the week 10/9/2006 - 10/13/2006
Korea's Nuclear Test Announcement
of scientific research in the DPRK (Democratic People's Republic
of Korea) successfully conducted an underground nuclear test
under secure conditions on October 9, 2006, at a stirring
time when all the people of the country are making a great
leap forward in the building of a great, prosperous, powerful
been confirmed that there was no such danger as radioactive
emission in the course of the nuclear test as it was carried
out under scientific consideration and careful calculation.
test was conducted with indigenous wisdom and technology 100
percent. It marks a historic event as it greatly encouraged
and pleased the KPA (Korean People's Army) and people that
have wished to have powerful self-reliant defense capability.
contribute to defending the peace and stability on the Korean
Peninsula and in the area around it."
is first reaction, representing all sides of the political
/ Wall Street Journal
great danger comes great clarity. By ordering his country's
first-ever nuclear weapons test, Kim Jong-il lay bare this
generation's greatest challenge: How far will the world go
to impose order on rogue states intent on acquiring weapons
of mass destruction?
offers cold comfort. Only nine nations in the post- Soviet
era possess nuclear weapons, but many more, including Tehran's
mullahs, are seeking them. The U.S. and other responsible
democracies have persuaded a few nations - Ukraine, South
Africa, Libya - to disarm or abandon their weapons programs.
In our globalized world, however, WMD proliferation is a potent
threat, as proven by Pakistan's former nuclear-secrets merchant,
like Iran today, never hid its ambitions. For over a decade,
the North has built up the world's fourth-largest military,
threatened its neighbors and engaged in drug dealing, counterfeiting
and WMD proliferation - with little rebuke. At one point,
the Hermit Kingdom threatened to turn Seoul into a 'sea of
fire.' In 2002, Pyongyang announced it had nuclear weapons..
Korea shoulders much of the blame. By sticking to its 'sunshine
policy,' Seoul undermined every diplomatic effort to exert
non-violent pressure on the North. Two-way trade between North
and South Korea passed $1 billion last year.a huge chunk of
the North's total income. By tolerating Pyongyang's proliferation
ambitions, President Roh Moo Hyun and his foreign minister,
Ban Ki Moon [ed. the new UN Secretary General], have allowed
the current crisis to explode on its doorstep..
test marks a new reality that will change security calculations
in Asia and the world. We're about to find out how responsible
an actor China wants to be on the world stage, or if it prefers
having one of its clients creating trouble for the U.S. and
Japan. At the very least Kim Jong-il has to know, and will
have to be told, that any use of nuclear weapons by his regime
or by anyone who can be traced to North Korea will result
in his government's annihilation. U.S. Assistant Secretary
of State Christopher Hill said the other day that North Korea
'can have a future or it can have these weapons.'
will be renewed calls for bilateral talks between Washington
and Pyongyang. This would be a mistake. Putting new money
on the table and pulling sanctions off would be seen by Pyongyang
and all others as a reward for defying the world and building
a bomb. The next 'development' will be another nuclear nation,
starting with Iran.
opened a Pandora's box. Closing it won't be easy. The effort
needs to be made to avoid the alternative: a new world disorder."
/ Times of London
has gone for broke. North Korea's claim to have conducted
its first nuclear test has yet to be fully verified. It is
still unclear whether the country is years, or perhaps only
months, away from developing a missile-delivered nuclear warhead.
But by declaring itself to be set on being a nuclear- armed
power, North Korea has gone past the point of brinkmanship,
leaving no shred of doubt about its intentions - and no room
for ambiguity in the international response.
new Japanese Prime Minister Shinzo Abe grimly observed yesterday,
Asia's most untrustworthy regime has launched the region into
'a new, dangerous nuclear age.' North Korea could not have
been more sternly warned that if it went ahead with the test,
it would find itself in a break-hold from which it could not
escape. The regime has escaped total isolation until now,
mainly because of the petulance of China, North Korea's economic
lifeline and ultimate protector, to admit to, or use, its
considerable economic and political leverage. But even China's
patience has been wearing thin. It pointedly declared at the
UN last week that 'no one is going to protect.bad behavior.'
To underline that message, Beijing told Pyongyang that it
might drop the 'automatic intervention' clause in the friendship
treaty that commits China to come to the regime's defense..
must be given fresh reasons for discontent. There will be
members of the elite whose stomach is turned by Korean suffering
and the crass Kim personality cult. China knows who these
leaders are. Beijing would balk at 'regime change,' but perhaps
not as edging out the Dear Leader in favor of pragmatists
ready to risk accommodation and cautious reform. Mr. Kim's
departure is the neatest way out of crisis. He may have hastened
the forced exit he is desperate to prevent."
/ New York Times
all agree: North Korea's government is too erratic, too brutal,
and too willing to sell what it has built to have a nuclear
bomb. There is also no military solution, not least because
intelligence experts haven't a clue where Pyongyang has hidden
its weapons labs or its stock of plutonium.
years of temporizing and denial, the world's leaders need
to figure out how to force this terrible genie back into the
bottle. It is a truism that no country that has tested a nuclear
weapon has ever been pressured or cajoled into giving it up.
