so is the misshapen monetary union that cannot now be undone without colossal damage, and that needs urgent repair.”

Editorial / The Economist

“In dark days, people naturally seek glimmers of hope. So it was that financial markets, long battered by the ever-worsening euro crisis, rallied early this week amid speculation that Europe’s leaders had been bullied by the rest of the world into at last putting together a ‘big plan’ to save the single currency. Investors ventured out from safe-haven bonds into riskier assets. Stock prices jumped: those of embattled French banks soared by almost 20% in just two days.

“But those hopes are likely to fade, for three reasons. First, for all the breathless headlines from the IMF/World Bank meetings in Washington, D.C., Europe’s leaders are a long way from a deal on how to save the euro. The best that can be said is that they now have a plan to have a plan, probably by early November. Second, even if a catastrophe in Europe is avoided, the prospects for the world economy are darkening, as the rich world’s fiscal austerity intensifies and slowing emerging economies provide less of a cushion for global growth. Third, America’s politicians are, once again, threatening to wreck the recovery with irresponsible fiscal brinkmanship. Together, these developments point to a perilous period ahead….

“Now, more often than not, policymakers seem to be getting it wrong. Their mistakes vary, but two sorts stand out. One is an overwhelming emphasis on short-term fiscal austerity over growth. Fixing that means different things in different places: Germany could loosen fiscal policy, while in Britain the reins should merely be tightened more slowly. But the collective obsession with short-term austerity across the rich world is hurting.

“The second failure is one of honesty. Too many rich-world politicians have failed to tell voters the scale of the problem. In Germany, where the jobless rate is lower than in 2008, people tend to think the crisis is about lazy Greeks and Italians. Mrs. Merkel needs to explain clearly that it also includes Germany’s own banks – and that Germany faces a choice between a costly solution and a ruinous one. In America, the Republicans are guilty of outrageous obstructionism and misleading simplification, while Mr. Obama has favored class warfare over fiscal leadership. At a time of enormous problems, the politicians seem Lilliputian. That’s the real reason to be afraid.”

Washington and Wall Street

There was some good economic news this week in the United States. August durable goods (big ticket items) were off only 0.1% when a 0.5% decline was expected; the September Chicago purchasing managers index came in hotter than forecast at 60.4, solidly in expansion mode and above the 56.5 reading for August; and the weekly jobless claims figure was back below the benchmark 400,000 level…391,000…the lowest number since early April. Plus the final figure for second quarter GDP came in at 1.3%, better than the first estimate of 1.0% and above the expected 1.2%.

Isn’t this all great? The flip side was that August personal income declined 0.1%, the first such negative reading in two years; August new home sales could still be counted on just two hands, with the median price declining 7.7% over year ago levels; and a survey of CEOs for the Business Roundtable showed them lowering their expectations when it comes to capital expenditures and hiring over the coming year, though, importantly, as a group they weren’t forecasting an outright recession.

So here’s the thing. Warren Buffett was on CNBC, Friday, and he too said there will be no recession, as classically defined, two negative quarters in a row, but as I’ve been writing it really doesn’t matter. We haven’t been in a recession since the last one ran its course, officially, but it’s felt like one for years. And it’s that lousy sentiment that impacts decision-making for both large and small corporations when it comes to their hiring and expansion plans. It’s that simple.

The stock market, though, is a different animal and you can have some terrific rallies in a slow growth environment.    So I’m of the belief it will feel like a recession, but the jury is out on stocks. We’ll learn a lot with the coming earnings reports and projections going forward. Certainly Friday’s announcement by diversified machinery player Ingersoll Rand, that it was lowering its earnings and revenue guidance ostensibly because of the dire housing picture, wasn’t a good sign if you were hopeful for a solid earnings season. [IR stock closed at $28, off its May 52-week high of $52.]

Elsewhere, the bipartisan supercommittee that is supposed to come up with $1.5 trillion in deficit-reduction by Nov. 23 has commenced negotiations, but Sen. Lindsay Graham wants legislation to protect the defense department from further cuts than already agreed upon earlier in the year, which means that if enough senators felt this way the negotiations would be over before they started because not only does defense need to be cut even more, but if the supercommittee doesn’t do their job, the trigger mechanism comes into play and of $1.2 trillion in automatic cuts that are then mandated by law, half could be from defense.

Ergo, if you’re looking for miracles, try Major League Baseball. You’re not likely to find them in Washington.

Lastly, Federal Reserve Chairman Ben Bernanke said the issue of long-term unemployment in our country is a “national crisis” that Congress must act on, as well as do something about housing. 45% of those unemployed have been out of work at least six months. As Bernanke told an audience this week, “This has never happened in post-war America.” He also told us that monetary policy, i.e., setting interest rates, is “not a panacea.” That Bernanke is just a real Dr. Ben Casey.

Street Bytes

--The third quarter is over. You can finally come out of hiding and it’s safe to emerge from your bunkers at long last. Then again, now it’s that traditionally scary month of October.

The Dow Jones had its worst quarter since Q1 2009, down 12%, while the S&P 500 (-14%) and Nasdaq (-13%) had their worst performances since the fourth quarter of 2008. London’s FT-SE benchmark also fell 14%, while Paris and Frankfurt posted declines of more than 25%! Sacre bleu!

On the week, stocks were mixed with the Dow Jones rising 1.3% to 10913, but the S&P fell 0.4% and Nasdaq lost 2.7%.

--U.S. Treasury Yields

6-mo. 0.05% 2-yr. 0.24% 10-yr. 1.92% 30-yr. 2.91%

Part of the reason for Friday’s decline in the stock market was word that the eurozone’s inflation rate for September hit 3%, or a full point above the ECB ‘s 2% inflation target. Thus some say the ECB won’t be in a position to lower interest rates next week in Jean-Claude Trichet’s swan song as leader of the institution. I disagree. The ECB is convinced inflation will be much lower next year and they’ll lower rates to try and stimulate the economy.

--Much was said about China this week and the state of its economy. I’m long on record as saying that we will see a soft landing there, though I’ve also said I’m going to be watching casino revenues on Macau closely, viewing this as a key barometer (casino traffic being a good way to measure the growth of China’s middle class, for one), and so I couldn’t help but take note that casino shares took a header this week as everyone and their mother suddenly called for a hard landing in China.

