THE OPPENHEIMER REPORT
Andres Oppenheimer: `Egypt effect' will help Venezuelan president -- but not much
BY ANDRES OPPENHEIMER
After two years of gradually losing popular support at home and political influence abroad, Venezuelan President Hugo Chávez could be one of the big winners of a major rise in world oil prices triggered by the Egyptian uprising.
But will oil prices rise enough to give Chávez's 12-year-old regime a second wind, and allow him to win the 2012 elections? Will he be able to resume his checkbook diplomacy in Latin America?
Venezuela's narcissist leader -- if you think this depiction is unfair, consider that in his Jan. 15 speech to Congress he used the word ``I'' 489 times -- knows that his political future depends on oil prices.
His popularity at home is dwindling -- 52 percent of the vote in last year's legislative elections went to opposition candidates, despite massive government propaganda and limited press freedoms -- and Venezuela suffers from a 30 percent inflation rate, growing food shortages and the lowest economic growth rate in Latin America.
But Chávez is betting that the ``Egypt effect'' on oil prices will save him. Since late January, when the Middle Eastern turmoil started, New York-traded oil prices have gone up by about $7 a barrel, and surpassed the $92 a barrel mark earlier this week.
Venezuela says it exports about 2.3 million barrels of oil a day, and economists calculate that -- after subtracting subsidized oil sales to Cuba and other countries -- each $1 rise in world oil prices will give the Chávez regime an extra $730 million a year.
Some financial analysts say that, just by staying where they are, oil prices would give Chávez a major financial boost.
``This will definitely help him,'' says Russ Dallen, head trader with the Caracas, Venezuela-based BBO Financial Services firm. ``The government was betting that prices of oil would go back up, and it was a good bet.''
According to Dallen, if Egypt manages to carry out a peaceful transition of power and oil prices stay at about $92 a barrel, Venezuela would get an additional $5.1 billion this year from oil exports.
If Egypt's transition is chaotic, and fears over the passage of oil tankers through the Suez Canal drive New York-traded oil prices to $100 a barrel, Venezuela would get an extra $10 billion this year, he said.
And if the Egyptian turmoil extended to major Middle Eastern oil producers and oil prices reached their previous record of $150 a barrel, Venezuela would get an additional $35 billion a year. But that's unlikely to happen because such an increase would immediately trigger a major world recession that would immediately drive down world oil prices, he said.
Other analysts say Chávez won't benefit from the ``Egypt effect,'' among other things, because Venezuela has to pay massive foreign debts, and its oil production is falling dramatically.
Evanan Romero, an energy consultant and former director of Venezuela's PDVSA oil monopoly, told me that lack of investments in exploration and maintenance have driven down Venezuela's oil production by more than a third over the past 12 years, and that oil exports will keep falling.
He said that Venezuela's extra oil income will be reduced by massive domestic consumption -- Venezuelans pay less than 5 cents a gallon for gasoline -- as well as by large-scale oil smuggling to neighboring countries and Chávez's subsidized oil exports.
``Chávez's financial problems won't be solved this year by the current spike in oil prices,'' Romero concluded. ``What he wins with rising oil prices, he loses with declining oil production.''
My opinion: Chávez has been a lucky guy, and record oil prices during the past twelve years have allowed him to buy loyalties at home and abroad. The current rise in world oil prices will no doubt help him, but it won't be enough to allow him to give away cash to voters like in the past.
If oil prices rise above $110 per barrel, the U.S. economic recovery will come to an end, oil prices will drop, and Venezuela's export income will fall. So we can assume Chávez will get a small respite from the ``Egypt effect,'' but nothing that would allow him to easily win next year's elections without further tightening his grip on power, or rigging the vote.
How Democracy Can Work in the Middle East
When Frank Wisner, the seasoned U.S. diplomat and envoy of President Obama, met with Hosni Mubarak on Tuesday, Feb. 1, the scene must have been familiar to both men. For 30 years, American diplomats would enter one of the lavish palaces in Heliopolis, the neighborhood in Cairo from which Mubarak ruled Egypt. The Egyptian President would receive the American warmly, and the two would begin to talk about American-Egyptian relations and the fate of Middle East peace. Then the American might gently raise the issue of political reform. The President would tense up and snap back, "If I do what you want, the Islamic fundamentalists will seize power." The conversation would return to the latest twist in the peace process.
It is quite likely that a version of this exchange took place on that Tuesday. Mubarak would surely have warned Wisner that without him, Egypt would fall prey to the radicalism of the Muslim Brotherhood, Egypt's Islamist political movement. He has often reminded visitors of the U.S.'s folly in Iran in 1979, when it withdrew support for a staunch ally, the Shah, only to see the regime replaced by a nasty anti-American theocracy. But this time, the U.S. diplomat had a different response to the Egyptian President's arguments. It was time for the transition to begin. (Watch a video about the revolt in Egypt.)
And that was the message Obama delivered to Mubarak when the two spoke on the phone on Feb. 1. "It was a tough conversation," said an Administration official. Senior national-security aides gathered around a speakerphone in the Oval Office to listen to the call. Mubarak made it clear how difficult the uprising had been for him personally; Obama pressed the Egyptian leader to refrain from any violent response to the hundreds of thousands in the streets. But a day later, those streets — which had been remarkably peaceful since the demonstrations began — turned violent. In Cairo, Mubarak supporters, some of them wading into crowds on horseback, began battering protesters.
It was a reminder that the precise course that Egypt's revolution will take over the next few days and weeks cannot be known. The clashes between the groups supporting and opposing the government mark a new phase in the conflict. The regime has many who live off its patronage, and they could fight to keep their power. But the opposition is now energized and empowered. And the world — and the U.S. — has put Mubarak on notice. (Comment on this story.)
Whatever happens in the next few days will not change the central narrative of Egypt's revolution. Historians will note that Jan. 25 marked the start of the end of Mubarak's 30-year reign. And now we'll test the theory that politicians and scholars have long debated. Will a more democratic Egypt become a radical Islamic state? Can democracy work in the Arab world?
By Dick Morris
How did Obama ever think that his program would pass constitutional muster? How could he imagine that the Interstate Commerce clause could cover something that wasn't interstate (health insurance cannot be sold over state lines) and wasn't commerce (failure to buy insurance is not commerce) would stand up in court? He was so sure that he would win any constitutional challenge that he arrogantly failed to put a severability clause in the bill so that it would survive even if parts were stricken down.
The decision of the Florida District Court may or may not prevail in the Circuit Court. But who can doubt that the Supreme Court, as currently constituted, will strike it down?
So where does this leave President Obama? His stimulus package was a disaster, conceded by all to have failed. Democrats, of course, ascribe its failure to its puny size (only $800 billion)! Republicans understand that when the government spends and borrows it destroys jobs rather than create them. But, obviously, the stimulus bill didn't work.
And now his health care bill is unconstitutional.
What happens to an arch when it loses its cornerstone? It collapses. The same fate awaits Obama in 2012.
Meanwhile, he continues to peddle the fiction that "we have broken the back of the recession." His bureaucracy puts out a GDP growth rate of 3.4 percent for the fourth quarter. Baloney. The price deflator he used to discount the impact of inflation on the supposed GDP growth was a ridiculous 0.3 percent for the fourth quarter. But the Consumer Price Index rose by 2.6 percent in the same quarter. Almost all of the GDP growth is just rising prices, not a recovering economy.
