Week in Review 
For the week 12/15/2008 - 12/19/2008
Brian Trumbore
President/Editor, StocksandNews.com

Bah Humbug
 
I love the way everyone keeps trying to pick the bottom, whether it is in the equity markets or the economy. Let me simplify things for you.  

There isn’t one macro indicator…not one…that is exhibiting anything of a positive nature, worldwide. Period. 

Manufacturing? Hardly. Real estate values? Don’t think so. Jobs? Yeah, right. Consumer and business confidence? Multi-decade lows across the board. 

Oh, I guess there are a few positives, like falling oil prices, but this is tempered by the fact that the prices are falling because of demand destruction brought on by the plunging macro environment. One can take solace in saving $20-$25 a week on gas, compared to just a few months ago, but that $1,000-$1,250 annual savings hardly compares to the fear you could lose your $50,000-$60,000 job, and possibly your house. 

And while falling interest rates are a plus if you want to purchase a new home or refinance, here again there are more than a few caveats; like do you still have positive equity? Do you have a job? If you’re buying a new place, can you come up with a 20% down payment that you weren’t required to do just two years ago? 

What if you are a retiree? You thought you were doing everything right, and kept a significant portion of your savings in equities because you were told that you live a lot longer than your parents did and stocks provide you with some upside to the portfolio while using the fixed income portion for your everyday needs (along with Social Security). But then stocks go down 40%-50%, and the interest rate on your Treasury bond and/or money market position has fallen to 2% or less, like zero. If you have a dart board, I’m sure you’ve got Ben Bernanke’s picture on it. Thanks for nothing, Mr. Chairman. 

So, no…there is zero reason to turn positive when all Big Picture items are still trending down. When will I become more optimistic? When anything, like, say, business confidence in Germany or France ticks up two months in a row, or we have more than one month of improving news on the state of manufacturing in China, or maybe it’s Barack Obama and the stimulus plan, but we await details on this one. That’s what I’m looking for. Until then, however, this is such a different time for the world that old school narratives such as stocks anticipating a recovery six months before the actual economy turns up don’t fly with me. And I maintain, as I’ve been writing for the past two months, that we can’t begin to know anything of a truly positive nature until mid-February at the earliest, even if our new president wows us on Jan. 20. 

Noted economist Martin Feldstein, one of those who officially decided we formally entered recession in December 2007, said this week on CNBC that we are in the midst of a “very long and very damaging downturn.” PIMCO’s Mohamed El-Erian said “the numbers are frightening around the world.” 

Singapore’s exports, for example, tumbled a whopping 17.5% in November, while deflation has become a watchword, such as in the United States and China.  

Speaking of China, as it celebrated the 30th anniversary of the economic reforms initiated by Deng Xiaoping, there were heightened fears of massive unrest as the mainland’s economy falls off a cliff as fast as anywhere else in the world. The state is worried about hordes of unemployed, such as migrants who have lost their jobs and can’t return to their rural villages, or new college graduates unable to find work. And with prices tumbling, including for real estate, the chairman of the China Banking Regulatory Commission told a forum the economy was “very likely to slide into deflation mode.” 

Deflation was certainly on the mind of the Federal Reserve as it slashed the target funds rate to 0.00%-0.25%. We never thought we’d be like Japan in the 1990s, but we’re basically there. [For its part, Japan lowered its key rate to 0.10% from 0.30%.] 

Ben Bernanke and Co. in their accompanying statement said the Fed would use “all available tools” to combat the crisis and “preserve price stability.”  When it says all available tools, it means just that, including its statement that it is evaluating the benefits of purchasing “longer-term Treasuries.” Earlier, the Fed had said it would purchase $600 billion of mortgage-backed securities and it’s barely begun doing so, though the market has already priced this significant event in. 

Yes, the Fed is prepared to do everything to get the economy moving again and to combat deflation. Recall, all year I’ve said inflation is not an issue but so many have wasted their breath on this one. “But what about all the money flooding the system,” they cry. Spare me, I wrote. We’ll have time to deal with this at the appropriate moment, but when you have a consumer price index that falls a record 1.7% for the month of November, I think we have a problem of a different sort on our hands. 