I have one thought for now. What kind of cracks me up is that when you see experts interviewed on CNBC, 9 out of 10 who have actually been there recently say there will be no hard landing. Conversely, 9 out of 10 sitting in their offices in New York or Chicago call for Armageddon, and usually cite the shape of the banks, an inevitable collapse in China’s housing bubble, etc.

[A Bloomberg Global Poll of investors, analysts and traders revealed that 59% believe China’s GDP will fall from its current 9.5% pace of the second quarter to less than 5% annually by 2016.]

I not only have been there a few times myself, and not just to hang out in a luxury hotel and attend one or two business meetings, but I respect the opinions of the likes of economist Stephen Roach and legendary investor Mark Mobius, both of whom remain highly confident in China’s ability to manage its way through the turmoil.

No doubt, this is the ultimate test. But let me say this about the topic of housing, the developers and bad bank loans.

What have Chinese officials been doing for over a year now? Continually increasing reserve requirements for the banks, demanding they stop lending to smaller developers, while at the same time making it harder for those trying to speculate in the market, whether it is 30% down for a new home, or all cash for a third one. On this front, China is doing everything we didn’t do!

The other thing is China wants the smaller developers to fail or be swallowed up by the larger ones. The government isn’t going to bail them out. One Chinese official told the South China Morning Post that consolidation is “very necessary.”

Sure, there are going to be some ugly headlines, and it’s possible the government may have to backstop a large bank or two to avoid systemic failure, but China has the resources to do so (unlike Europe without great effort).

At the same time I can’t ignore the action in the Shanghai stock market, which has been dismal, but for now my opinion remains firm, with one caveat. Obviously, if the U.S. and Europe double-dip, taking away China’s best export markets, then Beijing will have a tough time maneuvering through such stormy waters, but until that time I’m staying the course.

[Friday night, China reported its purchasing managers index for September, 51.2, not exactly a hard landing reading.]

 --But speaking of Chinese equities, and for those of you like me who have a position or two there, it has been one bad news story after another as fraud is uncovered. It’s downright depressing, because while I remain convinced there isn’t an issue with my Fujian company (and there hasn’t been the slightest hint in the share price action there is), I wouldn’t be saying that if I hadn’t been there twice to see the operation firsthand. The good/legitimate companies are being thrown under the bus with the bad ones and the only thing that changes sentiment is time…and I can’t wait forever.

This week, Robert Khuzami, the director of enforcement at the SEC, confirmed the U.S. Justice Department was considering launching a fraud investigation against some Chinese companies listed here, as well as the reverse merger process, the announcement of which pummeled Chinese internet stocks, for one, such as Baidu.

Aside from my own personal experiences traveling, I also know a little about the history of the place ever since China started feeling its oats under Deng Xiaoping, and the Chinese often adopt an attitude of ‘We can do anything we want and try stopping us.’ You see this in their blatant disregard (until recently) for the environment and basic workplace safety, to cite two prime examples. [Some of you may think OSHA is too powerful in the U.S., but go to a Chinese construction site and you’ll be glad we have a lot of the regulations we do.] And so it also is with some of China’s corporations and accounting standards.

But now it is pile on time when it comes to Chinese companies. They aren’t all bad, of course. Nor is the United States innocent in this regard, either. Think Enron and WorldCom, or look at how at least $60 billion in taxpayer money disappeared among the crooked contractors of Iraq and Afghanistan. Or the still budding Solyndra case, where the FBI is officially investigating the bankrupt solar-panel maker for accounting fraud.

[Energy Secretary Steven Chu acknowledged he made the final decision to allow struggling Solyndra to continue to receive taxpayer money even after technically defaulting on the $535 million loan guarantee.]

What have I said since Day One of StocksandNews? Corruption makes the world go ‘round. Like the corruption between Spain’s local governments and real estate developers, or Russia’s entire business community. And, yes, the massive corruption in China, perhaps best exemplified by the overruns in the high-speed rail project, let alone turning a blind eye to safety. That’s invariably one result of corruption.

So we’ll see how this plays out, but regarding my primary holding I’m as frustrated as the rest of you. [Funny thing is it actually finished up for the quarter.]

--Because Britain isn’t part of the euro-17, the fate of its economy often gets lost in the shuffle as Prime Minister Cameron plows ahead with his austerity program to cut their own deficits, but a YouGov survey in the Sunday Times of London pretty well summed up attitudes there these days. 79% of Brits believe the economy is “bad,” while only 3% believe it is “good.”

--The latest S&P/Case-Shiller housing data showed that property values in 20 cities fell 4.1% in July from year ago levels. The supply overhang of existing homes in or entering foreclosure will be a hindrance on the price front for a long time to come. 

The worst one-year performance among the 20 major metropolitan areas surveyed was Minneapolis, -9.1%. The best? Detroit, +1.2%! “Alex, I’ll go with Motown for $100…”

--Commodities, as measured by the diversified CRB index, continued to take it on the chin. The CRB is at 298, well below its 12/31/10 close of 332, which is how I’m grading myself. This week corn and wheat were clobbered, in part by better than expected inventory data from the U.S. Dept. of Agriculture. Corn had a record monthly decline of 23% in September.

--Just like the airlines, banks are now piling on the fees, with Bank of America announcing it would start charging customers a $5 monthly fee when they used their debit cards for purchases. Wells Fargo and Chase are testing $3 monthly debit card fees. SunTrust is charging $4. This is in response to the Durbin amendment, named for Sen. Richard Durbin, that is part of the Dodd-Frank financial overhaul law that limits fees the banks can levy on merchants when a consumer uses a debit card. The Durbin amendment cut the allowable fee per transaction, which will cost the banks an estimated $6.6 billion in revenue a year, so they’re trying to make it up elsewhere.

--In another look at healthcare costs, the Kaiser Family Foundation, in conjunction with the Health Research and Educational Trust, released its annual closely followed survey of employers and found that the premiums they pay rose a whopping 9% this year, with the average annual cost of family coverage passing the $15,000 mark for a first time; even as companies and employees are limiting the use of medical services. Last year, family premiums rose just 3%.

“The Kaiser survey’s researchers estimated that only around 1.5 percentage points of the 9% increase was tied to provisions of the federal health-care overhaul, which mandated changes to plans, including the addition of children up to the age of 26 to their parents’ plans and an end to out-of-pocket costs for certain preventive-care benefits.” [Anna Wilde Mathews / Wall Street Journal]

But this is largely because 56% of the plans had been “grandfathered.” The real test, as we all know, will come in 2014.