But neither has any nuclear postulant been as vulnerable to
outside pressure and bribery as this regime.
administration seems to want to impose limited sanctions on
North Korea - and inspections of all cargo going into and
out of the country - until it agrees to abandon its entire
weapons program. We fear that won't be enough to quickly change
Pyongyang's mind - while key players like China won't sign
on to never-ending punishments..
the North Koreans are likely to back down only if China chokes
off their oil supply and other essential trade. Until now
Beijing has refused to use its enormous leverage, fearing
that too much pressure could topple the North Korean government
and unleash a mass of refugees over its border. When told
they were enabling their neighbor's nuclear ambitions, Chinese
diplomats blithely insisted that the North was likely bluffing
about having a weapon. Now, Washington, Tokyo, Moscow and
others have to make clear that China will be judged by its
willingness to confront this problem..
has indulged in its own denial and temporizing. Last year,
Secretary of State Condoleezza Rice dismissed the North's
declaration that it had nuclear weapons as a bid for attention.
'I do think the North Koreans have been, frankly, a little
bit disappointed that people are not jumping up and down and
running around with their hair on fire,' she told The Wall
then, United States policy has whipsawed between negotiations
and posturing, incentives and sanctions. It has been months
since negotiators even sat down at the table. Administration
hawks suggested last week that perhaps the best thing would
be for the North to test, so the world would know exactly
what it was dealing with. The hawks appear to have gotten
their way. So why don't we feel safer?"
/ Washington Post
Korea's objective in the aftermath of its reported nuclear
test will undoubtedly be to force its neighbors and the world
to accept it as an established nuclear power. India and Pakistan
succeeded in riding out sanctions and winning acceptance as
'strategic partners' of the United States after their bomb
tests. Kim Jong-il will try to repeat that history. Whether
he succeeds will depend, above all, on the outcome of what
we hope will be some serious rethinking by the governments
of South Korea and China.
Korea's neighbors, and not the United States, bear the burden
of the North's decision to proceed with what it said was a
nuclear explosion - the small yield raised questions yesterday
about whether the test could have been a flop or a fake. Beijing
and Seoul have propped up Mr. Kim's despotic regime with heavy
subsidies of fuel and food, reasoning that keeping it alive
was better than a collapse that could flood their countries
with refugees. The underlying logic was that the North's nuclear
program was little more than a bargaining chip with the United
States and did not pose a genuine military threat.
countries have to recalculate now. Is an outlaw dictatorship
with nuclear weapons on the border really tolerable? Is the
possibility that Japan or Taiwan will respond by building
nuclear weapons less of a threat than a tide of refugees?
What poses a greater risk of war: the possible collapse of
the Kim regime, or an attempt by that regime to use its new
weapon either to extort concessions from the South or to achieve
its stated goal of conquering the whole Korean Peninsula?
Most important: If subsidies and bribes have failed to moderate
North Korean behavior over the past few years, is it reasonable
to bet that they will do so in the future?"
/ Washington Times
agreement, ultimatum, transgression, failure, threatened catastrophe.
Repeat. This, the all-too-familiar pattern of North Korean
diplomacy, has now permitted one of the world's most dangerous
regimes to declare that it has gone nuclear. Whether the test
deep in the mountainous northeast of the hermit kingdom was
successful is disputed. It may have been, it may not have
been. What is not disputed is this: Either now or at some
point in the foreseeable future, Pyongyang will be able to
threaten the United States and its allies, credibly, with
the world's most destructive weapons.
declaration to the world has many consequences. The first
is the emboldening of all seekers of nuclear weapons who have
been subjected to the same empty international - community
rhetoric as North Korea, which hereby flouts it all, without
much consequence. The international community's word - threats,
warnings, lines drawn in the sand - is now made to appear
in the eyes of Iranian mullahs, Syrian autocrats, terrorists
and others as a few dozen sternly worded letters utterly devoid
of consequence. The North Korean regime's negotiating postures
could only have taken clear account of this; they were designed
to stall and buy time until a weapon could be completed. Other
malefactors are undoubtedly taking note: 'Six- party talks'
and their equivalent are a ticket to the nuclear club.
must have consequences if they are to have meaning; ours clearly
did not. 'I will not wait on events, while dangers gather.
I will not stand by, as perils draw closer and closer,' President
Bush said in his famous 'Axis of Evil' address in 2002. 'The
United States of America will not permit the world's most
dangerous regimes to threaten us with the world's most destructive
weapons.' Imagine the conclusions our enemies draw when North
Korea openly flouts such promises..
mounted yesterday as to whether this apparent nuclear test
is the product of an internal policy struggle between dictator
Kim Jong-il and senior military leaders. Certainly it made
little strategic sense: North Korea's hand is now stripped
of its last worthwhile card short of direct military escalation.
the only positive that could conceivably emerge here would
be the opportunity, the strongest yet, for the affected nations
- the United States, Japan, South Korea, China, Russia, Taiwan
and surrounding countries - to speak as one. Sanctions must
go forward at the United Nations. China must stop playing
both sides. The evidence for tough action is indisputably
here, if only the world community would wake to it.
