George W. Bush used to ask “why haven’t we found bin Laden?” with such regularity that an exasperated official once suggested sending a one-sentence reply back to the president. “Because he’s hiding.”
Now, almost a decade after 9/11, and according to President Obama, Osama bin Laden has finally been found and killed. His death offers an opportunity to declare an end to the “war on terror”. This is not the same as saying that the US and Europe can now stop worrying about terrorism. The west will need a serious counter-terrorism policy for many years to come.
But the Bush-inspired drive to make terrorism the main piece of US foreign policy was a mistake. A big one. The declaration of a “Global War on Terror” distorted American foreign policy and led directly to two wars – in Iraq and Afghanistan. The war on terror has guzzled billions of dollars in wasteful spending and spawned a huge and secretive bureaucracy in Washington. The death of bin Laden gives President Barack Obama the cover he needs to start quietly unwinding some of these mistakes.
Getting the terrorist threat into perspective is difficult. The attacks on New York and Washington were so horrific that they are seared into the memory. It is also clear that al-Qaeda has spawned affiliates that may now be just as dangerous as the original al-Qaeda franchise, run by bin Laden from Pakistan. Intelligence officials say that dangerous plots are being hatched by branches of al-Qaeda in Yemen, Somalia and north Africa – and there is no reason to disbelieve them.
And yet, look at the numbers, and it becomes clear that the threat of terrorism has been seriously hyped. In a book published a couple of years ago John Mueller, an academic from the US, pointed out that the number of Americans killed by terrorists since 1960 is “about the same as the number killed over the same period by accident-causing deer”. In a report for the Rand Corporation, Brian Jenkins made a similar point: “The average American has about a one in 9,000 chance of dying in an automobile accident and about a one in 18,000 chance of being murdered.” However, in the five years after 9/11, and including the people killed there, “an average American had only a one in 500,000 chance of being killed in a terrorist attack”.
Yet incredible resources have been poured into the “war on terror”. In a report on “Top Secret America” published last year, the Washington Post pointed out that: “In Washington and the surrounding area, 33 building complexes for top-secret intelligence work are under construction or have been built since September 2001. Together they occupy the equivalent of almost three Pentagons.” And that is just the organisations created since 9/11. The CIA and the National Security Agency were hardly modest or under-resourced organisations before the “war on terror”.
By 2010, the US intelligence budget was $75 billion a year – a more than twentyfold increase since 9/11. That figure does not even include military activities run by the intelligence agencies, such as the drone attacks in Pakistan. Given all this, it is astonishing that it took a decade to track down bin Laden.
Nonetheless, the success in killing the leader of al-Qaeda – combined with warnings of new terrorist plots– may actually give a further boost to intelligence spending. This possibility is increased by the news announced last week that General David Petraeus, an empire-builder with a following on Capitol Hill, has been appointed as head of the CIA.
In fact, while good intelligence work is vital, there is plenty of evidence of massive waste and duplication in the US intelligence effort. According to the Washington Post, there are no fewer than 51 federal agencies entrusted with monitoring the flow of money to terrorist networks. The NSA intercepts 1.7 billion e-mails and phone calls every day – far more than could ever be usefully analysed.
An excessive concentration on intelligence-gathering is not just a waste of time and money. More important, it also distorts US foreign policy – as a dangerous merger takes place between intelligence and military capabilities. The line has already been blurred by the CIA’s role in fighting the Afghan war. It will be further eroded by the appointment of a general to run the CIA. Meanwhile, as the spies and soldiers are showered with money, conventional diplomacy and development aid have been run on a relative shoestring.
Given the flow of resources, it is hardly surprising that US foreign policy has become so militarised over the past decade. And yet the results have been dismal. The war in Iraq cost hundreds of thousands of lives and probably made the terrorist threat worse. The utility of waging a decade-long war in Afghanistan also comes into question – now that we have confirmation that al-Qaeda’s leadership was based deep inside Pakistan.
Meanwhile, as America poured money and resources into the GWOT, the truly epoch-making changes of our time were taking place in east Asia. The rise of new economic powers such as China and India – and the relative decline of the US – will ultimately shape the next century far more than the terrorist threat. But handling the rise of China and reviving the US economy are difficult and lengthy challenges – offering none of the emotional satisfaction of blowing away “America’s most wanted”.