--Energy expert Daniel Yergin, in an interview for TIME.

Q: How are you feeling about nuclear energy?

Yergin: I think Fukushima has definitely changed the nuclear story. Prior to that, people were talking about a nuclear renaissance. The Japanese government did a report after [the accident] in which they said, ‘We did research, we understood earthquakes, but for tsunamis, we were dependent upon fables.’

Q: Do the chemicals used in extracting gas from shale pollute the water table?

Yergin: I was on a committee that just did a report on this for the Department of Energy. So far, we have not seen evidence of the chemicals that are used for the fracking migrating through this very dense rock into the water supply.

--Shares in Eastman Kodak Co. closed on Friday at $0.78 as the 131-year-old camera/printer maker hired two law firms to discuss options, including bankruptcy. Some believe the company could also be sold for its patent portfolio, which is substantial. Regardless, it’s an American tragedy, and another blow to Rochester, New York, where Kodak is headquartered, as thousands more will be losing their jobs.

--Eric Dash of the New York Times had a story on the severance packages still being handed top corporate executives, and how outrageous it is that just-departed Hewlett-Packard CEO Leo Apotheker, at the helm less than a year, is receiving $13.2 million in cash and prizes. H-P, though, has a history in this regard, handing Carly Fiorina $21 million in 2007, and then her successor, Mark Hurd, $12.2 million.

Bank of New York’s former CEO Robert Kelly received $17.2 million in cash and stock, though he had been there awhile. Oswald Grubel, though, the CEO at UBS who just stepped down last weekend amid the rogue trader scandal, will only receive $1.6 million.

Then again, Burger King’s recently departed John Chidsey took the box with Carol Merrill’s image on it (Merrill herself no longer being with us), and walked away with $20 million despite doing a most lousy job.

--Talk about a broken stock, shares in Netflix hit a high of $304 this past July 13.    NFLX finished the week at $113. 2/3s of its value, poof, in 10 weeks. Netflix has made a number of corporate blunders in its pricing, plus now the competition, such as Amazon and Microsoft, is chomping at the bit, the latter in tying up agreements with cable operators to offer programming through the Xbox gaming device.

--Meanwhile, Amazon unveiled the new Kindle Fire tablet computer and after some initial excitement, investors are beginning to question the wisdom of offering the Fire at $199, less than half the price of Apple’s cheapest iPad, with Amazon reportedly then losing up to $50 a device. [Others say less.] Investors also want more transparency from Amazon in disclosing actual sales, which it is loathe to do, vs. the detailed information Apple provides on its various devices.

--Nokia is slashing another 3,500 jobs and closing a plant in Romania, which I just bring up because you can imagine the distress in the city of Cluj. I mention this because five years ago, when I went to Romania and Bulgaria, I hired out a driver for a day in Sofia. Tony was a cool kid, and every now and then he surprises me with an e-mail. I warned him back then to be wary of local real estate, which was in its own bubble in Bulgaria at the time, and sure enough I learned from him this week he got slaughtered. The pain of the global slowdown/recession is being felt all over, that’s for sure.

--But, despite the slowdown, BHP Billiton has predicted that Australia’s resources industry will need an extra 170,000 workers over the coming five years, including both permanent and temporary construction employment, as companies rapidly invest in coal, iron ore and liquefied natural gas.

So, and I am not being facetious, if you are a skilled worker finding it difficult to get a job in America, western Australia in particular is a place to look (sounds like electricians are in big demand, for one). There’s no language barrier and the beer is premium.

Remember last year when I was in Cairns, Australia, and I told you of meeting a woman who had a company that “cleaned” the mines (like a cleaning service for your house)? Tracie said her business was booming. [I’m staring at her card…been meaning to call her for a little ‘channel check.’]

--The world’s biggest publicly traded hedge fund, Britain’s Man Group, said it would cut 400 employees by the first quarter of 2012 after seeing assets tumble about $6 billion. 

--According to the World Health Organization’s first global survey of air pollution, cities in Iran, India and Pakistan and the capital of Mongolia rank among the worst on the planet, while those in Canada and the U.S. are among the best. You can thank Richard Nixon for this, he having had the foresight, and political smarts, to form the EPA at a time when the U.S. was a sewer and we were choking on our smoke.   Yeah, Richard Nixon. Of course now some say the EPA has gone a little overboard with some of its regulations.

The worst city in the world, by the way, is the southwestern Iranian metropolis of Ahvaz, which I’ve now crossed off my bucket list. Ahvaz is overwhelmed with pollution-belching heavy industry and low-quality vehicle fuel, as I saw in an accompanying article in the South China Morning Post.

--Japanese carrier All Nippon Airways became the first to take delivery of a passenger-ready Boeing 787 Dreamliner. The plane will cost $185 million to $218 million, depending on the version ordered, and will seat 210 to 290, depending on the configuration. 

The Dreamliner was once set for delivery in 2008 and it has been one delay and problem after another. It has been, though, a boon for suppliers and there are 821 orders for it thus far from around the world.

--The Federal Trade Commission said that Reebok, a unit of Adidas, agreed to pay $25 million in customer refunds to purchasers of its EasyTone walking shoes and RunTone running brand after the company falsely claimed that the shoes had been proven to lead to 28% more strength and tone in the buttock muscles, and 11% more strength and tone in the hamstring and calf muscles.

Personally, I never buy a product unless it promises at least 50% improvement in these categories.

You know, the other day on a Mets broadcast, former ballplayer Keith Hernandez was asked about his off-season training regimen when he was a player, Hernandez not being known as a workout fiend in the day, and Keith said as he got older and realized he couldn’t just show up at spring training overweight and gradually work it off, the single best exercise he found was long distance running. Not weights, circuit training, etc., just running.  Seeing as this is what your editor attempts to do on a semi-regular basis, I heartily concur. It’s definitely the best way to lose weight.

Foreign Affairs

Yemen: In another terrific victory in the war on terror, U.S.-born Islamic terrorist Anwar al-Awlaki was taken out, along with six other terrorists, in a drone attack in Yemen on Friday. Awlaki was the English language voice of al-Qaeda and a mastermind of attempts on the U.S. such as the underwear bomber in Dec. 2009. He also inspired the shooting rampage at Fort Hood that killed 13 last year. It was just last week I cited reports that the U.S. was picking up the pace of activity on the drone front in Yemen and Somalia. 