Wolfsthal, Op-Ed / Los Angeles Times
States must ensure that North Korea's leaders understand the
full force of our commitment to defend our Asian allies. President
Bush's statement that the United States will hold North Korea
accountable for its actions is a good first step. However,
it took the United States years of face-to-face talks with
the Soviet Union and China to work out a stable relationship
based on mutual deterrence. Washington will have to find ways
to ensure that Pyongyang does not overreach or miscalculate
with its nuclear capability.
distasteful the Bush administration finds direct talks with
North Korea, the president should nonetheless dispatch a personal
envoy to Pyongyang with a clear message: Any attempt to use
its nuclear arsenal offensively will bring immediate, disastrous
and possibly nuclear consequences. Further, Kim needs to understand
that any future North Korean missile tests that are not announced
or that are aimed at or over U.S., South Korean or Japanese
territory might warrant a U.S. nuclear response. That's because
it would be impossible for any American leader to be sure
that such 'tests' were not the first signs of a nuclear attack.
envoy would not be empowered to negotiate. The six- party
talks were moribund before and should be declared dead. The
envoy's job would be merely to deliver an unambiguous, sober
message about Pyongyang's new responsibilities. The Bush administration
will undoubtedly try to step up the economic and political
pressure on Pyongyang to disarm. But the naval blockade that
it is contemplating is unlikely to succeed either in forcing
North Korea to reverse course or in preventing it from exporting
its nuclear weapons should it choose to do so."
Frum, Op-Ed / New York Times
Korean nuclear test - if that indeed is what it was - signals
the catastrophic collapse of a dozen years of American policy.
Over that period, two of the world's most dangerous regimes,
Pakistan and North Korea, have developed nuclear weapons and
the missiles to launch them. Iran, arguably the most dangerous
of them all, will surely follow, unless some dramatic action
is soon taken.
alas, an iron law of modern diplomacy that the failure of
any diplomatic process only proves the need for more of the
process that has just failed. Thus those who have long supported
negotiating with North Korea are now calling for the Bush
administration to begin direct talks with the Kim Jong-il
regime. Sorry, but all this would accomplish would be to reward
an actual proliferator in order to preserve the illusion that
the world still has a meaningful nonproliferation regime.
even suggest, in worried tones, that the North Korean test
might provoke Japan to go nuclear, as if the worst possible
consequence of nuclear weapons in the hands of one of America's
direst enemies would be the acquisition of nuclear weapons
by one of America's best friends.
approach is needed. America has three key strategic goals
in the wake of the North Korean nuclear test. The first is
to enhance the security of those American allies most directly
threatened by North Korean nuclear weapons: Japan and South
is to exact a price from North Korea for its nuclear program
severe enough to frighten Iran and any other rogue regimes
considering following the North Korean path.
is to punish China. North Korea could not have completed its
bomb if China, which provides the country an immense amount
of food and energy aid, had strongly opposed it. Apparently,
Beijing sees some potential gain in the uncertainty that North
Korea's status brings. If China can engage in such conduct
cost-free, what will deter Russia from aiding the Iranian
nuclear program, or Pakistan someday aiding a Saudi or Egyptian
Bush's press conference the other day, I was waiting for a
reporter to ask the following.
why is it that after six years of your administration, China
(and Russia) continues to play the United States for chumps?"
As I go
to post, it does not appear likely that the UN Security Council
will approve tough sanctions on North Korea. Both China and
South Korea have different reasons for not cooperating with
the desires of both the United States and Japan on items such
as inspection of all cargo going in and out of the North.
While China and South Korea do both agree on mild sanctions,
China calls military action "unimaginable," even though the
U.S. is not advocating an attack, and Seoul doesn't want to
abandon its policy of engagement. As for Russia, it's just
backing China as the two jerk the U.S. around, similar to
the case of Iran, like two tag team titleholders.
comes to Pyongyang, however, there are many unanswered questions,
just given up on negotiations?" "Who are the generals behind
him?" "Has Kim told China the truth about his nuclear program
and its capabilities?"
President Bush there has been a lot of talk, such as that
above, about the administration's obvious failure in preventing
Kim from taking the step he did. But my opinion is the failure
is not as much about the lack of direct talks, though I would
go along with that, but rather the president's inability to
make any headway with Beijing. It's long time we played hardball,
but our leverage is severely limited these days.
is one winner thus far in the North Korean crisis, Japan's
new Prime Minister Shinzo Abe. Kim Jong-il's intransigence
has played into Abe's goals of a stronger military and more
patriotism at home.
after posting last Saturday's column, I learned of the assassination
of Russia's leading journalist and Putin critic, Anna Politkovskaya.
Politkovskaya had been most involved over the past few years
in exposing torture and abuse by Russian authorities in Chechnya
and she was about to produce further evidence, including videos;
snippets of which were then released following her death by
the paper she worked for.
President Mikhail Gorbachev called the killing "a savage crime
(and) a blow to the entire democratic, independent press.
It is a grave crime against the country, all of us."
immediately turned to President Vladimir Putin, as well as
his handpicked prime minister in Chechnya, Ramon Kadyrov.
Putin was initially silent, then he termed the murder "tragic"
and vowed to pursue the killers.
later inferred that he was the one most damaged by Politkovskaya's
death and that those wishing a Ukraine-style "Orange Revolution"
had ordered her killing in order to advance their cause. Politkovskaya's
supporters were outraged.
Op-Ed / Washington Post
if this murder follows the usual pattern in Russia, no suspect
will ever be found and no assassin will ever come to trial.
But in the longer term, the criminal investigation isn't what
matters most. After all, whoever pulled the trigger - or paid
someone to pay someone to pull the trigger - has already won
a major victory. As Russian (and Eastern European) history
well demonstrates, it isn't always necessary to kill millions
of people to frighten all the others: A few choice assassinations,
in the right time and place, usually suffice. Since the arrest
of oil magnate Mikhail Khodorkovsky in 2003, no other Russian
oligarchs have attempted even to sound politically independent.
