Week in Review 
For the week 8/30/2010 - 9/3/2010
Brian Trumbore
President/Editor, StocksandNews.com


Wall Street…9.6%

9.6%, we learned on Friday, is the official unemployment rate today, the data for August showing further job losses, though President Obama quickly strode out with his most unimpressive economic team and correctly pointed out that private sector growth has grown 8 months in a row, though this figure is far less than what you’d see in a normal recovery. It’s just that the 9.6%, a tick up from the previous month’s 9.5% because more people hit the pavement looking for work, is an absolute killer come the Nov. 2 election. The Democrats have one more payroll number, Friday, Oct. 1 (September’s report) and it’s a virtual certainty that the unemployment rate will be at least 9.5% when voters, far more Republicans than Democrats, hit the polling stations.

What was to be the “summer of recovery,” in Vice President Biden’s own words, has turned into a summer of woe, or discontent. As the Wall Street Journal’s editorial board opined:

“The greater than 4% growth and less than 8% unemployment envisioned by the president’s economic team are nowhere to be seen. Almost everything that is supposed to be up – the economic growth rate, the stock market, bond yields – is down. And almost everything that is supposed to be down – unemployment-insurance claims, new mortgage delinquencies – is up.”

All the president and the likes of Senate Majority Leader Reid and Speaker Pelosi can do these last 8 weeks is rail against the “obstructionist” Republicans for not passing a small business bill, or further stimulus (should the Democrats decide to go that route…with the president unveiling something new this coming week), while Republicans will be content to sit back and run out the clock. When confronted as to what they would do, they’ll counter, “Well we certainly don’t want to have more of the same…more spending, more debt…” while pretty much evading the question aside from the mantra they wouldn’t raise taxes.

The White House is flailing away. If it wasn’t so tragic it would be almost funny, like a Monty Python episode. There was the president, disturbingly trying to link the end of the combat mission in Iraq to the economy in his address to the people on Tuesday. “To strengthen our middle class, we must give all our children the education they deserve, and all our workers the skills that they need to compete in a global economy. We must jump-start industries that create jobs, blah blah blah.”

Personally, I wasn’t really listening. Instead I was looking at the pictures of his family behind him, thinking it all seemed kind of goofy. No offense to the kids, and Michelle, but as I’ve said before I really couldn’t give a damn about them. [NBC News aired another stupid piece on the Obama family, Friday.] I just want a good leader. And while you can give Obama credit for steering through some big legislation in his first 20 months in office, except for financial services reform the people can’t stand it! 

It’s why as part of a USA TODAY/Gallup poll, Sally Free, 61, a Democrat from Chillicothe, Ohio, told the paper, “All of that stuff they [the Democrats] did, it hasn’t done one thing for me. I’m the middle class. I’m the one that pays all the taxes. I think they work for me, and I’d fire them if I could.”

Well for now, Sally, you can only fire one, your congressman, should that be your choice, but the rest of us can collectively do our part as well.

But what will we be saying next year at this time, assuming a change in at least the House of Representatives? USA TODAY revealed that one in six Americans are now tapping into anti-poverty programs, with more than 50 million on Medicaid. And this is before the new health care law adds about 16 million more, beginning in 2014. 

More than 40 million people get food stamps, an increase of nearly 50% during the downturn, according to government data as of May. President George W. Bush rightly deserves his share of the blame for the mess he left Obama, but 20 months in it’s on you, Mr. President. And of course the federal price tags for the programs involved are just exploding the deficit even further. That’s what depresses the hell out of a lot of us. There’s just no end in sight. Any dividends from declining war costs are being sopped right back up.

PIMCO’s Mohamed El-Erian summed it up for Bloomberg this week.

“This country has very weak safety nets. It is built on the assumption that our labor markets are very flexible, that if you lose your job in California you move somewhere else, you get another job, and what we’re seeing is structural unemployment.”

We need to stimulate more demand, but at the same time consumers continue to deleverage. At least economist Richard Berner of Morgan Stanley says we are reducing debt and rebuilding our savings faster than expected, so maybe we’re closer to that time when spending will pick up again, sooner than later.

But for that to happen, it’s still about housing and jobs. As the data have shown, there’s little cause for optimism.

Before I get to the other economic news on the week, though, some of which was good, including internationally, another troubling item. Americans are getting squeezed even while trying to do the right thing in reducing debt and increasing savings.

Take a survey by the nonprofit Henry J. Kaiser Family Foundation and the Health Research and Educational Trust.

While overall, premium growth for healthcare insurance has risen slightly this year to 3%, “the average worker with a family plan was hit with a 14% premium increase, pushing the bill to nearly $4,000 a year.” No wonder why we hate Obamacare. But to be fair, since 2005, “workers’ contributions to insurance premiums have shot up 47%, far outpacing the 18% increase in wages over the same period, according to the survey.”

Small businesses, and large ones as well, can’t afford to pay the high cost of insurance and they can easily say, hey, unless you pick up a greater share (if the employer even pays any of it these days) I’ll have to lay you off and/or I go out of business.

