A usually well-informed
& highly regarded strategic advisory service recently suggested
that at their March 22nd meeting Obama told Netanyahu that
if Israel :
· believes that
as a souvereign state it is free to do as it wishes, it must accept
that the US has the right to do the same;
· ceases to be a
US ally that supports the US objective of maintaining a balance of power
in the region, it moves itself outside the framework of US strategic
interests; and
· expects the American
political process to protect it from the consequences of actions that
don’t jive with US interests, it is not reading America’s present
mood correctly.
This would explain why
Netanyahu called for a recess in the meeting to consult with the officials
accompanying him & with Cabinet colleagues in Jerusalem & that
the next 36 hours failed to produce anything that could have been spun
as progress or even as just a meeting of the minds.
One cynic noted that,
while ‘big government’ is the rallying cry of the Tea Party movement,
what really drives many of its adherents is the spectacle of a black
President, a female Speaker of the House, a Latino Supreme Court Justice
& an openly gay Chairman of the powerful House Financial Services
Committee. But they ain’t seen nothing yet : for in the twelve months
ended July 31st, 2008 48% of all babies born in the US had
Latino or black mothers, & that trend is rising.
The CBC this week carried
a program about Mumbai’s slum dwellers having better mail delivery
service than Canadians (Canada Post keeps jacking up its postage rates
year after year while cutting back on service - it basically has become
a huge employment agency & a deliverer of junk mail). Speaking from
personal experience, a while ago someone sent me a parcel by Purolator
courier from Toronto : it got to Edmonton overnight, but took Canada
Post four days for its notice to travel the seven blocks from Purolator’s
office to my home. Small wonder it’s called “snail mail”; this
amounts to an average speed of 12.2 cms(5 inches)/minute, not unlike
the speed of a moving snail.
Since the end of the
Cold War the US Navy has ‘ruled the waves’. But China is moving
to build a “blue water navy”. In 2012 its first aircraft carrier,
a Soviet-era vessel purchased from the Ukraine in 1998, is expected
to come into service (although it may still not be fully combat-capable)
in anticipation of which Beijing has built a concrete mock-up of its
flight deck at one of its technical colleges, followed, possibly as
soon as 2015, by its first home-built carrier.
Quote of the week (by
a non-Chinese columnist in the South China Morning Post) : “China’s
specialty is masquerading weakness as strength”
-o-o-o-o-o-o-o-
GLEANINGS VERSION
II
No. 354 - April
1st, 2010
OBAMA PAYS MORE
THAN BUFFETT (Bloomberg, Daniel Kruger & Bryan Keogh)
· The bond market
implies it is safer to lend to Buffett than to Obama; for the yield
on the two-year notes Buffett’s Aa2-rated Berkshire Hathaway sold
in February are trading at a lower yield than similar maturity USTs,
as do bonds of Aa3-rated Proctor & Gamble, A2-rated Lowe’s &
A1-rated Abbott Laboratories (despite warnings of a possible downgrade).
The spread of double A-rated corporates over UST securities has narrowed
dramatically in the past 18 months while German ‘Bunds’ now trade
60 bps (0.60%) lower than USTs while a year ago they traded 50
bps. higher. Moody’s expects the share of US tax revenues spent
on debt service to go from 7% now to 11% by 2013 & says it is “substantially”
closer to losing its triple-A rating. And S&P says the Administration’s
stimulus spending & the Fed’s measures to fix the financial system
will cause the corporate default rate to halve by year end; for corporations
are paying down debt at a record rate - in the Fourth Quarter alone
by US$282BN (3.8%). So corporate balance sheets are improving as Washington’s
is deteriorating (in part a function of the past two years’
conversion of private- into public debt).
Last week, for the
first time ever, the US swap spread went negative, implying the market
deems UST securities riskier than the banks’. Bloomberg expects the
yield on two-year USTs to go from the present 0.99% to 1.77%, &
on ten-year USTs from 3.69% to 4.20%, by yearend. In Canada the
banks this week boosted their mortgage rates in response to rising bond
yields (that suggest it queries Bank of Canada Governor Mark Carney’s
ability to keep his vow not to raise rates until mid-year), most significantly
in the five year area, which as of mid-April will be the benchmark for
gauging the debt-carrying capability of aspiring home owners seeking
mortgage funding.