I mean remember earlier in the year, even though we’ve since learned we were in recession, when some were talking about inevitable wage pressures? Try wage cuts these days, as in FedEx’s announcement it was slashing salaries, except among hourly workers. That’s reducing them…not raising ‘em, folks. That’s deflation. 

As is what’s happening in retail this putrid holiday shopping season. I can’t imagine what the bargains will be like by February in the malls. I’m actually getting kind of excited. 

But there are some other specific issues that were front and center this week, like energy.

Oil traded down to the $34 level on the expiring contract. [A new one now takes hold and will open around $42 on Monday.] In five months…$147 to $34…and this is after OPEC announced it was reducing production another 2.2 million barrels per day, on top of a previously announced 2mmbd cut. So you’d think prices would have rallied sharply, right? Wrong. It’s all about compliance among OPEC members, or in this instance lack thereof. All of these nations are desperate for every last dollar (or euro) and it’s each nation for itself. Plus non-OPEC Russia, Norway and Mexico said they wouldn’t help OPEC out. [Russia has issued conflicting statements but, trust me, they aren’t reducing production further when existing levels were already in decline due to lack of investment and depleting fields.] 

Yes, demand is crumbling around the world, including in China. Consider that back in January of this year, the U.S. Energy Dept. forecast that worldwide demand would be 89mmbd in 2009. Now that estimate has fallen to 85.3 and it’s undoubtedly headed lower still, even as projects of all kinds are shelved and existing wells shut in.  Peak Oil enthusiasts take note. Be patient. Our day will come again…just not yet. 

But one item is on my mind as much as any other these days and that’s Russia and its imploding economy. Industrial production fell a stupendous 8.7% in November. [Contrast this with our own decline of 0.6% for the same month.] Russia’s once mammoth foreign currency reserves are being bled dry and the Kremlin, similar to Beijing, is beside itself with fear over unrest, thus a growing crackdown as I spell out further below. 

The issue on the energy front, though, concerns the now annual tiff over natural gas and the key pipeline that traverses Ukraine into Western Europe. Once again, Ukraine and Russia can’t agree on a price, nor on the size of the debts Kiev owes to gas giant Gazprom. Ukraine paid off $800 million in arrears this week, said it would pay another $200 million shortly, but Gazprom (and the Kremlin...which is pulling the strings) said Ukraine owes another $2 billion just for November and December. 

For its part Ukraine has a real political and economic crisis, aside from the gas mess, and it’s setting up for a classic Russia-inspired coup, in the humble estimation of your editor. I mean talk about an economy that is tanking, Ukraine said its GDP for the month of November was off over 14%, and the GDP for the first quarter could decline another 10%. So watch this one the next ten days in particular. 

And then, globally, there’s the currency issue, one that threatens to take the place of protectionism in terms of a cause of Depression. Smoot-Hawley killed us in 1930, the currency markets could do the same in 2008-09. 

Thanks to the Fed’s moves, the dollar collapsed; it’s worst week in some 15 years.    More than half the gains in the greenback since the summer have been erased and as other currencies strengthen, it’s doing a number on their exports as they become more expensive.  

I have long argued that the dollar isn’t an issue, and way too much talk has been wasted on the topic. But today it’s a genuine concern.  

Recall, just about a month ago the developed nations, meeting in Washington after the election, issued a statement that said none of them would adopt trade policies that could be hurtful to the others. Cooperation was to be the order of the day. But now it’s everyone for themselves on the currency front as each nation attempts to protect its exports. Over time this could mean the United States has to push interest rates back up as the world demands a higher return to keep its dollars invested in the U.S. 

As for the auto industry and the Bush administration’s lifeline, it appears to be the best of a set of poor choices. It’s a short-term bailout of $13.4 billion for GM and Chrysler, with another $4 billion available in February. The two carmakers must reduce their debt by 2/3s, the UAW must become competitive with foreign competitors manufacturing autos in the U.S. from a compensation standpoint, and GM and Chrysler must prove their viability as ongoing businesses by March 31. [Ford is confident it can weather the storm and didn’t request any funding.] 

