Educate Yourself - What a Day For a Daydream

Week in Review
For the week 3/16/2009 - 3/20/2009
Brian Trumbore
President/Editor, StocksandNews.com

What a Day For a Daydream

Let’s see…First General David Petraeus could move into Blair House, which is more than sufficient for a leader of the nation, we turn the White House into a museum, then we convert the Capitol Building into a state-of-the-art Veterans facility to ensure the best care for them (the recently completed, incredibly over-budget visitors center could serve as the museum for the just displaced Congress), and after the late-night talk shows end at 12:30-12:35 (sorry Jimmy Fallon et al, we only need Leno/Conan and Letterman), our screens show a fluttering flag as the national anthem plays, just like the old days when I was growing up, before the test pattern pops up and we all go to bed, then….

Oh, hi. I was just daydreaming. Turning to the existing state of affairs in the United States of America, the past week being one of the low points in our history, let’s dive right into this AIG mess, shall we?

I was putting together my annual box of t-shirts to my friends on the island of Yap in Micronesia, and the Manchester United/AIG shirt I’ve written of is winding its way there as I write. I could joke about it before, but no longer. If I was caught wearing it today, I’d be shot on the spot, no doubt, and then my head would be lopped off, just like they do in Mexico, and stuffed in a cooler (hopefully at least with some Dos Equis). No wonder current AIG CEO Edward Liddy doesn’t want the names released of those being paid bonuses.

Liddy testified before Congress this week that AIG still has some $1.6 trillion in toxic assets, along with a myriad of businesses to unwind in the worst possible market to do so if one wants to attain maximum value, and that while he had nothing to do with old contracts paying retention bonuses of $165 million, he needed to honor said agreements because only these folks from the disgraced Financial Products/derivatives division could successfully complete the task and return to the American taxpayers as much of the $173 billion it has received (between the Treasury and the Federal Reserve) as possible. [I hope by now you all realize that talk of turning a profit, from last fall, is out the window.]

We also learned this week that the issue of the bonuses was known by many, particularly the Federal Reserve, for months, and Treasury Secretary Timothy Geithner, at least two days, before the latter told the president, one Barack Obama, a k a The Dude.

For his part, President Obama, until this bombshell revelation, was finally doing what some of us have wanted; inject a little optimism into his endless screen appearances that heretofore have been like some slasher series… “Catastrophe I,” “Catastrophe II, “Catastrophe III”…By the way, is Obama a SAG member? Can someone check on that for me? He’s certainly on television enough.

“I am very confident about our long-term prospects,” he said two weeks ago in a meeting with business leaders. “Things two years ago were not as good as we thought, because there were a lot of underlying weaknesses in the economy, and they’re not as bad as we think they are now.”

Not coincidentally, as Obama talked of better days ahead, Wall Street was in the midst of rallying. Coupled with happy talk from our leading banks and Ben Bernanke, we could see some light at the end of the tunnel. But what a difference a day makes…twenty-four little hours, as Dinah Washington once sang. All hell broke loose across the land when the AIG bonus news hit, especially in the halls of Congress, an institution peopled with the small-minded and weak; an institution that in this case acted like a herd of wildebeest…not to disparage these noble sentries of the African plains by comparing them to the likes of Cong. Brad Sherman, who actually reminds me of a marmoset, but I digress.

Yes, upon learning of the AIG bonuses, the corrupt representatives of the people screamed OFF WITH THEIR HEADS! as they stuck their fingers into the wind to gauge the importune plaints of their constituencies. “Do one of two things,” said Sen. Charles “Ethanol” Grassley of the bonus recipients, 95% of whom you’d be more than happy to have as your next door neighbor and to water your plants while you were away. “Resign or commit suicide.” Where is that Spartan army from “300” when you need it? [Upon mission accomplished….then I’d install Petraeus.]

“So now it appears that President Obama knew all about those AIG bonuses – in time to do something about them.

“Because Treasury Secretary Timothy Geithner told him about them – last Thursday, before AIG honchos disbursed $165 million in ‘retention’ bonuses to many of the same folks who basically bankrupted the company last year.

“So why, we wonder, was the president in such high dudgeon Monday regarding the payouts?

“Obama blasted the firm’s ‘recklessness and greed,’ adding ‘this isn’t just a matter of dollars and cents. It’s about our fundamental values.’

“Took him long enough to catch on. For the bonuses were public knowledge long before last week. The Treasury Department knew of them last fall. So did the Federal Reserve.

“And the administration had been dickering with Congress for weeks in an effort to restrict them, without success.

“For his part, Geithner supposedly learned about the pending payouts only last week – from the Fed. But how is that possible?

“Last fall, he was head of the same New York Federal Reserve Bank that last week supposedly told him of the bonuses.”

The above was from Wednesday’s paper. But the worst was yet to come; Thursday’s disgraceful display in Congress.