After the assassination of Politkovskaya on Saturday, it's
hard to imagine many Russian journalists following in her
footsteps to Grozny, either.
are jitters already: A few hours after news of Politkovskaya's
death became public, a worried friend sent me a link to an
eerie Russian Web site that displays photographs of 'enemies
of the people' - all Russian journalists and human rights
activists, some quite well known. Above the pictures is each
person's birth date and a blank space where, it is implied,
the dates of their deaths will soon be marked. That sort of
thing will make many, and probably most, Russians think twice
before criticizing the Kremlin about anything."
Kasparov, Op-Ed / Wall Street Journal
brutal episode cannot be taken outside the context of recent
events in Russia. The forces in control here are facing an
impending crisis and fault lines are beginning to appear in
the Kremlin's vertical power structure. The authoritarian
structure that Mr. Putin has built in Russia has been very
profitable for his circle of friends and supporters. Income
is siphoned off from every region of the country. Business
and politics have been combined into a streamlined process
for bleeding the nation dry. Now, however, Mr. Putin and his
associates are approaching a dilemma. The president's term
of office ends in 2008 and this efficient machine is threatening
to explode. Should Mr. Putin stay or should he go?
that will surely occur if Mr. Putin leaves office is relatively
easy to understand. Any mafia-like structure is based on the
authority of the top man. If he leaves, or appears weak, there
is a bloody scramble for his position. Whoever wins that battle
must then eliminate the others to consolidate his grip, so
the fighting is fierce. Perhaps only 10 percent of the combatants
will pay in blood or incarceration and ruin, but nobody knows
who will be in that 10 percent.
that dangerous uncertainty, some of Mr. Putin's closest lieutenants
are dedicated to making sure the top man stays right where
he is. The problem with this plan is that Mr. Putin is constitutionally
prevented from staying in office beyond the end of his term
in 2008. The main obstacle is not the Constitution, which
can be easily adjusted to the Kremlin's requirements; the
obstacle is that, after he has made so many statements about
his intent to step down in 2008, Mr. Putin would lose almost
all his legitimacy in the West if he exercised this option.
Of course, his regime has never shown concern for the voices
of America and Europe, and feeble indeed those voices have
been. But the money his associates have become so adept at
squeezing from Russian assets resides almost entirely in Western
banks. If the Russian government loses its veneer of legitimacy,
these accounts could begin to receive an unpleasant amount
can the ruling elite do to avoid both the chaos of succession
and the loss of easy relations with Europe and the U.S.? The
answer is becoming clearer every day if you read the headlines
and look at the big picture. The Kremlin is exaggerating and
fabricating one crisis after another, all combining to create
an image of imminent peril. Those who believe they have burned
every bridge and cannot afford to see Mr. Putin step down
are trying to build a case that he is the only alternative
all along that Putin will still be in power come 2009.
I was writing of the standoff between Russia and Georgia and
the Kremlin's ongoing threats. Since then over 130 Georgians
in Moscow were deported and authorities demanded schools provide
them with lists of students with Georgian- sounding last names
so the papers of their parents could be checked out. Putin
has been drumming up anti-Georgia hysteria and the West has
President Mikhail Saakashvili noted in a Journal op-ed:
question confronting the international community is this:
is Moscow reacting to a specific, unique threat it perceives
from Georgia? Or is Georgia a target of opportunity, a chimerical
foil created by some politicians for domestic purposes? Put
another way, does the malignancy reside in Georgia, or Russia?
A misdiagnosis could have dire consequences for Western security.
Because if the international community downplays the current
rift - or worse, if it pressures Georgia to back down on all
counts, shunting aside its hard- earned principles and values
- then the problem will simply metastasize to another place.
vital place in the international order is secure. It is a
veto-wielding member of the UN Security Council. Its natural
resources fuel the European and global economy. It owns a
fierce nuclear force. No one, let alone Georgia, should ever
call for isolating Russia in the manner of a North Korea or
Zimbabwe. At the same time, however, we must not turn a blind
eye to what is happening to human rights and the norms of
reading a Washington Post story on negotiations taking place
at the UN concerning North Korea, when I spot this disturbing
Council) diplomats said Russia softened its opposition (to
sanctions) after (Sec. of State) Rice agreed in a phone conversation
with Foreign Minister Sergei Lavrov to drop U.S. opposition
to a Russian-backed resolution criticizing its neighbor Georgia,
which recently detained seven Russian soldiers who were accused
you go; the White House selling out its friend, Georgia.
Putin and his KGB buddies continue to build up their own OPEC
on the oil and gas front. In what was described as a "shocking"
move, natural gas monopoly Gazprom rejected all five foreign
bidders who sought to participate in the development of the
giant Shtokman gas field and would use foreign companies as
contractors only, not partners.
the gas is to be sent mostly to Europe, rather than being
shipped as liquefied natural gas to the United States as originally
CEO Alexei Miller said the export switch was "an additional
reliability guarantee for the long-term supply of Russian
gas to Europe and proof that the European market is the most
important for the company," adding, "The foreign companies
were unable to provide the assets that would correspond, by
the size and quality, to the reserves of the Shtokman field."