But there is no doubt the Obama administration will rewrite the plan upon taking power so this was a way for the Bushies to kick the problem down the road. With Chrysler idling all 30 North American plants for 30 days, though, and with some of these facilities never reopening again, you can’t help but wonder what the shape of the business will be come April. It’s not just GM, Chrysler and Ford with major issues; Honda, Toyota and Nissan have many of the same problems. This week Toyota said it was delaying a plant opening in Mississippi, while Honda’s president said “The environment is worsening day by day, and we see no sign of recovery.” 

Lastly, earlier in the week economist Martin Feldstein blasted Treasury Secretary Henry Paulson for constantly changing his mind on the TARP. Sure enough, once again Paulson did just that in allowing TARP funds to be used to bailout Detroit. I can’t wait for Jan. 20.  

Street Bytes 

--Stocks finished mixed for a second straight week as the pace of trading slowed ahead of the holidays. Activity should be minimal the next two weeks at least in terms of volume. The Dow Jones lost 0.6% to close at 8579, but the S&P 500, in advancing 0.9%, completed its first two-week winning streak since September. Nasdaq rose 1.5% to 1564. On Thursday, stocks lost ground when S&P issued a negative outlook for General Electric, saying its AAA rating was at risk over the coming years; not that we didn’t already know this. 

--U.S. Treasury Yields 

6-mo. 0.13% 2-yr. 0.73% 10-yr. 2.12% 30-yr. 2.55% 

Yes, these are all-time lows in yields, and a 30-year fixed mortgage with Fannie Mae is now at a record 5.19%, though given more normal spreads with Treasuries it should be closer to 4.00%. The Fed certainly hopes we get there. 

--Goldman Sachs reported its first quarterly loss, $2.3 billion, since the crash of 1929. [Some stories on this topic got it very wrong.] Goldman also slashed bonuses up to 80% (as revenue fell 39%), with the cash component capped at $400,000. 

But get this. With so many losses to offset income, Goldman is setting aside just $14 million to pay taxes for fiscal 2008. Last year it set aside $6 billion. It is figures such as these that point out the hurt the city and state of New York face. 

--Morgan Stanley lost a larger-than-expected $2.36 billion and cut its bonus pool in half. 

--Credit Suisse is giving its top executives shares in a new fund of toxic paper in a move intended to link pay to the long-term performance of credit markets, while limiting the bank’s exposure to the securities. But while the paper has been heavily marked down and could appreciate significantly over time (8-9 years under an agreement), you can imagine how ticked off bankers are that had nothing to do with the mess. 

--In Moscow, the number of homeowners falling behind on their mortgages sextupled in the first nine months of the year. I imagine through November it was at least eight times. And a leading bank said property prices could decline 60% in 2009. 

--Homebuilders continue to report putrid earnings (stiff losses), as Hovnanian’s revenues fell 48% in its fiscal fourth quarter and Lennar’s plunged 41% (55% for the full year). 

--HUD Secretary Steve Preston said the federal government’s effort to help struggling homeowners has been an abysmal failure and he blames Congress for placing absurd restrictions. Get this. “The three-year program was supposed to help 400,000 borrowers avoid foreclosure. But it has attracted only 312 applications since its October launch because it is too expensive and onerous for lenders and borrowers alike,” as reported by Dina ElBoghdady of the Washington Post. By contrast, the FDIC’s program launched on behalf of IndyMac Bank customers has modified more than 3,500 mortgages in two months of operation. 

--Thomas Friedman / New York Times 

“It is both eye-opening and depressing to look at our banking crisis from China. It is eye-opening because it is hard to avoid the conclusion that the U.S. and China are becoming two countries, one system. 

“How so? Easy, in the wake of our massive bank bailout, one can now look at China and America and say: 

“ ‘Well, China has a big state-owned banking sector, next to a private one, and America now has a big state-owned banking sector next to a private one. China has big state-owned industries, alongside private ones, and once Washington bails out Detroit, America will have a big state-owned industry next to private ones.’ 