“ ‘Shortsighted,’ ‘opportunistic’ and ‘irresponsible’ aptly describe the actions of those who fueled the debacle on Wall Street. They are also apt descriptors for lawmakers more focused on currying favor with a public outraged at the bonuses handed out by bailed-out companies than on fixing the fundamental and still potentially disastrous cracks in the financial system. By changing the terms of a deal months after it was entered into, Congress will show the government to be an unreliable partner, further draining confidence from the financial system and endangering long-term recovery.

“Yesterday, the House had the feel of a mob scene, with lawmaker after furious lawmaker vying for floor time to rail against the $165 million in taxpayer-funded bonuses lavished on employees of American International Group’s disgraced Financial Products division. House members rushed through a bill to impose an effective tax rate of 90 percent on bonuses paid to AIG employees and employees of other firms that accepted at least $5 billion from the Troubled Assets Relief Program – though when then-Treasury Secretary Henry M. Paulson Jr. pressed many of those firms to take the funds last fall, government interference in their compensation systems was not part of the deal. The legislation, approved by a vote of 328 to 93, would affect employees who received bonuses on or after Jan. 1 and whose household incomes exceed $250,000. Late yesterday afternoon (Thurs.), lawmakers on the Senate Finance Committee introduced their own, broader version of the bonus clawback that would affect firms that accepted as little as $100 million of government funds.

“We understand that legislators are hearing from furious constituents, and we understand why those voters are angry….

“But elected officials have a responsibility to lead, not just to pander; to weigh what makes sense for the country, not just what feels good. The effective confiscation of legally earned and contractually promised payments may well be unconstitutional. It is almost certain to be unhelpful….

“Rather than bringing reason to the debate, President Obama has stoked the anger, and last night, the White House commented favorably on the House action. Perhaps Mr. Obama believes that only by lining up with an angry public now can he persuade it, and Congress, to approve the hundreds of billions more he will need to right the credit system. But he might have expressed his sympathy with public anger over irresponsible behavior in the financial sector while also steering the government in a more constructive direction. The absence of backbone on either end of Pennsylvania Avenue this week could carry a steep price.”

“A $14 trillion economy hangs by a thread composed of (a) a comically cynical, pitchfork-wielding Congress, (b) a hopelessly understaffed, stumbling Obama administration, and (c) $165 million.

“That’s $165 million in bonus money handed out to AIG debt manipulators who may be the only ones who know how to defuse the bomb they themselves built. Now, in the scheme of things, $165 million is a rounding error….If Bill Gates were to pay these AIG bonuses every year for the next 100 years, he’d still be left with more than half his personal fortune.

“For this we are going to poison the well for any further financial rescues, face the prospect of letting AIG go under (which would make Lehman Brothers collapse look trivial) and risk a run on the entire world financial system?

“And there is such a thing as law. The way to break a contract legally is Chapter 11. Short of that, a contract is a contract. The AIG bonuses were agreed to before the government takeover and are perfectly legal. Is the rule now that when public anger is kindled, Congress will summarily cancel contracts?

“Even worse are the clever schemes being cooked up in Congress to retrieve the money by means of some retroactive confiscatory tax. The common law is pretty clear about the impermissibility of ex post facto legislation and bills of attainder. They also happen to be specifically prohibited by the Constitution. We’re going to overturn that for $165 million?

“Nor has the president behaved much better. He, too, has been out there trying to lead the mob….

“(And Treasury Sec.) Geithner has been particularly maladroit in handling this issue. But the reason he didn’t give the bonuses much attention is because he’s got far better things to do – namely, work out a rescue plan for a dysfunctional credit system that is holding back any chance of recovery.

“It is time for the president to state the obvious: This recession is not caused by excessive executive compensation in government-controlled companies. The economy has been sinking because of a lack of credit, stemming from a general lack of confidence, stemming from the lack of a plan to detoxify the major lending institutions, mainly the banks, which, to paraphrase Willie Sutton, is where the money used to be.

“Obama has been strangely passive about this single greatest threat to the country. In his address to Congress and his budget, he’s been far more interested in his grand program for reshaping the American social contract in health care, energy and education.”

On Thursday, President Obama just so happened to be in California, taping “The Tonight Show with Jay Leno,” when he had his first chance to respond to the House vote.

“Look, I understand Congress’ frustrations. Everybody’s angry…but I think that the best way to handle this is to make sure that you close the door before the horse gets out of the barn. And what happened here was the money’s already gone out, and people are scrambling to try to find ways to get back at them,” he said.

Sounds reasonable, like the kind of statement a true leader would make. So, if final legislation makes it to your desk (following the Senate’s version and a House/Senate conference), Mr. President, veto it. That would show me something.

President Obama has a prime time press conference on Tuesday and it’s hoped the White House press corps grills him not only on AIG, but also his failure to stem the bank crisis, first and foremost. Time is running short as the president increasingly reminds me of Don Knotts in “The Shakiest Gun in the West.” Only at least in a Don Knotts movie there are moments of comic brilliance. In Obama’s case, it’s time to dispense with the comedy and get to work. He’s still my president, but a Lincoln he’s not.