[Moscow Times] What a crock.
bidders were the United States' Chevron and ConocoPhillips,
Norway's Statoil and Norsk Hydro, and France's Total.
not just a blow to the U.S. and its energy needs, but of course
this helps put the screws to Europe as Russia, barrel by barrel,
pipeline by pipeline, gains the ability to totally control
the Continent's energy supply and play around with the valves
when the Kremlin's interests are being threatened. Remember
the G-8 summit in St. Petersburg and the agenda item of energy
security? This is just another huge step backwards.
can happen? Try an Iraqi police brigade having their food
poisoned (there were fatalities), a vice president had a third
sibling gunned down, Britain's head of the Army, General Sir
Richard Dannatt, directly contradicted his prime minister
in urging his country's troops be withdrawn, the staff of
a fledgling television station was massacred, scores more
were mutilated, and ethnic cleansing is taking place on a
Army officer Ralph Peters has been as rabid a supporter of
the war as you'll find, and for the most part my own opinion
has dovetailed his. Here are some of his latest thoughts,
however, from his column in the New York Post.
26 American troops dead in Iraq in the first nine days of
October, the combination of bad news and pre-election politics
has those on one bench arguing for bailing out immediately
and those on the other bench frantic to pile on.
position is realistic. We're not going to pull out of Iraq
overnight - no matter what happens in November. The 'bring
the troops home now' voices always blended arch political
cynicism with willful naivete - it's always been about Bush,
in Baghdad requires a new sense of reality. 'Stay the course'
is meaningless when you don't have a course - and the truth
is that the administration still has no strategy, just a jumble
of programs, slogans and jittery improvisations.
and Marine Corps urgently need increases in personnel strength.
They've been stripped to the strategic and tactical bone.
We need more boots. But not on the ground in Iraq.
more troops wouldn't help and can't be done. It's too late.
We've reached the point where Iraqis must fight for their
own future. If they won't, nothing we can do will bring success.
column stressed months ago, the test for whether we should
remain in Iraq is straightforward: Will Iraqis fight in decisive
numbers for their own elected, constitutional government?
The insurgents, militiamen and foreign terrorists are willing
to die for their causes. If 'our' Iraqis won't match that
strength of will, Iraq will fail.
leaders stop squabbling and lead, and if Iraq's soldiers and
police fight resolutely for their constitutional state, we
should be willing to stay 'as long as it takes.' But if they
continue to wallow in ethnic and religious partisanship while
doing as little as possible for their own country, we need
to leave and let them face the consequences.
them one more year. And that's it..
clich? ran that the saddest words in the English language
are 'if only.' Well, if only Secretary Rumsfeld had permitted
detailed planning for an occupation, sent enough troops when
it would've made a difference, allowed our commanders to enforce
the rule of law when they reached Baghdad.and so on, for a
hundred other pigheaded mistakes.
you face the future with the Iraq you've got, not the Iraq
you'd like to have. We owe the Iraqis one last chance, and
it's up to them to take it.
more U.S. troops. Make the Iraqis fight for their own country.
If they won't, we need to accept that a noble endeavor failed.
get the government they earn. Those of us who believed that
the situation in the Middle East required desperate measures
may have to accept that the cynics were right when they insisted
that Arabs can't govern themselves democratically. What if
it doesn't take a village? What if it takes a Saddam?
does fail, the cold truth is that the United States will do
fine. We'll honor our dead, salve the wounds to our vanity
and march on stronger than ever (with the world's most powerful
and most experienced military). But the Middle East will have
revealed itself as hopeless."
Ralph Peters' Cronkite moment, you might say. I agree with
much of the above, sadly, even as Peters has been far too
easy on President Bush for his own culpability since the beginning.
But today, as Newsweek's Fareed Zakaria wrote, Mr. Zakaria
having been another supporter of the war, the goal is to "limit
the deal. If there had been just one Category 3 hurricane
in the Gulf of Mexico and/or if the Western world had put
Iran's back up against the wall when it snubbed its nose at
the UN Security Council, we wouldn't be talking about Dow
12000.it's just that simple.
and the global economy, caught a huge break the past few months
in falling oil and gas prices and it's obvious consumers have
been taking advantage of the extra cash.
the significant slowdown in real estate, the spillover effect
has not as yet impacted employment on a broad scale. Some
of us think that day is still coming, but it isn't here yet.
not to like? Stocks aren't excessively valued if you believe
earnings growth will continue, the Federal Reserve may hold
the line, if not lower interest rates, and most folks have
simply chosen to ignore the implications of a nuclear-armed
North Korea and soon to be Iran. We've already seen for three
plus years now how the war in Iraq has had zero impact on
share prices, even if it will at the polls in a few weeks'
now know from past experience that when it comes to the terror
front, only something huge and catastrophic is likely to shock
world markets, and that's a good thing. The evil ones have
to come up with something better than bombing a few trains
or resorts (as insensitive as that might sound) before breaking
the backs of those of us who choose to go on with our lives.
You couldn't have made this statement just two years ago,
but the world is growing up in some respects and for their
part the terrorists know it; which makes their quest for weapons
of mass destruction and dirty bombs all the more urgent.
always be extra cautious, as long-time readers have learned,
not in how I lead my life and where I go, but in the threats
that could at a moment's notice derail the Clueless Express
we sometimes all climb aboard.
though, enjoy the fact North Korea appears to have a ways
to go on the nuclear weapons front and that Iran as an issue
is more often than not buried on page A16, even though it
is more of a threat today than it was just a few months ago
when it dominated the headlines. These respites are to be
cherished, especially if you're nimble enough to get out at
not that good. I'll pick my spots for aggressive, single company
bets, while continuing to keep most of my assets in cash.
