|Articles||Go Fund Me||All-Species List||Hot Spots||Go Fund Me|
|Web Epoch NJ Web Design | (c) Copyright 2016 StocksandNews.com, LLC.|
For the week 9/24-9/28
Europe, China, Washington and Wall Street
The third quarter is over and once again Europe has kicked the can down the road. The Eurozone no doubt remains solidly in recession, with few exceptions among the 17 nations sharing the currency, but this week Spain, which is clearly headed for a bailout, tried to convince the rest of the world, let alone Brussels, that it was just fine. Prime Minister Mariano Rajoy, desperately attempting to avoid asking for a bailout until after Oct. 21 regional elections, knows he needs one but not only is he playing for time, he’d like to eventually ask for EU aid only if he’s accompanied by Italy, which would in all likelihood lessen the terms, or conditions, placed on both. Rajoy’s government announced a fifth round of austerity measures in nine months, including spending cuts of 8.9%. Or was it? It turns out that government spending may have been cut 9% across the board in terms of each ministry, but because there has been a 34% rise in debt-servicing costs, spending, net-net, is actually rising 5.6%.
And then on Friday, results of a stress test on the country’s 14 largest lenders conducted by consultancy Oliver Wyman and aided by the Big Four auditors under the supervision of the European Central Bank and International Monetary Fund were released. The banking system needs 57 billion euro in order to recapitalize and get lending flowing again. “It was an extreme exercise, it has credibility,” one senior Spanish bank executive told the Financial Times.
Right. Of course it does. In June, Spain requested 100 billion euro in aid for its banks and the stress tests will justify finally distributing the funds to lenders, it is believed, though there is still the none too small issue of just where the money is being taken from, Germany having a major issue with the use of the European Stability Mechanism rescue fund.
Understand there is no way the true real estate liability of these banks was judged accurately and then you have the issue of the 17 autonomous regions, five of whom have now come forward asking the central government for help to keep their local operations running. A while ago the government established an 18 billion euro emergency fund for the regions and the five who have requested aid are already asking for 16 billion of it. No doubt the other 12 need significant help as well.
And in November, Catalonia (Barcelona) is holding a referendum on breaking away from Madrid, where there were violent demonstrations this week as the people can’t take anymore austerity measures, this while the Bank of Spain conceded the economy fell at a “significant pace” in the third quarter.
So we move on to Greece, where the latest ruling coalition agreed on another round of austerity measures in an attempt to secure 31.5 billion euro in aid as part of Greek Bailout II. The cuts and tax increases add up to 13.5 billion, including a more rigorous attempt to stamp out tax evasion, especially among the professional class, like doctors and lawyers. It won’t work. Greece’s efforts at implementing austerity have been an abysmal failure thus far, the question is for how long will the European Central Bank, EU, IMF and Germany look the other way and just keep giving Greece more time and money? Inspectors representing the troika (ECB, EC and IMF) are in Athens this weekend to begin to prepare their decisive recommendation.
Understand, the Greek coalition still must get the austerity measures through parliament and while they control 178 of 300 seats, there is lots of talk of defections.
Plus you have the Golden Dawn factor. Golden Dawn is the neo-Nazi, virulently anti-immigrant party that polled 7% (and a seat in parliament) in the last election and is now viewed positively by 22% of the Greek people, up from 12% in May. [Attitudes, not votes, but if there was another election, Golden Dawn would easily top 10%.] Golden Dawn is working its magic at the protests you’ve been viewing in Athens recently. Just look for their black shirts with the Swastika-like symbol. They are a lovely group of human beings.
On to France, where President Hollande introduced his government’s harshest budget in 30 years, looking to plug a 30 billion euro hole in the finances, as France’s public debt is now 91% of GDP when the Eurozone limit is supposed to be 60%. Hollande is calling for 20 billion in new taxes on big business and the wealthy, but he’s not cutting public spending, pensions or salaries. As for the marginal rate of 75% on income over one million euro, this was a campaign promise and so much for rumors he’d reduce it. Needless to say, many corporate titans in France are calling Hollande’s policy nuts in terms of encouraging future growth, on top of an expected brain drain.
Meanwhile, German Chancellor Angela Merkel faces a real challenge as her parliament is not in the mood to give Greece and, as is likely, Spain aid; Merkel facing a national vote one year from now.
One other item. Italian Prime Minister Mario Monti said if there is not a “clear result” and a “government led by a political leader” after expected elections next April, he is willing to stay on. He’s that good! [So he himself tells us.]
And now Washington and Wall Street…
The final figure on second-quarter GDP in the U.S. came in far worse than projected, just 1.3% when the previously reported 1.7% was expected to be confirmed. So the Obama recovery now looks like this.
Q3 1.7% [GDP]
Reminder…1983/84…the Reagan recovery…
Or, as the Wall Street Journal put it on Friday in a separate table:
GDP growth in the first 12 quarters after the end of the recession…
The GDP wasn’t the only poor economic data point on the week. Durable goods (big ticket items) for the month of August plunged 13.2% when a decline of 5.0% was expected. This is an unheard of miss. And then on Friday, we had the release of the Chicago Purchasing Managers Index for September (next to the ISM this being the most important manufacturing data point). It was supposed to come in comfortably above the 50 dividing line between growth and contraction at 53.0 but instead was 49.7, the first figure below 50 since September 2009.
At least the data out of the S&P/Case-Shiller index for housing in 20 large U.S. metropolitan areas for the month of July was solid, up 1.6% in July over June and up 1.2% vs. July 2011, further signs we have bottomed; though there will be no vigorous rebound in prices nationwide until the labor market improves.
[Prices in Phoenix have rebounded 16.6% July 2012 vs. July 2011 (up 33.5% for homes under $127,000), though Atlanta’s have fallen 9.9% over the same period.]
But before I try and sum up what it all means, if you didn’t see it, go to Economist.com and look at the Sept. 22-28 cover for that magazine. It’s brilliant.
A photo of the Senkaku/Diaoyu islands in the East China Sea…a few piles of rocks…and the title of the story is, “Could China and Japan really go to war over these?” A sea turtle is pictured, musing, “Sadly, yes.”