And half of the new economic activity is just the build-up of inventories. We are now a nation of inventories. Businesses are sitting on close to a trillion dollars of cash they are afraid to invest. Banks are awash in capital handed out by the Fed as it tries to force-feed the economy by printing money. And consumers have taken the stimulus money and put it into reducing their debt load - good for them but not for the economy. Household debt has dropped by $200 billion in the past two years.
But nobody is spending. Nobody is buying.
Obama's economic program is in ruins. His healthcare bill is unconstitutional. His financial regulation bill (Dodd-Frank) has so harassed small and community banks that they have stopped lending to small businesses. And, on top of all that, he is losing Egypt to radical Muslim fundamentalists.
What a presidency!
Morris, a former political adviser to Sen. Trent Lott (R-Miss.) and President Bill Clinton, is the author of "Outrage." To get all of Dick Morris’s and Eileen McGann’s columns for free by email, go to www.dickmorris.com.
By Michael Barone
Barack Obama, like all American politicians, likes to portray himself as future-oriented and open to technological progress. Yet the vision he set out in his State of the Union address is oddly antique and disturbingly static.
"This is our generation's Sputnik moment," he said. But Sputnik and America's supposedly less advanced rocket programs of 1957 were government projects, at a time when government defense spending, like the Manhattan Project that developed the atomic bomb, drove technology.
But today, as Obama noted a few sentences before, "our free enterprise system is what drives innovation." Private firms develop software faster than government can procure it.
Undaunted, Obama calls for more government spending on "biomedical research, information technology and especially clean energy technology." Government has some role in biotech, though a subsidiary one, but IT development is almost exclusively a private-sector function and clean energy technology that is not private-sector driven is almost inevitably uneconomic.
And then there is transportation. "Within 25 years," Obama said, "our goal is to give 80 percent of Americans access to high-speed rail. This could allow you," he said breathlessly, "to go places in half the time it takes to travel by car. For some trips, it will be faster than flying."
Wow! There's some advanced technology. Except that France inaugurated service on its TGV high-speed rail from Paris to Lyon in 1981. That's 30 years ago. It's as if President Eisenhower were inspired by Sputnik to promote the technology of 30 years before, Charles Lindbergh's single-engine propeller plane, the Spirit of St. Louis. It's as antique as the Tomorrowland of the original Disneyland.
In fact, government high-speed rail projects in Wisconsin, Ohio and Florida wouldn't approach the speeds of France's TGV or Japan's bullet train and would not beat autos in door-to-door travel. And they could never match the low fares of the free enterprise bus lines that have competed successfully with the Acela for budget-minded travelers.
Truly high-speed rail might make sense in the Washington-New York-Boston corridor for business travelers willing to pay high fares to save precious time. But it might also prove to be a technology as commercially unprofitable and politically unfeasible as the Concorde supersonic plane that was retired from service in 2003. Northeasterners might block high-speed rail lines in their backyards just as they blocked Concorde's sonic booms over land.
The disturbingly static nature of Obama's vision is apparent when one parses his comments on the bipartisan fiscal commission headed by Erskine Bowles and Alan Simpson, and its stark description of how entitlements are on a path to consume the private economy.
"I don't agree with all their proposals," Obama began, on what one can hardly call a positive note. On health care, he persists in claiming that Obamacare "will slow these rising costs," though every informed person knows that the claimed budget savings are the result of Democrats gaming the Congressional Budget Office's scoring system.
To which Obama added, "I'm willing to look at other ideas to bring down costs" -- which sounds a lot like, "I sure can't think of many."
And then there is Social Security. Obama calls for a bipartisan solution "without putting at risk current retirees, the most vulnerable, or people with disabilities; without slashing benefits for future generations; and without subjecting Americans' guaranteed retirement income to the whims of the stock market."
That's an outright rejection of the Pozen plan, which could eliminate much of the future shortfall by indexing the benefits of future high-earner retirees by prices rather than by wages. The Pozen plan would leave low-earners' benefits untouched and so would actually make the system more progressive. But Obama rejects this mild proposal out of hand.
If you put together Obama's resistance to just about any serious changes in entitlement spending with his antique vision of technological progress, what you see is an America where the public sector permanently consumes a larger part of the economy than in the past and squanders the proceeds on white elephants like faux high-speed rail lines and political payoffs to the teacher and other public-sector unions. Private-sector innovation gets squeezed out by regulations like the Obama FCC's net neutrality rules. It's a plan for a static rather than dynamic economy.
Obama's State of the Union did contain some inspiring acknowledgements of America's strengths. But the substantive policies he advanced seem likely to undermine them.
|Written by Gavin M. Greenwood|
| Watching the Tut Offensive from afar |
The impact of the drama spreading from North Africa into the Levant and Arabia is being carefully tracked and assessed by governments across the region, their foreign patrons and creditors.
For authoritarian regimes and their subject populations, the often inchoate courage displayed on the streets of Tunisia, Egypt, Jordan and Yemen may be respectively deeply troubling and dangerously tempting.
Asia's experience with popular uprising, as opposed to slow-burning revolutions, anti-colonial campaigns and civil wars, is limited to the Philippines – where the very term 'people power' was coined – and the simmering and multi-layered response to the elite's disdain for the electoral franchise in Thailand. For regimes that rely on the protection of hard and soft power, reward and condign penalties for transgressors, the failure of these blandishments and threats to maintain the status quo in key Middle East countries will be viewed with a mixture of incredulity and rapid reassessment of policies and loyalties.
What will shock any authoritarian power is the speed with which critical mass can confront and then brush aside a deeply embedded security apparatus, destroying its carefully constructed image of invulnerability from sanction and the sense that the individual citizen is held under constant scrutiny.
While Eastern Europe experienced this epiphany – complete with the stark images of the hurried slaughter of the Ceauşescus on Christmas Day 1989, an event until the present upheaval that must have served as the model bad ending for many totalitarian leaders – few other countries similarly afflicted with regimes that view their own people with fear, suspicion and contempt have failed to do so.
Bend or break
The fate of the besieged political elites in Cairo, Amman and Sana'a will obviously exercise the greatest influence on others who fear the uncontrolled manifestation of popular anger may pose even a distant threat to their – or their successors – status and privileges. This gives the strategies now being employed by Middle East governments seeking to retain collective power and authority a universal significance.
Some lessons have already been well learned in Asia, though there are no parallels for the 'contagion' of revolt now threatening regimes that less than a month ago were seemingly impervious to any realistic challenge.
The first rule for a beleaguered autocracy facing their nemesis is to wear out the protestors through a combination of demonstrating the cost of defying the established order – such as instigating anarchy once batons, tear gas and selective sniping have failed to clear the streets. Relying on the 'adrenaline rule' that can shape street protests – the first 36 hours are invariably followed by a lull due to exhaustion among the more activist elements – either strike hard or use the moment to introduce pledges or reforms.
Some sacrificial sackings can add credibility to this process. Further promises set in the not-too-distant future may be aimed at the less militant or committed sections of the protest movement, as well as foreign patrons and the markets.
If this fails to begin the process of breaking the unity of the protestors, darker forces may be unleashed to accelerate this aim. Physical and character assassination, the unleashing of 'supporters,' rumors of defections and treachery, atrocities allegedly committed by extremists linked to the anti-government movement may all help prolong the regime's existence and reduce cohesion among its opponents. This process appears to well under way in the Middle East.