I'll largely miss the occasional bull run, that I'll admit,
but I'll probably sleep a little better..except I already
told you I can't help but keep one eye open. You understand.
the economic news of the week, third quarter earnings trickled
in (the deluge begins next week), and with few exceptions
such as Alcoa's they were largely positive. The likes of Costco
and McDonald's provided the impetus, which isn't all bad,
but at the same time you had General Electric, barometer for
world economic health, issue a so-so report. In other words,
we're not going to hell in a handbasket but the economy is
slowing down nonetheless.
Reserve issued its minutes from the September meeting and
they showed that members are still concerned about inflation,
but reiterate that the slowing economy should help in this
regard. More than a few Fed officials have actually issued
fairly hawkish comments on price pressures, so the Street
can't really count on any cuts in the funds rate the rest
of the year.
our favorite topic of real estate, the Fed's survey of regional
economic activity (the Beige Book) is painting a gloomier
picture with each update; this time finally acknowledging
sales continue to plummet; off 28 percent in Southern California
(35 percent in San Diego County alone) and similar evidence
is emerging in once white-hot markets.
Josh P. and I were musing, two other things are happening.
First, you may see inventory levels actually decline in some
regions, as is the case in parts of Southern California, simply
because folks are taking their homes off the market after
having to cut the price so precipitously and still having
no response. Those looking for a quick rebound, however, will
be sadly mistaken.
it's just taking a while for the housing slump to play into
consumer sentiment. As I've been writing, oil trumps housing,
at least for now.
on a different topic, former Federal Reserve Chairman Paul
Volcker wrote an op-ed in last Saturday's Wall Street Journal
warning of the dark implications behind the September assassination
of Russian central banker Andrei Koslov. The murder, Volcker
says, "defines the battle lines for all of us. It's a battle
that all those supporting economic development and the rule
of law cannot afford to lose. And, appropriately, it is international
institutions that are placed front and center in that battle."
then comments on one of my favorite topics, corruption.
it is now generally recognized and accepted that corruption
is an obstacle - and in some countries the major obstacle
- to effective economic development...
to deal with corruption undercuts development. It will limit,
and likely will more than offset, any value added in new lending.
that's easy to say. Much more difficult is what can be effectively
done in combating corruption. The key to dealing with corruption
is leadership - leadership at the multilateral institutions,
but also in lending countries, in borrowing countries, in
private companies and in nongovernmental organizations. A
consistent message really needs to come from the top..
starting point might be to take a leaf from Nancy Reagan,
with her old anti-drug slogan: 'Just Say No.' After all, corruption
is a kind of addictive drug..
is that the corruption problem may be getting worse. Whether
or not that is the case, it plainly needs priority attention."
On a related
topic, ethics, this week Berkshire Hathaway Chairman Warren
Buffett ordered his top managers to redouble their efforts
to crack down on unethical behavior.
saying that some "bad behavior" is inevitable, Buffett wrote
in a memo "we can have a huge effect in minimizing such activities
by jumping on anything immediately when there is the slightest
odor of impropriety.Berkshire's reputation is in your hands."
added, in reference to the stock options backdating scandal,
"The five most dangerous words in business may be 'everybody
else is doing it.'" Buffett's thoughts should bolster the
case of federal regulators investigating the options mess.
this week executives from at least five companies resigned
over their roles in backdating options, including CEOs at
two tech outfits, McAfee and CNET. Even long-time defenders
such as the Journal's Holman Jenkins Jr. are beginning to
been about fraud, pure and simple. If you fail to disclose
material news that means investors are making decisions on
fraudulent information. There is no defending that. Throw
in the fact that in many cases companies weren't paying proper
taxes and you can see why so many of these characters deserve
to be in prison.or they flee to Namibia, as we've found, in
an attempt to avoid it.
Jenkins, he had these thoughts on Apple's Steve Jobs.
mea culpa on backdating last week was eloquently incomplete,
and all the more intriguing because the gaps seemed almost
Socratically mapped to invite the media to fill in the holes
by asking obvious questions. The big joke here is that the
logic of the witch hunt will stop the media from asking the
obvious questions, not least because CEO Steve Jobs is a hero
to much of the press and there's little appetite for bringing
misunderstand. We believe it would be a gross injustice if
he were defenestrated over backdating, just as we have serious
doubts about the prosecutions launched against other backdating
CEOs. And Apple's likely purpose in issuing its statement,
naturally, was not lexical comprehensiveness but saving Mr.
what Apple said: 'In a few instances, Apple CEO Steve Jobs
was aware that favorable grant dates had been selected, but
he did not receive or otherwise benefit from these grants
and was unaware of the accounting implications.'"
goes on to defend backdating again, as he has ever since it
became an issue, but then he adds:
Jobs is not an accountant, but Apple's claim that he didn't
understand the accounting implications of backdating should
test our credulity for an obvious reason: Then why not just
issue 'in the money' options? Why adopt the baroque artifice
of selecting a past date when the share price was lower?....
simply saying he didn't understand that backdating was an
improper way of making sure these options received the accounting
treatment prescribed for 'at the money' options? If so, his
defense is the likely defense of several CEOs already in the
dock. Luckily for him, we have signals from prosecutors that
they intend to focus on 'egregious' cases - read 'small companies
without celebrity CEOs.'"