CONSUMER CONFIDENCE
REBOUNDS IN MARCH (AP)
· The Conference
Board’s Consumer Confidence Index rose to 52.5, regaining half the
11 points it lost in February when it skidded to 46.4. Of the two sub-indices,
that for current conditions rose from 21.7 to 26.0 & that for the
outlook six months hence from 62.9 to 70.0.
Reality check : it
takes a reading of 90 to indicate health & 100 for growth.
HOME PRICES SHOW
SIGNS OF STRENGTH (AP)
· In January the
S&P/Case-Shiller 20-city Home Price Index was down just 0.7% YoY,
but up 0.3% MoM, its eighth consecutive monthly gain. While now up nearly
4% from its May 2009 low, it is still nearly 30% below its May 2006
peak.
But
the rate of homeowners with mortgages who are
under water on their home ‘investment’
is still climbing, and now within sight of
50%.
MANUFACTURING GROWS
AT FASTEST PACE SINCE ’04 (AP)
· In March the ISM
Index of Industrial Activity rose to 59.6, vs. 56.5 in February &
a 57 forecast, with only one of the 18 industries in the ISM survey,
plastics & rubber, reporting contraction. This was its eighth month
of expansion & its highest level since July 2004's 59.9. Manufacturers’
inventories were up after 46 months of contraction (with a similar trend
apparent in China, the UK & the Eurozone). But while overseas orders
& business spending on capital equipment continue to grow, the rate
of growth is decelerating..
· On the other hand,
construction remains weak, declining a greater-than-expected 1.3% in
February to a US$846.2BN annual rate, its lowest level since November
2002, eliciting an observation by Julia Coronado of BNP Paribas that
“there are few indications this decline is reaching bottom.”
It is believed
it will take the creation of 400,000 new jobs/month for 4 years to replace
the 8+MM jobs lost during the recession & accommodate normal labour
force growth.
DEEP DIVIDE REMAINS
ON HEALTH REFORM (WP, Jon Cohen & Dan Batz)
· Over 25% of Americans
believe neither side made a good faith effort to cooperate on the healthcare
issue. In a Washington Post poll 46% support the end product & 50%
oppose it, little changed from last summer when the country first became
polarized on the issue. But while the Democrats have started to rally,
with 56% of them now “strongly” supporting it, up from 41% a month
ago, & eight in ten Democrats now approving of the way Obama handled
the issue, the most since last summer, overall his approval rate is
stuck at 53% with independents, who strongly supported Democratic candidates
in 2006 & 2008, now split 42% for GOP candidates & 39% for Democrats.
And 60+% of seniors think Medicare has been weakened; as a result opponents
among them outnumber strong supporters 2-to-1.
The elections are
still seven months away. A lot can happen in that time. It likely is
premature to count out the Democrats, especially if there were
to be more visible signs of an economic recovery
OBAMA MAKES FIRST
APPOINTMENTS WITHOUT SENATE NOD (AF-P)
· On March 27th
he made 15 “recess appointments” (from the 217 Presidential nominations
hung up in the Senate), incl. two top Treasury officials (the Under-Secretary
for Domestic Finance & the Assistant-Secretary for Tax Policy)
which he lamented had been held up for nearly six months “at a time
of economic emergency” (which raises the question why it took him
six months to nominate them) & three senior Commerce Department
officials in export/international trade area (who presumably are
critical to his goal of doubling exports in five years). But his
most controversial appointment was that of union lawyer Craig Becker
to the five-member National Labour Relations Board (which
has had three vacancies for two years, raising questions about the legality
of its decisions); Republicans saw this as a pay-off for union support
in the dying days of the healthcare debate (& during his run
for the Presidency) which they fear will skew the Board’s decisions
in a pro-union direction & which all 41 Republican Senators had
urged him in a letter two days earlier not to make.