The ongoing dispute centers on the Tokyo-controlled Senkaku islands which are claimed by Beijing under the name Diaoyu.
On Friday, Yan Xuetong, one of China’s most influential foreign policy strategists, and a noted hawk, said, “There is a danger of China and Japan having a military conflict. I do not see either side making concessions. Both sides want to solve the situation peacefully, but neither side can provide the right approach.”
Yan, as reported by the Daily Telegraph’s Malcolm Moore, compared the potential conflict to the Falklands.
“Generally speaking, according to the theory of international relations, unless one country makes concessions to the other, the escalation of a conflict between two countries will not stop until there is a military clash,” he said.
China is tolerant of smaller powers, “But the case of Japan is different,” adds Yan. “There is history between us. Japan is a big power. It regards itself as a regional, and sometimes a world power. So China can very naturally regard Japan as an equal. And if we are equal, you cannot poke us.”
Chinese Foreign Minister Yang Jiechi angrily told Japanese diplomats at the United Nations on Thursday that Japan had stolen the disputed islands. Yang told the General Assembly:
“China strongly urges Japan to immediately stop all activities that violate China’s territorial sovereignty, take concrete actions to correct its mistakes and return to the track of resolving the dispute through negotiation.”
Yang reaffirmed his country’s historical claim that Japan tricked China into signing a treaty ceding the islands in 1895. Japan states the islands were legally incorporated into its territory.
Yang also said Japan was in “outright denial” of its defeat in the Second World War, reaffirming China’s repeated references to the Big One.
China’s UN envoy, Li Baodong, added fuel to the fire: “The Japanese government still clings to its obsolete colonial mindset. China is capable of safeguarding the integrity of its territory.”
Japanese Prime Minister Yoshihiko Noda said on Wednesday that the Senkakus are “an integral part” of Japanese territory “in the light of history and of international law.”
“It is very clear and there are not territorial issues as such. Therefore there cannot be any compromise that could mean any setback from this basic position. I have to make that very clear,” Noda told reporters at the UN General Assembly.
The conflict is escalating dangerously and, as Noda also warned, the economic consequences could be severe. Already, in the aftermath of the anti-Japan riots on the mainland, Toyota and Nissan are cutting production. In the first week, sales were down 60% for Toyota, which sold 900,000 cars in China last year and had a goal of one million this year.
Japanese airline All Nippon Airways (ANA) revealed 40,000 reservations had been cancelled on its Japan-China flights for the three months to November.
All of this as it was reported China’s industrial profits fell 6.2% in August. [Separately, Japan’s industrial production for the month was down 1.3% in August over July, not good, while the August consumer price index fell 0.3% from a year earlier, also not good. Deflation just never disappears from the Japanese story.]
Of course the timing of the tensions could not be worse, what with China’s once a decade leadership change (see below).
And in reading the Sydney Morning Herald the other day, I couldn’t help but note a comment from a longtime U.S. defense strategist, Edward Luttwak, who I once had the pleasure of meeting at Wake Forest.
Luttwak remains a Pentagon consultant for their in-house think tank, the Office of Net Assessment, and has high-level access to both Chinese and U.S. military officials, so here is his take on China, as he told the Herald’s John Garnaut.
“The rapid accession to prosperity has been a very common way for countries to lose their sanity.” He said China suffered from ancient and new foreign policy weaknesses.
“The Chinese are autistic in dealing with foreigners, they have no sense of the ‘other,’” he said. “They think they are incredibly brilliant strategists as if they had been conquering other nations, when in fact it’s been the other way around for 1500 years.”
“Japan’s own nationalists make the legacy of past wars harder to handle. In 2005, the fight was mostly about Japanese school textbooks that glossed over Japan’s atrocities during the Second World War. This time Tokyo Governor Shintaro Ishihara proposed that the city buy the Senkakus from their private owners. Knowing that Mr. Ishihara, an extreme nationalist, would stir up trouble, the central government stepped in to purchase the islands.
“In doing so, Japanese Prime Minister Yoshihiko Noda acted responsibly to minimize friction with Beijing. Yet China jumped on the move as a provocation….
“In recent years the Communist Party has tried to bring these nationalist strains together by touting a ‘China model’ that incorporates Confucian values. But a return to nativism could hamper the adoption of foreign ideas and reforms that China needs to take the next steps toward an innovation-based economy.
“So far China has not sought to overturn the international status quo as the Soviet Union did, but a rising, undemocratic power has often destabilized the world order, especially when nationalism is in the saddle. The U.S. needs to take a firm line against Chinese aggression toward its neighbors, lest Beijing’s rulers think they can indulge their nationalist furies without cost.”
“Asia’s inability to deal with the islands raises doubts about how it would cope with a genuine crisis, on the Korean peninsula, say, or across the Strait of Taiwan. China’s growing taste for throwing its weight around feeds deep-seated insecurities about the way it will behave as a dominant power. And the tendency for the slightest tiff to escalate into a full-blown row presents problems for America, which both aims to reassure China that it welcomes its rise, and also uses the threat of military force to guarantee that the Pacific is worthy of the name.
“Some of the solutions will take a generation. Asian politicians have to start defanging the nationalist serpents they have nursed; honest textbooks would help a lot. For decades to come, China’s rise will be the main focus of American foreign policy. Barack Obama’s ‘pivot’ towards Asia is a useful start in showing America’s commitment to its allies. But China needs reassuring that, rather than seeking to contain it as Britain did 19th-century Germany, America wants a responsible China to realize its potential as a world power.”
The Economist continues that this is where trade policy is key and the recent tit-for-tat at the WTO between the United States and China is decidedly not helpful. However, I do view the Obama administration move on Friday to block a Chinese-owned company from building wind farms close to a navy testing site for drones and electronic warfare training differently, though now we’ll see how China responds to the move.
So to sum up, just a few months ago one would have thought the “October Surprise” when it comes to the U.S. presidential election would emanate from the Middle East, and it still could, though it seems unlikely now that Israel will launch a strike on Tehran’s nuclear program until after the election.
But now the surprise could be in Asia. Heck, Taiwan also claims the Diaoyu islands and this week, Taiwanese and Japanese vessels fired water cannons at each other. At what point does one side miscalculate and start firing live ammunition?