Thomas G. Donlan weighed in on the topic.
an even better example of shareholders' concern - or lack
of it - can be found at Apple Computer, where the stock has
risen nearly 40 percent since falling 6 percent on news that
it was investigating backdating of options. Apple investors
should be leery of anything that could implicate CEO Steve
Jobs, but it appears that corporate results count for more
than options shenanigans.
of stock options is to align managers' interests with those
of the shareholders. The more the managers want to see the
stock go up, the harder they will work to make it so, the
more the stock will go up and the happier the shareholders
has shown several weaknesses in this proposition:
prices don't go up only because executives work hard. They
can go up because the CEO and his close associates fiddle
with the books. They can go up because there's a temporary
bullish mania in the broader market, or a bullish enthusiasm
for a particular industry. Worst of all, stocks can go down.
If the theory is that executives work harder in order to make
millions of dollars in the stock market, how hard will they
work if their stock options are underwater? The answer includes
backdating, repricing and other mechanical adjustments, disclosed
executives will keep working hard, but only to float their
the above discussion is also but one reason why President
Bush has trouble getting credit for the economy these days.
'How's that?' I'm sure you're musing.
the issue of excessive executive pay and the stupendous gap
between those at the top of our largest corporations and the
Street Journal had a piece this week on soaring compensation
and decades of failed restraints. Here are just two factoids.
1936 State of the Union address, President Franklin D. Roosevelt
railed against 'entrenched greed' at American corporations.
At the time, the average compensation for the top executive
of a big company was about $95,000, according to MIT's Ms.
Frydman, equivalent to $1.4 million in today's dollars."
the average CEO's pay is 369 times as much as the average
earned by a worker last year, compared with 131 times in 1993
and 36 times in 1976. Throw in the fact that the average worker's
paycheck has barely kept pace with inflation (even as healthcare
and other costs skyrocket) and you have a problem; one that
as a society we're going to have to work on, through moral
suasion as well as the tax code. Don't worry, my fellow capitalists;
regarding this last bit it's about closing some stock option
loopholes that have helped lead to the abuse.
three-week winning streak has resulted in one record for the
Dow Jones after another; Friday's closing figure of 11960
being the new benchmark. Nasdaq had another outstanding stretch,
up 2.5 percent to 2357, while the year to date returns across
the board are certainly nothing to sneeze at, as noted below.
5.13% 2-yr. 4.86% 10-yr. 4.80% 30-yr. 4.93%
week for bonds as traders chose to focus on statements from
the inflation hawks at the Fed, as well as strong retail sales
for September, up 0.8 percent when you strip out autos and
gasoline sales. Ergo, further evidence the Fed isn't likely
to ease anytime soon.
U.S. reported a record trade deficit for August, $69.9 billion.
As they used to say on 'Hee Haw,' "Saa-luuute!" Then again,
it really isn't much to be proud of, I guess, and on the other
side of the world, China's trade surplus for the first nine
months of the year is already larger than all of last year.
Exports in September were up 31 percent ($91.5 billion) and
imports rose 22 percent ($76 billion), so about $15.5 billion
to the black. The surplus with the U.S. for the month of August,
incidentally, was $22 billion. [Notice how China is also a
month ahead of us.]
Bush administration did have legitimate cause to crow this
week as the budget deficit for fiscal 2006 (ending 9/30) was
just $248 billion, or only 1.9 percent of GDP, to use a common
measurement. The biggest reason is corporate tax receipts
rose 27 percent, but as I noted recently those complaining
about Big Oil and its profits should understand the vast majority
of the pick-up in corporate taxes is a result of those paid
by the oil companies.
National Weather Service is calling for a mild winter (tell
that to the residents of Buffalo!), with those using natural
gas to heat their homes possibly seeing bills 13 percent lower
than last year.
oil front, OPEC is still attempting to reach consensus on
a production cut, while it's laughable that President Bush
is claiming credit for the slide in prices at the pump.
blow to Big Oil, Indonesia announced it was terminating an
agreement with Exxon Mobil to develop a natural gas field
and instead sought a new one with better terms for Jakarta.
Exxon says the old deal should stand, while all foreign investors
in Indonesia's considerable natural resources will think twice
before plunging in unless contracts are honored.
is talking about Google's acquisition of YouTube for $1.65
billion. Who the heck knows if this is a good price? Steve
Ballmer, CEO of Microsoft, said "If you believe it's the future
of television, it's clearly worth $1.6 billion. If you believe
something else, you could write down maybe it's not worth
much at all." Certainly Google now faces significant copyright
issues, but one thing is for sure; 20-something co-founders
Chad Hurley and Steve Chen are now worth an estimated $250
prices are at 10-year highs as fears build over the global
drought and stockpiles that are at 25-year lows. The wheat
harvest in Australia, for example, is expected to be down
almost 60 percent this year and if the drought continues in
producer nations in 2007, there could be rationing. Corn futures
have also been rising on both reduced crop estimates and the
growing share going towards ethanol, which is expected to
account for about 35 percent of next year's supply in the
big move, Bank of America is offering free online trading
for accounts with as little as $25,000 in deposit. Shares
in competitors such as Ameritrade and Charles Schwab were
hit hard on the news as it's the dollar threshold that really
shakes things up. Schwab, for example, is at $9.95 per trade,
but you need household assets of $1 million to qualify. BofA
in turn is looking to leverage its 5,700 branches and suck
up more business in mortgages, CDs and other lines. To me
it's a brilliant move, but as I told my rep at Schwab the
day the news hit (I have my account there these days), it's
also still about service.