The greatest threat to an entrenched leadership is less the physical challenge posed by the 'street' than other elements within the regime who either represent a parallel power structure or who see instability or a weakened leader as an opportunity to further their own interests and agenda. The most obvious is the military – which applies across much of Asia as it does in the Middle East.
Efforts to seriously weaken the armed forces as a distinct political entity have largely failed in Asian countries where they have traditionally served as the self-appointed and overt arbiter of power. In these countries - notably Pakistan, Burma, Thailand, all of Indochina. Indonesia, the Philippines and China - the military either controls the state or serves as a Damoclean reminder that it could, and needs no lessons from the Middle East as to how it may be achieved. Nevertheless, the Middle East imbroglio will lead civilian politicians to look again at their generals and perhaps reassess how they may best be held close.
Protest and survive
For anti-government protestors the unfinished lessons of the Middle East uprisings should perhaps be informed by two of Machiavelli's famous dictums; "A prince never lacks legitimate reasons to break his promise," and "Never do an enemy a small injury." The latter advice, with its implication that unless the protestors are prepared to carry through the logical end of their opposition to a regime, they may have generations to rue their decision to rise up in the first instance. The same points apply anywhere a regime with much to lose and nothing to gain through being deposed is confronted by an existential threat.
The main risk facing protestors once they have moved beyond the initial euphoria of action is the ability of their opponents to separate them from the source of their power, which in the case of a popular uprising is its focused and unified mass. As noted, efforts will be made from all directions to erode cohesion, encourage factionalism and undermine command and communications capabilities.
There are numerous examples of seemingly successful revolts failing due to the loss of stamina and nerve by activists and fear and treachery among their leaders. An excellent case study detailing this map happen is offered in the 1536 northern uprising against England's King Henry VIII. A serious threat to the Tudor throne was averted by Henry following Machiavelli's advice, coupled with the recognition by key leaders that their true interest did not lie with those of the masses. The aftermath of what became known as 'the pilgrimage of grace' was also instructive to all those who raise their hand against the state: hundreds were executed, many after extreme torture.
Gavin Greenwood is a security analyst with the country risk firm of Allan & Associates in Hong Kong.
On Egypt: Obama Might Be Wrong But His Critics Are Worse
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Briefly, this seems to be the nature of the U.S. debate over Egypt:
Conservatives, eager to score partisan points on President Barack Obama, criticize him for not pushing Egypt hard enough on reform, remembering President George W. Bush's backing for democracy.
The left and liberals criticize Obama for not going further pushing Egypt hard on reform.
In short, both camps want the regime to fall. Now if we are talking about Husni Mubarak being replaced, he is after all 82 years old and wouldn't be long in office any way. And if we are talking about Gamal Mubarak, his son, not taking power as successor, that makes sense because he isn't up to the job.
But if this bipartisan consensus is talking about bringing the regime down altogether and fundamentally transforming Egypt, be very careful what you advocate, you might get it.
Analogies to places like the Philippines, South Korea, and Chile (!) don't work so well because none of these are Middle Eastern countries, all had strong democratic pasts, and in the first two there was no serious radical threat. In the third, Chile, the radical forces were the ones being overthrown.Now, Iran (Islamist), Lebanon (Hizballah), Gaza Strip (Hamas), Algeria (bloody civil war) are in the Middle East. And the differences with case studies of countries in Asia and South America are not just accidental.
While the Obama Administration is pushing too hard for my taste and not giving enough public support to the regime--not the Mubaraks personally--its critics seem to be even more wrong.
Egypt: The American Debate Has Gone Stark, Raving Crazy
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As I pointed out recently the mass media in America generally presents only one side of the debate nowadays. Then, it publishes nonsense which survives because it is protected from the withering critique it deserves. And even people who should know better are just losing it.
Consider one example (Roger Cohen has gone beyond ridicule so let's focus on someone who should know better). I regret criticizing Robert Kagan of the Brookings Institution as he is one of the smarter, saner people.
Yet the kinds of things he is quoted as saying in the New York Times remind me of why the "neo-conservatives" have been so dangerous because of their naivete about the Middle East. They are fitting counterparts of the apologists for radicals who have demonized them. Both groups are trying to impose their fantasy model on the real Middle East. Of course, if Kagan didn't say things like this he wouldn't be quoted at all in the New York Times.
Kagan explains to us:
"We were overly spooked by the victory of Hamas....The great fear that people have with Islamist parties is that, if they take part in an election, that will be the last election. But we overlearned that lesson and we need to get beyond that panicky response. There's no way for us to go through the long evolution of history without allowing Islamists to participate in democratic society.
"What are we going to do- support dictators for the rest of eternity because we don't want Islamists taking their share of some political system in the Middle East?
"Obviously, Islam needs to make its peace with modernity and democracy. But the only way this is going to happen is when people speaking for Islam take part in the system. It's incumbent on Islamists who are elected democratically to behave democratically."
Presumably, you will never read how absurd this statement is anywhere in the mass media so thanks for dropping by and here's my analysis:
First, what is an Islamist? Someone who wants to seize state power and impose an Islamist state, transforming the society in the process. You cannot have pluralism because all of those who oppose you are evil.
An Islamist party is not necessarily a Muslim party. There can be Muslim parties that are not Islamist, though it is hard right now to find these. That's why, however, the elections they win tend to be the last ones or, at least, they do everything possible to stay in power. Think Communism; think fascism; heck, this is the Middle East so think Arab nationalism!
Do you know what Shakyh Qaradawi, the most prestigious cleric in the Muslim Brotherhood universe, said (he was critiquing Usama bin Ladin)? Of course, Islamists should participate in elections because they would always win them. How many votes can secular-style liberal reformers muster compared to those who say "Islam is the solution"? And Qaradawi is not intending to use those election victories to "behave democratically."
Well, actually, maybe he is. After all, if the majority of people want Sharia law, a dictatorship by the rightly-guided, hostility to the West, and Israel's destruction, I guess a revolutionary Islamist government is fulfilling the will of the people and thus is behaving democratically.
Do you know what the United States did after World War Two? President Obama hasn't apologized for this one yet. It did everything possible behind the scenes to ensure that Communist parties--which were certainly not ready in the 1940s to be moderate--lost the elections in France and Italy. According to this new principle should it have let them win so that they would have become moderate?
Second, "overly spooked!" Is this some kind of paranoid reaction? There was not only Hamas but Iran and the Taliban in Afghanistan and now Hizballah. And we have seen what has happened in Turkey with an Islamist regime, though it might accept the loss of power in the election later this year. But that's Turkey which plays by a different set of rules.
Responding to an accurate view of reality and a set of experiences is not being "spooked" it is being rational. All of the experience lines up consistently.
Hizballah has just taken power in Lebanon through elections. Any sign Hizballah has moderated?
And how about Yasir Arafat, not an Islamist though he tried to play that game a bit to maintain popular support. Remember back in 1993 when we were told that if he were allowed to take power he would inevitably become moderate because he would have to deal with road repair and garbage collection? That didn't work out too well either.
Remember when it was said that Ayatollah Khomeini would become more pragmatic once in power? I do.
But why should we deal with real experience when we can engage in wishful thinking?