You won’t believe this but my own insurance plan came up for renewal and they are asking for a 19% increase! 19%! Of course no one is helping me out…I’m healthy yet I’m being asked to shell out $9300 a year now! [I will come up with an alternative…I have to…just need to carve out some time to work on it this coming week and I’ll report back to you the results.]

And this was also a week that, around the world, saw us enter a new food crisis. These come and go, depending on global harvests, natural disasters and such, but the drought and fires in Russia that destroyed a big chunk of its wheat crop, coupled with devastating flooding in Pakistan and China, has had a rippling effect on some food prices worldwide. But before the scaremongers get to you, understand that the price of wheat is still almost 40% below its peak in June 2008. It’s just that governments are having a hard time dealing with shortages, perceived or otherwise. Mozambique, not in all honesty that I care about this place, had food riots this week claiming seven lives and it’s a harbinger of things to come. During the 2007-08 crisis, which saw wheat, corn and rice hit record highs, you had riots across Africa. 

Of greater concern, though, is China’s leaders are scared to death that rising food prices there could lead to massive civil unrest so Beijing is calling on local governments to do more, like produce more veggies and fruit.

So this all bears watching. I’ll have more on the inflation issue next time because I want to review my rant on the topic from a month ago, but it’s still a fact you need to separate the official data, that fixed income markets respond to, from the facts such as rising healthcare costs that further impede the ability of the average American to make ends meet.

As for the week’s other data, July personal income and consumption were up, 0.2% and 0.4%, respectively, basically in line, while August’s employment report noted wages gained 0.3%, which is good. Factory orders ticked up 0.1% in July, while construction spending declined 1.0%.

But manufacturing data, overall, as represented by the Chicago PMI and the national ISM for Aug. were solid. 56.7 for Chicago [50 being the dividing line between growth and contraction], down from July but still strong, while the ISM reading of 56.3 was outstanding vs. expectations of 52.8.

And just as importantly, the Purchasing Managers Index (PMI) in China for August came in at 51.7, a slight tick up from July when many were worried the number had rolled over. HSBC, which does its own calculations independent of the government’s readings, said the Aug. PMI increased from a worrisome 49.4 in July to 51.9, so the two confirmed that China is hanging in there…no double-dip.

In fact, this week’s data in both China and the U.S. certainly tell us that for now, there will be no double-dip in either, just as your editor has been telling you, but I’m eager to see where we are 2-3 months from now. I just maintain that in China the government will engineer a soft landing (barring unforeseen civil disturbances), while the U.S. will continue to feel like a recession, but muddle through when it comes to the official data.

One other item on China, though. I do not see a crash in real estate prices there. A solid 15-20% correction? Very possibly. A crash? No way. But, the condition of the smaller banks there, even with a correction, is worrisome. We just don’t have any clarity. The big institutions should be fine.

In the 16-nation eurozone, a combined service sector-manufacturing index came in at 55.1 for August, down from July but still solid. The European Central Bank’s Axel Weber said the “recovery remains on track.” Yeah, Axel, but at 1.4% to 1.8% for the year, into 2011, not exactly zippity-do-da territory. Germany’s retail sales, for example, fell in July for a second month, though its jobless rate remained steady at 7.6%. We’d have joyful food fights here over a figure that low.

Elsewhere, the U.K.’s PMI for Aug. was 54.3, a little worse than expected. And Spain’s deficit reduction plan seems to be working, a good thing.

But I got a kick out of the happy talk from some European officials concerning the sovereign debt crisis that has been temporarily averted due to the joint IMF/EU bailout program for the likes of Greece. This week the IMF said default in Greece and Ireland was unlikely. Paulo Mauro, author of an IMF paper on the topic, said, “Markets are overestimating the risk of default.”

To which I’d counter, not so fast, Paulo. 1.5% growth in the EU region is simply muddling through after the crash, and in all likelihood it means that Germany and France continue to carry the main share of the load while the others suffer. It also totally ignores that the austerity programs put in place by the governments haven’t begun to bite yet. One of Britain’s large food retailers, the Co-operative Group, warned the austerity drive there “would erode consumer confidence and ensure that the economy would continue to ‘bump along the bottom.’”  It’s just common sense. So Paulo, y’all ain’t out of the woods yet.

Lastly, Australia’s second quarter GDP was up an impressive 1.2% over Q1, the best performance in 3 years, with July retail sales up strongly. It seems a certainty that the Reserve Bank of Australia will be hiking its short-term interest rate, now 4.5%, again by year end. Notice that figure…4.5%...up 150 basis points from last October to May. And the economy is still going gang busters. So memo to our own Federal Reserve. Don’t be afraid to hike rates! Give us savers something, for crying out loud! 2%. A measly 2%!

Meanwhile, India’s second quarter GDP came in at 8.8%, better than expected. Car sales here are so brisk they have a waiting list. [Aussie car sales for the month of August also rocked, despite their election uncertainty.]

But Canada’s Q2 GDP, up 2.0%, was weaker than expected.