One figure who should be as well known as Bernie Madoff but isn’t when it comes to AIG is Joseph Cassano, former head of the Financial Products unit. Cassano, with former chairman Hank Greenberg’s blessing, headed up the unit that began dealing in credit default swaps out of Wilton, Conn., as well as what was dubbed “the London casino.” The New York Daily News wrote the other day of him, “He was said to be smart and hardworking, but arrogant and given to verbal abuse.”

Cassano himself once said of his division and the products they churned out, “It is hard for us, without being flippant, to ever see a scenario within any kind of [rhyme] or reason that would see us losing one dollar in any of those transactions.” He ended up pocketing $280 million in cash and an additional $34 million in severance. At first, after being fired a year ago, he continued to receive $1 million-a-month as a “consulting fee” under his “retirement” agreement.

Why isn’t Cassano in jail? Some day he will be…keep the faith. The Daily News reports his days now are occupied with investor suits, including one filed a week ago by the Jacksonville Police and Fire Pension Fund that charges Cassano and his pals “knew or recklessly ignored facts indicating that AIG faced mounting losses” even as they assured investors all was well. The News concludes, “That sounds like fraud.” Of course it is.

And get this. Joseph Cassano, a graduate of Brooklyn College, apparently has never given his alma mater a dime. That tells you everything you need to know about the man. He can’t even pretend to be a good guy like so many of the other disgraced Wall Street kingpins whose names adorn libraries and medical centers.

Turning to the economy, industrial production was down in February, again, 1.4% and 11% year over year, the worst performance since 1975, while the inflation data was mixed, with the consumer price index up 0.4% for the month, but up only 0.2% ex-food and energy, while producer prices were up 0.1%, but also up 0.2% on core. I know everyone is concerned about inflation, what with the $trillions coursing through our veins, but I’m one guy who isn’t going to lose any sleep over it. If that in turn means I lose out on another commodity bubble in anticipation of a big spike in prices, so be it. There is just as good a chance deflation, not inflation, is more of a possibility in the short run and certainly all the evidence points to it today. How’s that raise you asked your boss for coming along? Oh, you were afraid to ask? Case closed.

Globally, the World Bank lowered its growth forecast for China to 6.5%, but stressed the country seems to be holding up relatively well, while the IMF lowered anew its forecast for the Eurozone in calling for a 3.2% contraction in ’09. [The IMF looks for U.S. GDP to decline 2.6% and 5.0% in Japan, though there was some internal IMF bickering over the accuracy of the U.S. estimate.] Industrial production in the euro area fell 17.3% in January from a year earlier, the worst decline since they started tracking such data in 1986.

In the United Kingdom, house prices fell 11.5% for the month of January over year ago levels, while unemployment, now 6.5%, is predicted to rise to 10% by year end.

And in Ireland, its finance minister is now predicting unemployment will reach 12%, while an analyst is calling for commercial property values to decline, get this, as much as 70% from the peak.

[In the United States, Leon Black, founder of private equity firm Apollo Management, says that when it comes to commercial real estate, it’s a “black hole…$4 trillion of debt and you know not all of it’s bad but a lot of it is diminished and that really hasn’t been addressed.”]

Then you have the issue of protectionism, which, despite a pledge last November by the G20 to avoid any such steps, later reaffirmed the other week by finance ministers, is in the forefront of debate as the U.S. and Mexico are now going at it.

We can be such incredible hypocrites. In total violation of the North American Free Trade Agreement, the U.S. has closed the border to Mexican trucking, so this time, after being jerked around on the issue for years, Mexico retaliated. Good for them…and bad for our businesses, particularly in agriculture, that will be severely impacted.

“(The $410 billion omnibus spending bill), we now discover, contains, among other depth charges, a Teamster-supported provision inserted by Sen. Byron Dorgan that terminates a Bush-era demonstration project to allow some Mexican trucks onto American highways, as required under NAFTA.

“If you thought the AIG hysteria was a display of populist cynicism directed at a relative triviality, consider this: There are more than 6.5 million trucks in the United States. The program Congress terminated allowed 97 Mexican trucks to roam among them. Ninety-seven! Shutting them out not only undermines NAFTA. It caused Mexico to retaliate with tariffs on 90 goods affecting $2.4 billion in U.S. trade coming out of 40 states.

“The very last thing we need now is American protectionism. It is guaranteed to start a world trade war. A deeply wounded world economy needs two things to recover: (1) vigorous U.S. government action to loosen credit by detoxifying the zombie banks and insolvent insurers, and (2) avoidance of a trade war.

“Free trade is the one area where the world indisputably turns to Washington for leadership. What does it see? Grandstanding, parochialism, petty payoffs to truckers and a rush to mindless populism. Over what? Over 97 Mexican trucks – and bonus money that comes to what the Yankees are paying for CC Sabathia’s left arm.”