Consider the following chart:
Who in the Middle East could the United States depend on five years ago to support its basic policy goals?
Egypt, Iraq, Israel, Jordan, Lebanon, Saudi Arabia, Turkey
Who in the Middle East can the United States basically depend on today?
Israel, Iraq (?), Jordan (until next week?), Saudi Arabia
Who in the Middle East is likely to oppose basic U.S. policy goals today?
Egypt (soon), Gaza Strip (Hamas), Iran, Lebanon (Hizballah), Libya, Sudan, Syria. Turkey
Might there be a trend here?
The United States is running out of friends in the Middle East who it can overthrow. I'd love to use the 1930s Germany analogy but it is so excessively cited as to have lost effectiveness. So let's go to the Soviet analogy. "We were overly spooked by the Soviet takeover of Czechoslovakia, East Germany, Hungary, Romania...." Well, you get the idea.
But wait! The United States is not refusing to allow "Islamists to participate in democratic society," the local regimes are doing so. Perhaps they know something about their own societies.
But wait again! Islamists do participate in elections in Jordan. Of course, the regime there makes sure they lose. So perhaps the United States should step in anhelp the Islamic Action Front wins the next election, all the better to moderate them! I'm sure (sarcasm) that it will keep the peace treaty with Israel. Then we can keep experimenting until there are no more victims left.
"Obviously, Islam needs to make its peace with modernity and democracy. But the only way this is going to happen is when people speaking for Islam take part in the system."
Oh, obviously. Except that it is not necessarily obvious to the Muslim Brotherhood, Hamas, Hizballah, Iran, and the Iraqi insurgents, nor to non-Islamist-member-of-the- pack Syria. Why should one believe that taking part in the system will make them moderate. Is there any evidence for this? Any at all? And, no, Turkey doesn't prove that. Quite the contrary.
But what really riles me is when Westerners write a sentence like this one:
"It's incumbent on Islamists who are elected democratically to behave democratically."
Please contemplate those dozen words. What if they don't? What are you going to do about it after they are in power? What if they take your concessions but not your advice? The United States conditioned the Muslim Brotherhood's participation in Egypt's next government on that group's abandoning violence and supporting "democratic goals." There is no chance that it will meet those conditions and also no chance that the United States would try to enforce them.
I have an idea: why don't we wait until we have some reason to believe they will behave democratically before you put them into power?
Let's remember a little detail here: You are all willing to ignore everything the Egyptian Muslim Brotherhood has said or done for decades. You have no idea of their proposals in parliament, do you? You have no idea of their recent platform, do you? You have no idea what the Brotherhood's leader is saying in his speeches, do you? Nor do you take these things into account.
So how dare you tell me that the Brotherhood is or is about to become moderate when you cannot cite a single piece of evidence--well, ElBaradei's word when he lies to you about these things--to prove your thesis. Not one. Don't you realize that victory has made the Islamists arrogant. They are becoming more radical, not less so. And mainstream clerics in Egypt, for example, have also become increasingly more extremist, well before the latest crisis.
Frankly, the more these people talk like this about Islamists, the more I don't believe them. If they had any real proof they would offer it. And their ignorance makes me suspect their conclusions. In fact, what they have done is to give the Islamists a free pass: they don't have to change their policies or behavior at all because they can depend on Western "useful infidels" to claim they are moderate even when they are not.
Naivete has reached epidemic proportions. The Washington Post, which should also know better, under the headline, "Muslim Brotherhood says it is only a minor player in Egyptian protests," tells us about this group. Of course, it says it is not important. Just as the Big Bad Wolf wore granny's clothes, "All the better to eat you." Why should the Western media pick up the revolutionary Islamists' disinformation themes?
In fact, and I'm not exaggerating, the article tells us both that the Brotherhood is no threat and accuses it of wimping out:
"It is not the organization of radical jihadists that it is sometimes made out to be. But its caution in dealing with Mubarak has made it appear recently that it is more concerned with protecting itself than with improving the nation."
The article tells us two historical facts about the Brotherhood: It was inspired by the YMCA and was brutally repressed by the Egyptian government in the 1950s.
Sigh. And what does it leave out? That it seeks to transform Egypt into an Islamist state, reduce the Christians to third-class citizens (they are already second-class citizens), do away with rights for women, impose Sharia law, drive America out of the Middle East, and wage a war of genocide against Israel.
Oh, and then there's the history of the Brotherhood: it was financed by the Nazis from the 1930s on and tried to deliver Egypt to them in World War Two, used the Nazi weapons it had been given in 1942 to try to destroy Israel in the 1948 war, had a terrorist wing and assassinated a number of officials including an Egyptian prime minister, was repressed because it tried to kill President Gamal Abdel Nasser, supports terrorism not only against Israel but also U.S. forces in Iraq, and its leader now calls for a Jihad against the United States.
Has anyone in the Western media or governments ever read anything from Brotherhood leaders' speeches or publications? Apparently not. In fact, regarding the media I have seen zero evidence that it has any idea what these people say every day.
I am writing this about 50 miles from Egyptian territory. Two next-door countries--Lebanon and for all practical purposes the Gaza Strip--already have Islamist-run regimes. Some would count Saudi Arabia as a third, though I wouldn't necessarily do so. A fourth, Syria, is in the Islamist alliance. Now a fifth, Egypt, might be headed that way. All that's left is Jordan. This week, at least.
So, is the United States going to, "Support dictators for the rest of eternity because we don't want Islamists taking their share of some political system in the Middle East?" Well, you are running out of dictators, though I suppose you could back the overthrow of the king of Morocco and back the Islamic Salvation Front into power in Algeria.
But on the positive side, there are more and more dictators who the United States doesn't support! Good news. They are anti-American dictators who sponsor terrorism and subvert their neighbors. The United States doesn't support these dictators, it merely engages them. We can look forward to a bright future in which the United States doesn't support any dictators in the Middle East at all, because Iran and the Islamists will fill that role.
Indeed, President Bashar al-Assad, dictator of Syria, gives the "What? Me Worry" grin.
"Syria is stable. Why? Because you have to be very closely linked to the beliefs of the people. This is the core issue. When there is divergence...you will have this vacuum that creates disturbances."
What does this mean? That if you line up with Iran, support revolutionary Islamism, and oppose the United States you are going to be popular and strong since that demagoguery appeals to the masses. Do you think any future leaders in Egypt are aware of that fact?
Oh, and if you shoot or imprison demonstrators at the first sign of trouble and your patron doesn't care about your brutality, nobody will overthrow you.
I have an idea for the prophets of Muslim Brotherhood moderation: Please experiment with the lives of people closer to your own homes.
Social Media as a Tool for Protest
By Marko Papic and Sean Noonan
Internet services were reportedly restored in Egypt on Feb. 2 after being completely shut down for two days. Egyptian authorities unplugged the last Internet service provider (ISP) still operating Jan. 31 amidst ongoing protests across the country. The other four providers in Egypt — Link Egypt, Vodafone/Raya, Telecom Egypt and Etisalat Misr — were shut down as the crisis boiled over on Jan. 27. Commentators immediately assumed this was a response to the organizational capabilities of social media websites that Cairo could not completely block from public access.