Recess appointments
can be made by a President when the Senate is not in session, are good
for one Congressional session - in this case until late 2011-, &
enable him to circumvent the Senate vetting process. Despite all the
hooting & hollering by the Republicans, Obama has shown restraint
in this respect : these were his first recess appointments despite the
fact that the appointment of these 15 had been held up for an average
seven months (Bush made 170 such appointments, incl. that of neo-conservative
icon John Bolton as US Ambassador to the UN, & Clinton 140).
ISRAEL QUITS GAZA
AFTER DEADLY CLASH (Reuters)
· IDF troops &
tanks left Northern Gaza on March 27th, leaving two Israeli
soldiers & one Palestinian dead, having entered the day before to
“dismantle a mine”.
· After what analysts
called a “bruising” encounter between Obama & Netanyahu on March
22nd, & after the latter reiterated Israel wouldn’t
quit building in East Jerusalem, the Secretary-General of the Arab League,
Amr Moussa, told Arab leaders meeting in Sirte, Libya that “It is
time to face Israel. We have to have alternate plans (to our earlier
support for ‘proximity talks’) because the situation has reached
a turning point.”
Why should the Israelis
give a damn about a mine on the other
side of its border?
ISRAELI MINISTER
THREATENS TO TOPPLE HAMAS REGIME (AF-P)
· On March 30th
Finance Minister Yuval Steinitz of the Likud Party told public radio
“Sooner or later we will liquidate the military regime of the pro-Iranian
Hamas which controls the Gaza strip ... I am not setting a time table,
but we will not tolerate this regime to strengthen itself militarily
and provide itself with an arsenal of rockets that threaten our territory.”
Either he is
conceding the blockade of Gaza has been
futile & ineffective (Egyptian police recently seized 41 brand new
cars awaiting transfer into Gaza through one of the myriad of tunnels
honeycombing beneath the Egypt-Gaza border) or he is just looking for
an excuse. This also suggests that extreme views in the Netayahu cabinet
are not limited to the extreme right wingers.
PALESTINIAN LEADER
WANTED HAMAS CRUSHED, THEN CHANGED TUNE (Reuters)
· Foreign Minister
Avigdor Lieberman told Maariv on March 29th “In
Operation Cast Lead, he (Mahmoud Abbas) called us ..., applied
pressure and demanded that we topple Hamas and remove it from power
... A month after the operation ended, he filed a complaint against
us with the International Court of Justice at The Hague for war crimes.
Is that a partner?” An Abbas aide commented “This is not true. It
is a continuation of the (Israeli) campaign of defamation ... to create
an atmosphere that would destroy any chance of salvaging the peace process”,
& Hamas that “The ... statement reaffirms the fact Mahmoud Abbas
is no longer fit to represent our people, who conspired against his
people during a war.”
· While Lieberman
was not in the (Olmert) government during the Gaza War, a senior
Israeli who was said his account was “essentially accurate.”
Lieberman
heads the far right Yisrael Beiteinu party, is known for his uncompromising
hardline positions, & has a vested interest in derailing the peace
process.
ARAB LEAGUE CHIEF
URGES CLOSER TIES WITH IRAN (AP)
· On March 27th,
reflecting frustration with the US failure to bring Israel to heel,
Amr Moussa told the Arab leaders meeting in Sirte that continued Israeli
construction on land claimed by the Palestinians could scuttle the Mideast
peace process for good & urged the 22-nation group to engage Iran
in direct talks about its growing influence in the region & its
nuclear program, as a possible first step towards creating a forum for
regional cooperation & conflict resolution that would include Turkey
& Iran, both non-Arab states.
This runs counter
to US efforts to isolate Iran & have more serious sanctions imposed.
The importance of this meeting was undermined by the absence of two
key Arab leaders cum US allies, Egypt’s President Mubarrak & Saudi
Arabia’s King Abdullah.