--We started off the week on such a positive note, thanks in no small part to Fed Chairman Bernanke’s star turn on “60 Minutes” where he said: “This decline will begin to moderate and we’ll begin to see a leveling off…We won’t be back to full employment. But we will, I hope, see the end of these declines that have been so strong in the last couple of quarters.” And then, “We’ll see the recession coming to an end probably this year. We’ll see recovery beginning next year.”

Forget for a moment the fact the chairman’s forecasting record is miserable, we’re talking keeping the people upbeat, and maybe having two or three of them buy a car or a washer/dryer.

So the market was rallying, helped along by respectable earnings news out of Oracle and IBM’s sudden play for Sun Microsystems, but then the AIG mess hit and it became a mighty struggle for stocks to keep their heads above water.

But in the end, the Dow Jones managed to eke out a gain, up 0.8% to 7278. This is incredible, but the now two-week winning streak is the longest for the Dow since late April/early May. Now that’s what I call a market crash.

The S&P 500 added 1.6% and Nasdaq picked up 1.8%, with Nasdaq now off just 7.6% for the year.

The news out of Congress spoiled what had been a stupendous rally in the financial sector. Shares in Bank of America, for example, traded as high as $8.50 on Thursday before closing the week at $6.19, while Morgan Stanley stock went from $24.80 to $20.20 over the same time period.

Alas, this coming week, we are told, the Geithner rescue plan for the banks is to be revealed.

On Wednesday, the 10-year Treasury staged its biggest rally since the aftermath of the October 1987 market crash following word the Federal Reserve was not only buying another $850 billion in mortgage backed and Fannie and Freddie securities, but also $300 billion in Treasuries, soon, specifically 2 to 10 years.

The hope is to lower mortgage rates as a boost to the housing sector and rates did indeed plummet to 4.75% for a 30-year fixed…if you qualified. The Fed would like to see this go down further, to 4.00%, but don’t count on it. If you are so fortunate, snap up anything below 5.00%. Don’t dither. The 10-year had already edged up from a low yield of 2.50% on the news to the above 2.64% by week’s end.

[Speaking of real estate, February housing starts showed a surprising increase of 583,000. I wouldn’t draw too much out of this single data point without follow through, however.]

--In the latest report on Treasury holdings, China raised its stake to $739 billion in January. But overall, net foreign capital outflows totaled a record $148 billion; a worrisome development. And the chief executive of Hong Kong’s monetary authority warned that the Federal Reserve’s quantitative easing, while necessary to stimulate the economy, had risks of its own.

“To stimulate the economy by ‘printing money’ is needed in the near term, it is not sustainable in the long term.”

Joseph Yam Chi-kwong also asked, “What will be the impact when (the Fed) exits from such a policy” as the economy improves? It’s what we’re all asking. [South China Morning Post]

--Of course the above Fed moves had a big impact on the dollar, which had its worst week against the euro since the latter’s debut in 1999, as many took the actions to be nothing less than an outright devaluation of the currency, this after the greenback had been acting as the world’s reserve instrument of choice.

And then on Friday we learned from the Congressional Budget Office that the Obama plan to tax and spend would create deficits totaling $2.3 trillion more than the president’s own projections over the next decade.

--The battered auto parts supply industry, largely at the mercy of the depressed car companies, has received a lifeline in the form of $5 billion in aid that guarantees that money owed them for products, specifically those shipped after this past Thursday, will be paid. The two sectors need each other…without one you don’t have the other…and at least a seat maker such as Lear Corp. has a chance at survival. Not all will, as there is overcapacity in some segments, but the most critical should be able to make it.

It’s about financing, with the auto companies having trouble meeting a normal payment period of 45 to 60 days, while the suppliers can’t obtain the needed credit extensions on their end to meet payroll and other costs.

--GE Capital attempted to spell out some worst-case scenarios for analysts on Thursday, and the GE Real Estate unit said of its $85 billion in assets, it could see losses of $3.6 billion. Thus far the unit has had losses and writedowns of $800 million. GE Chief Financial Officer Keith Sherin said GE Capital would net $5 billion itself this year. Under a worst-case scenario, the earnings would be zero.

So, initially reassured, shares in GE resumed their rebound from below $6 to nearly $11.50 but then closed the week at $9.50. The problem is who the heck really knows? If you think the global economy, and by extension housing and commercial real estate, rebounds before Asteroid OS hurtles out of nowhere to obliterate us all, GE is probably a good 3-5 year bet. If you believe the economy remains in a deep recession, or worse, through 2010, avoid it…and just about everything else for that matter.

--FedEx announced a second $1 billion cost-cutting program after earnings for the February quarter plunged. CEO Fred Smith said, “While we are gaining market share in all of our transportation segments, the downturn in our industry and the severity and expected duration of the recession require that we take additional actions.” FedEx is as good a bellwether as there is. It also continues to slash salaries, including for overseas employees under its new austerity program.

--Oil hit its highest level since late November, back over $50 to $52, as OPEC kept output steady after deep production cuts while traders ignored continuing glum news on the demand front. So you might be saying, why then has it rallied $10 the past four weeks?