Street Bytes

--The Dow Jones had its worst month of August since 2001 and as a USA TODAY piece pointed out, the average investor has abandoned stocks in droves, pulling out $245 billion from stock mutual funds since the beginning of 2008; this while bond fund inflows are close to $616 billion over the same period of time. And according to a Scottrade study, the most conservative investors are the 18 to 45 age group after two of the worst periods for stock returns in just the past ten years.

But at least for now we aren’t Japan. The benchmark Tokyo Nikkei index first peaked on 12/29/89 at 38915. Almost 21 years later, the Nikkei sits at 9100, having fallen 7.5% in August.

For the week, our own markets rejoiced at our better than expected manufacturing data, as well as that from China, with the Dow Jones ending a three week losing streak, up 2.9% to 10447 and back to positive on the year. The S&P 500 and Nasdaq each gained 3.7%, though both remain fractionally lower for 2010. Another contributing factor for the advance, aside from those earlier stated above, was that same store sales figures for August were up 3.3% for major retailers vs. an expectation for an increase of just 2.5%; not that we were all dancing in the streets over this information, but it was better than the alternative.

--U.S. Treasury Yields

6-mo. 0.18% 2-yr. 0.51% 10-yr. 2.70% 30-yr. 3.78%

The 10- and 30-year pulled back (yields up) on the stronger economic data, though don’t bother me with bubble talk in Treasuries until the 10-year is around 3.25%, which would be a likely sign that the economy has reemerged from its stall. [Granted, anyone having bought the 10-year at 2.50% would have taken a substantial hit.]

--Appearing before the Financial Crisis Inquiry Commission, Fed Chairman Bernanke said:

“If the crisis has a single lesson, it is that the too-big-to-fail problem must be solved,” adding in the case of Lehman Brothers it was impossible for the Fed to rescue it from bankruptcy in 2008 because Lehman lacked sufficient collateral to secure a loan. Bernanke then added, “We should not imagine…that it is possible to prevent all crises. To achieve both sustained growth and stability, we need to provide a framework which promotes the appropriate mix of prudence, risk-taking and innovation in our financial system.”

--The FDIC said that 829 of the nation’s 7,800 banks were on its “problem list” at the end of June, up from 775 at the end of the first quarter. 118 have failed this year, compared to 140 for all of 2010. But I have downplayed this for two years now because this is a case where the system works and depositors have been protected. What the FDIC is telling you, however, is that credit remains tight, though some types of loans are showing a small bit of improvement. It’s also a case of the ability of the larger banks, who received the lion’s share of the government support, to swamp the smaller ones.

--Harrisburg, Pa., missed a $3.29 million payment on its general-obligation debt, somewhat roiling the muni market, overall, as it provides some needed uncertainty to the latest mantra that all munis are safe.

--Junk bond issuance in August totaled $23 billion, a record for the month, as investors looked for some kind of return on their money. And, hey, even the junkier companies have improved balance sheets these days. They may only have six employees, but that’s besides the point.

--In keeping with Intel’s ratcheting down its revenue forecast for the current quarter, tech researcher Gartner Inc. cut its 2010 projection for worldwide PC shipments, saying the second half will be weaker than it originally thought.

--U.S. auto sales tumbled 21% in August over last year’s cash-for-clunkers fueled pace. A few weeks ago I said one of the big negative surprises this fall would be declining car sales and a halt to hiring at U.S. automakers so we’ll see what happens in September and October. For now, Toyota’s August sales fell 34%, Honda’s were off 33%, Nissan’s down 27%, General Motors’ declined 24.5%, and Ford’s fell 11%, but Chrysler’s were up 7% compared to last August, mainly because it sold like 30 cars in 2009, making for an easy comparison.

--Meanwhile, in China, auto sales for August rose a far-greater-than-expected 56% from year ago levels. GM’s sales in the country were up 19% and Ford’s up 24%. For the first eight months of the year, GM vehicle sales in China were 1.57 million, while Ford’s were 368,000. As Ronald Reagan would have said…not bad, not bad at all.

--Royal Bank of Scotland is laying off another 3,500 (mostly back-office), bringing to almost 27,000 the number of jobs cut here in less than two years. The U.K. government owns 70% of RBS following its bailout of the bank.

--For the archives, the S&P/Case-Shiller real estate index of 20 major metropolitan areas showed a 4.2% increase in prices for the second quarter over a year ago, but this survey is so dated, plus it was influenced by the expiring housing tax credit, that its authors know prices are headed back down.

--BP’s costs for the oil spill have hit $8 billion, while the company announced it would increase asset sales to as much as $30 billion over 18 months to pay for further cleanup costs and future liabilities. The blowout preventer was hauled up from the bottom to be used as evidence in ongoing litigation.

--Gold approached its all-time settlement high of $1,257 this week, ahead of what is supposed to be a traditionally strong period for physical demand from the likes of India, whose booming economy one would think would lead to even more gold purchases for their wedding and festival seasons. [Here in the U.S., grooms are increasingly scooping up trinkets at those arcade games with the shovel, hoping they find something that looks like gold to give their prospective brides.]

A survey of 29 analysts, traders and investors by Bloomberg found that the median expectation is for gold to rise to $1,500 next year. 