IRAN SANCTIONS
ARE FAILING. WHAT’S NEXT? (WSJ, Danielle Pletka).
· Hilary’s promise
of “crippling sanctions” & Obama’s of “aggressive” penalties
increasingly look like just talk. For they cannot get a critical mass
of nations to join it. Candidate Obama told us engagement would be his
byword. And he extended a generous hand to Tehran. And even if it perhaps
stayed extended too long, the world never faults an US President for
this even if this puts America’s national security at risk. So as
the failure of Mr. Obama’s Iran policy becomes manifest to all but
the president, we drift toward war. The only questions now, a Washington
politico tells me, are who will start it & how it will end.
Ms. Pletka is a prominent
neoconservative & an official of the American Enterprise Institute
that just made David Frum ‘walk the plank’ for
pointing out that much of the healthcare bill traced its parentage to
Republican ideas going back to 1989 &
questioning the wisdom of, in practical political terms, of hitching
the Republican Party’s star to people like Russ Limbaugh & Sarah
Palin who, polls show, are loathed by a majority of American voters.
Interesting how she equates China’s unwillingness to go along
with sanctions with “a critical mass of nations.” Be that as it
may, this should enhance the appeal of an approach such as I suggested
a few weeks ago that would use the US Navy to bar or seize the export
of Iranian oil, because doing so would take control of the agenda away
from the Israelis, send a message that being reasonable in dealing with
one’s opponents can be a sign of weakness,
but of strength (which will be a particularly important message to convey
at this time given the high level, bilateral US-China talks scheduled
for next month), use a unique US military capability that has
‘excess capacity’ & defuse Republican claims the President is
soft on foreign policy (& by implication, homeland security), but
wouldn’t require Congressional approval.
CHINA ECONOMISTS
URGE RENEWED RISE OF YUAN (Reuters)
· On March 29th
three economists were named to the Bank of China’s monetary policy
committee & the next day attended their first meeting. One of them,
Xia Bin, a researcher at the Development Research Centre was quoted
as saying that “[China] should resume the pre-crisis managed float
exchange rate as quickly as possible” & Li Dao Kui, an economist
at Tsinghua University, that “one way of relieving pressure on the
yuan exchange rate is to make an adjustment on China’s own initiative”
(& to do so by September so it wouldn’t become an issue in the
November US mid-term elections).
In China sensible
officials secure official blessing for everything they say on policy
matters; so this looks Being signaling
that it wants to avoid being named a
“currency manipulator” by Secretary Geithner in his annual report
to Congress due in mid-April. But it faces two problems. It must avoid
losing face by appearing to give in to foreign pressure. And while in
due course it may be able to return to a
“managed float”, it must first make a one-time adjustment for which
there is no Goldilocks ‘just right’ solution, especially since Congress
had been told ad nauseam that nothing but 40% will do (which would make
the cumulative change since Beijing started its managed float several
years ago almost 50% which would be all but unprecendented in international
monetary history).
GREECE PLANS GLOBAL
BOND ISSUE (WSJ, Nick Skrekas & Costas Paris)
· On March 29th
it sold 5BN Euros (US$6.71BN) of 6%, 7-year bonds & on the
30th 390MM Euros of 20-year bonds at a similar yield (an
add-on to an existing issue). Neither were great successes : the oversubscription
for the former was modest & it had targeted selling a billion
Euros-worth of the latter. On the 31st Moody’s downgraded
five Greek banks due to “the country’s weakening macro-economic
outlook.” Athens now is planning a US$-denominated global issue since
‘there are lots of Asian investors who haven’t yet bought our bonds’
Greek officials are
frustrated. They still have about 20BN Euros of refinancing left
in the next two months, had expected the EU support package to move
the spread over German Bunds from the current 3.3% to closer to 2%,
& blame the ‘vagueness’ of the package for this not happening.
In Real Politik terms, the size of the spread is significant for more
than just cosmetic and/or ego reasons; for
the more costly the funding, the more difficult the Greek government
will find it to meet everyone’s spending cut targets.