And we circle back to the United States. The Obama recovery is virtually non-existent, though I understand how many Americans could feel better off than they did in 2009. Many of these folks really don’t focus at all on the international scene, both economically and geopolitically. I repeat, as I have much of the year…there is absolutely zero reason to be optimistic about the state of the world these days.
The future? Yes, I can draw you a positive picture. But to do so requires a leap of faith, particularly when one considers the extremists, including far-right, nationalist factions in both China and Japan, that must at some point climb down. Or that a Greece can prevent a group like Golden Dawn from mucking things up. Or that a President Morsi resists the temptation to be a hardline Islamist leader, which would ratchet up tensions in the Middle East another three-fold. Or that Syrian President Assad doesn’t use chemical weapons on his own people (or that al-Qaeda doesn’t get hold of them). Let alone the entire Iranian issue.
But in the short-term, we’ve just completed a highly positive quarter for equity markets, both here and abroad, though now it’s earnings season and I can guarantee the accompanying language to the earnings statements will be dour, with lots of talk of Europe, the slowdown in China, geopolitical uncertainty and our own “fiscal cliff” facing Congress and the occupant of the White House after the election.
As for the vote itself on Nov. 6, next Friday’s jobs report for September is another critical data point to be chewed over by both sides.
--Stocks fell for a second week with the Dow Jones losing 1.0% to 13437, while the S&P 500 lost 1.3% and Nasdaq 2.0%. For the month the S&P gained 2.4% and was up a very solid 5.8% for the quarter. But it’s clear, at least for now, that the magic of quantitative easing, QE3, and the actions of the European Central Bank, has lost a bit of its luster. Fundamentals cannot be ignored.
--U.S. Treasury Yields
6-mo. 0.13% 2-yr. 0.23% 10-yr. 1.63% 30-yr. 2.82%
Treasuries rallied on the problems in Europe and the global slowdown as the U.S. is still the best refuge.
The average fixed rate for a 30-year mortgage hit a record low 3.40% for the week ending Wednesday.
--The Wall Street Journal had a front page story on Friday on how the slowdown in China is impacting the U.S. coal industry in a huge way, as much as surging natural gas has hit the sector. Appalachia is home to the kind of low-ash, low-sulfur coal that is perfect for making steel but China’s metallurgical coal imports slid to 2.6 million metric tons in August, from an average of 4.5 million metric tons per month through July.
As a result, coal mines are shutting down throughout West Virginia and Kentucky, for starters, with thousands of miners being laid off. On top of that, some of the companies such as Patriot Coal Corp., which filed for bankruptcy protection, are warning about “unsustainable” pension and health benefits for both current employees and retirees.
For decades, coal met about 50% of the nation’s electricity needs, but with the rise in natural gas production that figure was down to 32% in April. Metallurgical coal exports were supposed to fill the gap. Just a year ago, the major coal companies were buying each other up to strengthen their position and operations.
--In a related vein, the Energy Department reported that U.S. oil production rose to 6.509 million barrels a day in the week ended Sept. 21, the highest level since January 1997. Imports have declined 3.2% from the same period a year earlier. The two states leading the way continue to be North Dakota and Texas.
--Total SA made news this week when the energy giant said companies should not drill for crude in Arctic waters. Christophe de Margerie, Total’s CEO, told the Financial Times the risk of an oil spill in such an environmentally sensitive area was too high. “Oil on Greenland would be a disaster,” he said. “A leak would do too much damage to the image of the company.”
It’s bad enough seeing images of oil-soaked birds. Can you imagine if a polar bear was ever filmed in such a plight? [This isn’t de Margerie’s point…just mine.] De Margerie is not against drilling for natural gas in the region, with Total having a number of large stakes in the area. He said natural gas leaks were easier to deal with than oil spills.
Of course the melting of the polar ice cap has made the Arctic’s vast energy riches more accessible than ever before.
A survey by the Hay Group shows that 75% of retailers predict an increase in holiday sales over 2011.
--5,000 riot police were called into Foxconn’s massive manufacturing facility in Taiyuan, China, where 79,000 are employed, after about 2,000 rioted following a dispute between workers and security guards. Foxconn is a major contract manufacturer for the likes of Apple, Dell and Hewlett-Packard. No doubt, China’s leaders were disturbed by this large-scale example of worker unrest. The plant reopened after one day. Foxconn, based in Taiwan, employs more than 1.1 million in China.
--Foxconn is a major contractor for Apple Inc., which announced it sold more than 5 million units of the new iPhone 5 in the first three days since its launch, which was less than analysts expected. But when it launched the iPhone 4S a year ago, Apple sold 4 million in the same time period.
However, it’s also clear Apple stumbled with its latest launch. As the New York Times’ Joe Nocera opined:
“If Steve Jobs were still alive, would the new map application on the iPhone 5 be such an unmitigated disaster? Interesting question, isn’t it?
“As Apple’s chief executive, Jobs was a perfectionist. He had no tolerance for corner-cutting or mediocre products. The last time Apple released a truly substandard product – MobileMe, in 2008 – Jobs gathered the team into an auditorium, berated them mercilessly and then got rid of the team leader in front of everybody, according to Walter Isaacson’s biography of Jobs. The three devices that made Apple the most valuable company in America – the iPod, the iPhone and the iPad – were all genuine innovations that forced every other technology company to play catch-up….
“(Maybe) that’s all (the Maps mess) is – a mistake, soon to be fixed. But it is just as likely to turn out to be the canary in the coal mine.”
Or as fellow Times columnist James B. Stewart noted, don’t count Samsung out. Heck, it has 24.1% of the global handset market compared with Apple’s 6.4% at the end of the second quarter. And in the smartphone market, Samsung has 32.6% vs. Apple’s 16.9%, though Apple will gain here with the introduction of the iPhone 5.
But on Friday, Apple CEO Tim Cook issued a rather extraordinary apology to iPhone users for failings in its Maps app.
“At Apple, we strive to make world-class products that deliver the best experience possible to our customers,” Cook wrote in an open letter published on the company’s website.