“Yes, an exaggeration to be sure, but the truth is the differences are starting to blur. For two decades, a parade of U.S. officials came to China and lectured Beijing on the necessity of privatizing its banks, said Qu Hongbin, the chief economist for China at HSBC. ‘So, slowly we did that, and now, all of a sudden, we see everybody else nationalizing their banks.’ 

“It’s depressing because China in many ways feels more stable than America today, with a clearer strategy for working through this crisis. And while the two countries are looking more alike, they appear to be on very different historical trajectories. China went crazy in the 1970s, with its Cultural Revolution, and only after the death of Mao and the rise of Deng Xiaoping has it managed to right itself, gradually moving to a market economy. 

“But while capitalism has saved China, the end of communism seems to have slightly unhinged America. We lost our two biggest ideological competitors – Beijing and Moscow. Everyone needs a competitor. It keeps you disciplined. But once American capitalism no longer had to worry about communism, it seems to have gone crazy. Investment banks and hedge funds were leveraging themselves at crazy levels, paying themselves crazy salaries and, most of all, inventing financial instruments that completely disconnected the ultimate lenders from the original borrowers, and left no one accountable. ‘The collapse of communism pushed China to the center and [America] to the extreme,’ said Ben Simpfendorfer, chief China economist at Royal Bank of Scotland.” 

[Two positive events re the China/Taiwan relationship.  Direct commercial flights between the two commenced for the first time since the 1949 breakup, while China is agreeable to Taiwan's request for economic aid during the crisis, such as in lowering trade barriers.]

--In another sign of just how important the currency discussion has become, Honda Motor Co. said the carmaker may shift research and development out of Japan, as well as reduce domestic capacity “if the yen constantly trades below 90 yen against the dollar,” said President Takeo Fukui. Earlier Honda expected a half-year loss for the first time in at least 15 years. Fukui added, the government needs to take steps to halt the yen’s surge, because ‘it will hollow out’ the manufacturing industry in Japan. 

--Contrary to what we are being told ad nauseum, a survey for USA Today/Gallup revealed that 82% would at least consider an American auto brand; 67% would do so even if the company had filed for bankruptcy. 

--Uh oh. Electrolux is laying off 3,000 worldwide. This could be a problem if a salesman has just dumped dirt on your rug and then receives notice he is being laid off before he vacuums it up. [Or did they stop going door-to-door 40 years ago?] 

[Large layoffs were also announced by the likes of Bristol-Myers, Aetna and Caterpillar.] 

--Interesting story in the London Times on the integrity of the Nobel prize process. 

“Prosecutors (are) studying whether AstraZeneca, the London-based multi-national pharmaceutical company, could have exerted undue influence on the award. 

“The joint winner of this year’s Nobel Prize for Medicine, Harald zur Hausen, was recognized for his work on the human papilloma virus (HPV), which can lead to cervical cancer. AstraZeneca has a stake in two lucrative vaccines against the virus. 

“Two senior figures in the process that chose Mr. zur Hausen have strong links with the pharmaceutical company, which has also recently begun sponsoring the Nobel website and promotional subsidiary. The company strongly denies any wrongdoing.” 

There’s something rotten in Stockholm, sports fans. 

--Apple is abandoning its annual Macworld gathering after this January’s event, and investors shuddered on word the keynote address would not be given by Steve Jobs, reigniting speculation his health problems (cancer) have resurfaced. 

--Oracle reported its first year-on-year decline in new software sales since 2003. But the company can weather the global recession better than most due to recurring revenues. 

[A Goldman Sachs report has capital spending in the technology sector declining 4% in 2009, not good, while the software industry specifically could lose 5% of its workers in the first quarter.] 

--Panasonic launched a $9 billion takeover of Japanese rival Sanyo in a bid that the combination will be better able to compete in today’s lousy environment. It makes terrific sense to me. 

--Macy’s had some rare good news in re-negotiating its credit facility. Investors have been concerned Macy’s wouldn’t be able to pay off $950 million in debt maturing next year but its bankers changed certain covenants that put less pressure on the company to meet various cash flow targets. 