--Citigroup announced plans to increase its workforce in China from 4,500 to 12,000 in the next three years. Said the head of operations in the region for Citi, “We have aggressive consumer banking expansion plans and want to open branches as fast as regulators in China will let us.” Citi is also expanding in Hong Kong and Taiwan.

--SAP’s Co-CEO Bill McDermott on prospects for the enterprise software company in China.

“The potential here is just thrilling, so we want to treat China as if it’s a second home. If you look at this market, the fantasy of what we could be in, this market will exceed anything that a CFO could put on a spreadsheet, so let’s go for the big dream.” China will provide “limitless growth,” he said in an interview with Bloomberg.

--Edward Schumacher-Matos is working on a book on the economics of immigration and in a story for the Washington Post, he asked Stephen C. Goss, the chief actuary of the Social Security Administration to weigh in and Goss said that by 2007, the Social Security trust fund had “received a net benefit of somewhere between $120 billion and $240 billion from unauthorized immigrants,” as Schumacher-Matos writes.

“That represented an astounding 5.4% to 10.7% of the trust fund’s total assets of $2.24 trillion that year. The cumulative contribution is surely higher now. Unauthorized immigrants paid a net contribution of $12 billion in 2007 alone, Goss said.”

These figures are double previous estimates. More on illegal immigration below.

--Hewlett-Packard won the bidding war for storage systems maker 3Par as Dell declined to match HP’s $33-a-share offer. On Aug. 13, 3Par stock closed at $9.65. Ya think they overpaid?

--Burger King is discussing a sale of the company to a private-equity firm, 3i Group PLC. When given a choice between BK and McDonald’s, I always go for the latter. But enough about me. Shares in BK had been languishing in the $16-$17 range, but finished the week at $23.50.

--Shares of Research in Motion Ltd., maker of the BlackBerry, traded as high as $71 as recently as May 3rd, but finished the week at $44.75 as reception for its new smartphone has been underwhelming, while at the same time, surveys have found declining interest from its corporate base as they opt for rivals such as Apple’s iPhone. Sanford Bernstein did a study of 200 companies in the U.S. and U.K. and found that 74% now let their employees use devices other than BlackBerrys.

--Apple announced a new line of iPods, along with its latest attempt at Apple TV, which has yet to catch on with the mainstream, while Google said its YouTube video site would be launching pay-per-view service of its own by the end of the year.

--Prepare to be grossed out…or quickly skip to the next item.

As reported by Andrew Zajac and P.J. Huffstutter of the Los Angeles Times:

“Federal officials investigating conditions at the two Iowa mega-farms whose products have been at the center of the biggest egg recall in U.S. history found filthy conditions, including chickens and rodents crawling up massive manure piles and flies and maggots ‘too numerous to count.’

“Water used to wash eggs at one of the producers tested positive for a strain of salmonella….

“Food safety experts said conditions described in the reports are some of the worst they’ve seen in decades.”

Investigators found:

“Barns with dozens of holes chewed by rodents that mice, insects and wild birds used to enter and live inside the barns;

“Flies on and around the egg belts and hen feeders;

“Manure built up in 4- to 8-foot-tall piles below the hen houses, in such quantities that it pushed pit doors open, allowing rodents and other wild animals access.”

I mean, hell, this is no better than conditions in the Middle Ages, for cryin’ out loud.

--According to a congressional newsletter The Hill, Sen. John Kerry has the highest net worth among lawmakers, $188.6 million, Kerry deriving much of his worth from wife Teresa’s ketchup packets. No. 2 is California Republican Congressman Darrell Issa, worth at least $160 million; Issa having made his fortune in the car-alarm business before being elected in 2000. So when you wake up in the middle of the night because a neighbor’s alarm accidentally went off, fire off a nasty e-mail to Issa. No. 3 is California Democratic Congresswoman Jane Harman, whose $152 million wealth comes from her 91-year-old husband, the head of Harman International Industries, making Ms. Harman, at some point, a good catch…I’m just sayin’.

--Sign of the times, as reported by Hilary Kramer of the New York Post:

“In this economy, it’s not uncommon for whole neighborhoods to be on the market. But Rumson, NJ, a leafy bedroom community of 7,200 residents [Ed. including Bruce Springsteen…and some unemployed Wall Streeters], nonetheless stands out: It has 100 homes for sale – all for more than $1 million.” Some of them have been on the market for as long as
1 ½ years.

--In a new tell-all book, Steven Ratner, the president’s former point man on the auto task force, described Treasury Secretary Tim Geithner as being “organized and low-key, although given to occasional bursts of profanity and odd fits of giggling.” I’m guessing Geithner’s giggling is due to the occasional thought that crosses his mind… ‘I can’t believe they actually gave me this job!’ He-he-he.

--Good story in the Los Angeles Times concerning Timothy Barnett, who has been charged with 23 felonies – including theft from the elderly, identity theft and real estate fraud – “for allegedly tricking five people into unknowingly granting him title to their homes.” Barnett has pleaded not guilty.

But what makes this case so interesting is that the previously convicted felon is being targeted under California’s three-strikes law. If convicted, it would be one of the first times that a white-collar criminal could face life in prison.