“With the launch of our new Maps last week, we fell short on this commitment. We are extremely sorry for the frustration this has caused our customers and we are doing everything we can to make Maps better.”
Some 4.98 million iPhone 5 users are stranded across America today, unable to find their way home.
Shares in Apple, which closed at $700 on 9/21, finished at $667 on 9/28.
--Research In Motion will survive another quarter or two as the BlackBerry maker reported a smaller than expected $235 million loss in its fiscal second quarter, while boosting its cash reserves to $2.3 billion; this despite selling just 7.4 million BlackBerrys in the period, far less than expected. Gross margins also plummeted.
But because the cost-reduction effort is bearing fruit, the stock rose smartly and the CEO talked of potential strategic partnerships. RIM is also still planning on releasing its next-generation BlackBerry 10 in the first quarter next year.
--Intel CEO Paul Otellini told employees in Taiwan that Microsoft’s Windows 8 operating system is being released before its fully ready. Others have echoed Otellini’s warning, saying among other things that PC makers haven’t had enough time to work out kinks with drivers, which connect the software to hardware such as printers.
This is a topic near and dear to my heart these days as I’ve had a new computer system installed for my coming video project and the tech outfit doing the work has had problems connecting certain drivers. It’s been a nightmare. For one thing I’m taking extra steps with this column just to make sure I can access it should the computer go down again as it did earlier in the day.
--Nike reported revenue rose 10% in its fiscal first-quarter, better than expected; rising 23% in North America but falling 5% in Western Europe. Sales in China unexpectedly dropped, though this should no longer be a surprise with the recent data coming out of there.
--Electric car maker Tesla Motors Inc. warned it will generate $44 million to $46 million in third-quarter sales vs. the $80 million analysts’ project, with the automaker blaming production issues, including delays with suppliers. The Model S has received rave reviews and in a filing Tesla said “our main focus is on quality” as they methodically ramp up.
Meanwhile, Consumer Reports panned the $107,000 luxury plug-in hybrid, Fisker Karma. Among the negatives, the Karma’s “badly designed touch-screen system makes the dash controls an ergonomic disaster.” Fisker, in defending its product, said TIME magazine had listed the vehicle as one of its 50 Best Inventions.
--A report from the non-partisan Congressional Budget Office notes that an analysis of the federal budget shows that tax breaks encouraging the purchase and manufacturing of electric vehicles will cost about $7.5 billion over the next seven years. [USA TODAY]
--The U.S. Postal Service is on the verge of defaulting on a second multibillion-dollar payment due the Treasury, its second in two months, as the Postal Service waits for Congress to act on legislation eliminating Saturday delivery and reducing its $5 billion annual pension payment obligation.
--So in light of the above, this is interesting. New York magazine is beginning to distribute subscriber copies to residents in Manhattan that have a doorman. After testing it out, eventually New York will be hand-delivering nearly 60,000 subscriber and complimentary copies to Manhattan addresses. Why? They are concerned about rising costs and slower postal deliveries and say hand-delivery is cost competitive. Granted, others, such as Bloomberg Businessweek, use newspaper carriers to deliver many subscriber copies, but what New York is doing goes beyond that.
So it’s another career path for college graduates with $100,000 in debt!!
--Speaking of student loan debt, 19% of American households had outstanding student loans in 2010, according to the latest data from the Pew Research Center, up from 15% in 2007. Among households headed by someone younger than 35, however, a record 40% owe student debt.
And on Friday, the U.S. Education Department said more than one in 10 borrowers defaulted on their student loans.
--Sharp Corp. is looking to slash 10,000 jobs as part of its ongoing restructuring plan.
--Campbell Soup Co. is shutting plants and laying off 700 full-time employees as a result of sliding sales. For me, soup season is about to ramp up.
--The former chairwoman of the Federal Deposit Insurance Corp., Sheila Bair, lambasts Treasury Secretary and former head of the Federal Reserve Bank of New York, Timothy Geithner, in a new book. Bair labels Geithner an apologist for Wall Street and the big banks, with the bailout of Citigroup being a particular target of her criticism of a man Bair calls the “bail-outer in chief.” Bair also criticized Citi CEO Vikram Pandit, who Bair said lacked the experience necessary to run the behemoth. Citi’s board “could have done so much better than Pandit,” she writes. Bair added, “The public justifiably wanted retribution. Citi should have been led to the pillory.”
--In the largest class-action lawsuit settlement to arise out of the financial crisis, Bank of America announced on Friday it was settling accusations it misled investors about the acquisition of Merrill Lynch for a cool $2.43 billion. I’m assuming lawyers get $2.1 billion and shareholders and pension funds get coupons for a Wendy’s double cheeseburger.
--On Tuesday, I had a meeting with Air Products and Chemicals, Inc., in Pennsylvania. While I won’t get into specifics, it was China related. Perhaps down the road I’ll be talking about the particular concern I have, but for now I have to commend APD for its professionalism and the courtesy extended me, down to their calling me, not the other way around, to confirm my appointment.
When I was on Wall Street, I focused big time on the little things, especially since I was on the sales side of the business; stuff like handwritten notes were a priority, for example. Ask Bush 41 how valuable he thought that practice was. In this instance, Air Products passed with flying colors, and, ironically, the day before I showed up there was a news item on how Forbes had selected the company as one of the most socially responsible. Given the sector it’s in, this is obviously important.
And on the way home I passed an APD tanker truck and it was going the speed limit, which I always appreciate. UPS is great in this regard as well. [I was going, err, 66…maybe 67.]
--Say it ain’t so, Joe! A report by Jenn Abelson of the Boston Globe notes that some of the fish you are buying is watered/weighed down with ice. In one instance, a Rhode Island-based food supplier mislabeled two-thirds of its fish. It was underweight after taking into consideration that 2 or 3 ounces was often ice.
Ah ha! Yes, the fish business has long cracked me up. Monday night I was at an Emeril’s in the Sands Hotel and Casino in Bethlehem, Pa. (very nice place, incidentally…my first trip there) and my waitress described the fish of the day, “Cortina,” as tasting like swordfish. There was a different waitress at the table next to mine and she told her customers Cortina tasted like sea bass. Gotta keep a uniform message, sports fans! [I had veal francaise…delicious…washed down with a few Peronis. Yes, I treated myself to premium despite my personal portfolio continuing to warrant domestic.]