--General Electric said it would no longer provide quarterly and annual earnings guidance, even as it lowered profit projections for its industrial businesses. GE chairman Jeffrey Immelt had to lower earnings forecasts several times this year, in stark contrast to the micro-managing of eps during the Jack Welch era. 

--One of the most significant appointments by President-elect Obama is Steven Chu, a 1997 Nobel Prize winner in physics, to be the new energy secretary. Aside from Obama’s emphasis on developing “new forms of energy and new ways of using it,” as he puts it, Chu’s nomination sends a signal that Obama “values science,” something that has been sorely lacking the past eight years when forming public policy. Science must be part of any stimulus package; items such as support for research facilities and construction of same. 

--Hedge fund legend Kenneth Griffin of Citadel Investment Group is barring investors from withdrawing any money from two of the firm’s biggest funds, at least until March, as Citadel struggles with its pitiful performance. Total assets have fallen to $13 billion from $20 billion at the start of the year. 

--Yale University reported the value of its endowment had fallen 25% since June 30, as it’s heavily invested in illiquid securities, such as private-equity funds. The endowment supports 44% of the school’s $2.7 billion annual budget. 

--More sad news for the newspaper industry as The Detroit Free Press and The Detroit News confirmed reports they will have home delivery on only three days; Thursday, Friday and Sunday (which account for 82% of advertising revenues). The other four days, they will print out a pared down 32-page paper for newsstands.  

It is not an overstatement to say that as the newspaper business collapses, democracy is threatened. You can not have it without a free press and good investigative journalism. If you have any doubts, just look at Russia. 

--Revenue on the Las Vegas Strip fell for a 10th straight month in October, while in Atlantic City revenue dropped 8% in November and is down 7% for the year. 

--Federal regulators are adopting the most sweeping changes for the credit card industry in more than 30 years, including restrictions on interest rate hikes and late fees. What the card companies have been getting away with is criminal, but the new regs don’t take effect until July 2010. Among the changes, late fees could not be charged without giving consumers at least 21 days to make a payment.  

--Amidst all its other problems, bird flu has reemerged in China and massive culling in some areas has begun. 

--We note the passing of Charles M. Berger (1936-2008). From an obituary by Stephen Miller of the Journal: 

“In a TV commercial from the mid-1960s, Heinz Tomato Ketchup raced a ‘leading competitor’ to see which would flow from the bottle first. The announcer proclaimed Heinz ‘the ketchup that lost because it’s too thick and rich to run.’"

This first ketchup race was the brainchild of Berger, who was also involved in the success of Heinz’s Weight Watchers division. Berger once said, “A real brand owns a very tiny but important piece of real estate in a consumer’s mind. Heinz ketchup actually looks and tastes the way it did in 1890. In most cases, although you have to keep changing the product, the brand should be immortal.” 

Berger didn’t suffer fools gladly (a man after my own heart). 

“Facts are better than opinions,” he once wrote. “That doesn’t mean I don’t value your opinions. But their value goes way up in my mind when they’re backed up by facts – and especially quantifiable facts.” 

--Lastly, the Bernard Madoff debacle: 

This week, SEC Commission chairman Christopher Cox said “I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate (the) allegations or at any point to seek formal authority to pursue them.” No kidding. But we won’t have Christopher Cox to kick around anymore, even though some of his predecessors are more to blame than he in this instance. 

The bottom line is it may take up to six months before we have a true sense of the losses caused by Madoff’s Ponzi/pyramid scheme where new principal was paid out to old investors (on paper or through redemptions), and when redemption requests skyrocketed beginning in the summer, the gig was up for Bernie though he managed to hang on until the other day. 

SIPC, which can pay out as much as $500,000 to defrauded individuals, but may not be able to for literally years, is going through the books, two sets that Madoff maintained, and the agency said they are “in complete disarray.” 

Among the bigger losers are Banco Santander, the largest in Spain, the Royal Bank of Scotland, HSBC and Nomura, let alone high-profile figures such as Jeffrey Katzenberg, Stephen Spielberg, and Mort Zuckerman. But the biggest tragedy lies with those individuals who had their life savings with the dirtball and the Jewish charities that have now been forced to shut down. 