Meanwhile, President Saleh returned from Saudi Arabia and now refuses to give up power, which continues to complicate matters in this hell-hole. However, with the death of Awlaki, it will be interesting to see if al-Qaeda can maintain control of its southern stronghold in the country.

Israel / Palestinians: The U.N. Security Council agreed to take up the Palestinian Authority’s application for statehood but it could be weeks, or more, before a vote. The Palestinians need nine out of 15 votes in order for the application to be handed to the General Assembly for final approval, but the U.S. would issue its veto at the Council level. The U.S. is hoping only 8 approve, which would mean it could then abstain and save a little face in the Middle East. The Palestinians want a state comprised of Gaza and the West Bank, with East Jerusalem as its capital.

The European Parliament unanimously approved a resolution declaring the Palestinian people’s “legitimate right to create an independent state,” while at the same time stressing that EU states, and the international community, needed to step up and commit to the security of Israel.

But this week, Prime Minister Benjamin Netanyahu, the smartest man in the world when it comes to pure brain power, once again mucked things up by allowing for the building of 1,100 new housing units in an East Jerusalem neighborhood, which is in total disregard of the requests of the U.S. and the other members of the Quartet (the EU, U.N. and Russia) for a halt in settlement construction as a condition of peace talks; the Palestinians having walked out of talks a year ago after Netanyahu refused to extend a 10-month Israeli moratorium on settlement construction.

Netanyahu, under extreme political pressure from the right, refuses to issue a new moratorium, saying the Palestinians wasted the last one in failing to negotiate, and he reiterated he wants direct talks with no preconditions. Palestinian President Mahmoud Abbas said he will not negotiate unless there is a complete halt to construction.

With Abbas’ bid for statehood, he is enjoying a surge in popularity as he has finally emerged from under the shadow of the late Yasser Arafat. Even Hamas, which rules Gaza and had criticized Abbas’ move in the U.N., is now saying it could accept a Palestinian state within the 1967 borders, but that it would be a temporary arrangement, seeing as Hamas’ charter still calls for the destruction of Israel.

Back to the crucial issue of east Jerusalem, Netanyahu said he will never relinquish it, while the Palestinians have vowed they will not accept a state without key parts of the area as its capital. Currently, about 200,000 Jews live in east Jerusalem neighborhoods (that the Palestinians call settlements,) while amongst them are 250,000 Palestinians.

Meanwhile, out in the Sinai, where terrorists masquerading as Bedouin roam, the natural gas pipeline between Egypt and Israel was attacked for the fifth time this year.

And Hizbullah leader Sheikh Nasrallah said “If Israelis come near Tehran, we will destroy Tel Aviv,” calling himself “a cadet of Ayatollah Khamenei’s school.”

Lastly, President Obama succeeded with his speech to the U.N. in terms of recapturing public opinion in Israel. Back on May 27, a Jerusalem Post sponsored poll showed that only 12% of Israeli Jews considered the Obama administration’s policies more pro-Israel vs. 40% who said they were more pro-Palestinian, the others either not expressing an opinion or calling it neutral.

Now, 54% say Obama’s policies were more favorable toward Israel vs. 19% who said they were more pro-Palestinian.

Separately, the same survey found 50% view Netanyahu favorably, 45% unfavorably.

Egypt: Not for nothing, but the ruling military council is not giving up its power as originally agreed upon following the ouster of Hosni Mubarak. Recall that the new parliamentary elections were initially to be held in August, but the reformers convinced the council to hold off until November to give them a better chance to organize into real political parties to compete against the already well-organized Muslim Brotherhood. Fair enough. The presidential election was to then be held two months after.

But now the supreme council said the elections for parliament won’t be held until next March, at the earliest, and the presidential vote wouldn’t then be held until September 2012!

This is outrageous. The U.S. should be applying maximum pressure to get the military rulers to speed up the process or risk losing our aid. The vaunted Arab Spring has turned into an Arab Sandstorm. 

Iran: The International Atomic Energy Agency has concluded that Iran has not only boosted production of enriched uranium, it has upgraded the level from 3.5% to 20%, the hardest part. Moving from there to 90% enrichment, necessary for weapons-grade material, is a far easier step which is why you’ll increasingly hear the term “break out,” meaning if Iran is perceived to be breaking out in terms of its uranium enrichment program, that means if not stopped it would have enough for a bomb in as little as six months time. As former weapons inspector David Albright told the London Times the other day, “They’ve done this right in front of our faces.”

What’s pathetic is the international community has allowed Iran to ignore four sets of U.N. Security Council resolutions since 2006 demanding Iran cease such activities.

According to the Jerusalem Post, Iran has also begun mass producing a cruise missile for the Navy that has a reported range of 200 kilometers, 120 miles. The Russian news agency Ria Novosti quoted the Islamic Republic’s naval chief as saying Tehran planned on sending ships off the U.S. coastline.

“The Iranian Navy will have a powerful presence near the United States borders,” said Rear Admiral Habibollah Sayarri.

Syria: Turkish Prime Minister Erdogan said that Syrian President Assad will be ousted “sooner or later” by his own people.

“You can never remain in power through cruelty. You can never stand before the will of the people,” Erdogan told CNN.

This week, though, we saw the first signs of a true opposition military response as at least seven Syrian soldiers and police were killed by forces opposed to Assad, i.e., soldiers who’ve defected. There have been increasing reports of “mass defections” to the side of the rebels and weapons are being smuggled in from Lebanon and Iraq.

Meanwhile, U.S. Ambassador Robert Ford was pelted with eggs by supporters of Assad in Damascus, as Ford met with an opposition figure. Secretary of State Hillary Clinton condemned the attack “in the strongest possible terms” in also praising Ford’s courage.

Michael Young / Daily Star

“As the situation worsens, it is improbable that the Assads will gain the upper hand in a decisive way. What is more likely to happen is a radicalization of the conflict, something that may already be inevitable in the face of the utter savagery displayed by the Syrian army, security services, and predominantly Alawite armed gangs

“All future options may be bad for Syria. If the army falls apart, then we will move squarely toward armed resistance and civil war; and if the army remains relatively united and the largely peaceful protests continue, then we could see open-ended carnage. Both situations have a better than even chance of ceding the initiative to those wanting to pick up weapons. That may be the Assads’ wager. They feel that such a development would favor Sunni Islamists. An armed Islamist rebellion would polarize Syria, rally many inside Syria and out to the regime’s side, and justify a policy of eradication, as in Algeria during the 1990s, against an enemy the Assads essentially created.”