Tuesday, May 3, 2011
From Wikileaks - US Forces Were Very, Very Close To Bin Laden In 2008
The Guardian, which always does the fastest analysis of Wikileaks cables, has just released that back in 2008, US forces were as close as a few hundred yards away from OBL's Abbottabad compound (which incidentally is home to the Pakistan Military Academy which trains officers from across the nation. The academy is streets away from where Bin Laden was tracked down and killed.) From the Guardian: "The revelation that US forces were so close to the world's most wanted man in 2008 comes after material from the Guantánamo Files suggested the US may have received the intelligence that led them to Bin Laden as early as 2008. The US soldiers were due to perform a routine posting "training the trainers" of Pakistan's 70,000 strong federal military unit, the Frontier Corps." What a very unlucky coincidence. Surely, it explains the increased need for caffeine consumption by the Al Qaedan who surely needed to stay up at night and listen for SEALs jumping over the compound walls: "The two polite Pakistanis who helped Osama bin Laden hide in the shadow of their country’s army bought bulk food orders, chose major brands and equally favored Pepsi and Coke, neighbors and a local shopkeeper said." We wonder if the shopkeeper also sold the insulin so very desperately needed by the diabetic bin Laden following his Coke binges.
From the Guardian:
Abbottabad is home to the Pakistan Military Academy, the country's version of Sandhurst in Britain, and trains officers from across the nation. The academy is streets away from where Bin Laden was tracked down and killed.
The information about the US troops is contained in the account of a meeting in Washington between then deputy secretary of state John Negroponte and Pakistan's foreign minister Shah Mehmood Qureshi, discussing security co-operation and concerns across the country.
After both parties agreed the security plans lacked resources, Pakistan's national security advisor, Mahmud Ali Durrani, referred to the training co-operation.
"Durrani pledged Pakistan's support for the US Training-of-Trainers for the Frontier Corps starting in Abbottabad in October," the report read.
US forces may have visited the town for a second time, mere months later, according to the cable. "Due to the slow pace of construction, Durrani added he was doubtful that the more permanent training site at Warsak would be ready for the next iteration of training, scheduled in early 2009.
"Durrani thanked the US for its support of Pakistan's special forces, but requested more training and equipment to improve Pakistan's capacity, specifically citing lift capability and intelligence sharing."
Abbottabad is only infrequently mentioned in the 250,000 leaked embassy cables. The cables show the town, 50km north of Islamabad, also served as a distribution hub for US and UN aid in the wake of Pakistan's 2005 earthquake.
From the Guardian:
Abbottabad is home to the Pakistan Military Academy, the country's version of Sandhurst in Britain, and trains officers from across the nation. The academy is streets away from where Bin Laden was tracked down and killed.
The information about the US troops is contained in the account of a meeting in Washington between then deputy secretary of state John Negroponte and Pakistan's foreign minister Shah Mehmood Qureshi, discussing security co-operation and concerns across the country.
After both parties agreed the security plans lacked resources, Pakistan's national security advisor, Mahmud Ali Durrani, referred to the training co-operation.
"Durrani pledged Pakistan's support for the US Training-of-Trainers for the Frontier Corps starting in Abbottabad in October," the report read.
US forces may have visited the town for a second time, mere months later, according to the cable. "Due to the slow pace of construction, Durrani added he was doubtful that the more permanent training site at Warsak would be ready for the next iteration of training, scheduled in early 2009.
"Durrani thanked the US for its support of Pakistan's special forces, but requested more training and equipment to improve Pakistan's capacity, specifically citing lift capability and intelligence sharing."
Abbottabad is only infrequently mentioned in the 250,000 leaked embassy cables. The cables show the town, 50km north of Islamabad, also served as a distribution hub for US and UN aid in the wake of Pakistan's 2005 earthquake.
Bent But Didn't Break Today - More Downside Coming?
The Dow Jones Industrial Average finished the day almost exactly flat and the S&P 500 had a minor loss of about 0.34%. Under the surface, there was some extremely poor action, particularly in momentum names. Every one of the stocks on the Investor's Business Daily's IBD 50 was in the red, small caps underperformed badly and oil and commodities were pummeled.
Investors found some safe havens in names like WMT, AA and INTC, but if you were carrying stocks that have been leaders recently, you most likely were hit hard today. Breadth was a little worse than 2 to 1 negative but felt much worse. Volume picked up, providing some technical distribution.
Days like this can be quite challenging because on the one hand, the technical pictures of the S&P 500 and the Dow are still quite good. There doesn't seem to be any need to rush for the exits. On the other hand, your chances of suffering severe losses on individual stocks are quite high if you own anything other than some big-cap defensive names. The high beta, momentum names were slammed, and that is not the sign of a healthy market.