--Attention gold buyers, especially from outfits in Manhattan. The New York Post reported that federal agents are investigating the peddling of fake gold bars, “made up mostly of relatively worthless tungsten.” So far the targets have been dealers but it’s not known how many of the fakes were then sold to the public.
--The National Retail Federation said Americans will spend $8 billion for Halloween this year, up from 2011.
“That’s worthless tungsten, Bobby. And don’t try to eat it.”
Iran/Israel: Israeli Prime Minister Benjamin Netanyahu took the stage of the UN General Assembly armed with a cardboard bomb and red marker to illustrate where he believes there should be a “red line.”
“This is a bomb, this is a fuse,” he said, indicating three major stages in the production of an atomic weapon. “By next spring, at most by next summer…they will…move on to the final stage.” Then uncapping the pen: “A red line should be drawn right here, before Iran completes the second stage of nuclear enrichment.”
And, “I believe that faced with a clear red line, Iran will back down – and it will give more time for sanctions and diplomacy. Red lines don’t lead to war, red lines prevent war…nothing could imperil the world more than a nuclear-armed Iran.” Any red line must begin with uranium enrichment activities, understanding other components of an atomic arms program can be more easily hidden. The line must be set weeks or months ahead of the point where Iran would have enough enriched uranium for a bomb.
Turning to the United States, Netanyahu offered an olive branch to the White House after months of heated rhetoric.
“Israel is in discussions with the United States over this issue and I am confident that we can chart a path forward together.”
Two days before, Obama pledged in his speech that time for a diplomatic resolution “is not limited.”
“Make no mistake: A nuclear-armed Iran is not a challenge that can be contained. The United States will do what we must to prevent Iran from obtaining a nuclear weapon.”
And on Monday, Iranian President Mahmoud Ahmadinejad, speaking to a group of journalists ahead of his General Assembly speech, said Israel has existed “during a historical phase” to create “minimal disturbances that come into the picture and then are eliminated.”
Israel has been in the Middle East for only 60 to 70 years “with the support and force of the Westerners,” and Iran has existed for 10,000 years, he said.
Ahmadinejad also added, “Fundamentally, we do not take seriously the threats of the Israelis. We have at our disposal all the means to defend ourselves.”
Much has been made of President Obama’s failure to meet Netanyahu in New York, though their schedules were different (and they apparently talked by phone on Friday). Nonetheless, Philip Stevens, Financial Times, on the broader issue.
“The administration has tried to put foreign policy on hold for the duration of the campaign. It has a carefully crafted message: Mr. Obama has taken the U.S. out of Iraq, killed Osama bin Laden and decimated al-Qaeda, helped to overthrow Muammar Gaddafi – and he will bring home the troops from Afghanistan. Weary of foreign wars, voters like this narrative. The White House is determined that nothing should disturb it.
“The strategy, as the latest turmoil has shown, is vulnerable to events. But the judgment this week seems to have been that the way to shut down controversy was to avoid all encounters with foreign leaders. If the president had met Mohamed Morsi, Egypt’s new president, then he would not have been able to refuse Mr. Netanyahu. Better to shun both.
“There was plenty Mr. Obama could have talked about with fellow leaders. The civil war in Syria claims ever more lives and is spilling over into a wider Sunni-Shia confrontation. The Taliban are on the up in Afghanistan. The Iranian regime sounds as defiant as ever about its nuclear program. Mr. Netanyahu’s West Bank settlement program is rendering impossible a two-state solution between Israel and the Palestinians. With the U.S. absent from the stage, the UN gathering has to content itself with hand-wringing….
“None of this is to say the Republican campaign has come up with answers…The presidential contender strikes a chord when he says Mr. Obama has given up on the attempt to shape events in the Middle East. But Mr. Romney offers few clues as to how he would restore U.S. leadership.”
Regarding the West Bank, Palestinian President Mahmoud Abbas spoke shortly before Netanyahu and accused Israel of ethnic cleansing for building settlements in east Jerusalem.
“It is a campaign of ethnic cleansing against the Palestinian people via the demolition of their homes,” said Abbas.
Netanyahu then responded in his own address, saying: “We won’t solve our conflict with libelous speeches at the U.N.”
And back to Iran, the daughter of Akbar Hashemi Rafsanjani, Iran’s former president and the man I said for years in this space the United States should have been opening a backdoor to (until he was marginalized following the 2009 uprising), was arrested and ordered to serve a six-month jail sentence for spreading “propaganda against the regime” after criticizing the country’s economic and human rights record under Ahmadinejad.
Libya: In addressing the terror attack that killed Ambassador Chris Stevens and three other Americans, Obama said:
“Americans have fought and died around the globe to protect the right of all people to express their views – even views that we disagree with. We do so not because we support hateful speech, but because our founders understood that without such protections, the capacity of each individual to express their own views, and practice their own faith, may be threatened.”
Obama also said: “Those who condemn (the slander of Islam) must also condemn the hate we see when the image of Jesus Christ is desecrated, churches are destroyed, or the Holocaust is denied.”
But as for the Benghazi attack, the White House could not have botched the initial explanation worse, refusing to call it a terrorist attack even though it was clear it was. [I called it correctly two weeks ago.] But there has been zero outrage in the mainstream media. That is until now, when even Democrats in Congress are questioning the administration’s handling of the incident and the competence of the likes of UN Ambassador Susan Rice, who I’ve long blasted.
“Imagine the uproar if, barely a month before Election Day, the Bush Administration had responded to a terrorist strike – on Sept. 11 no less – in this fashion. Obfuscating about what happened. Refusing to acknowledge that clear security warnings were apparently ignored. Then trying to shoot the messengers who bring these inconvenient truths to light in order to talk about anything but a stunning and deadly attack on U.S. sovereign territory.
“Four Americans lost their lives in Benghazi in a terrorist attack that evidence suggests should have been anticipated and might have been stopped. Rather than accept responsibility, the Administration has tried to stonewall and blame others. Congress should call hearings to hold someone accountable for this debacle.”