Libya: As the Libyan interim prime minister told the U.N. Security Council, Moammar Gaddafi should be viewed as a growing international terrorist threat while he remains free.

“Gaddafi’s battalions continue to kill innocent civilians in different regions of our country,” said Mahmoud Jibril.

Afghanistan: President Hamid Karzai said his government will no longer hold peace talks with the Taliban following the assassination of Rabbani, and instead he will focus on dialogue with Pakistan.

Separately, the U.N. reported that the monthly average of armed clashes, roadside bombings and other violence in the country is running 39% ahead of last year’s figure, with the attacks being more complex in employing multiple bombers and gunmen.

So the day after the U.N. report was issued, NATO rushed out its own data showing violence trending downward in their favor as NATO is concerned with public opinion undermining its mission as it eyes the withdrawal of all combat troops by the end of 2014.

NATO said attacks were down 2% in the first eight months of the year vs. the same period in 2010. Over this time, 405 international troops were killed, or 16% fewer than the 483 over the first eight months of last year.

It does seem 200 more Afghan civilians have been killed thus far in 2011…1,462 vs. 1,271, mostly by roadside bombs.

Pakistan: As the Financial Times reports, Pakistan’s military and civilian leaders are closing ranks against U.S. pressure on them to cut ties with Afghan militants, such as the Haqqani network using Pakistan as a base of operations against Afghanistan.

Editorial / Wall Street Journal

“No doubt it would be in the long-term strategic interests of both countries to remain allies. But there is a larger reality. The U.S. cannot be seen before the world, or more especially by the American people, turning a blind eye to Pakistan’s complicity in the murder of U.S. citizens serving in Afghanistan.

“The U.S. now has a range of options available, from designating the Haqqani network a foreign terrorist organization (as a prelude to hitting its finances); withholding $1 billion in military aid to Pakistan in the absence of antiterrorist cooperation; or hitting the Haqqanis ourselves. Pakistan’s leadership, among its myriad delusions, believes its status as a nuclear power somehow frees it to reduce its relationship with the U.S. to the same crude and cynical status as its relations with the homicidal Haqqanis.

“That’s false, and the Obama administration deserves credit for publicly putting Pakistan’s impossible-to-tolerate behavior on the table.”

Separately, Pakistan suffered a huge blow when a Chinese mining company abandoned a $19 billion project over fears for worker safety after recent bombings in Pakistan’s major cities. A number of Chinese workers have been killed in the country and China has complained about lax security not just for its workers but also the investments themselves. Pakistan was using its relationship with China as a counterweight to both the U.S. and India (for different reasons).

Russia: As I went to post last Saturday morning, there was a little confusion on events here as Prime Minister Vladimir Putin gave an impromptu speech before his formal address later that day in front of the United Russia party convention and he didn’t say whether or not he was running for president again in 2012. Instead, he told delegates in his first speech that Russia’s plunging stock market and crumbling currency foretold hard times and that “bitter pills” would have to be swallowed and that the government can’t pour honey on every problem, as the Washington Post’s Will Englund put it. 

But then Saturday afternoon, both Putin and President Dmitry Medvedev, in a carefully choreographed display, agreed to switch positions next spring, assuming Putin wins his election, as everyone on the planet expects seeing as how it’s rigged, plus Putin remains popular among the majority.

So Putin runs for president on March 4, and Medvedev would then take over the government functions as prime minister. 

As described by the Moscow Times’ Nikolaus von Twickel:

“Putin was the first to address the attendees, including 639 delegates.

“He told them that Medvedev, his protégé, should head the electoral list for the Dec. 4 Duma elections, saying it would be best not to break with the practice of past elections that the incumbent president leads United Russia’s list.

“ ‘I believe this will raise the party’s authority and ensure its expected and just victory,’ he told the cheering convention.

“Medvedev then took to the stage to say he accepted Putin’s proposal and, in return, endorsed the prime minister as his successor.

“ ‘In light of the proposal that I head the party list, engage in party work and my willingness to engage in government work if we do well in the elections, I think the party convention should support the candidacy of party chairman Vladimir Putin as the country’s president,’ Medvedev said.

“When the convention burst into applause, he added, ‘This means I don’t need to explain the experience and authority commanded by Vladimir Vladimirovich Putin.’

“After receiving Medvedev’s embrace, Putin returned to the stage to deliver an hour long, dry speech about past achievements and future tasks, dwelling mainly on economic and social politics.”

Then Medvedev came out and gave a second speech and…had I been in the audience I would be sound asleep, drooling all over myself.

What a country! What a democracy!

Liberal opposition leader Boris Nemtsov, the leading Kremlin critic, said: “This is a catastrophic scenario for Russia. We should expect capital flight, emigration and dependence on natural resources.”

Andrei Piontkovsky, a political scientist at the Russian Academy of Sciences, said, “This is stagnation and decay for another 12 years, this is the Brezhnev era revisited.”

Putin and Medvedev tried to convince everyone this switch had been in the works since 2007, which is in serious question because two days later Medvedev sacked the long-time (12 years), and highly respected finance minister, Alexei Kudrin, who was said to be interested in being prime minister if his friend Putin went back to the presidency. Putin, under this scenario, would have allowed Medvedev to sack Kudrin to save face.

But Medvedev humiliated Kudrin on national television.

“If, Alexei Leonidovich, you disagree with the course of the President, there is only one course of action and you know it: to resign. It’s necessary to answer here and now: will you write a resignation letter?’” Medvedev demanded.

Kudrin said he would respond only after consulting Putin. Medvedev retorted: “You may consult with anyone you like, including the Prime Minister. But I am still the President and such decisions are taken by me.”

Kudrin resigned after meeting Putin.

Meanwhile, billionaire (and New Jersey, soon-to-be Brooklyn, Nets owner) Mikhail Prokhorov said the Kremlin-orchestrated coup will lead to “tectonic upheavals among the ruling elites.”

I read a ton on this topic the past week and I am more convinced than ever that we will see a different kind of coup (on top of the one just orchestrated). There are many powerful figures inside and outside the Kremlin who are furious over how this all went down. Vladimir Putin, after all, could now rule Russia for another 12 years (remember, he changed the constitution to allow for two, six-year terms instead of the two, four-year term limits both he and Medvedev were under until the change). Putin will only turn 72 in 2024.

Michael Bohm / Moscow Times

“Prime Minister Vladimir Putin and President Dmitry Medvedev taught us a good lesson on truth and honesty.