Well, there is growing optimism, whether warranted or not, that demand has bottomed and can only go up from here, plus OPEC members are complying at an unusually high rate, 80%, with the significant cuts that have been put in place since last September, 4.2 million barrels per day.

Yes, I remain a Peak Oil adherent, especially when I see production budgets continually slashed. I’m just not ready to pull the trigger on the sector.

--Back to AIG, it finally disclosed who the counterparties are that have received $105 billion of U.S. funds to date. Try Goldman Sachs, $12.9 billion; Societe Generale of France, $11.9 billion; Deutsche Bank, $11.8 billion. AIG and the Fed had previously refused to reveal the counterparties for fears it could ruin AIG’s business prospects. Let’s see, who was treasury secretary last fall? Hank Paulson? Former Goldman Sachs CEO? And who was put in charge of AIG? Ed Liddy? Wasn’t he a former Goldman board member?

--As noted above, Oracle Corp. provided a ray of sunshine after posting a revenue increase of 2% for its fiscal third quarter and introducing a dividend for the first time, five cents. Everyone else has been slashing its dividend it seems. For the current quarter, Oracle is forecasting basically flat revenues, depending on currency movements around the world that wreak havoc on all multinationals these days.

--And IBM supplied some good cheer in its play for Sun Microsystems at a premium of around 100% over the share price before the announcement. So deals can still get done, particularly if you have a lot of cash.

--Back to the bonus front, there is a big difference, in my book, in the payment of the $165 million in bonuses for AIG and the nearly $4 billion paid to selected Merrill Lynch employees prior to the merger with Bank of America and before reporting $15 billion in losses. New York Attorney General Andrew Cuomo won a legal battle to have the names of the top 200 released, though as of this writing there hasn’t been any more on this front.

--Bernie Madoff claimed he acted alone, but anyone with half a brain suspected otherwise since he was first arrested and prosecutors this week charged his accountant, David Friehling, with 11 counts of fraud that could put him in prison for 100 years, during which time it is expected the Cubs will win a Series, though nothing in life is guaranteed.

Friehling was being paid $12,000 to $14,000 a month by Madoff to look the other way between at least 2004 and 2007, and his firm “purportedly” audited the Madoff books from 1991 to 2008.

Meanwhile, investigators are “working around the clock” to freeze the assets of Ruth Madoff, fearing she will flee the country. An SEC source told the New York Post’s James Doran that U.S. attorneys will be in court shortly to tell a judge Ruth’s assets “are derived from ill-gotten gains.”

--The Financial Times reported that a commissioner at the Commodities Futures Trading Commission, Bart Chilton, said his watchdog group was investigating “hundreds” of potential scams, what he called “rampant Ponzimonium.”

--Security for the upcoming G20 summit in London is a major concern. All police leave there has been canceled over fears legitimate protests will be hijacked by anarchists. London authorities have evidence various groups are colluding on a number of demonstrations with slogans such as “Storm the Banks” and “Bash a Banker.” What a beautiful world we live in.

--Somewhat related to the preceding, it doesn’t help when the likes of Royal Dutch Shell say they are scaling back investment on renewable energy. CEO Jeroen van der Veer, playing the role of village idiot, said Shell was dropping all new investment in wind, solar and hydrogen energy, but will focus on biofuels instead.

My problem, as a dispassionate observer, is why would you say this at this particular time? From a PR standpoint, why not just keep up minimal investment (they’ve only spent $1.7 billion on alt energy the past five years compared with total cap-ex of $32 billion this year alone)?

Instead, no wonder the executive director of Greenpeace UK said that Shell had “rejoined the ranks of the dirtiest, most regressive corporations in the world….After years of proclaiming their commitment to clean power, they’re now pulling out of the technologies we need to see scaled up if we’re to slash emissions.”

You know what? The heck with Shell. If you’re going to be that stupid, I pledge to avoid buying their products.

--Down in Florida, there appears to be growing evidence that Chinese-made drywall is responsible for a number of issues such as corroding copper coils and electrical and plumbing components. Home builder Lennar says tests show the gases given off by the drywall don’t pose health hazards but Florida and federal regulators are investigating and a number of lawsuits have been filed. The Chinese drywall didn’t enter the market until 2005 after Hurricanes Katrina and Wilma caused extensive shortages. [Julie Schmit / USA TODAY]

--China rejected Coca-Cola’s $2.5 billion bid to acquire homegrown Huiyuan Juice Group Ltd. on anti-monopoly grounds. The company’s founders and major shareholders had endorsed the sale. Huiyuan already has 42% of the juice market. But in this instance, I can see the government’s point. It wants major Chinese companies to dominate some domestic industries. I didn’t write about this before, but earlier I personally took note of a new provision that allows foreign companies to acquire Chinese operations for under $100 million without approval from Beijing, a good sign. [Mused the editor who has a Chinese holding that has a market cap considerably under that figure.]

--You’ve all seen the pictures of Palm Islands development in Dubai, a series of three man-made islands in the shape of a palm tree. The rich and famous had been buying homes here but real estate values have fallen by about half, according to published reports. Properties going for $4.5 million now sell for $2.3 million, max. The Guardian reports that the third island, previously under construction, is now on hold.