It’s about freakin’ time, sports fans! Good luck, California! Screw the bastard…and let the word go forth nationwide that such premeditated acts deserve penalties as harsh as those given some violent criminals.

--Ferrari recalled all of the 458 Italia cars it made this year, following a string of reports where the cars caught fire. The 458 typically costs $260,000. Incidents were reported in California, Paris, Switzerland, China and one other unnamed location. Ferrari said the problem was traced to adhesives in the wheel-arch assembly. 

--Happy 80th birthday to Warren Buffett, who shows no signs of slowing down, and it should be noted he loves cheeseburgers, for all you vegans out there. [Sorry, cheap vegan shot.] From 1965 to 2009, the book value of Buffett’s Berkshire Hathaway has increased at a compound annual rate of 20.3%, vs. 9.3% for the S&P 500. Buffett’s longtime partner Charlie Munger, by the way, is 86, and some of us would love to hear more from this irascible fellow, seeing as he’ll say anything that’s on his mind because at this stage he really couldn’t give a [hoot.]

--My portfolio: Six straight days my China play has closed at the exact same price. I still have my natural gas/storm holding but that may last just two more weeks or so, and I’d like to visit my uranium position in Texas but doesn’t look like I’ll have the time. Otherwise, I am down to just three or four other pieces of flotsam that could have been carried off in Earl’s backwash, for all I care.

--So about five weeks ago, my old Dell laptop went haywire while I was on the road, but it wasn’t a surprise nor a big deal. As I said at the time I needed to replace it. I had a 2-year-old Dell lying around, never used, set it up and took it to Ireland. As soon as I arrived, plugged it in and it worked like a charm. I left it running while I then went to play golf and when I returned, it was dead. The tech expert at my hotel couldn’t figure out what happened.

So today I pick up my new Acer. That’s it. No more freakin’ Dells. I have given them a ton of business…a ton…and at least three of the PCs just went bad for no reason. At least the little old laptop did yeoman work, but that’s the thing. It was a much older model, and more reliable.

Foreign Affairs

Afghanistan: Suddenly, this week the main story is a run on Kabul Bank, the biggest in the country that handles the paychecks for soldiers, police and teachers. It started when two executives were ousted after it was discovered that Kabul Bank was largely insolvent, thanks to a previously undisclosed mammoth portfolio of real estate assets in places like Dubai where values have crashed. President Karzai’s brother is a major shareholder and the president was forced to urge depositors not to withdraw their money, this as the brother called for a U.S. bailout. Goodness gracious. Imagine the civil unrest that could be developing very shortly (though it does need to be pointed out only 5% of Afghans have bank accounts), yet as key as the bank is to many of the citizens, understand it is also the bank of choice for the Taliban, so as Karl Malden might have observed of Washington’s predicament, “What can it do? What should it do?”

Meanwhile, Defense Secretary Robert Gates, in theater, continued to back Karzai, as does General David Petraeus; this as Karzai canned the chief prosecutor who was investigating his administration for massive corruption. Yes, the United States is in a box. One of those disappearing penny boxes, you might say.

On the ground, the U.S. lost 20 soldiers in a 4-day period, and losses for the month were 55 vs. a high of 66 for the war in July.

Iraq: As everyone celebrated the end of the U.S. combat mission here (that is except many Iraqis, who while they wanted us to leave, nonetheless know our presence in massive numbers helped keep them safe), most are in agreement that the Iraqi security forces being left in charge are adequate, but the massive corruption in the Iraqi government, let alone the inability to establish a new leadership hierarchy since the March 7 vote, is a killer. Gen. Ray Odierno, who turned over the command of the remaining American forces, said it would be three to five years before we knew if the Iraq war was a success or not and that will indeed prove to be the case, though I’d move the timetable up to two years. But this week was a time for reflection.

Anne Applebaum / Washington Post

“The (initial) victory was swift. But the occupation was chaotic. The insurgency appeared to take Washington by surprise, and no wonder: The Pentagon was squabbling with the State Department; soldiers had no instructions and didn’t speak the language. The overall impression, in Iraq and everywhere else, was of American incompetence – and, after Abu Ghraib, of stupidity and cruelty as well. Two years ago, a German Marshall Fund poll showed that vast numbers of our closest friends felt that the ‘mismanagement’ of Iraq – not the ‘invasion’ of Iraq – was the biggest stumbling block for allies of the United States.

“No wonder, then, that America’s ability to organize a coalition has also suffered. Participation in the Iraq war cost Tony Blair his reputation and the Spanish government an election. After an initial swell of support, the Iraqi occupation proved unpopular even in countries where America is popular, such as Italy and Poland. Almost no country that has participated in the coalition derived any economic or diplomatic benefits from doing so. None received special American favors – not even Georgia, which sent 2,000 soldiers (a lot for Georgia) and received precisely zero U.S. support during its military conflict with Russia. It will be a lot harder to get any of the ‘coalition of the willing’ to fight with us again, and indeed ‘Iraq’ is part of the reason there is so little enthusiasm for Afghanistan and why it is so difficult to put organized pressure on Iran.”