“The two spent the last year playing charades, trying to inject suspense and drama into the question of which tandem member might run for president. On Saturday, Putin revealed his dirty little secret during his speech at the United Russia convention: He and Medvedev had secretly agreed on the tandem switch ‘several years ago.’ Medvedev said the pact was made before he became president in 2008. Even ministers and the two leaders’ top advisers were unaware of the deal.

“ ‘Every story should have its own intrigue,’ Medvedev said with a grin at the St. Petersburg International Economic Forum in June in answer to the umpteenth question from a journalist about which tandem member might run for president next year. ‘Otherwise life would be boring, so let’s enjoy it a little longer.’

“And enjoy they did.

“What a ruse the two pulled on many world leaders, analysts and, yes, journalists who took close notice of every sign of Medvedev’s ‘liberalism’ and what this might mean for the democratization and modernization of Russia. They must feel a bit foolish now….

“As it turns out, it was all a hoax…The most distasteful aspect, however, was that Putin was not even bashful of publicly admitting during his convention speech on Saturday that the secret deal was sealed years ago. On the contrary, it appeared that he was relishing the trick he played on everyone, as if to underscore his contempt for those gullible to fall for it.

“This behavior shows all the markings of a megalomaniac who has enjoyed uncontested power far too long. Or a con artist who outsmarted the police and everyone else and can’t resist boasting about it to friends and acquaintances.”

I don’t necessarily agree with the above, but it’s a prevalent opinion.

Editorial / Washington Post

“We’d like to congratulate Vladimir Putin on his exciting, come-from-behind victory to become Russia’s next president. After barnstorming across steppe and taiga, presenting a detailed program for the next six years, Mr. Putin won the enthusiastic support of ….

“Oh, no, wait. That’s not how things work in Russia today. Actually, the story is simpler: Vladimir Putin decided that he would like to be president again, and so he will be.”

It’s bad news for President Obama and his “reset” of relations where he had invested heavily in his relationship with Medvedev, which was good, particularly since Putin is not a fan of the U.S.-backed missile defense system that Medvedev was acquiescing on.

Ralph Peters / Washington Post

“There is one incontestably great actor on the world stage today, and he has no interest in following our script. Russian Prime Minister Vladimir Putin – soon to be Russia’s president again – has proven remarkably effective at playing the weak strategic hand he inherited, chalking up triumph after triumph while confirming himself as the strong leader Russians crave. Not one of his international peers evidences so profound an understanding of his or her people, or possesses Putin’s canny ability to size up counterparts.

“Putin’s genius – and it is nothing less – begins with an insight into governance that eluded the ‘great’ dictators of the last century: You need control only public life, not personal lives. Putin grasped that human beings need to let off steam about the world’s ills, and that letting them do so around the kitchen table, over a bottle of vodka, does no harm to the state. His tacit compact with the Russian people is that they may do or say what they like behind closed doors, as long as they don’t take it into the streets. He saw that an authoritarian state that stops at the front door is not only tolerable but also more efficient.

“As for the defiant, he kills or imprisons them. But there are no great purges, no Gulag – only carefully chosen, exemplary victims, such as anti-corruption activist Sergei Magnitsky, who died in police custody, or the disobedient billionaire Mikhail Khodorkovsky, imprisoned on charges Russians regard as black humor….

“Domestically, Putin’s tactile sense of his people is matchless. His bare-chested poses seem ludicrous to us, but Russians see a nastoyashi muzhik, a ‘real man.’ And his sobriety makes him the fantasy husband of Russia’s beleaguered wives.

“Not least, Putin has renewed Russian confidence in the country’s greatness….

“He has restored, if briefly, a fallen glory.

“Demographically, economically, developmentally, militarily, even educationally, Russia appears doomed to a fierce decline. But one man of genius has brought his people a last, autumnal reprieve. Vladimir Putin is a dangerous man, but a splendid czar.”

China: In response to Washington’s arms sales to Taiwan, China canceled or postponed some U.S.-China military exchanges, but Beijing’s overall response has been far more restrained than last year when it cut off military ties entirely for a number of months.

But an editorial in the mouthpiece of the Communist Party, the People’s Daily, warned Asian countries against provoking it.

“Certain countries think as long as they can balance China with the help of U.S. military power, they are free to do whatever they want.”

This comes after Japan and the Philippines pledged to boost maritime security ties and the peaceful settlement of disputes in the resource-rich South China Sea, home to several territorial disputes involving China.

Australia and the U.S. are also looking into stepping up military cooperation in the area, including granting the U.S. access to Australia’s bases if need be.

France: President Nicolas Sarkozy’s reelection hopes suffered a blow as the opposition Socialist party won a majority in the Senate, the upper house of parliament, for the first time in more than 50 years.

Bulgaria: There were large-scale protests in the capital, Sofia, against the country’s large Roma (Gypsy) population. 160 were arrested.

This is a classic demonstration of what I have talked about for years. Bulgaria’s economy, as noted above, is a mess and the immigrant gypsies (who truth be told I can’t stand either from my dealings with them in my travels…very nasty people) are being blamed by the native Bulgarians for taking their jobs, the increase in crime, and so on.

Saudi Arabia: King Abdullah granted women the right to vote and run in municipal elections, a historic first, but they still can’t drive. One woman was sentenced on Monday to 10 lashes for defying the ban. 

Random Musings

--I keep talking about an Andrew Cuomo-Chris Christie potential race in 2016 because Gov. Christie isn’t ready this go ‘round, as he himself has said on more than one occasion. One prominent campaign player told the New York Daily News’ Thomas Defrank that “Chris has the good common sense to know that two years as a governor is not enough experience to make you ready to be president. President Obama has proved that once and for all.”

Christie just doesn’t have the organization and money. It’s too late.

But suddenly, after his speech at the Reagan Presidential Library, there is talk Christie is seriously reconsidering and will make a decision shortly.

Editorial / Wall Street Journal

“The political class is doing the will-he-won’t-he dance over a 2012 Chris Christie presidential run, but today we’d like to focus on the speech he delivered Tuesday evening…It’s the best thematic statement from any Republican recently on how to transcend the calcifying ambitions of the Obama era.

“The New Jersey Governor spoke about the obligations of leadership, especially presidential leadership, but his larger theme was the meaning of ‘American exceptionalism.’ He defined that oft-abused phrase not in the context of assertive American power overseas, as the left likes to caricature it, but as the power of America’s example that flows from economic and political success at home. ‘Earned American exceptionalism,’ he called it.