Anyone just casually glancing at the Dow is going to seriously misunderstand what happened in the market today. Unfortunately, it was much worse than it looked and that may produce selling pressure as more market players come to the realization that many key stocks are breaking down.
Investors found some safe havens in names like WMT, AA and INTC, but if you were carrying stocks that have been leaders recently, you most likely were hit hard today. Breadth was a little worse than 2 to 1 negative but felt much worse. Volume picked up, providing some technical distribution.
Days like this can be quite challenging because on the one hand, the technical pictures of the S&P 500 and the Dow are still quite good. There doesn't seem to be any need to rush for the exits. On the other hand, your chances of suffering severe losses on individual stocks are quite high if you own anything other than some big-cap defensive names. The high beta, momentum names were slammed, and that is not the sign of a healthy market.
Anyone just casually glancing at the Dow is going to seriously misunderstand what happened in the market today. Unfortunately, it was much worse than it looked and that may produce selling pressure as more market players come to the realization that many key stocks are breaking down.
Monday, May 2, 2011
Thoughts
Bin Laden's Death and the Stock Market
For me, yesterday's announcement by President Obama that Bin Laden had been killed has no market impact whatsoever, as the economic and market challenges still remain directly in front of us.
It can be argued that Bin Laden's death is a punctuation mark but not a period or finality that many suggest and hope for, as, unfortunately, geopolitical risk has been heightened in the last few years. The tentacles of terrorism have grown ever wider and its web has grown ever more sophisticated.
Instead, to me, Bin Laden's death is a comma -- a chapter has been closed, but the book on terrorism remains open.
I do not believe that we are any safer from terrorism today than we were on Sunday morning.
Run, don't walk, to read the editorial by Pimco's Mohamed El-Erian on "Sleepwalking Through America's Unemployment Crisis."
Japan's Rising Sun
The Japanese stock market has experienced one of the most drawn out and pronounced secular bear markets in history.
No country in modern history has moved so swiftly from worldwide adulation to dismissal or even contempt as did Japan, in a process that began more or less as the temple bells were tolling in the new year of 1990. In the 15 years that followed, amid crashing stock- and property markets, mountains of dud debt, scores of corruption scandals, vast government deficits and stagnant economic growth, Japan mutated from being a giver of lessons to a recipient of lectures, all of which offered recipes for its reform and revival. Those lectures, although received politely by a newly self-deprecatory Japanese elite, seemed to be ignored.
The Economist, "The Sun Also Rises" (October 2005)
As Barton Biggs has put it:
The experience of Japan over the last 20 years demonstrates how dangerous it is to allow deflation to take root in an economy burdened with a massive load of private debt that the debtors are desperate to pay down. The Bank of Japan's (BOJ) and the ruling party's errors compounded the deflation and a psychology of "don't buy now; it will cost less later" became entrenched. Prices inexorably fell, and paralysis of the economy and the political system ensued.
Some reasons for buying Japan now:
* Since the devastating Tōhoku earthquake and tsunami on March 11, the Topix has fallen by about 5% while the MSCI World Index has increased by over 5%.
* The condition of the Fukushima Daiichi nuclear power plant has been stabilized and a plan to realize a cold shutdown is now in action.
* The electrical supply outlook has improved. According to Goldman Sachs Tokyo Electric Power Company's electricity output by this summer should not force large-lot users to restrict electricity usage.
* The Japanese government is responding promptly with regard to policy stimulus. The Kan administration has submitted a first fiscal year 2011 supplementary budget, and a second supplementary budget is expected by the end of June.
* Japans' monetary policy is market-/economic-friendly. Base money growth has surged since the March nuclear accident. In mid-March, the BOJ increased its asset purchase program, and in early April, the BOJ announced a new loan program geared toward assisting financial institutions in their response to the likely increase in reconstruction funding demand.
* Economic dislocations caused by the earthquake have threatened near-term GDP forecasts, but I will remind readers that the U.S. stock market's generational low was achieved under similar economic uncertainty.
* The Japanese government appears to be implementing fiscal stimulus that is reasonable in scale and timely in policy.
* There is widespread optimism that the worldwide economic recovery will be smooth and self-sustaining -- as such, it could facilitate a meaningful improvement in Japanese exports.
* Finally, the post recovery future for Japan will hopefully accelerate reforms (e.g., free trade agreements). It might also lead to accelerated production diversification (and more M&A activity) and rising demand for alternative energy technologies.