Local newspapers have told of more than 3,000 cars that have been abandoned at the airport by foreigners, fleeing, because in Dubai you can be imprisoned for not paying debts. Previously I wrote of the work visa issue, where 1,500 per day were being canceled.

--Coincidentally, Dubai-based Emirates said it is replacing the giant flying wiener, the double-decker Airbus A380, with smaller aircraft because it can’t fill the seats on the Dubai-New York route it started last June. Emirates was the first airline to fly the A380 to the U.S.

--Back to real estate developments gone bad; Donald Trump leant his name to Trump Ocean Resort Baja and now all that is left of a planned mega hotel-condo project in the lovely border city of Tijuana is an abandoned sales office and paved parking lot. Buyers are suing Trump for deposits totaling between $18 million and $20 million that it appears they have little chance of ever seeing. The Trump Organization said it ended a licensing agreement because the developer violated the terms.

--The famous Greenbrier resort in West Virginia is being sold to Marriott after falling into bankruptcy.

--A big problem with certain segments of the real estate market these days is the fact it’s so hard to figure out what the real value is. Personally, I’d have a hard time picking up a property, sight unseen, at one of those foreclosure auctions where all you see is a picture of some place a hundred miles away. You don’t know what the market is really like, but lots of people are doing just this.

“Why they said the house sold for $500,000 two years ago and I just got it for $350,000.”

“Yeah, so what?” I’d counter. “What if it’s really worth $250,000? And who is ‘they’?”

This is the kind of conversation that was had in New York a few weeks ago at a huge sale at the Javits Center. Very gullible folks were snapping up properties, incredibly ugly ones, believing the appraised values being presented and thinking they were getting a deal.

I bring this up because Andrew Rice had an interesting piece in the Times on the real estate market in the Hamptons these days.

“No one knows what anything is worth anymore. Herb Phillips, a real estate broker who has been around for almost 30 years, told me he’s using a simple formula to appraise the value of homes, taking their worth before the boom and figuring in a yearly rate of 7 percent appreciation. If you follow his logic, a home that sold for $450,000 in 2001 should be worth about $800,000 today – not a bad investment, unless you happened to pay $1.5 million for it in 2006. It’s quite possible, if Phillips is right, that a large percentage of the people who bought at the top of the market owe their banks more than their houses are worth. Until the market unfreezes, however, it’s impossible to really know any home’s value.”

Mr. Rice attended a foreclosure auction last December in Southampton where a home with a $1.5 million mortgage was on the block. There was one token bid for $500 by a representative of the bank. “Sold,” the referee barked.

Rice visited the site afterwards. It was a spec house, and looked as if it hadn’t been finished. The lot “was littered with construction debris….Off the back deck, a swimming pool sat murky and neglected. Summer seemed a long way away.”

--The median home price in the San Francisco Bay Area fell to $295,000, down a whopping 46% from $548,000 a year earlier and the lowest level since 1999.

In Southern California, prices declined 39% in February vs. a year earlier and the median in the six-county region is down to $250,000

--An estimated 1,470 hedge funds were liquidated in 2008, vs. 848 in 2007, according to Hedge Fund Research and the New York Post. In the fourth quarter alone, 778 closed shop. Good lord.

--And on Friday, the U.S. Postal Service said it would offer early retirement to almost one in four workers, as well as eliminate 3,000 other positions as it deals with a projected deficit well in excess of last year’s $2.8 billion and declining volume as the economy has cratered.

--Another newspaper bit the dust, the 146-year-old Seattle Post-Intelligencer, which survives in online form. Depressing.

“For the five or six Amish shut-ins who may not yet have heard of this scourge (your tenacious ignorance is to be admired, and I’d immediately friend you if I was into Facebook and you had electricity)….Facebook is an online community where colleagues, friends, long-lost acquaintances, friends of friends or long-lost acquaintances, and perfect strangers find and ‘friend’ each other based on their real or perceived affinity. They then have access to each other’s web pages, and consequently to each other’s lives, quirks, photos, jottings, oversharings, and mental disorders, as well as to those of the ever-expanding universe of their friends’ circles, thus increasing the likelihood that you will either embarrass yourself or be embarrassed by someone whose life would never otherwise intersect with yours. (Right about now, a Facetard is ginning up an angry letter to the editor saying this would not be the case if you know how to control your privacy settings. Save the geek speech for your Facebook friends, Facetard, I already got my eight hours sleep).”

Iran: President Obama staked his case for diplomacy in a surprising video-taped message, released on a national holiday there and aimed directly at the people, saying in part:

“For nearly three decades relations between our nations have been strained. But at this holiday we are reminded of the common humanity that binds us together. Within these celebrations lies the promise of a new day, the promise of opportunity for our children, security for our families, progress for our communities, and peace between nations. Those are shared hopes, those are common dreams.