“ ‘There is no better way to reinforce the likelihood that others in the world will opt for more open societies and economies than to demonstrate that our own system is working,’ Mr. Christie said. ‘Unfortunately, through our own domestic political conduct of late, we have failed to live up to our own tradition of exceptionalism. Today, our role and ability to affect change has been diminished because of our own problems and our inability to effectively deal with them.’….

“Mr. Christie is onto something that is likely to resonate with Americans who are worried about their economic prospects and increasingly disappointed with President Obama’s response. As Mr. Christie put it, Mr. Obama ran on themes of postpartisan inspiration and U.S. revival in 2008. But ‘now, three years later, President Obama prepares to divide our nation to achieve re-election. This is not a leadership style. This is a re-election strategy.’”

A few other Christie quotes from the Reagan Library speech:

“We watch a president who once talked about the courage of his convictions, but still has not yet found the courage to lead. We watch a Congress at war with itself because they are unwilling to leave campaign style politics at the Capitol’s door….

“There is no better way to reinforce the likelihood that others in the world will opt for more open societies and economies than to demonstrate that our own system is working. Without strong leadership at home, without our domestic house in order, we are taking ourselves out of the equation.”

Bottom line, Christie called President Obama a “bystander.”

By the way, President Obama’s approval numbers in New Jersey have dropped. In May, the Fairleigh Dickinson University PublicMind poll had 55% approving of Obama’s job performance and 36% disapproving. But today it’s split 47-47.

As for Gov. Christie, the same poll shows 54% of New Jersey voters approving of his performance, while 36% disapprove. Last May it was split 44-44.

--In a Fox News poll, Mitt Romney regained the lead with 23%, while Rick Perry fell to 19% (10 points lower than the last Fox poll), and Herman Cain, buoyed by his debate performances and his win in the Florida straw poll (37% to Perry’s 15% and Romney’s 14%), sits in third at 17%. Newt Gingrich rose to 11%, while Ron Paul slipped to just 6%. Lastly, Michele Bachmann captured only 3%. Beset by money problems, she should quit now.

As for Obama, he would beat Romney by 3 points and Perry by 8 points according to the Fox News survey.

--Back to Cain, this week he said that he could take one-third of the black vote from Obama, as stated in his upcoming memoir.

“Whenever President Obama is criticized over policy mistakes, his surrogates tend to play the race card, as if there’s supposed to be something inherently morally wrong in such criticism,” he writes.

As for the Congressional Black Caucus, Rep. Maxine Waters said Obama’s remark to the group last weekend that blacks needed to “Take off your bedroom slippers. Put on your marching shoes. Shake it off. Stop complainin’. Stop grumblin’. Stop cryin’…” was “not appropriate,” according to Waters, whose entire career has essentially been inappropriate in its own right.

--I just kind of threw it out there last week that Herman Cain makes for an intriguing vice presidential pick, but party leaders appear to have their eyes set on Florida Senator Marco Rubio, the son of Cuban exiles and a Tea Party favorite when it comes to the second slot. As Vin Weber, a former Republican congressman and now leading strategist puts it:

“He’s the real deal. He is a significant figure in Florida [a swing state] and among Hispanics, and he can animate the base without alienating moderates.”

--Fred Barnes / The Weekly Standard

“It’s come to this: The president touted for his brainpower, idealism, and global esteem has been reduced to leading captive audiences in chants of ‘Pass this bill,’ a measure that Republicans loathe, Democrats regard warily, and Congress is unlikely to approve even in truncated form.

“The Obama presidency has entered the pathetic phase. This occurs when a president acts in a demeaning fashion while trying to rebuild his popularity and political strength. It’s a product of desperation.”

--Irwin Stelzer / London Times

“Willie Sutton stole more than $2 million from over 100 banks before he was finally incarcerated in 1952.

“When asked why he robbed banks, he is said to have responded: ‘Because that’s where the money is.’

“Apparently, politicians round the world now want to tax the rich because, they believe, or say they do, that’s where the money is.

“They’re wrong.

“The simple fact is that there aren’t enough of the ‘millionaires and billionaires’ who are the target of President Barack Obama’s campaign trail scorn to make the tiniest dent in America’s deficit, or in the deficits of Italy, France, Greece, Spain, Portugal and Great Britain. In addition to the political popularity of such a move in countries less tolerant of inequality than America, hitting the rich deflects attention from a failure to cut bloated public sectors….

“For the president (taxation should) aim at fairness, a rather elastic concept but one that plays well on the campaign trail….

“The practical question is whether politicians following the Willie Sutton approach are likely to achieve their goal of cutting the deficit. In America, at least, they won’t. Their American idol, the billionaire investor Warren Buffett, is simply wrong when he generalizes from his own experience of having a lower effective tax rate than his secretary to a conclusion that all millionaires pay lower rates than the middle class, a view jumped on by Obama, who defends his proposed tax increases by arguing that ‘people making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay.’

“ ‘Facts are stubborn things,’ said Founding Father and later President John Adams in 1770, ‘and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence.’ Obama ignores the stubborn fact that people earning more than $1m are subject to an effective individual tax rate of 28.9% of their income (total federal taxes, including income taxes, payroll taxes and other taxes), while households making between $50,000 and $75,000 face an average rate of 20% (data from Tax Policy Center)….

“(Obama’s) proposals are seen as a campaign ploy to please his sullen Democratic base and to put the Republicans in the position of defending ‘the rich.’ The last candidate to run as a class warrior was Al Gore, and he is now reduced to searching for audiences for his increasingly vitriolic, profanity-laden presentations on global warming.”

--Speaking of Warren Buffett, New York City Mayor Michael Bloomberg said on “Meet the Press” that Buffett’s call for higher taxes on the super-rich “is just theatrics.”

“If Warren Buffett made his money from ordinary income rather than capital gains his tax rate would be a lot higher than his secretaries. And in fact a very small percentage of people in this country pay a big chunk of the taxes,” said Mayor Mike.

--Here’s an embarrassing anecdote concerning Republican presidential candidate Mitt Romney, as told by Andrew Romano of Newsweek.

“What is Mitt Romney? It is very hard to tell. Put him on a debate stage, and he can outshine the klieg lights….