A Vision of Japan According to Barton Biggs
Now to Barton's most interesting observations on Japan's history of formidable accomplishments as well as his read on the (admittedly) existential and mystical side of the recent nuclear accident and its possible positive investment implications:
Though possibly farfetched, it is conceivable that the effects of the earthquake are analogous to "creative destruction" and could kick start the lethargic Japanese economy and end the long period of stagnation. Its consequences could also revitalize the political and corporate governance process that has once again demonstrated the overwhelming incompetence of the Prime Minister, the bureaucrats who really run the country and, finally, the careless and pathetic management of the major electric utility whose president had an emotional collapse.
He goes on:
The earthquake damage and the nuclear disaster constitute an enormous supply shock to the Japanese economy, as electric power is rationed and ruined production facilities are shut down. Japanese companies have been de-leveraging by paying down debt, and loan demand has been nonexistent, but now companies are going to have to borrow money to rebuild. The earthquake should activate loan demand, and production shortages should narrow the output gap and maybe even trigger some inflation.
I'm not into mysticism, but there is a mythology in Japan that the major earthquakes that have haunted and rattled Japan for centuries have presaged major cultural and social changes in this island [nation] ... whose culture is utterly unique. The 1855 Tokyo earthquake that leveled the city marked the beginning of the end of 200 years of isolation and a complex, rice-based feudalism with the emperor ruling from Kyoto called Tokugawa or Edo period. It was followed by a Japan more industrial and open to the world, and that fought and won a great sea battle with Russia.
The 1923 quake signaled another new age with the rise of aggressive militarism and an obsession with Asian conquest that culminated in World War II. Ironically, the Morgan banks took the lead in underwriting large sovereign debt issues that financed the rebuilding and rearming of Japan. The Emperor two decades later remembered this assistance was reluctant to go to war against the U.S. because of it.
Some Japanese who believe in this theory even argue that the devastation from the atomic bombing of Hiroshima and Nagasaki was like an earthquake and signaled the end of that tragic, militaristic era. They also maintain that a half century later the Kobe 1995 quake signaled the end of the postwar industrial boom, and heralded 20 years of recession and deflation. They maintain that in the decade after earthquakes, the legend is that the Japanese birth rate dramatically rises. As we all know, Japan's declining population and workforce have been a huge drag.
It is not that earthquakes cause or bring change in and of themselves. Instead, they signal change. The Japanese island, the earth, the tectonic plates are speaking. The land is an integral part of the race, the nation, and the Japanese believe its adherence to cultural and racial purity causes its superiority. Think of the thousands of years when Japan and the Japanese were totally separate from the rest of the world. Even today, immigration is restricted and blocked. Read Shogun or the modern history leading up to 1941.
The Japanese are a formidable race. After the 1923, earthquake they determined to build the best navy in the world. Their naval academy, Eta Jima (EJ), made Annapolis look like a summer camp for privileged teenagers. The EJ midshipmen were tutored by English instructors in table manners and making toasts. They were told they must always travel first class and must never be seen carrying packages. The academic, physical and seamanship programs were very demanding, and, above all, unswerving loyalty to the emperor, obedience and readiness to die in battle was instilled and enforced. Surrender was never an option, and captains went down with their ships.
The midshipmen were also brutalized. The smallest infraction of a rule resulted in a beating and guard duty punishment. Every Sunday, freshmen stood at rigid attention in the yard for four hours and were slapped and pummeled by upper classmen. The physical training program was intense and unrelenting. British offices observing the curriculum questioned whether it didn't produce narrow-minded robots whose creativity and independence had been beaten out of them. Despite its Spartan regimen, Eta Jima had 30 applicants for every one accepted.
Throughout, the Imperial Navy violence was employed to enforce discipline and blind obedience. Just as the samurai warriors of the past could kill an impudent commoner who failed to get out of their way in the road, a Japanese naval officer in 1941 was required to strike five times with his fist any enlisted man who failed to salute or who disobeyed a direct order. Petty officers on Japanese ships carried thin, but heavy, sticks called "spirit bars" with which they hit enlisted men who did not respond fast enough to orders. It is now accepted that by the late 1930s the Japanese had the best, most sophisticated navy in the world, with three super battleships and five aircraft carriers. The U.S. just got lucky in the crucial battle of Midway in 1942, and in addition, an operations officer on the Japanese flagship succumbed to sentiment and allowed his aircraft to be caught on the deck refueling. Incidentally, he had gone to Princeton instead of Eta Jima.