The role of social media in protests and revolutions has garnered considerable media attention in recent years. Current conventional wisdom has it that social networks have made regime change easier to organize and execute. An underlying assumption is that social media is making it more difficult to sustain an authoritarian regime — even for hardened autocracies like Iran and Myanmar — which could usher in a new wave of democratization around the globe. In a Jan. 27 YouTube interview, U.S. President Barack Obama went as far as to compare social networking to universal liberties such as freedom of speech.
Social media alone, however, do not instigate revolutions. They are no more responsible for the recent unrest in Tunisia and Egypt than cassette-tape recordings of Ayatollah Ruholla Khomeini speeches were responsible for the 1979 revolution in Iran. Social media are tools that allow revolutionary groups to lower the costs of participation, organization, recruitment and training. But like any tool, social media have inherent weaknesses and strengths, and their effectiveness depends on how effectively leaders use them and how accessible they are to people who know how to use them.
How to Use Social Media
The situations in Tunisia and Egypt have both seen an increased use of social networking media such as Facebook and Twitter to help organize, communicate and ultimately initiate civil-disobedience campaigns and street actions. The Iranian “Green Revolution” in 2009 was closely followed by the Western media via YouTube and Twitter, and the latter even gave Moldova’s 2009 revolution its moniker, the “Twitter Revolution.”
Foreign observers — and particularly the media — are mesmerized by the ability to track events and cover diverse locations, perspectives and demographics in real time. But a revolution is far more than what we see and hear on the Internet — it requires organization, funding and mass appeal. Social media no doubt offer advantages in disseminating messages quickly and broadly, but they also are vulnerable to government counter-protest tactics (more on these below). And while the effectiveness of the tool depends on the quality of a movement’s leadership, a dependence on social media can actually prevent good leadership from developing.
The key for any protest movement is to inspire and motivate individuals to go from the comfort of their homes to the chaos of the streets and face off against the government. Social media allow organizers to involve like-minded people in a movement at a very low cost, but they do not necessarily make these people move. Instead of attending meetings, workshops and rallies, un-committed individuals can join a Facebook group or follow a Twitter feed at home, which gives them some measure of anonymity (though authorities can easily track IP addresses) but does not necessarily motivate them to physically hit the streets and provide fuel for a revolution. At the end of the day, for a social media-driven protest movement to be successful, it has to translate social media membership into street action.
The Internet allows a revolutionary core to widely spread not just its ideological message but also its training program and operational plan. This can be done by e-mail, but social media broaden the exposure and increase its speed increases, with networks of friends and associates sharing the information instantly. YouTube videos explaining a movement’s core principles and tactics allow cadres to transmit important information to dispersed followers without having to travel. (This is safer and more cost effective for a movement struggling to find funding and stay under the radar, but the level of training it can provide is limited. Some things are difficult to learn by video, which presents the same problems for protest organizers as those confronted by grassroots jihadists, who must rely largely on the Internet for communication.) Social media can also allow a movement to be far more nimble about choosing its day of action and, when that day comes, to spread the action order like wildfire. Instead of organizing campaigns around fixed dates, protest movements can reach hundreds of thousands of adherents with a single Facebook post or Twitter feed, launching a massive call to action in seconds.
With lower organizational and communications costs, a movement can depend less on outside funding, which also allows it to create the perception of being a purely indigenous movement (without foreign supporters) and one with wide appeal. According to the event’s Facebook page, the April 6 Movement in Egypt had some 89,250 people claiming attendance at a Jan. 28 protest when, in fact, a much smaller number of protestors were actually there according to STRATFOR’s estimates. The April 6 Movement is made up of the minority of Egyptians who have Internet access, which the OpenNet Initiative estimated in August 2009 to be 15.4 percent of the population. While this is ahead of most African countries, it is behind most Middle Eastern countries. Internet penetration rates in countries like Iran and Qatar are around 35 percent, still a minority of the population. Eventually, a successful revolutionary movement has to appeal to the middle class, the working class, retirees and rural segments of the population, groups that are unlikely to have Internet access in most developing countries. Otherwise, a movement could quickly find itself unable to control the revolutionary forces it unleashed or being accused by the regime of being an unrepresentative fringe movement. This may have been the same problem that Iranian protestors experienced in 2009.
Not only must protest organizers expand their base beyond Internet users, they must also be able to work around government disruption. Following the Internet shutdown in Egypt, protesters were able to distribute hard-copy tactical pamphlets and use faxes and landline telephones for communications. Ingenuity and leadership quickly become more important than social media when the government begins to use counter-protest tactics, which are well developed even in the most closed countries.
Countering Social Media
Like any other tool, social media have their drawbacks. Lowering the costs of communication also diminishes operational security. Facebook messages can be open for all to see, and even private messages can be viewed by authorities through search warrants in more open countries or pressure on the Internet social media firms in more closed ones. Indeed, social media can quickly turn into a valuable intelligence-collection tool. A reliance on social media can also be exploited by a regime willing to cut the country off from Internet or domestic text messaging networks altogether, as has been the case in Egypt.
The capability of governments to monitor and counteract social media developed alongside the capability of their intelligence services. In order to obtain an operating license in any country, social networking websites have to come to some sort of agreement with the government. In many countries, this involves getting access to user data, locations and network information. Facebook profiles, for example, can be a boon for government intelligence collectors, who can use updates and photos to pinpoint movement locations and activities and identify connections among various individuals, some of whom may be suspect for various activities. (Visible Technologies, a software firm that specializes in monitoring social media has received funding from In-Q-Tel, the CIA’s venture capital firm, and many Western intelligence services have start-up budgets to develop Internet technologies that will enable even deeper mining of Internet-user data.)
In using social media, the tradeoff for protest leaders is that they must expose themselves to disseminate their message to the masses (although there are ways to mask IP addresses and avoid government monitoring, such as by using proxy servers). Keeping track of every individual who visits a protest organization’s website page may be beyond the capabilities of many security services, depending on a site’s popularity, but a medium designed to reach the masses is open to everyone. In Egypt, almost 40 leaders of the April 6 Movement were arrested early on in the protests, and this may have been possible by identifying and locating them through their Internet activities, particularly through their various Facebook pages.
Indeed, one of the first organizers of the April 6 Movement became known in Egypt as “Facebook Girl” following her arrest in Cairo on April 6, 2008. The movement was originally organized to support a labor protest that day in Mahalla, and organizer Esraa Abdel Fattah Ahmed Rashid found Facebook a convenient way to organize demonstrations from the safety of her home. Her release from prison was an emotional event broadcast on Egyptian TV, which depicted her and her mother crying and hugging. Rashid was then expelled from the group and no longer knows the password for accessing the April 6 Facebook page. One fellow organizer called her “chicken” for saying she would not have organized the protest if she had thought she would be arrested. Rashid’s story is a good example of the challenges posed by using social media as a tool for mobilizing a protest. It is easy to “like” something or someone on Facebook, but it is much harder to organize a protest on the street where some participants will likely be arrested, injured or killed.
Beyond monitoring movement websites, governments can also shut them down. This has been common in Iran and China during times of social unrest. But blocking access to a particular website cannot stop tech-savvy Internet users employing virtual private networks or other technologies to access unbanned IP addresses outside the country in order to access banned sites. In response to this problem, China shut down Internet access to all of Xinjiang Autonomous Region, the location of ethnic Uighur riots in July 2009. More recently, Egypt followed the same tactic for the entire country. Like many countries, Egypt has contracts with Internet service providers that allow the government to turn the Internet off or, when service providers are state-owned, to make life difficult for Internet-based organizers.