[On Friday the administration finally came clean in labeling it terrorism.]
It’s also been a classic case of my adage ‘wait 24 hours’ when it comes to the scenes of “people power” in Benghazi and elsewhere in the country since the attack. While it was refreshing to see a crowd of up to 30,000 storm some of Benghazi’s militia headquarters, forcing them to flee, understand the transition from the caretaker/post-revolution government to the democratically elected one has been a mess; especially since the new army and police forces are very weak. Libyan leaders are pleading that some of the militias are needed to help keep security.
Alya Barghathy, an English professor at Benghazi University who joined the anti-militia protest last Friday, told the Washington Post, “I think the struggle that’s eating people up right now is the struggle for an identity. After all these years of being neglected and living in darkness, they don’t know who they are.”
Then there is the issue of MANPADs (man-portable air-defense systems) or shoulder-fired missiles that was my chief concern following the fall of Gaddafi. The commander of one Benghazi militia said looters had stolen “a large number” of them, along with 2,000 semiautomatic rifles after his group was forced to flee its base. U.S. intelligence estimates anywhere from 100 to 1,000 MANPADS are still unaccounted for in Libya. One of the Americans killed in Benghazi, Glen Doherty, was in the country to help track down the missiles.
My ongoing fear is that we know hundreds were smuggled across the border in those first days and weeks following Gaddafi’s fall and a simultaneous attack on just two commercial aircraft in the U.S. or any Western nation would send the world spiraling into Depression.
And to give you a better sense of the kinds of tribal score-settling that is taking place in Libya, one of the young Libyan rebels credited with capturing Gaddafi in a drainage ditch about a year ago, Omran Shaaban, died in a French hospital after he was abducted in July by the late dictator’s supporters and tortured after being paralyzed in a gunfight.
The new president of Libya secured Shaaban’s release but he was “skin and bones” and still paralyzed, upon which he was sent to Paris but couldn’t survive. A brother said, “His entire chest was sliced with razors. His face had changed. It wasn’t my brother that I knew.” [Esam Mohamed and Aya Batrawy / AP]
Syria: U.S. Defense Secretary Leon Panetta revealed on Friday that Syria has relocated some of its chemical arms in order to improve their security, but the rebels are circulating a film purporting to show them in control of some shells. The fear is al-Qaeda getting hold of them, as well as Assad using them on his own people.
Damascus was the scene of a huge rebel attack on the military’s general headquarters, with an unknown number of casualties, a big blow for the regime. Rebels also successfully targeted a school used by army officers and government troops, killing scores, while it’s clear Hizbullah is ramping up its support for Assad, this as Lebanese Sunnis support the rebels. Hizbullah is trying to keep their support in Syria from roiling Lebanon, but at some point it is bound to.
Egypt: In his debut on the world stage at the UN, President Mohamed Morsi said he would not rest until civil war in Syria is brought to an end, calling it the “tragedy of the age.”
“The fruits of dignity and freedom must not remain far from the Palestinian people,” adding it was “shameful” that UN resolutions are not enforced.
Morsi then condemned the video denigrating the Prophet Muhammad that led to violence in the region, insisting freedom of expression does not allow for attacks on any religion, but he didn’t explain what limitations he would place on free speech.
“Egypt respects freedom of expression.” But “not a freedom of expression that targets a specific religion or a specific culture.”
Earlier, in an interview with the New York Times, Morsi said the United States must respect the Arab world’s history and culture.
Lastly, the 100-seat constituent assembly is responsible for writing Egypt’s new constitution and conservatives are looking to impose Shariah law. Needless to say, liberals are upset. After the constitution is written, it will be put to a national referendum. Morsi has pledged to call new parliamentary elections within 60 days of the document’s approval. Some of the provisions in the working draft include the power to shut down newspapers on political grounds. Bye-bye Arab Spring.
Pakistan: In April, President Obama’s top counter-terrorism advisor, John Brennan, described civilian casualties from drone strikes as “exceedingly rare.”
But as reported by David Zucchino of the Los Angeles Times, a new study by researchers at Stanford University and New York University, utilizing extensive interviews along with a database by the Bureau of Investigative Journalism, puts the number of civilian dead at 474 to 884 since 2004, including 176 children.
There are major challenges to the official accounts handed out by the U.S. government, such as a strike on March 17, 2011, that killed an estimated 42 people. U.S. officials said all 42 victims were militants attending a Jirga, a meeting of elders. The report says only four were militants, the rest civilians, including elders and auxiliary police.
Drones have been the centerpiece of the White House’s anti-terror policy, the president conducting far more attacks than occurred under President Bush. I am for the use of drones, but should the study’s toll be even ¼ accurate, how do you justify executing 120-220 civilians?
China: Disgraced politician Bo Xilai was expelled from the Communist Party, with Bo now facing trial and a possible death sentence for his involvement in a cover-up concerning his wife, recently convicted of murdering British businessman Neil Heywood, as well as numerous instances of corruption and sexual misconduct, as documented, surprisingly, in the main Xinhua news agency. Xinhua added in a statement: Bo “abused his powers of office, committed serious errors and bears a major responsibility…Bo Xilai’s actions created grave repercussions, and massively damaged the reputation of the party and the state.”
This comes as it was announced the party congress will commence Nov. 8, not mid-October as long speculated. Xi Jinping and Li Keqiang will succeed Hu Jintao, president, and Wen Jiabao, premier, respectively in this once a decade leadership change.
Separately, the U.S. Cyber Command’s top intelligence officer, Rear-Admiral Samuel Cox, said of China in remarks to an industry forum, “Their level of effort against the Department of Defense is constant.” When asked whether any classified U.S. networks had been successfully penetrated, Cox replied: ‘I can’t really get into that.’”
Russia: An analyst with a local think tank told the Moscow Times that Prime Minister Dmitry Medvedev “is like canned food – he can be eaten whenever it is necessary.” All the reforms that Medvedev put in place during his term as president have been reversed by Vladimir Putin since he took his old job back. Igor Sechin (remember that name? He’s the one I’ve said will launch a coup at some point) “is widely seen as the most powerful of Medvedev’s opponents,” as reported by Nikolaus von Twickel.