The Japanese army was no different. Soldiers were expected to be able to walk 35 miles a day for weeks on end with full pack and equipment. They were conditioned to endure on a diet of rice and water and four hours of sleep a night. Young officers were trained to be aggressive and always attack. In fact, their field manual had no chapter on retreat. Japan had also developed an aeronautical marvel, the Zero, which was the fastest, most maneuverable fighter plane in the world. Ironically, the Zero was delivered from its factory by ox cart.
Valuations
Finally, let's now look at valuations.
Most recognize that the Japanese stock market has experienced one of the most drawn out and pronounced secular bear markets in history.
According to Biggs, "Japanese equities are very, very cheap. The market sells at book value and at half of sales."
I agree with Biggs on all counts, thanking him for the history lesson and the investment idea.
For me, yesterday's announcement by President Obama that Bin Laden had been killed has no market impact whatsoever, as the economic and market challenges still remain directly in front of us.
It can be argued that Bin Laden's death is a punctuation mark but not a period or finality that many suggest and hope for, as, unfortunately, geopolitical risk has been heightened in the last few years. The tentacles of terrorism have grown ever wider and its web has grown ever more sophisticated.
Instead, to me, Bin Laden's death is a comma -- a chapter has been closed, but the book on terrorism remains open.
I do not believe that we are any safer from terrorism today than we were on Sunday morning.
Run, don't walk, to read the editorial by Pimco's Mohamed El-Erian on "Sleepwalking Through America's Unemployment Crisis."
Japan's Rising Sun
The Japanese stock market has experienced one of the most drawn out and pronounced secular bear markets in history.
No country in modern history has moved so swiftly from worldwide adulation to dismissal or even contempt as did Japan, in a process that began more or less as the temple bells were tolling in the new year of 1990. In the 15 years that followed, amid crashing stock- and property markets, mountains of dud debt, scores of corruption scandals, vast government deficits and stagnant economic growth, Japan mutated from being a giver of lessons to a recipient of lectures, all of which offered recipes for its reform and revival. Those lectures, although received politely by a newly self-deprecatory Japanese elite, seemed to be ignored.
The Economist, "The Sun Also Rises" (October 2005)
As Barton Biggs has put it:
The experience of Japan over the last 20 years demonstrates how dangerous it is to allow deflation to take root in an economy burdened with a massive load of private debt that the debtors are desperate to pay down. The Bank of Japan's (BOJ) and the ruling party's errors compounded the deflation and a psychology of "don't buy now; it will cost less later" became entrenched. Prices inexorably fell, and paralysis of the economy and the political system ensued.
Some reasons for buying Japan now:
* Since the devastating Tōhoku earthquake and tsunami on March 11, the Topix has fallen by about 5% while the MSCI World Index has increased by over 5%.
* The condition of the Fukushima Daiichi nuclear power plant has been stabilized and a plan to realize a cold shutdown is now in action.
* The electrical supply outlook has improved. According to Goldman Sachs Tokyo Electric Power Company's electricity output by this summer should not force large-lot users to restrict electricity usage.
* The Japanese government is responding promptly with regard to policy stimulus. The Kan administration has submitted a first fiscal year 2011 supplementary budget, and a second supplementary budget is expected by the end of June.
* Japans' monetary policy is market-/economic-friendly. Base money growth has surged since the March nuclear accident. In mid-March, the BOJ increased its asset purchase program, and in early April, the BOJ announced a new loan program geared toward assisting financial institutions in their response to the likely increase in reconstruction funding demand.
* Economic dislocations caused by the earthquake have threatened near-term GDP forecasts, but I will remind readers that the U.S. stock market's generational low was achieved under similar economic uncertainty.
* The Japanese government appears to be implementing fiscal stimulus that is reasonable in scale and timely in policy.
* There is widespread optimism that the worldwide economic recovery will be smooth and self-sustaining -- as such, it could facilitate a meaningful improvement in Japanese exports.
* Finally, the post recovery future for Japan will hopefully accelerate reforms (e.g., free trade agreements). It might also lead to accelerated production diversification (and more M&A activity) and rising demand for alternative energy technologies.
A Vision of Japan According to Barton Biggs
Now to Barton's most interesting observations on Japan's history of formidable accomplishments as well as his read on the (admittedly) existential and mystical side of the recent nuclear accident and its possible positive investment implications:
Though possibly farfetched, it is conceivable that the effects of the earthquake are analogous to "creative destruction" and could kick start the lethargic Japanese economy and end the long period of stagnation. Its consequences could also revitalize the political and corporate governance process that has once again demonstrated the overwhelming incompetence of the Prime Minister, the bureaucrats who really run the country and, finally, the careless and pathetic management of the major electric utility whose president had an emotional collapse.