While details will be trickling out for months to come, one thing is clear; the feeder funds, the “funds of funds,” were prime culprits in that they directed $tens and $hundreds of millions (and in the case of some banks, $billions) into Madoff’s vehicle without doing the proper due diligence, the most obvious aspect being to look into Bernie’s little 3-man audit shop (the principal of which can not be found as I write). 

Some of the hedge funds/fund of funds, such as Tremont Group and Fairfield Greenwich Group, placed 100% of their assets in certain funds with Madoff. [For example, one of Tremont’s vehicles was all in, $3.3 billion of $5.8 billion total under management, while Fairfield had $7.5 billion of its $14 billion in total assets, and 100% of some funds, with Bernie.] These are the same shops that purport to do the due diligence to pick the best managers and levy fees on top of fees, though in the case of Madoff he didn’t charge a fee himself, instead, he made his money through his trading operation. 

One individual is really being singled out aside from Bernie, that being J. Ezra Merkin, chairman of GMAC and head of a $5 billion money management firm (now closed), $1.8 billion of which was the Ascot Fund that had all of its money with Madoff, including that of Zuckerman (10% of his overall charitable trust assets in this case) and Yeshiva University, where both Madoff and Merkin headed up the investment committee for the school’s endowment. 

It’s all sickening, and the tentacles range far and wide as will be increasingly clear. What’s worse, it could have been stopped long ago, and even those who were fortunate enough to get out before the scam collapsed, some with solid gains, may have to forfeit some or all of their money if it can be proved it was earned illegally. After all, anything over the actual investment was largely a fake paper profit. 

Foreign Affairs 

Israel: Benjamin Netanyahu, who is on track to become Israel’s new prime minister in February, warned that “a terribly dangerous threshold will be crossed” if Iran obtains nuclear weapons. Meeting with French President Nicolas Sarkozy, Netanyahu said, “We have never had a situation in the history of the world in which a radical regime with a retrograde ideology and apparently known ambitions on the use of force will get access to the weapons of mass death.” A French parliamentary report raised new warning signs about Iran’s progress on the weapons front. 

Meanwhile, Hamas said it would not extend a six-month truce with the Israelis. Violence has already resumed along the Gaza Strip and southern Israel and any serious escalation from here could represent yet another sticky issue for the incoming Obama administration. 

Iran: For years I urged President Bush to make an attempt to speak to students at Tehran University and, essentially, call President Ahmadinejad’s bluff and watch him look like an idiot when he says no to a Bush visit. [After all, Mahmoud has no problem addressing Americans when he’s in the U.S. for his UN visits.] My most recent call for such action was in the last WIR. 

This week the Wall Street Journal had an editorial on some videos that have emerged concerning recent protests that I alluded to 12/13, concluding: 

“Since the last student uprising was crushed six years ago, Iran has seen sporadic but growing resistance to the regime – most recently at the ‘Student Day’ rallies on December 6 that commemorate the 1953 killing of three demonstrators by the Shah’s army. The Shiraz student calls to mind the lone man, that ‘unknown rebel,’ who stood up to Chinese tanks during the Tiananmen protests. President-elect Obama says the U.S. should engage Iran. As one of our friends points out, ‘He has a choice: Engage with what Larijani represents, or engage with the generation of that student.” 

I rest my case. 

Iraq: The journalist who threw his shoes at President Bush apologized to Iraqi Prime Minister Maliki in asking for forgiveness. The fellow faces at least two years (and as much as 15) in prison for insulting a foreign leader.  

Ralph Peters / New York Post 

“On Sunday, President Bush ducked two shoes hurled toward him in Baghdad. But he never ducked his responsibilities in Iraq. 

“A great deal of justified criticism can be leveled at the Bush administration, but to his great – and enduring – credit, our president didn’t quit as mistakes made by his subordinates mounted and the prognosis in Iraq turned dire. 

“And the ‘shoe incident’ shows how the results vindicated his stubbornness. 

“When an Arab heel aimed those shoes at our president, it showed the world the extent to which Bush loosened the laces of Middle Eastern tyranny. 