Regimes can also use social media for their own purposes. One counter-protest tactic is to spread disinformation, whether it is to scare away protestors or lure them all to one location where anti-riot police lie in wait. We have not yet witnessed such a government “ambush” tactic, but its use is inevitable in the age of Internet anonymity. Government agents in many countries have become quite proficient at trolling the Internet in search of pedophiles and wannabe terrorists. (Of course, such tactics can be used by both sides. During the Iranian protests in 2009, many foreign-based Green Movement supporters spread disinformation over Twitter to mislead foreign observers.)
The most effective way for the government to use social media is to monitor what protest organizers are telling their adherents either directly over the Internet or by inserting an informant into the group, counteracting the protestors wherever and whenever they assemble. Authorities monitoring protests at World Trade Organization and G-8 meetings as well as the Republican and Democratic national conventions in the United States have used this successfully. Over the past two years in Egypt, the April 6 Movement has found the police ready and waiting at every protest location. Only in recent weeks has popular support grown to the point where the movement has presented a serious challenge to the security services.
One of the biggest challenges for security services is to keep up with the rapidly changing Internet. In Iran, the regime quickly shut down Facebook but not Twitter, not realizing the latter’s capabilities. If social media are presenting a demonstrable threat to governments, it could become vital for security services to continually refine and update plans for disrupting new Internet technology.
Quality of Leadership vs. Cost of Participation
There is no denying that social media represent an important tool for protest movements to effectively mobilize their adherents and communicate their message. As noted above, however, the effectiveness of the tool depends on its user, and an overreliance can become a serious detriment.
One way it can hurt a movement is in the evolution of its leadership. To lead a protest movement effectively, an organization’s leadership has to venture outside of cyberspace. It has to learn what it means to face off against a regime’s counterintelligence capabilities in more than just the virtual world. By holding workshops and mingling among the populace, the core leadership of a movement learns the different strategies that work best with different social strata and how to appeal to a broad audience. Essentially, leaders of a movement that exploits the use of social media must take the same risks as those of groups that lack such networking capability. The convenience and partial anonymity of social media can decrease the motivation of a leader to get outside and make things happen.
Moreover, a leadership grounded in physical reality is one that constructs and sticks to a concerted plan of action. The problem with social media is that they subvert the leadership of a movement while opening it to a broader membership. This means that a call for action may spread like wildfire before a movement is sufficiently prepared, which can put its survival in danger. In many ways, the Iranian Green Revolution is a perfect example of this. The call for action brought a self-selected group of largely educated urban youth to protest in the streets, where the regime cracked down harshly on a movement it believed was not broad enough to constitute a real threat.
A leadership too reliant on social media can also become isolated from alternative political movements with which it may share the common goal of regime change. This is especially the case when other movements are not “youth movements” and therefore are not as tech savvy. This can create serious problems once the revolution is successful and an interim government needs to be created. The Serbian Otpor (Resistance) movement was successful in the 2000 Serbian democratic revolution precisely because it managed to bring together a disparate opposition of pro-Western and nationalist forces. But to facilitate such coalition building, leaders have to step away from computers and cell phones and into factories, rice paddies and watering holes they normally would never want to enter. This is difficult to do during a revolution, when things are in flux and public suspicion is high, especially of those who claim to be leading a revolution.
Even when a media-savvy leader has a clear plan, he or she may not be successful. For instance, Thaksin Shinawatra, the former prime minister of Thailand and telecommunications magnate, has used his skills to hold video conference calls with stadiums full of supporters, and launched two massive waves of protests involving some 100,000 supporters against the Thai government in April 2009 and April and May 2010, yet he still has not succeeded in taking power. He remains a disembodied voice, capable of rocking the boat but incapable of taking its helm.
Simply a Convenience
Shutting down the Internet did not reduce the numbers of Egyptian protesters in the streets. In fact, the protests only grew bigger as websites were shut down and the Internet was turned off. If the right conditions exist a revolution can occur, and social media do not seem to change that. Just because an Internet-based group exists does not make it popular or a threat. There are Facebook groups, YouTube videos and Twitter posts about everything, but that does not make them popular. A neo-Nazi skinhead posting from his mother’s basement in Illinois is not going to start a revolution in the United States, no matter how many Internet posts he makes or what he says. The climate must be ripe for revolution, due to problems like inflation, deflation, food shortages, corruption and oppression, and the population must be motivated to mobilize. Representing a new medium with dangers as well as benefits, social media do not create protest movements; they only allow members of such movements to communicate more easily.
Other technologies like short-wave radio, which can also be used to communicate and mobilize, have been available to protestors and revolutionaries for a long time. In reality, so has the Internet, which is the fundamental technological development that allows for quick and widespread communications. The popularity of social media, one of many outgrowths of the Internet, may actually be isolated to international media observation from afar. We can now watch protest developments in real time, instead of after all the reports have been filed and printed in the next day’s newspaper or broadcast on the nightly news. Western perceptions are often easily swayed by English-speaking, media-savvy protestors who may be only a small fraction of a country’s population. This is further magnified in authoritarian countries where Western media have no choice but to turn to Twitter and YouTube to report on the crisis, thus increasing the perceived importance of social media.
In the Middle East, where Internet penetration is below 35 percent (with the exception of Israel), if a movement grows large enough to effect change it will have been joined through word of mouth, not through social networking. Still, the expansion of Internet connectivity does create new challenges for domestic leaders who have proved more than capable of controlling older forms of communication. This is not an insurmountable challenge, as China has shown, but even in China’s case there is growing anxiety about the ability of Internet users to evade controls and spread forbidden information.
Social media represent only one tool among many for an opposition group to employ. Protest movements are rarely successful if led from somebody’s basement in a virtual arena. Their leaders must have charisma and street smarts, just like leaders of any organization. A revolutionary group cannot rely on its most tech-savvy leaders to ultimately launch a successful revolution any more than a business can depend on the IT department to sell its product. It is part of the overall strategy, but it cannot be the sole strategy.
The ISM non-manufacturing composite index increased to 59.4 in January
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
The ISM non-manufacturing composite index increased to 59.4 in January from 57.1 in December, easily beating the consensus expected gain to 57.2. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The key sub-indexes were all higher in January and remain at levels indicating robust economic growth. The new orders index increased to 64.9 from 61.4 and the business activity index rose to 64.6 from 62.9, both multi-year highs. The employment index increased to 54.5 from 52.6 and the supplier deliveries index rose to 53.5 from 51.5.
The prices paid index increased to 72.1 in January, the highest since the collapse of Lehman Brothers, from 69.5 in December.
Implications: The US economy continues to pick up steam and we are now seeing strong economic growth in both the manufacturing and service sectors. Today’s ISM Services report delivered a broad array of data that continued to trace out a V-shaped (possibly a check-mark-shaped) recovery. The overall services index was at 59.4, the highest since 2005. The business activity index, which has an even higher correlation with real GDP growth, hit 64.6, also the highest since 2005. The new orders index was the highest since 2004 and the employment index increased to 54.5, the highest level since 2006. The employment index has been above the key 50 level for five straight months. On the inflation front, the prices paid index increased to 72.1, the highest since the financial panic started in late 2008. The Federal Reserve’s ultra-easy monetary policy is getting increasingly inappropriate. In other recent news, cars and light trucks were sold at a 12.6 million annual rate in January, up 0.6% versus December and up 17.4% versus a year ago. Over the next couple of years, these sales will continue to increase to about a 15-16 million annual rate, the pace that offsets the annual scrappage of autos as well as changes in the driving-age population. The service sector is getting stronger, firms are hiring again, and workers are confident enough about the future to ramp up their purchases of big-ticket items.