He goes on:
The earthquake damage and the nuclear disaster constitute an enormous supply shock to the Japanese economy, as electric power is rationed and ruined production facilities are shut down. Japanese companies have been de-leveraging by paying down debt, and loan demand has been nonexistent, but now companies are going to have to borrow money to rebuild. The earthquake should activate loan demand, and production shortages should narrow the output gap and maybe even trigger some inflation.
I'm not into mysticism, but there is a mythology in Japan that the major earthquakes that have haunted and rattled Japan for centuries have presaged major cultural and social changes in this island [nation] ... whose culture is utterly unique. The 1855 Tokyo earthquake that leveled the city marked the beginning of the end of 200 years of isolation and a complex, rice-based feudalism with the emperor ruling from Kyoto called Tokugawa or Edo period. It was followed by a Japan more industrial and open to the world, and that fought and won a great sea battle with Russia.
The 1923 quake signaled another new age with the rise of aggressive militarism and an obsession with Asian conquest that culminated in World War II. Ironically, the Morgan banks took the lead in underwriting large sovereign debt issues that financed the rebuilding and rearming of Japan. The Emperor two decades later remembered this assistance was reluctant to go to war against the U.S. because of it.
Some Japanese who believe in this theory even argue that the devastation from the atomic bombing of Hiroshima and Nagasaki was like an earthquake and signaled the end of that tragic, militaristic era. They also maintain that a half century later the Kobe 1995 quake signaled the end of the postwar industrial boom, and heralded 20 years of recession and deflation. They maintain that in the decade after earthquakes, the legend is that the Japanese birth rate dramatically rises. As we all know, Japan's declining population and workforce have been a huge drag.
It is not that earthquakes cause or bring change in and of themselves. Instead, they signal change. The Japanese island, the earth, the tectonic plates are speaking. The land is an integral part of the race, the nation, and the Japanese believe its adherence to cultural and racial purity causes its superiority. Think of the thousands of years when Japan and the Japanese were totally separate from the rest of the world. Even today, immigration is restricted and blocked. Read Shogun or the modern history leading up to 1941.
The Japanese are a formidable race. After the 1923, earthquake they determined to build the best navy in the world. Their naval academy, Eta Jima (EJ), made Annapolis look like a summer camp for privileged teenagers. The EJ midshipmen were tutored by English instructors in table manners and making toasts. They were told they must always travel first class and must never be seen carrying packages. The academic, physical and seamanship programs were very demanding, and, above all, unswerving loyalty to the emperor, obedience and readiness to die in battle was instilled and enforced. Surrender was never an option, and captains went down with their ships.
The midshipmen were also brutalized. The smallest infraction of a rule resulted in a beating and guard duty punishment. Every Sunday, freshmen stood at rigid attention in the yard for four hours and were slapped and pummeled by upper classmen. The physical training program was intense and unrelenting. British offices observing the curriculum questioned whether it didn't produce narrow-minded robots whose creativity and independence had been beaten out of them. Despite its Spartan regimen, Eta Jima had 30 applicants for every one accepted.
Throughout, the Imperial Navy violence was employed to enforce discipline and blind obedience. Just as the samurai warriors of the past could kill an impudent commoner who failed to get out of their way in the road, a Japanese naval officer in 1941 was required to strike five times with his fist any enlisted man who failed to salute or who disobeyed a direct order. Petty officers on Japanese ships carried thin, but heavy, sticks called "spirit bars" with which they hit enlisted men who did not respond fast enough to orders. It is now accepted that by the late 1930s the Japanese had the best, most sophisticated navy in the world, with three super battleships and five aircraft carriers. The U.S. just got lucky in the crucial battle of Midway in 1942, and in addition, an operations officer on the Japanese flagship succumbed to sentiment and allowed his aircraft to be caught on the deck refueling. Incidentally, he had gone to Princeton instead of Eta Jima.
The Japanese army was no different. Soldiers were expected to be able to walk 35 miles a day for weeks on end with full pack and equipment. They were conditioned to endure on a diet of rice and water and four hours of sleep a night. Young officers were trained to be aggressive and always attack. In fact, their field manual had no chapter on retreat. Japan had also developed an aeronautical marvel, the Zero, which was the fastest, most maneuverable fighter plane in the world. Ironically, the Zero was delivered from its factory by ox cart.