“And yet, away from the stage, and the lights, and the shrink-wrapped soundbites, where real human beings aren’t kept at a respectful distance, and resumes and factoids matter less, Romney isn’t quite as luminous. Consider his visit, in August, to the Iowa State Fair. As Romney arrived at the Varied Industries Building, an aide emerged from the crowd with lunch: a pork chop on a stick. The boss took a bite, and then, still chewing, struck up a conversation with the nearest retiree, if ‘conversation’ is the right word for what Romney does with voters, which usually involves repeating whatever they say to him immediately after they say it.

“ ‘That’s the best thing at the fair,’ the retiree said, pointing to the pork.*

“ ‘Is that the best thing at the fair?’ Romney replied. He pivoted to the retiree’s granddaughter. ‘What are you, about 7?’

“ ‘Eight,’ she said.

“ ‘Eight,’ Romney confirmed. He swiveled back to the retiree. ‘You in the ag world?’

“ ‘The insurance business,’ the retiree said.

“ ‘Insurance business,’ Romney responded. He seemed determined to reveal nothing – except for how little he was willing, or able, to reveal. The retiree went on to mention that he ‘lived in Clear Lake,’ up near the Minnesota border, ‘for years.’

“ ‘Beautiful area,’ Romney said. ‘I love water.’ He took another bite of his pork chop.

“ ‘Well, we better let you go,’ the retiree finally said, glancing at the cameras. ‘We’re getting more air time than you are.’”

Yikes! But two comments on my part. First, as I told readers in another column I write, when I was at the Iowa State Fair, the pork chop on a stick was indeed the best item. Out of this world delicious. Second, Romney should have said, “Clear Lake…Clear Lake…isn’t that where Buddy Holly played his last concert? The Day the Music Died?”

--Details are still emerging, and will over the coming days, but Florida has really screwed up the Republican nominating process. On Friday it announced it was officially setting Jan. 31 as the date of the state’s primary. Currently, the Iowa caucuses are slated for Feb. 6, the New Hampshire primary for Feb. 14, the Nevada caucuses for Feb. 18 and the South Carolina primary, Feb. 28.

But Florida’s move forces the first four (whose order was long agreed upon by the Republican National Committee) to move up their dates. Iowa, as I write, is looking at mid-  to late-December, while New Hampshire could be in December as well. Man, this sucks! I wanted to go to New Hampshire in January, myself. Florida thus becomes a candidate for “A-hole State of the Year.”

--So there’s been a little talk out there that Hillary Clinton and Joe Biden would swap jobs. The president has time on that one, like until spring, but if it’s basically status quo come April, that would be an intriguing move.

--The listeria outbreak that has claimed at least 16 lives from Maryland to Colorado and New Mexico is scary. Back in 1998, twenty-one died in an outbreak of listeria poisoning traced to contaminated hot dogs and possibly deli meats, and in 1985, a listeria outbreak killed 52 and was linked to Mexican-style soft cheese.

The CDC says one in five that contracts the disease can die, though the median age of those sickened is 78. A big problem in the current outbreak, believed to be from contaminated cantaloupes traced to Jensen Farms in Holly, Colo., is that it has a long incubation period.

--Medal of Honor recipient Dakota Meyer, out of nowhere, expressed the desire to be a New York City firefighter. Talk about a PR coup for the FDNY, right?

Wrong. It turned into a messy deal, seeing as how Meyer technically missed the filing deadline for the January exam, which was a few days earlier. Easy to take care of, seeing as Meyer is a living hero of the first order, right?

Wrong. For reasons I won’t bore you with, Brooklyn Federal Judge Nicholas Garaufis is in charge of these things and he initially wasn’t going to budge until NYC officials, including Mayor Bloomberg, urged him to grant an exemption in Meyer’s case, which he was prepared to do, lauding his “exceptional military service,” but Garaufis wouldn’t grant the filing extension to everyone else so Meyer said that it wouldn’t be right for him to get a break when no one else did and he didn’t want the special treatment.

As the Daily News reported, “A firefighters group that has clashed with Garaufis blasted his decision not to reopen the deadline for all as ‘nonsensical.’

“ ‘This is a no-brainer,’ said Paul Mannix, an FDNY battalion chief. ‘It’s so easy just to do the right thing.’”

Talk about frustrating. You see, it came down to racism, believe it or not, and Judge Garaufis having a bug up his ass because he says minorities are substantially underrepresented in the ranks of the FDNY and….oh, never mind. You just want to scream.

On one hand America produces the likes of Dakota Meyer…on the other hand we continue to be a nation of idiots.

[Imagine how Mayor Bloomberg was pulling his hair out on this one.]

--Sorry to bring up the following depressing item, but I came across it in this week’s Army Times and it’s just something we all should be aware of.

As reported by Joe Gould:

“Though more soldiers are surviving blast injuries, amputations and genital injuries have risen sharply, shattering lives and damaging moral….

“ ‘(The wounds) call into question a person’s entire future and the way they perceive themselves. These are lifelong injuries our soldiers will live with for the next 60-plus years,’ said Brig. Gen. Joseph Caravalho Jr., chairman of the task force (exploring the issue).

“Many of these injuries occurred as the military has stepped up foot patrols as part of its counterinsurgency strategy, leaving troops vulnerable to homemade bombs and other explosives commonly employed by militants in Iraq and Afghanistan.

“Medical care, armored vehicles and protective gear are better able to keep soldiers alive despite increasingly severe wounds. Fatality rates have decreased and burn injuries have ‘nearly disappeared,’ the report states.

“However, the number of U.S. troops who lost limbs rose from 86 in 2009 to 187 in 2010 and 147 so far this year, military officials said.”

Thus far in 2011, 77 have lost two or three limbs.

And so, as always, we pray for the men and women of our armed forces, the wounded, and all the fallen. 

A donation to the Wounded Warrior Project would be appropriate.

God bless America.
---

Gold closed at $1625
Oil, $78.64

Returns for the week 9/26-9/30

Dow Jones +1.3% [10913]
S&P 500 -0.4% [1131]
S&P MidCap -1.7%
Russell 2000 -1.3%
Nasdaq -2.7% [2415]

Returns for the period 1/1/11-9/30/11

Dow Jones -5.7%
S&P 500 -10.0%
S&P MidCap -13.9%
Russell 2000 -17.8%
Nasdaq -8.9%

Bulls 37.6
Bears 40.9 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

*I’m headed to Ireland today for a quick trip. I should have some new insight for you next time.

Brian Trumbore