Even though they were Jan. '08 puts, I jettisoned my financial
services / mortgage originator play, taking a small loss.
Analysts have been consistently downgrading the company due
to its housing exposure, but the stock wasn't responding the
way I wanted it to. I also sold another underperformer (a
small position) and I'm close to the 80 percent cash, 20 percent
stocks that I have been predicting would beat the market all
year. [I'm still only about five percent behind the S&P, in
about hype. Virtually every newspaper I read on Friday had
a story on Coca-Cola's new Enviga tea-based drink that claims
to burn calories; 60 to 100 if you drink 3 cans a day. Geezuz,
just take a walk now and then.
Air Lines announced it was expanding its international service,
including direct flights to Bucharest, Romania.... ......I
was there first!
part II: Just a further note on British General Dannatt, who
backtracked furiously on Friday after the following comments
from an interview were published.
said the continuing presence in Iraq of 7,200 British troops
was "exacerbating the security problems" and they should come
in a Muslim country and Muslims' views of foreigners in their
country are quite clear. As a foreigner you can be welcomed
by being invited in a country but we weren't invited, certainly
by those in Iraq at the time. The military campaign we fought
in 2003 effectively kicked the door in..
say that the difficulties we are experiencing around the world
are caused by our presence in Iraq but undoubtedly our presence
in Iraq exacerbates them."
made it clear the planning for the post-war phase was "poor,
probably based more on optimism than sound planning," adding,
"The original intention was that we put in place a liberal
democracy that was an exemplar for the region, was pro-West
and might have a beneficial effect on the balance within the
Middle East. That was the hope, whether that was a sensible
or na?ve hope, history will judge." [Daily Mail / The Times
the general's comments directly contradict the argument made
by both his boss, Tony Blair, and President Bush.
Sir Richard weighed in on the state of affairs back home,
saying the failure to support Christian values in Britain
"was allowing a predatory Islamic vision to take hold," as
reported by The Times.
I see the Islamist threat in this country I hope it doesn't
make undue progress because there is a moral and spiritual
vacuum in this country."
from an editorial in The Times concerning Jack Straw's efforts
to have Muslim women remove their veils.
worries about the veil being a 'visible statement of separation
and difference.' This understates the matter. There are numerous
modes of attire - religious and secular from priests to punks
- that indicate separation or difference. What is unique about
the veil is that it precludes a basic form of human contact
in a way which the Sikh turban or the Buddhist robe or the
Christian Cross do not do. There is a subtle but crucial distinction
between separation and isolation. It would plainly be inappropriate
to legislate in this area. It would be even more mistaken
to pretend that the veil is simply another item of clothing
when lifting it might let in light."
You can forget about this country entering the European Union,
despite anything you hear to the contrary. Relations between
France and Turkey have been irreparably harmed by a French
parliament decision to approve a bill that makes it a crime
to deny that the 1915-17 massacres of Armenians at the hands
of Ottoman Turks constituted genocide. Turkey's parliamentary
speaker called the decision "shameful." Opposition in France
to Turkey's EU application is stiff, while Turkey, which itself
has seen falling support for the EU among its own people,
has threatened economic reprisals.
The Central Committee established at a meeting this week that
it needs to address the growing gap between rich and poor
which is resulting in rising internal strife. It's easy to
forget the Beijing Olympics are now just two years away. Unrest
in the major cities and pollution in the staging area are
the major concerns as the Commies gear up for their big opportunity
to showcase the China Miracle. Meanwhile, in Taiwan, protests
against President Chen Shui-bian continue amid the corruption
scandal here, though an effort by parliament to oust him failed.
Prime Minister John Howard has been a rock of support for
the Bush administration and he's vowed to keep his country's
1,300 troops in Iraq, even though the people are against it
by a 59-36 margin. The comments from the British general may
complicate matters further, however.
Two German journalists, working on a documentary, were killed
and there were a score of suicide attacks this week.
In an interview with the Wall Street Journal, Prime Minister
Fouad Siniora said resolution of the Shebaa Farms issue remains
the first requirement for any permanent peace deal. Just as
I wrote before the war, Siniora wants to deny Hizbullah a
reason for pursuing its campaign of armed resistance.
So I'm reading the Santiago Times and I see a note that Bolivia
is in the process of building 24 military bases, paid for
by Venezuela and Hugo Chavez, on its borders with Peru, Brazil,
Paraguay, Argentina and Chile as a way of promoting Bolivian-
style revolution. Isn't that super? It certainly has Chile's
attention. Now what other conclusion can you draw by this
news if you believe the theory I've been throwing out the
past few months? Iran could eventually have advisors at the
the men and women of our armed forces.
for the week 10/9-10/13
S&P 500 +1.2% 
S&P MidCap +2.7%
Russell 2000 +3.1%
Nasdaq +2.5% 
for the period 1/1/06-10/13/06
S&P 500 +9.4%
S&P MidCap +6.3%
Russell 2000 +13.3%
Bears 30.4 [Source: Chartcraft / Investors Intelligence.55-60
in the bull camp is normally the sign of at least an intermediate
top, though the readings can persist for some time.]
three weeks I'll be coming to you from Tucson, Scottsbluff,
Nebraska, and the Black Hills of South Dakota as I drive a
few thousand miles around America. I'll be the guy wearing
a Wake Forest hat.
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