“So in this season of new beginnings I would like to speak clearly to Iran’s leaders. We have serious differences that have grown over time. My administration is now committed to diplomacy that addresses the full range of issues before us, and to pursuing constructive ties among the United States, Iran and the international community.

“This process will not be advanced by threats. We seek instead engagement that is honest and grounded in mutual respect….The United States wants the Islamic Republic of Iran to take its rightful place in the community of nations. You have that right – but it comes with real responsibilities, and that place cannot be reached through terror or arms, but rather through peaceful actions that demonstrate the true greatness of the Iranian people and civilization. And the measure of that greatness is not the capacity to destroy, it is your demonstrated ability to build and create.”

So what does it all mean? No surprise, Barack Obama is committed to diplomacy to resolve the nuclear weapons issue; this as the clock ticks and the day grows nearer that Iran shocks the world with a test to prove its capabilities.

In this instance, no one can deny the Bush administration dumped this critical issue in Obama’s lap and he has only two choices…diplomacy or a strike on Iran’s suspected nuclear facilities in coordination with the Israelis and our “allies” in the region (such as the Saudis who fear Iran as much as anyone because Tehran would love to destabilize the regime in Riyadh). Any strike could of course have dire consequences, but with the new hard-line leadership taking office in Israel shortly, you can be sure Benjamin Netanyahu and Co. are not about to let Iran play a prolonged stall game during the coming negotiations that Obama is signaling. In a nutshell, it’s a mess.

Separately, last week I wrote that former President Khatami “could leave the race (for president) shortly, thus helping unify the reformers,” and he did just that two days later in throwing his support to former prime minister Mousavi. Mousavi and Khatami are convinced the former can win over a large number of conservatives who are disgruntled with President Ahmadinejad and the crumbling economy.

But the bottom line is regardless of who wins, the nuclear weapons program will continue now that the threshold has been crossed.

Israel: Back to Iran and the nuclear issue, Israel has made it clear to the Obama administration that any diplomatic efforts need to be short and sweet because otherwise it’s time to move on. But the White House may want to wait to begin negotiations until after the June presidential election in Iran…too late for Israel, which reports say could choose to attack Iran with ballistic missiles rather than air power. A big issue here would be what countries the missiles fly over. The most central route would take them over Jordan and Iraq, and that wouldn’t, pardon the pun, fly, especially in Jordan.

One thing is for sure, Netanyahu presents new difficulties for Washington, particularly with hardliner Avigdor Lieberman inheriting the role of foreign minister as part of the deal the two cut to bring Lieberman’s Israel Beiteinu party into the ruling coalition. In the past Lieberman has called for bombing Egypt, with which Israel has a peace treaty, while criticizing President Hosni Mubarak. No surprise then that Egypt, Saudi Arabia and others in the region say Lieberman could set back the peace process.

[On a different issue, some of Israel’s soldiers involved in the recent Gaza war have come forward and revealed shocking revelations about how it was conducted, this as international rights groups call for independent inquiries. This is rapidly becoming Israel’s Abu Ghraib, though in this instance the soldiers are claiming innocents were killed indiscriminately.]

Pakistan: What a week here. The military and Prime Minister Gilani defused a crisis as they convinced President Zardari to reinstate the Supreme Court judges, including controversial Chief Justice Chaudhry, who had been dismissed in 2007 by then-President Musharraf. Chaudhry has long railed against Zardari, charging him with corruption. The question now is whether Chaudhry will go after Zardari again.

Gilani and Army Chief Gen. Kayani played positive roles during the upheaval as former prime minister and opposition leader Nawaz Sharif ignored his house arrest and led a large demonstration on Islamabad, though he stopped short when Zardari stood down on the issue of the judges. Gilani then said he wants real political power to return to the Parliament, with the presidency returning to its historical, largely ceremonial role. It was Musharraf who had taken away powers from Parliament. Zardari pledged to cooperate.

But what does this mean for the U.S.-Pakistan relationship? The Obama administration was concerned enough to send CIA Director Leon Panetta to Islamabad to remind Pakistani leaders that they must cooperate on the war on terror or risk losing aid. For one thing, the U.S. is concerned the new leadership will put a halt to the missile strikes on the Taliban and al Qaeda, especially as Sharif has distinct ties to militants.

Afghanistan: A USA TODAY/Gallup poll reveals 42% of Americans now say Afghanistan was “a mistake,” up from 30% in February and a record disapproval rating. Four U.S. soldiers were killed by an IED attack last week and over 70 foreign soldiers have been killed thus far in 2009, a significant increase over last year. [Two Aussies lost their lives in separate incidents, bringing that nation’s toll to ten, and we just learned four Canadian soldiers were killed at week’s end, bringing their total to 116.]

Iraq: Interesting piece in Newsweek by Lennox Samuels on the myth of Kurdistan, which is far from the model of democracy it is often put forward as being. “(If) anything, the place seems more and more like a stagnant, feudal principality.”