Non-farm productivity rose at a 2.6% annual rate in Q4
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Non-farm productivity (output per hour) rose at a 2.6% annual rate in the fourth quarter. Non-farm productivity is up 1.7% versus last year.
Real (inflation-adjusted) compensation per hour in the non-farm sector declined at a 0.6% annual rate in Q4, but is up 0.3% versus last year. Unit labor costs declined at a 0.6% rate in Q4 and are down 0.2% versus a year ago.
In the manufacturing sector, the Q4 growth rate for productivity (5.8%) was much higher than among non-farm businesses as a whole. The faster pace of productivity growth was due to declining hours. Real compensation per hour was up in the manufacturing sector (+0.2%), but, due to rapid productivity growth, unit labor costs declined at a 2.9% annual rate.
Implications: Productivity beat consensus expectations in the fourth quarter, rising at a 2.6% annual rate, equaling the robust average pace of the past ten years. What’s impressive about the fourth quarter is that the gains in productivity came at the same time that the number of hours worked increased at a healthy 1.8% rate. Oftentimes, once a recovery gets to the point where firms are vigorously increasing hours, the pace of productivity growth slows down. Although that happened in the first half of 2010, in the latter half of the year companies found a way to generate efficiencies while still demanding more hours. Not only are hours up but compensation per hour is up as well. Despite this, productivity is pushing down unit labor costs – how much companies have to pay workers per unit of production. In other words, productivity growth has been rapid enough to both generate pay increases and, at the same time, make it worth more for companies to hire. As a result, we expect private sector hiring to accelerate in 2011. In other news this morning, new claims for unemployment insurance declined 42,000 last week to 415,000. Continuing claims for regular state benefits fell 84,000 to 3.93 million. In other recent news on the job market, the ADP Employment index, a measure of private-sector payrolls, increased 187,000 in January. This is consistent with our forecast that the official Labor Department report, released tomorrow morning, will show an increase of 195,000 in private payrolls.
The protests in Egypt are proving that former President George Bush was right in his push for democracy in the Arab world, a leading Yale professor and best-selling author wrote Wednesday.
Stephen Carter, a left-leaning author, wrote in The Daily Beast that now it’s up to Obama to build on Bush’s legacy.
“Not long ago, President George W. Bush was considered naive for suggesting that the promotion of democracy in the Arab world should be a staple of American foreign policy,” Carter writes. “Two years ago, the same charge was whispered against President Barack Obama, when he suggested, in his Cairo address to the Muslim world, that self-government and freedom “are not just American ideas, they are human rights.”
Both presidents, he points out, were subjected to lectures by so-called “experts” and career diplomats who claimed that democratic instincts were alien to the region.
That thinking seems to be headed to the dustbin of history with the regime of Egyptian dictator Hosni Mubarak.
right on. Obama continues to make Bush look better and better every day.
unemployment was 4.6% and the deficit was $160 Billion until Democrats took control of Congress in 2007.
the USA is now losing soldiers in Afghanistan at a rate that is higher than in Iraq and Obama has not found Bin Laden.
Gitmo is still open.
Ft. Hood, underwear bomber, Muslim shooter at the recruiting stations, Iran nuclear programs, Mosque at Ground Zero, North Korea.
Add Obamacare ruled unconstitutional, Gates, Soros, GE/NBC, Alinsky, Wright, Ayres.
Obama makes Bush look better and better everyday (that is pissing off McCain).
The Politics of Saving 'Granny'
Alice Rivlin and Paul Ryan have a bipartisan plan.
ObamaCare has recently been dealt three body blows. Speaker John Boehner pushed a bill to repeal it through the House. GOP leader Mitch McConnell will get to put Senate Democrats on record with a vote on repeal as well. And this week, U.S. District Judge Roger Vinson declared the law unconstitutional.
The White House's reaction is dismissive. The nation doesn't want to "re-litigate" ObamaCare, we're told. So long as Mr. Obama sits in the Oval Office, repeal is going nowhere. The Supreme Court will uphold the law. And by 2012, health care will be a winning issue for Democrats.
I'm not so sure. Take the question of Granny. In a speech last Friday defending his health-care law's effect on seniors against GOP attacks, Mr. Obama said, "I can report that Granny is safe." She may not feel that way if she's one of the 700,000 seniors whose private Medicare Advantage insurance policy was not renewed last year because her insurance provider quit the business.
Cuomo's Lesson for House Republicans
New York's Governor exposes the fraud of 'baseline budgeting.
Move over, Chris Christie. New York Democratic Governor Andrew Cuomo is bidding to join the New Jersey Republican as the national spokesman for fiscal sanity, and he's doing so in a politically clever way that House Republicans could learn from.
The budget that Mr. Cuomo unveiled this week closes a gaping deficit with major budget reductions, calling for spending cuts in state hiring, education, health care, aid to universities and payments to cities. The plan would balance the Empire State's $135 billion budget without a dime of new taxes or borrowing. Remarkably, if his budget passed, the state would spend $3.5 billion less than it did last year.
And remember, we're talking about politically liberal New York, not New Hampshire. If you're surprised by this, you should see long-time Democratic Assembly Speaker Sheldon Silver, who looks as though he stuck his finger in the electric socket.
These cuts are impressive on their own, but Mr. Cuomo's real conceptual breakthrough is to expose the rigged-game of "baseline budgeting." This is a gambit by which spending increases automatically each year even before a Governor submits his budget. The "baseline" grows each year due to spending formulas that legislatures build into the law even before they take a single vote.
Mr. Cuomo put it this way in a New York Post op-ed on Tuesday: "When a governor takes office, in many ways the die has already been cast. Unbelievably, this year these rates and formulas in total call for a 13 percent increase in Medicaid and a 13 percent increase in education funding next year."
This means that if Mr. Cuomo proposes a spending increase for Medicaid that is less than 13%, he will be attacked for "cutting" spending. Yet overall Medicaid spending would still increase. As Mr. Cuomo notes, "this process frames the dialogue around the budget and biases the political discourse." That is precisely the goal of government unions and the politicians who follow their orders because it allows them to increase spending even as they cry fiscal havoc.
Mr. Cuomo points out that under the automatic baseline formulas, the New York state budget deficit this year is estimated to be $10 billion. Yet if the state operated like families do, with a new budget for each year starting from a base of what the state spent the year before, the deficit would be closer to $2 billion. Closing a deficit of that size suddenly becomes a lot easier, making it much harder to justify the tax increases that Mr. Silver and his cronies are famous for.
Carlos Slim Gets Richer as Mines, Mobile Beat Gates, Buffett
Carlos Slim’s Mexican holdings from mining to communications helped him beat Bill Gates and Warren Buffett on the stock market for the second straight year, and gains in 2011 may widen his lead atop the global wealth list.