“ ‘Governor, the success or failure of your entire presidential campaign will come down to what happens between the hours of 9 and 10:30 p.m. on Wednesday, Oct. 3. We’re at a hinge point in history. It’s not too much to say the future of the American republic depends on how you do in that hour and a half.’
--…And how Wednesday’s debate will shape results in the likes of Ohio and Florida. Should Mitt Romney not take them both, he can kiss the White House goodbye and the latest polls from the two battleground states are not good, with a Quinnipiac Univ./New York Times/CBS News survey showing Barack Obama leading Romney 53-43 in Ohio and 53-44 in Florida. But an Enquirer/Ohio Newspaper Organization poll has the state 51-46, Obama, among likely voters. A Washington Post poll in Ohio among likely voters in Ohio has Obama up 52-44 and 51-47 in Florida. [In Florida, among registered voters the margin is nine points.]
Depressingly for Romney, in Ohio, 50 percent say they trust the president more to deal with the economy; 43 percent say so of the challenger. And by a 57-34 margin, registered voters in Ohio say Obama rather than Romney better understands the economic problems that people are facing.
--In other key swing states, polls from NBC News and Marist College show Obama with a 49-47 point lead in Nevada and a 48-46 lead in North Carolina. In New Hampshire he leads 51-44.
“Now we get it: Mitt Romney’s refusal to specify what tax breaks he proposes eliminating is not a matter of dangling tantalizing goodies in front of voters now, before the election, and postponing the painful part until later. No, Mr. Romney’s dodging is, he claimed in an interview broadcast Sunday, an example of his strong leadership skills.
“Pressed by CBS News’ Scott Pelley about his failure to provide details, Mr. Romney instead lauded his fuzziness. ‘It’s very much consistent with my experience as a governor which is, if you want to work together with people across the aisle, you lay out your principles and your policy, you work together with them, but you don’t hand them a complete document and say, ‘Here, take this or leave it,’’ Mr. Romney said on ’60 Minutes.’ ‘Look, leadership is not a take-it-or-leave-it thing. We’ve seen too much of that in Washington.’
“This is leading by ducking. Mr. Romney is right that the American people do not benefit from intransigent, my-way-or-the-highway governing. But his answer ignores the difference between maintaining flexibility and hiding your cards from the people whose votes you seek. If leadership means never having to get specific, why then does Mr. Romney identify a particular number – 20 percent – for the amount he wants to cut rates? The answer is obvious: voter appeal.
“By contrast, achieving those cuts in a way that does not add trillions to the deficit, as Mr. Romney claims he will do, would require major, painful and politically controversial restrictions on allowable deductions. Breaks for everything from home mortgage interest to employer-sponsored health insurance to state and local taxes would be on the table.”
--Yes, it was pathetic that President Obama opted not to meet with any world leaders on the sidelines of the UN General Assembly and opted instead for a sit down on “The View.” His behavior the whole year has been beyond belief. What the hell has he done aside from campaign, golf, and have entertainers over to the White House?!
--I was disturbed by a Financial Times report by Stephanie Kirchgaessner that addressed some of Mitt Romney’s blind trust holdings, specifically an investment in Cnooc “at a time when the U.S. was growing concerned about the Chinese oil company’s multibillion-dollar dealings with Tehran, according to the 2011 tax return released by the Republican nominee for president.
“The Chinese investment by Mr. Romney’s blind trust prompted accusations of hypocrisy from the Obama campaign on Monday, given Mr. Romney’s criticism of Barack Obama for not being tough enough on Chinese ‘cheaters.’”
How can you be so stupid?! As Ms. Kirchgaessner’s piece goes on to point out:
“Mr. Romney has in the past – specifically in his Senate run against Edward Kennedy – called blind trusts ‘an age-old ruse’ because ‘you can always tell a blind trust what it can and cannot do.’….
“According to a report by the International Gas Report in February of 2009, Beijing gave Cnooc the green light to sign a deal with Tehran immediately after the U.S. agreed to sell arms to Taiwan.”
Back in 2005, Cnooc attempted to take over Unocal but the deal was scrapped after the transaction was attacked on Capitol Hill. If I recall correctly, I didn’t have a problem with this one, but the point in the Romney disclosure is that why would he let his blind trust invest in Cnooc? He’s handed the Democrats yet another great talking point. Great debate point!
--This is another killer for the Republicans. As noted in a recent NBC News/Wall Street Journal poll, back in Oct. 2011, the percentage of Americans who thought the country was on the wrong track was 74% and those who thought we were headed in the right direction was just 17%. Today it’s 55-39.
I’m still solidly in the ‘wrong track’ camp (duh), but one can’t deny the impact of a better stock market, plus as I noted months ago, yes, the housing market has at least bottomed.
--Similarly, a new Bloomberg National Poll reveals Americans by a 43-33 margin see themselves as better off rather than worse off. But, 53% disapprove of Obama’s handling of the economy vs. 41% who approve, about the same margin as the last Bloomberg poll in June.
--In the key Massachusetts senate race between Rep. Sen. Scott Brown and Dem. challenger Elizabeth Warren, all the state polls show Mitt Romney trailing Barack Obama by 20 points, which could be a death knell for Brown, who is neck and neck with Warren.
--Overall, remember, Republicans need a net gain of four seats in the Senate, or three if Romney takes the White House with the vice president then breaking any ties. Of course the way the Senate works, 60 votes is needed to really ensure change; that being the number needed to close debate (a filibuster) on a bill or other measure.
Anyway, a few months ago things looked good for the elephants in getting to 51 or higher, but, thanks to the likes of Missouri Republican Todd Akin and his “legitimate rape” comment (he said something else on Friday that was cringe worthy), prospects appear to have diminished.
“President Obama went before assembled world leaders at the UN yesterday and finally delivered what right-minded Americans have been waiting for – a robust defense of this nation’s commitment to freedom of speech.
“Well, that’s between the president and his speechwriters, we suppose – though it took him two weeks after the outbreak of Islamist violence in the Middle East to rise to the challenge.