Valuations
Finally, let's now look at valuations.
Most recognize that the Japanese stock market has experienced one of the most drawn out and pronounced secular bear markets in history.
According to Biggs, "Japanese equities are very, very cheap. The market sells at book value and at half of sales."
I agree with Biggs on all counts, thanking him for the history lesson and the investment idea.
Market Recap
When the market has been running up for a while, it is often good news rather than bad news that triggers profit taking. That was the case today as early excitement over the death of Osama bin Laden triggered slow but steady selling pressure all day. We even managed to close near the lows for the first time in a couple weeks.
The point loss was quite mild, but breadth eroded steadily as the great bulk of charts hit their highs at the open. We had weak action in chips and banks while retail and pharmaceuticals attracted some buyers.
Volume slowed, so it was not a technical distribution day, and overall the big picture remains positive. We were just too extended after a straight-up run and once the good news was sold at the open, it slowly spread. It is possible that the market is making a top, but there isn't any clear and convincing evidence of that right now. We could very easily see some more downside in the near term as we consolidate further, but it is what we need to do if this uptrend is to continue, according to the technicians.
The point loss was quite mild, but breadth eroded steadily as the great bulk of charts hit their highs at the open. We had weak action in chips and banks while retail and pharmaceuticals attracted some buyers.
Volume slowed, so it was not a technical distribution day, and overall the big picture remains positive. We were just too extended after a straight-up run and once the good news was sold at the open, it slowly spread. It is possible that the market is making a top, but there isn't any clear and convincing evidence of that right now. We could very easily see some more downside in the near term as we consolidate further, but it is what we need to do if this uptrend is to continue, according to the technicians.
Jimmy Carter's Moral Compass
Well, ordinary North Koreans may be starving again this spring, and by golly Jimmy Carter knows who's at fault. Hint: It's not Kim Jong Il. After his swing through Pyongyang last week, the former President blamed the U.S. and South Korea for refusing to send the hermit kingdom food aid without conditions.
"There are human rights issues that relate to the policies of the North Korean government, which I don't think any of us on the outside can change," Mr. Carter said. "But one of the most important human rights is to have food to eat. For the South Koreans and the Americans and others to deliberately withhold food aid to the North Korean people because of political or military issues not related is really a human rights violation."
So let's see. Kim Jong Il runs a dungeon of a nation whose policies cause repeated famines, but the U.S. and South Korea are morally obliged to alleviate the consequences of those policies even if this means helping the dungeon masters maintain control so they can cause more famines. Interesting.
Wouldn't it make more moral sense to try to depose the dungeon masters, or at least speak out against them? But Mr. Carter says he can't do anything about the North Koreans, so he denounces his own country in sharper language than he dares to use against a regime that murders and imprisons its own people. Interesting.
This is a familiar stand for Mr. Carter, who has been trying to help the Kim regime since 1994 when he free-lanced a deal to pay North Korea billions in return for a promise to halt its nuclear program. The U.S. and South Korea sent the aid, but Kim cheated from the get-go and still has his nuclear weapons. The U.S. and South Korea sent food as recently as 2009, reputedly with safeguards so it wasn't diverted to the military. The North Koreans soon refused to abide by the safeguards, siphoning off as much as a third to the military, and the aid stopped.
Now the U.N. World Food Program is sending more food to meet what it calls the "urgent hunger needs among 3.5 million vulnerable people." Some of it may even reach the suffering North Korean people, as opposed to the political prison wardens favored with visits by the morally discerning Mr. Carter.
"There are human rights issues that relate to the policies of the North Korean government, which I don't think any of us on the outside can change," Mr. Carter said. "But one of the most important human rights is to have food to eat. For the South Koreans and the Americans and others to deliberately withhold food aid to the North Korean people because of political or military issues not related is really a human rights violation."
So let's see. Kim Jong Il runs a dungeon of a nation whose policies cause repeated famines, but the U.S. and South Korea are morally obliged to alleviate the consequences of those policies even if this means helping the dungeon masters maintain control so they can cause more famines. Interesting.
Wouldn't it make more moral sense to try to depose the dungeon masters, or at least speak out against them? But Mr. Carter says he can't do anything about the North Koreans, so he denounces his own country in sharper language than he dares to use against a regime that murders and imprisons its own people. Interesting.