And “as the rest of Iraq keeps growing more open and democratic, the enclave remains stuck in its old ways…One recent survey in the region found that 83 percent of respondents say the place needs to change,” as two parties, and figures, 75-year-old Jalal Talabani, Iraq’s president, and his longtime rival, Massoud Barzani, divide the spoils. For example, “the Kurdish budget is undisclosed,” while at least the central government’s in Baghdad is.

Meanwhile, Prime Minister Nouri al-Maliki said, “U.S. troops will not be removed from areas of the country that are not completely secure or where there is a high probability that attacks could resume after the Americans leave,” as stated in an interview with the Associated Press.

North Korea: Pyongyang announced it will hold a session of parliament after its upcoming missile launch, which analysts say is a sign the leadership is confident it will succeed. The display is still slated to take place between April 4-8. The U.S. commander in South Korea said the North may test-fire a number of smaller missiles as well at the same time.

Japan warned this week it could shoot down the rocket after the North said it would fly over Japan, including a “danger zone” where the first stage is slated to fall, less than 75 miles from Japan’s northwestern shore. And China weighed in with its strongest public comments yet, expressing concerns over the growing tensions as Beijing played host to North Korea’s Premier Kim Yong-il, who was slated to meet with both President Hu Jintao and Premier Wen Jiabao. Wouldn’t you like to be a fly on the wall in those discussions? Said U.S. analyst Daniel Pinckston, “The Chinese have more influence [on Pyongyang] than anyone else, but the North Koreans are going to do what they want to do.” [South China Morning Post]

On a different matter, North Korea has told five aid groups to leave the country by the end of March, including the UN World Food Program, which has said more than a third of the people are in desperate need of aid.

And if the North continues to jerk around the South on the issue of the joint factory park in North Korea at Kaesong by blocking access, Seoul has said there would be consequences. The most recent blockade was lifted after more than 400 South Korean managers there were stranded.

[One other small positive…Pyongyang just reopened the military outline between North and South.]

China: The government announced increased patrols in the South China Sea following the harassment of the U.S. surveillance ship two weeks ago.

Russia: Russia threatened to use airfields in Cuba and Venezuela for its strategic bombers while conducting patrols, though the U.S. expressed few concerns. Russia could establish a refueling base in Cuba in response to the U.S. deploying missile defense elements in the Czech Republic and Poland. Regarding the missile program, though, the Czech government withdrew the treaty committing the country to base components because it didn’t have the votes in parliament. Meanwhile, the cost for the missile defense program is skyrocketing and Defense Secretary Robert Gates could scale back elements of it.

The above discussion is part of what President Dmitri Medvedev said would be a “large-scale rearming” of the nation’s military in response to U.S. (and NATO) actions, though curiously he gave a date of 2011 to commence the buildup and few specifics were forthcoming other than saying he sought to modernize the nuclear force.

It’s clear both Medvedev and Prime Minister Vladimir Putin want to appear to be sitting down with the U.S. on coming world stages, such as the G20 in April, from a position of strength, not weakness. And for his part, Medvedev wants to retain the loyalty of the military.

But let’s face it. Russia’s ability to modernize the military to any great extent is highly limited by the global financial crisis that has swallowed up Russia along with everyone else. Then-President Putin promised to do the same years ago and accomplished zippo at a time when Russia’s coffers were overflowing. The recent action in Georgia exposed all kinds of flaws in the military.

[One area where I believe Russia’s intentions are sincere is in Putin’s announcement this week that he sought to spend far more on the space program as a way of energizing and developing a high-tech industry to move away from the country’s dependence on oil and gas for its revenues.]

Here’s the bottom line of all the above. It’s about Iran…both the threat its missiles pose to Europe, as well as the Russia-Iran relationship that the United States seeks Moscow’s cooperation on in blunting the nuclear weapons program. Some dirty deals need to be cut. Is Obama up to the task? Thinking outside the box, Russia could pretend to support Iran and bluster against Washington, while at the same time sabotaging the nuclear effort through its scientists on the ground. There have always been rumors Israeli agents were doing the same, after all.

North Ireland: Police have rounded up a number of suspects in the killings of the two British soldiers and the Northern Ireland police officer. Among those arrested is a notorious terrorist, Colin Duffy, who was convicted and/or implicated in a series of killings in the 1990s, though served little actual jail time.

One who should now fear for his life, however, is Sinn Fein leader, and Deputy First Minister, Martin McGuinness, who has denounced the IRA dissidents responsible for the killings as “traitors.” Previously, Sinn Fein had defended Colin Duffy as an innocent man. Former Sinn Fein rival Ian Paisley of the Democratic Unionist Party said McGuinness had put his life in danger in using words “no republicans would like to hear about themselves. Clearly, there are some people who would want to seek revenge.” As noted in a New York Times piece, Irish historians said the phrase “traitors to the island of Ireland” has a deep resonance among nationalists, who claim Britain’s decision to divide Ireland in the 1920s legitimized the IRA’s struggle for reunification.

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Note to fellow Wake Forest fans. That was a totally embarrassing performance by our Deacs last night. Yes, we need a new coach.

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