“If an Arab journalist had thrown his shoes at Saddam Hussein or one of his guests, the tosser would’ve been beaten, then tortured, then killed. Today’s Iraqi government is considering whether the man should be charged under the state’s democratically validated Constitution. 

“Bush won…. 

“Other than Prime Minister Nouri al-Maliki, what Arab head of government holds free-wheeling press conferences? ‘President’ Mubarak of Egypt? Assad of Syria? The Saudi king? Qaddafi? If an Arab reporter had ‘shoed’ any other leading Arab ruler during one of their staged events, he would’ve been fortunate to escape with his life…. 

“Brothers and sisters, the world has changed since 2003. 

“Yes, Iraq could still fail. The Arab genius for failure is the region’s salient talent. But one Arab state has been given a chance to build something better than a nationwide prison – not perfect, but better. 

“And Iraq’s making tangible progress…. 

“For all of our errors in Iraq, we’ve done a selfless, honorable thing. 

“Bush deserved better than the indignity of having shoes flipped at him – a serious insult in the Arab world. But the incident’s real message was: Mission accomplished!” 

[I do not necessarily agree with all the above, but am holding back a bit until my assessment of the Bush presidency in mid-January. If you also happened to read Mark Helprin’s excellent op-ed in the Journal this week, I’m going to incorporate that one in the same analysis of the Bush years.] 

Meanwhile, 30 or so officials were arrested at Iraq’s Interior Ministry with some accused of plotting a coup, though it seems highly doubtful they were indeed doing this. More likely, those arrested in a series of raids appear to be Baathists and the government just wanted to remove them before provincial elections next month.  [And this late word...24 of the 30+ have been released.]

Pakistan/Afghanistan: Pakistani President Zardari met with his Afghan counterpart Karzai to devise a joint strategy for dealing with the Taliban fighters in the border regions. 

[U.S. Defense Secretary Robert Gates, in a visit to Afghanistan, said the British were not performing their mission well enough, this as British Prime Minister Gordon Brown appears reluctant to add more troops there. In a series of terror attacks that claimed five British soldiers last week, three were killed by a 13-year-old who had a wheelbarrow packed with explosives. It isn’t known if the bomb was set off by remote control.] 

On the issue of Indian/Pakistani relations, last time I commented on reports of arrests of key Lashkar-e-Taiba figures suspected in the Mumbai bombings: 

“I’ve seen the accompanying ‘they’ve been placed under house arrest’ used many a time before. Pakistan has a history of staging arrests for consumption in the West and then letting the prisoners go when the spotlight is off.” 

So on Dec. 18, the BBC reported that “the leader of a prominent Pakistan-based militant group is not being held in Pakistan. 

“Earlier this month, Pakistan said it had arrested Masood Azhar, founder of the Jaish-e-Mohammad militant group [ed. related to Lashkar]. 

“Pakistan’s high commissioner to India, Shahid Malik, has now said Pakistan has no information about his whereabouts…. 

“ ‘We are looking for him. He is not under house arrest.’” 

India, by the way, was much closer to attacking Pakistan following Mumbai than initially reported, as noted by CNN and the Global Security Newswire. 

North Korea: Pyongyang accused Seoul of hiring an agent to track leader Kim Jong il as part of an assassination plot. The North announced it had recently arrested an individual trained by the South. Needless to say, this represents a serious worsening of relations between the two; this as speculation over Kim’s health continues to grow. Pyongyang has been more aggressive in releasing pictures purporting to show Kim in full control, though from what I’ve seen, with his sunglasses on he kind of looks like a member of the group Smashing Pumpkins. One never knows. 

Meanwhile, on the nuclear disarmament front, the Six-Party members (China, Russia, Japan, South Korea and the U.S.), are split on the issue of fuel aid to the North. The U.S. suspended shipments after the commies failed to reach agreement on verification talks, but some of the others are continuing with fuel delivery. 

Peter Brookes of the Heritage Foundation commented in his op-ed for the New York Post. 

“North Korea’s crazy-as-a-fox leader, Kim Jong il, plainly sees good reason to put off intrusive arms-control inspections. 