This is a familiar stand for Mr. Carter, who has been trying to help the Kim regime since 1994 when he free-lanced a deal to pay North Korea billions in return for a promise to halt its nuclear program. The U.S. and South Korea sent the aid, but Kim cheated from the get-go and still has his nuclear weapons. The U.S. and South Korea sent food as recently as 2009, reputedly with safeguards so it wasn't diverted to the military. The North Koreans soon refused to abide by the safeguards, siphoning off as much as a third to the military, and the aid stopped.
Now the U.N. World Food Program is sending more food to meet what it calls the "urgent hunger needs among 3.5 million vulnerable people." Some of it may even reach the suffering North Korean people, as opposed to the political prison wardens favored with visits by the morally discerning Mr. Carter.
Sunday, May 1, 2011
My Final Take On The Ben Bernanke Press Conference
Our Fed Chairman held court on Wednesday, on the heels of the “move along folks, nothing to see here” policy announcement. While I give the Federal Reserve credit for the attempt at transparency, I've attempted to translate some of his more salient points.
Below, please find my interpretation of his press conference:
Said: Bernanke expects a 'relatively weak' first quarter.
Meant: We''ve spent trillions of dollars and folks are finally waking up to the fact that a rally doesn't equal a recovery.
Said: He says most of the 1st quarter slowdown was 'transitory.'
Meant: Blame it on Japan.
Said: Bernanke says a strong dollar is in the US and the global interest.
Meant: Focus on what I say, not what we've done.
Said: The dollar fluctuates.
Meant: Yeah, fluctuates down!
Said: Bernanke is unsure of when tightening will begin.
Meant: Your guess is as good as mine.
Said: Higher gas prices is 'creating hardship,' it's a 'bad development', and 'bad for the recovery.'
Meant: Take your pick: you can have higher stocks or higher prices at the pump.
Said: Bernanke reiterates that underlying inflation remains subdued.
Meant: (Sorry, I can't type, I'm laughing too hard with commodities, as measured by the CRB, 85% higher in the last two years.)
Said: Bernanke says Fed maintains a highly accomodative policy.
Meant: We'll keep printing until China makes us stop.
Said: FOMC is 'confident' it has tools for tightening.
Meant: I'll ask for your confidence... again.
Said: Bernanke believes base price inflation will ease.
Meant: ...If we take their oil wells.
Said: Bernanke says the labor market improving gradually.
Meant: You're fired!
Said: Bernanke is concerned about "medium-term inflatinon."
Meant: I'm sorry... what?
Said: Bernanke says "we are digging ourselves out of a deep hole on jobs.
Meant: And digging a deeper hole on both the deficit and credibility front.
Said: Bernanke is watching Europe very carefully.
Meant: The sovereign sequel is very real.
Said: Bernanke says Fed Monetary Policy is not out of the ordinary.
Meant: (Rubbing my eyes and ears!)
Below, please find my interpretation of his press conference:
Said: Bernanke expects a 'relatively weak' first quarter.
Meant: We''ve spent trillions of dollars and folks are finally waking up to the fact that a rally doesn't equal a recovery.
Said: He says most of the 1st quarter slowdown was 'transitory.'
Meant: Blame it on Japan.
Said: Bernanke says a strong dollar is in the US and the global interest.
Meant: Focus on what I say, not what we've done.
Said: The dollar fluctuates.
Meant: Yeah, fluctuates down!
Said: Bernanke is unsure of when tightening will begin.
Meant: Your guess is as good as mine.
Said: Higher gas prices is 'creating hardship,' it's a 'bad development', and 'bad for the recovery.'
Meant: Take your pick: you can have higher stocks or higher prices at the pump.
Said: Bernanke reiterates that underlying inflation remains subdued.
Meant: (Sorry, I can't type, I'm laughing too hard with commodities, as measured by the CRB, 85% higher in the last two years.)
Said: Bernanke says Fed maintains a highly accomodative policy.
Meant: We'll keep printing until China makes us stop.
Said: FOMC is 'confident' it has tools for tightening.
Meant: I'll ask for your confidence... again.
Said: Bernanke believes base price inflation will ease.
Meant: ...If we take their oil wells.
Said: Bernanke says the labor market improving gradually.
Meant: You're fired!
Said: Bernanke is concerned about "medium-term inflatinon."
Meant: I'm sorry... what?
Said: Bernanke says "we are digging ourselves out of a deep hole on jobs.
Meant: And digging a deeper hole on both the deficit and credibility front.
Said: Bernanke is watching Europe very carefully.
Meant: The sovereign sequel is very real.
Said: Bernanke says Fed Monetary Policy is not out of the ordinary.
Meant: (Rubbing my eyes and ears!)
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