“Certainly it’s a shame that the idea of declaring that ‘the strongest weapon against hateful speech is not repression’ didn’t come to mind last week, when the White House ‘suggested’ that YouTube find a way to pull that controversial anti-Islam video.
“But yesterday the president was spot-on, proclaiming that ‘efforts to restrict speech can quickly become a tool to silence critics and oppress minorities.’
“And he noted, correctly, that banning the controversial video was impossible, anyway, even if the Constitution allowed it.
“ ‘At a time when anyone with a cellphone can spread offensive views around the world with the click of a button,’ he said, ‘the notion that we can control the flow of information is obsolete.’
“Still, it’s pretty clear that the president’s UN speech was essentially a campaign performance – aimed less at the delegates than pitched to U.S. voters.
“But if the speech sounded at times like it might have been delivered by President George W. Bush, there were unmistakable Obama touches – particularly his refusal to even mention the word ‘terrorism.’…
“Moreover, he refused to characterize what he called ‘that brand of politics’ that uses ‘hatred of America or the West or Israel as the central organizing principle.’
“Because that would mean acknowledging an ideology that isn’t looking for lessons on tolerance but rather seeks to destroy those – like Israel and the United States – whom it opposes.”
“In mid-September 2008, Lehman Brothers collapsed and the bottom fell out of the financial system. Barack Obama handled it coolly. John McCain did not. Obama won the presidency. (Given the country’s condition, he would have won anyway. But this sealed it.)
“Four years later, mid-September 2012, the U.S. mission in Benghazi went up in flames, as did Obama’s entire Middle East policy of apology and accommodation. Obama once again played it cool, effectively ignoring the attack and the region-wide American humiliation. ‘Bumps in the road,’ he said. Nodding tamely were the mainstream media, who would have rained a week of vitriol on Mitt Romney had he so casually dismissed the murder of a U.S. ambassador, the raising of the black Salafist flag over four U.S. embassies and the epidemic of virulent anti-American demonstrations from Tunisia to Sri Lanka (!) to Indonesia….
“Yet Romney totally fumbled away the opportunity. Here was a chance to make the straightforward case about where Obama’s feckless approach to the region’s tyrants has brought us, connecting the dots of the disparate attacks as a natural response of the more virulent Islamist elements to a once-hegemonic power in retreat. Instead, Romney did two things:
“He issued a two-sentence critique of the initial statement issued by the U.S. Embassy in Cairo on the day the mob attacked. The critique was not only correct but vindicated when the State Department disavowed the embassy statement. However, because the critique was not framed within a larger argument about the misdirection of U.S. Middle East policy, it could be – and was – characterized as a partisan attack on the nation’s leader at a moment of national crisis.
“Two weeks later at the Clinton Global Initiative, Romney did make a foreign-policy address. Here was his opportunity. What did he highlight? Reforming foreign aid.
“Yes, reforming foreign aid! A worthy topic for a chin-pulling joint luncheon of the League of Women Voters and the Council on Foreign Relations. But as the core of a challenger’s major foreign-policy address amid a Lehman-like collapse of the Obama Doctrine?
“It makes you think how far ahead Romney would be if he were actually running a campaign. His unwillingness to go big, to go for the larger argument, is simply astonishing.
“For six months, he’s been matching Obama small ball for small ball. A hit-and-run critique here, a slogan-of-the-week there….
“Make the case. Go large. About a foreign policy in ruins. About an archaic, 20th-century welfare state model that guarantees 21st-century insolvency. And about an alternate vision of an unapologetically assertive America abroad unafraid of fundamental structural change at home.
--You’re beginning to see some articles on the impact of Libertarian presidential candidate Gary Johnson, the former governor of New Mexico whose claim to fame is his ardent support for legalizing drugs. But while he’s going to be on the ballot in at least 47 states, I do not believe he will receive enough support to play the role of spoiler, though he’s likely to get more than a point or two in Colorado, Arizona and New Mexico.
“Has there been a presidential race in modern times featuring two candidates who have done so little over their lifetimes for our country, and who have so little substance to say about the future of our country?”
--Over the years I’ve related a few crime stories from the Caribbean involving tourists. Friday a week ago, a South Carolina couple was murdered in their beachfront condominium in St. Maarten. The suspect, a Jamaican man, was arrested. There isn’t a single place in the world you can let your guard down so when you’re at a place like this…at least take some basic safety precautions; like lock your doors.
--A plane carrying 19 trekkers and crew to a Mount Everest base camp crashed just after takeoff, killing all, as the pilot reported trouble after hitting a vulture. Seven passengers were British and five were Chinese.
--From Alicia Chang / AP: “The NASA rover Curiosity has beamed back pictures of bedrock that suggest a fast-moving stream, possibly waist-deep, once flowed on Mars – a find that the mission’s chief scientist called exciting.”
Sounds like there was great trout-fishing there back in the day. Maybe salmon.
--Finally, I forgot to mention last week that I was watching a PBS’ “American Experience” documentary titled “Death and the Civil War” that got into how the conflict was the beginning of the mission to treat America’s war dead with respect and honor. Admiral Mike Mullen, Chairman of the Joint Chiefs of Staff, commented:
“There is no more sacred obligation I don’t think that the United States of America has than to those who have borne the burden and sacrificed so much – not just the military members but also the family members because they too have sacrificed so much. The Civil War is the foundation for this. When I am at a graveside, at a funeral and I engage a family who’s lost a son or a daughter or a brother or a sister, I always say that ‘I promise you, we will never forget.’ I want them to know that sacrifice was meaningful and will never be forgotten. We should never forget as a country those who served and those who sacrificed and ultimately those who’ve paid the ultimate sacrifice.”
And so we pray for the men and women of our armed forces…and all the fallen.
Gold closed at $1774
Returns for the week 9/24-9/28
Dow Jones -1.0% 
S&P 500 -1.3% 
S&P MidCap -1.7%
Russell 2000 -2.1%
Nasdaq -2.0% 
Returns for the period 1/1/12-9/28/12
Dow Jones +10.0%
S&P 500 +14.6%
S&P MidCap +12.5%
Russell 2000 +13.0%
Bears 24.5 [Source: Investors Intelligence]