“First, Pyongyang’s nuclear-weapons program has been its strongest playing card. Without it, North Korea is little more than an impoverished third-world country. With it, some of the world’s biggest powers sit up and pay attention. 

“Why give the nukes up? Who cares if a few more poor North Koreans join the famine, from which 2 million have already perished?” 

On the issue of Kim’s health and uncertainty in the leadership: 

“(Other) top dogs may be circling for a power struggle. [Some believe the Chinese already have their own candidates in place amongst the Pyongyang elite in case Kim heads for the dust-bin of history anytime soon.] 

“Or Kim may just be waiting for change in Washington, hoping for a better deal from the Obama team. The new administration will include plenty of Clinton alums – and the Clintonites cut North Korea a generous nuclear deal back in 1994, long on goodies and short on inspections.” 

Russia: The Kremlin continues to harden its stance against dissent, while expanding the definition of treason, a scary thought. For example, Andrei Lugovoy, the man accused by Britain of murdering Alexander Litvinenko who is now a member of the Duma, said that anyone harming the Russian state should be killed, and that he would order the assassination of anyone considered a traitor if he were in the Russian president’s shoes. Actually, Lugovoy, a former KGB officer, used the word “exterminated.”  

Separately, a group of skinheads were sentenced to prison terms ranging from six to 20 years for committing 20 racially-motivated murders between Aug. 2006 and Oct. 2007, this as the severed head of a Tajik man, murdered in another hate crime, was discovered in a dumpster in Moscow. 

The Kremlin is also sending out feelers to incoming president Barack Obama, saying it could stop developing some strategic weapons if the United States pulls back on plans for a missile shield. While on paper this looks encouraging (even as I support the shield), the plain fact is Russia has serious financial difficulties and can’t afford new weapons systems anyway. 

Lebanon: Russia is supplying the Lebanese military with 10 MiG-29s free of charge as a way of getting under Washington’s skin and furthering its own influence in the region. 

Syria: The U.S. is threatening the government here that it must come clean on its nuclear plans and any North Korean connection. 

Greece: Unrest continues and air traffic controllers are the latest public sector to go on strike as the police shooting of 12 days ago has combined with discontent in other sectors of Greece society, including over the government’s social and economic policies. 

Zimbabwe: A key military figure in Robert Mugabe’s regime survived an assassination attempt, part of an escalating campaign on behalf of the opposition. As the Washington Post’s Richard Cohen wrote, just use a Predator and let’s move on. 

Thailand: The third leader in three months was elected by parliament, a 44-year-old by the name of Abhisit Vejjajiva. Wow your friends and family with your knowledge of this around the holiday table. He actually sounds like an intriguing figure, but the problem is his new ruling coalition has a very slim majority and now he faces a recession. You can imagine the recent extensive protests didn’t do a lot of good for the critical tourism industry. 

Somalia: And now some good news, potentially. While the Somali pirates continue to have their way, at least the UN Security Council, in a unanimous 15-0 vote, has increased the body’s authority to take back the seas. States “may undertake all necessary measures in Somalia, including in its airspace, for the purpose of interdicting those who are using Somali territory to plan, facilitate or undertake acts of piracy and armed robbery at sea,” the resolution says. This is a perfect opportunity for cooperation between the navies of the U.S., China and Russia that could aid in relations on other issues. 

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Pray for the men and women of our armed forces.

God bless America.

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Gold closed at $838
Oil, $33.87 (expiring contract)…$42.93 (new one)

Returns for the week 12/15-12/19
 
Dow Jones -0.6% [8579]
S&P 500 +0.9% [887]
S&P MidCap +3.1%
Russell 2000 +3.8%
Nasdaq +1.5% [1564]
 
Returns for the period 1/1/08-12/19/08

Dow Jones -35.3%
S&P 500 -39.5%
S&P MidCap -39.0%
Russell 2000 -36.5%
Nasdaq -41.0%

Bulls 26.9
Bears 47.3 [Source: Chartcraft / Investors Intelligence]
 
Merry Christmas! I appreciate your support. 

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