Slim’s publicly disclosed holdings surged about 37 percent to $70 billion in 2010, with wireless carrier America Movil SAB representing $48.9 billion of that wealth, according to data compiled by Bloomberg. The 22 percent jump in Berkshire Hathaway Inc. shares wasn’t enough for Buffett to catch up, and Gates’s Microsoft Corp. fell, hurting his returns even as he spread his investments to other companies.
Mexico will be “the emerging market of 2011,” boosting Slim’s holdings, said Walter Molano, head of research at BCP Securities Inc. in Greenwich, Connecticut. Growth will come from an economic expansion in the U.S., Mexico’s top trading partner, and from investors looking for growth opportunities outside of Brazil, Russia, India and China, he said.
“Slim is in for a very good year,” Molano said in a phone interview. “With China overheating, and clearly Brazil looking like a very crowded trade, people are starting to look at Mexico as an alternative.”
Emerging markets in Latin America and Asia are in an “enviable” position for growth, with rising consumer demand and low interest rates, Slim, 71, said in November. America Movil shares rose 15 percent in 2010 as the number of Latin American mobile-phone owners neared 100 percent of the population.
Slim’s best-performing asset last year was one of his oldest, holding company Grupo Carso SAB, which almost doubled as it prepared for this year’s spinoff of its mining operations amid soaring gold and silver prices. His biggest loss came from a stake in publisher New York Times Co., which fell 21 percent.
Slim’s publicly disclosed shares in U.S. markets represented less than $500 million of his total holdings, with the rest in Mexican companies.
Investors in Latin America should focus on stocks that are exposed to Mexican domestic demand, which is increasing as local consumers have more money to spend after last year’s growth in manufacturing exports, Stephen Graham, a Goldman Sachs Group Inc. analyst in Sao Paulo, said in a research note this month. He is forecasting Mexico’s IPC index will gain 9 percent this year, about half the growth rate forecast for Brazil’s stock market index, after a 20 percent rally in 2010.
Gates, the founder of the world’s biggest software maker, has boosted his exposure to emerging markets, with stakes in Mexican broadcaster Grupo Televisa SAB and beverage bottler Coca-Cola Femsa SAB. Even with that diversification, holdings publicly disclosed by Gates, 55, amounted to about $26 billion at the end of 2010, down more than 8 percent from 2009. Holdings in Microsoft represented $16.7 billion of the total, after Gates reduced his stake in the company by 80 million shares.
Arturo Elias, a spokesman for Slim, said the Mexican billionaire’s comments in a news conference this week addressed his plans for the year. Slim said he would spend $3.66 billion this year on Mexican telecommunications, mining and infrastructure projects. America Movil is spending $8 billion a year through 2014 to prepare for growth in the demand it anticipates for data services such as Internet access and video.
Michael Larson, who manages Cascade and the Bill & Melinda Gates Foundation’s investments, didn’t return two phone messages seeking comment. Buffett didn’t respond to a request for comment e-mailed to his assistant, Carrie Kizer.
The data compiled by Bloomberg didn’t include the money the billionaires have given to charities, including the Gates foundation. Forbes magazine, which in October named Gates the richest person in the U.S. with a $54 billion fortune, said 70 percent of that amount is held in his Cascade Investment LLC fund. That fund has only disclosed $5.8 billion in holdings on the stock market, an amount that was included in the Bloomberg calculation of Gates’s holdings.
Buffett’s holdings were calculated from his shares of Berkshire Hathaway, his investment company that holds stakes in Wells Fargo & Co. and Coca-Cola Co. Berkshire’s A shares gained 21 percent last year and its B shares rose 22 percent. Buffett holds both classes.
Part of Slim’s success last year came simply because his holdings are mostly in Mexico, a country where investing is riskier than in the U.S., said Gerald Martin, a finance professor at American University’s Kogod School of Business in Washington. If the comparison between Slim and Buffett’s stock performance last year were adjusted for risk, Buffett may have come out ahead, he said.
“In good times Berkshire won’t go up as much, and in bad times it won’t go down as much either,” he said. “For a stock that doesn’t move much, a 22 percent return is great.”
Slim’s performance last year would have beat those of Buffett and Gates even if the U.S. billionaires hadn’t sold off shares of their companies. Buffett, 80, gave $1.6 billion in shares to the Gates Foundation in July as part of his plan to donate 99 percent of his wealth in installments.
Thanks in part to donations from Buffett and Gates, the Gates Foundation had $15.4 billion in stock-market holdings at the end of 2010, more than double the previous year’s total. The organization’s biggest gainers included Caterpillar Inc., AutoNation Inc. and U.S.-listed shares of Slim’s America Movil. Berkshire Hathaway is the foundation’s largest holding.
Gates unloaded 80 million Microsoft shares as part of his diversification of his investments in other companies through Cascade Investment. Among his most successful investments last year were Strategic Hotels & Resorts Inc., whose shares almost tripled, and AutoNation, which gained 47 percent. Microsoft was one of his worst performers, dropping 8.4 percent in 2010.
While Slim’s Telefonos de Mexico SAB, the state-owned monopoly he acquired in 1990, was his second-worst investment in 2010, the carrier’s 2001 spinoff America Movil continued to be his most important success. The company began as a Mexican carrier in the early days of the mobile-phone business and, through acquisitions, became Latin America’s largest wireless company and Mexico’s biggest publicly traded firm.
Slim and Gates became wealthy through similar bets in new technologies, and were helped by their dominant market positions, said Thomas Russo, who manages about $4 billion at Gardner Russo & Gardner in Lancaster, Pennsylvania.
“They basically had the privilege of owning a monopoly with enormous pricing power in markets that grew,” Russo said. “The consumer-PC business fueled Microsoft’s wealth, and the rollout of telephone services Carlos has been able to control over decades.”
The son of a Lebanese immigrant who ran a dry-goods store in downtown Mexico City, Slim built his fortune by buying real estate and assets such as a bottling company and a cigarette maker during periods of economic crisis in Mexico. His move to take control of Telmex in a 1990 privatization sale helped catapult him into the ranks of the world’s richest people.
Forbes named him the wealthiest person in the world last year, followed by Gates and Buffett.
Slim and his family control 42 percent of America Movil’s shares. They hold a stake of 79 percent in Grupo Carso and 55 percent in Grupo Financiero Inbursa SAB, a financial services company that has tripled its branches since the end of 2008.
While America Movil is based in Mexico, Slim has exposure to other countries in the region, said Molano of BCP. America Movil gets about 65 percent of its revenue from Mexico, with the rest coming from other countries in the region including Brazil, the U.S. and Colombia.
Mining, Luxury Goods
Slim’s best-performing and biggest foreign holding was Saks Inc., the luxury retailer that gained 64 percent last year. Slim’s investment vehicle Inmobiliaria Carso holds a 16 percent stake in Saks. Inmobiliaria Carso has 6.9 percent of the class A shares of Slim’s worst performer, New York Times, plus options to increase that stake to 16 percent.
Carso’s mining spinoff Minera Frisco SAB made its debut on Mexico’s stock market on Jan. 6 and has gained 78 percent since as investors snapped up a new way to gain exposure to the country’s precious metal production. Frisco fell 83 centavos to 53.53 pesos at 4 p.m. New York time in Mexico City trading.
“As commodities continue to perform well, people are going to start digging into the incredibly rich veins of metals sitting right below the surface in Mexico,” Molano said.