Graeme Lamb / London Times [General Lamb having been Deputy Commanding General of the Multinational Force in Iraq under General Petraeus]

“(I) have never doubted, before the conflict or since, that, without our intervention, Iraq did not have the faintest hope of a better life and future. Under the ageing Saddam – and his intended legacy of disaster or disorder delivered by either one of his deranged and psychopathic sons, Uday and Qusay – there would have been no hope for a better life and future for the Iraqi people.

“Now many would expect a retired British general to say as much. However, those who have worked with me know that, if I was nothing else in my 38 years of service to this nation, I was always to a fault, without fear nor favor, a straight-shooter, be that with gun or word. Now retired, I have no restriction on my opinion….

“What if we had done nothing? From where I stood, Iraq would have continued to decline, rapidly becoming a failed state. This would have resulted in its people, its spiritual leadership and its natural resources being caught in a far bloodier maelstrom of conflicting interests within the region. To have done nothing would, I believe, have seen us at some point forced into a situation far more dangerous and beyond control.

“So was it worth it collectively? It was not without great cost in blood and treasure. But this nation has, with its coalition partners and the Iraqi Armed Forces and civilians, delivered to the Iraqi people the freedom to choose. That simple right of choice is a most worthy aim.”

Editorial / The Economist

“Iraq is (now) much more open to the world thanks to America’s intervention. Travel is unrestricted, imports are plentiful, Internet connections have gone up from 4,500 to 1.6 million and the number of mobile phones have risen from 80,000 to 20 million.

“Yet freedom is still not universal in Iraq. Women and gays suffer discrimination, and there is little they can do about it. Across Iraq the rule of law is usually a distant aspiration rather than a solid achievement. Justice is no longer arbitrary, but judges can still be bought and the pace of trials is often glacial.

“These gains have come at a terrible cost. About 150,000 Iraqis as well as almost 5,000 American and allied soldiers lost their lives. More than 2 million Iraqis fled the country, many of them desperately needed professionals who are building new lives elsewhere. They despaired of a country in which many residents still don’t have access to basic services. Although American taxpayers have spent more than $700 billion, drinking water is scarce, health care and education are inadequate, electricity is available only for a few hours a day and petrol often runs out. Many say life is harder than ever.

“This lack of services has crippled the economy. Manufacturers cannot survive without power; this condemns the non-oil private sector to irrelevance. The Americans have tried to boost business by financing the construction of markets across the country. They also gave seed money to entrepreneurs. But about half the Iraqi workforce is still without a full-time job. The Iraqi government is barely able to collect taxes and spending is financed almost entirely from oil money….

“It is clear that Iraqis will for many years be plagued by corruption, insurgents, meddling neighbors, and their own stubborn politicians. Ending America’s ‘combat mission’ is a gamble – and gambles can be lost.”

As for President Obama’s Oval Office speech on Tuesday, what was that all about?! It was a mess. Oh, some conservatives, even, defended it, calling it a neocon moment when Obama said “we must project a vision of the future that is based not just on fears, but also on our hopes – a vision that recognizes the real dangers that exist around the world, but also the limitless possibility of our time.” Yeah, that sounds good, but let’s see how he handles Afghanistan and his deadline there, let alone U.S. reaction should Iraq erupt all over again.

Israel / Palestine: Every U.S. president has to try at least once to bring peace to the Middle East, and this is Barack Obama’s first, and easily last, attempt. Because while the first direct talks between Israeli and Palestinian leaders in two years have begun, with Palestinian President Mahmoud Abbas and Israeli Prime Minister Benjamin Netanyahu vowing to meet every two weeks, there is zero chance of success.

For starters, Hamas, which killed four Jewish settlers in the West Bank as a signal prior to the meeting in Washington, does not believe Abbas can negotiate for them, while Abbas said talks really can’t proceed much further unless Israel ends all settlement construction and lifts the blockade on Gaza. Egyptian President Hosni Mubarak, also on hand along with Jordan’s King Abdullah II, echoed Abbas. Israel must keep its current freeze on settlements in place.

But Netanyahu has said the 10-month moratorium on West Bank building, which ends Sept. 26, will not be extended. Instead, he says Israel needs extensive security guarantees. “Peace must be anchored to security.”

King Abdullah reiterated a common refrain of his, the “price of failure (this time around) will be too high for all.”

As for his part, President Obama wants an agreement between the two, and then he wants peace treaties with Syria and Lebanon.

But the fact is Netanyahu cannot remain in power if he gives in on the expiration of the settlement moratorium as his right-wing partners will abandon him in droves, while you would think Abbas is not long for this world, especially if he’s seen giving in too much to Israel.

And so it is that I doubt I’ll be writing much about these negotiations.

[Meanwhile, in Lebanon, my friend Michael Young of the Daily Star may have been right when he was a lone scribe writing that the UN prosecutor for the Special Tribunal for Lebanon, Daniel Bellemare, is not that close to issuing indictments in the case involving the 2005 assassination of former prime minister Rafik Hariri; Bellemare saying on Wednesday in a surprise acknowledgement, “Let me state clearly that the indictment has not been drafted yet. I will only file the indictment when I am satisfied there is enough evidence.” And in a mildly positive development, Israeli and Lebanese army officers met to lay out guidelines for avoiding another border clash. One last item, and one I’ll cover further next time, but Sheikh Nasrallah of Hizbullah said he wasn’t interested in calls to disarm Beirut, led by the merchants, following deadly armed clashes in the city the other week. Very interesting things are happening in this beautiful place that is also a ticking time bomb.]

Iran: The home of opposition leader Mehdi Karroubi was attacked on Thursday by the Basij militia (comprised of village idiots), which is loyal to Iran’s supreme leader, Ayatollah Ali Khamanei. According to Karroubi’s son, the Basij “broke Karroubi’s windows, spread dye over his house and tore down the building’s surveillance cameras,” while the police stood by and did nothing. Karroubi’s guards fired into the air to scare off the attackers, as he and his family holed up in a safe room. Authorities wanted to keep Karroubi from attending a rally on Friday that he had organized. The son said it was clearly an assassination attempt.

Pakistan: The news cameras have largely moved on and so it’s been difficult getting the true story on the aftermath of the catastrophic flooding here. At least the government hasn’t been toppled, yet, but the Taliban has threatened to attack foreign aid workers, and with hundreds of targets we shouldn’t be surprised to hear of some tragedies, seeing as how the Taliban slaughtered ten such workers recently in Afghanistan.

But one encouraging item. At least 45 suspected militants were killed in airstrikes by the Pakistani military, though at the same time, Pakistan has halted talks with U.S. military officials after a Pakistani delegation sent to Washington had to go through “unwarranted” airport security checks.

Talk about yet another screw-up. Of course you have to check the group, but that should have occurred before they boarded their flight, and then upon arrival the delegation would have been prescreened, etc. I mean it was our CENTCOM that invited them!

[Meanwhile, over 90 were killed in separate bomb attacks in Quetta and Lahore at week’s end.]

China:  North Korea’s Kim Jong-il took a trip to Beijing and the surrounding area to meet with Chinese leaders and he brought along his youngest son, Kim Jong-un (or so it’s rumored). What a special moment, the younger, unemloyed Kim expected to be presented as the North’s new leader over the coming weeks.

China praised its ties with Pyongyang, while the elder Kim said, “We were deeply impressed and greatly encouraged to see for ourselves the resourceful and hard-working Chinese people in the region.” What a suck-up. And Kim said he hoped for an early resumption of the six-party talks on his country’s nuclear weapons program, which China is pushing as well in a three-step process that would start with bilateral talks between North Korea and the United States. But few expect the six-party negotiations to resume anytime soon.

Meanwhile, the Chinese navy began artillery exercises in the Yellow Sea, days before the U.S. and South Korea hold naval maneuvers of their own in the same body of water.

While on the Taiwan front, Taipei said it planned to deploy its own cruise missiles by the end of this year, even as commercial ties with the mainland have been improving. Lin Chen-yi, chief of Taiwan’s General Staff said, “Although tensions between Taipei and Beijing have eased substantially, the Chinese Communists have not renounced the use of force against Taiwan.”

Separately, China blasted a U.S. plan to supply Taiwan’s air force with a more advanced radar system, even though Washington still has not gone ahead with a sale of F-16 fighter jets to the island, as Taipei has requested for years now. And for its part, Washington is increasingly concerned with the many contacts between retired Taiwanese generals and mainland authorities. ‘Sup with that? Evidently, the contacts have been so frequent, Washington is demanding an explanation.

Russia: As forecast years ago, Prime Minister Vladimir Putin has made no bones in recent weeks about wanting to return to the presidency in 2012 and he’s stepped up his attacks on the opposition. One popular square for political protesters has been fenced off by Moscow city authorities, but Putin said he was unaware of its closure, using an old Soviet Communist Party expression:

“Believe me, I don’t know about that…I give you my honest word as a party member.”

Putin also issued this call in dealing with protesters. 

“You will be beaten upside the head with a truncheon. And that’s it.”

To which opposition leader Boris Nemtsov said, Putin shows himself to be “dishonest, ignorant and evil.”

But Putin still receives a 78% approval rating from the people. [Medvedev’s is 73%. This week he ordered a halt to the construction of a highway through the Khimki forest, a rare victory for environmentalists, though some say much of the forest was already chopped down!]

And in Chechnya, a vicious gun battle broke out when militants attempted to storm the home of President Ramzan Kadyrov, but Kadyrov’s security detail beat them back, leaving at least 19 dead. Kadyrov is one of the truly awful people on the planet, not that I’m taking sides in this one, the rebels being disciples of the likes of al-Qaeda.

France:  I have long warned to beware growing nationalism, and scapegoating of immigrants, and French President Nicolas Sarkozy is facing a firestorm of criticism in some quarters over his crackdown against illegal Roma (Gypsy) camps; 50 of which have been destroyed since July. Full disclosure: I am not a fan of the Roma myself, especially the ones I’ve found in Paris. So without knowing all the details, I support Sarkozy, to an extent. But there is a fine line here and Pope Benedict XVI, speaking in French to make sure the message was received, called on Catholics to respect human diversity. But 2/3s of the French people approve of Sarkozy’s campaign as he sets the stage for his 2012 reelection bid, while the images of campers being crushed by power shovels are troubling to many.

The Roma were also targeted, it would seem, in an attack by a gunman in Bratislava, Slovakia, which left seven dead, while in Germany, a member of its Bundesbank, Thilo Sarrazin, came under fire for remarks against both Jews and Muslims, saying of the latter that Muslim immigrants aren’t capable or willing to integrate into western societies, adding, “I do not need to accept anyone who lives on handouts from a state that it rejects, is not adequately concerned about the education of their children and constantly produces new, little headscarf-clad girls.” Yikes. Imagine a Fed board member saying that stuff.

And lastly we had the story of 100 Russian skinheads attacking a music festival, though I haven’t ascertained exactly what the motive was in this one.

Overall, though, the right-wing has been making gains across Europe, a fact Sarkozy is obviously trying to tap into. Belgium, Netherlands, Hungary…to name a few others…have seen significant gains for parties representing these constituencies.

Britain: Along the lines of the above, authorities here are voicing increasing concern over up to 800 “potentially violent radicals” who are currently in British prisons and due to be released over the next 5 to 10 years, according to a think tank. Also over the coming years, Britain and France are looking to share the use of their aircraft carriers in an effort to maintain military power during an era of cost-cutting. The big impediment to the program is the loss of thousands of shipyard jobs, but the move would make it easier for Britain to scrap or downgrade one of the two replacement carriers currently under construction at a cost of over $6 billion. British Prime Minister David Cameron and President Sarkozy are supposed to outline plans at a November summit, according to the London Times. An intriguing idea, fraught with controversy.

But all of Britain was talking this week of former prime minister Tony Blair’s new memoir, wherein among other things he described Gordon Brown as a “strange guy” who lacked political instinct “at the human gut level” adding: “Political calculation, yes. Political feelings, no. Analytical intelligence, absolutely. Emotional intelligence, zero.”

Blair also acknowledged he didn’t anticipate the role of al-Qaeda or Iran in the aftermath of the Iraq war.

And Blair said he used alcohol at the end of a stressful day, though I’ve seen some pretty hilarious commentaries on this topic, such as Blair whimpering about having a gin and tonic and glass or two of wine at dinner, hardly the stuff of future AA meetings. And, heck, look at Churchill!

Australia: It would appear that Prime Minister Julia Gillard will muster enough seats to stay in office following the incredibly close election here. Gillard’s Labor party has 74 of 76 needed seats, with the coalition at 73 and three independents yet to announce as I go to post. Should Gillard prevail, her plan on levying heavy new taxes on the mining industry would go forward.

Japan:  As David Pilling of the Financial Times points out, since Junichiro Koizumi quit in 2006, Japanese leaders have averaged fewer than 12 months in office apiece, with another vote, and another change, slated for Sept. 14. Aside from being deeply unsettling for the populous, it greatly hurts Japan’s international image. And overall, “A loss of confidence in leadership can be extremely debilitating. Countries need a sense of direction. Japan’s politicians are merely going round in circles.”

Chile: What an awesome human interest story here with the 33 trapped miners now entering week five. I love how the Chilean government requested a team from NASA for advice on keeping the miners healthy. But these poor guys could still have another 3 to 4 months. God help and keep them alive because it could be a real shot in the arm for the world that last week before they are brought to the surface, potentially at Christmas time.

Mexico: Alas, no peace on Earth, good will to all men from Mexico as 8 were killed at a bar in Cancun, of all places; though I hasten to add the victims were all locals and the bar was evidently 3 miles from the hotel zone. And another mayor was gunned down in the border state of Tamaulipas, the second in the region in the past two weeks.

But soldiers killed 27 suspected drug cartel members in the same state, which is always good to see, though at the same time the government fired 10% of the federal police force, or 3200, in an attempt to make inroads into the massive corruption sweeping the force.

New Zealand: Awful earthquake on the South Island (though with no deaths at last word), but then on Saturday, nine were killed in a skydiving accident.

Ireland: I have a lot to say on this place following my 18th trip, but I’m running out of time and I want to give this topic the proper treatment, so next week the full and very bloody story of the Irish boom…and bust.

---

Gold closed at $1251
Oil, $74.60

Returns for the week 8/30-9/3

Dow Jones +2.9% [10447]
S&P 500 +3.7% [1104]
S&P MidCap +4.4%
Russell 2000 +4.3%
Nasdaq +3.7% [2233]

Returns for the period 1/1/10-9/3/10

Dow Jones +0.2%
S&P 500 -0.9%
S&P MidCap +5.5%
Russell 2000 +2.9%
Nasdaq -1.6%

Bulls  29.4
Bears 37.7 [Source: Chartcraft / Investors Intelligence…ratio 41.7/27.5 three weeks ago]

Have a great week. I appreciate your support.

Brian Trumbore

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