August 1st, 2006

The non-trades of 2006, Theo and Larry’s evolving relationship, and the reaction in the clubhouse

by Seth Mnookin @ 10:30 am

Yesterday afternoon, Theo Epstein spoke to the Boston media not long after the trade deadline had passed. “We gathered around everybody two minutes after the trade deadline and thanked them for their hard work and said, ‘As disappointed as we are not to be able to add a significant piece, we’re certainly proud of the process and actually proud of the results, because it would have been better than getting emotional, reactive, short-sighted in doing something that we would regret and would be detrimental to the health of the franchise.’”

The quote–which, according to some quick and dirty on-line searches, didn’t show up in the main trade stories in the Globe, the Herald, or the Providence Journal–says more about what happened (and what didn’t happen) yesterday, and how the relationship between Epstein and Larry Lucchino is playing out, than anything else Epstein said at his press conference.

During the year I spent with the Red Sox, Epstein talked often about the importance of process. When, throughout the 2005 season he was attempting to work out his contract with CEO Larry Lucchino, he didn’t appeal directly to principal owner John Henry because of his “deference to the process.” When Epstein finally explained to Henry why he felt he had to leave the team, he said that “the process of reaching a new contract” had disappointed him. And when, several months after famously walking out of Fenway in a gorilla suit, Epstein returned as the Sox’s general manager, he explained that the biggest factor had been his and Henry’s shared philosophical approach in regards to putting together winning baseball teams: “We both agree that what’s important is process over immediate, short-term results,” he told me.

***

In the days and weeks after Epstein left the team last October, there was a lot of discussion about whether or not Epstein and Lucchino were fighting for control over the team’s baseball operations. They weren’t: Lucchino has always functioned as the team’s CEO, and Epstein has always run baseball ops. There was, in addition to personal distrust that had built up over more than two years, a difference in how the two men felt the team should communicate with the public. Lucchino, who’d had to practically beg for fans when he ran the San Diego Padres, believes in doing whatever it takes to bring make the public feel as if the team is listening to their concerns. (This approach even extends to the players: Lucchino told me that one advantage of a July trade is that it shows the players that management is as committed to winning as the players are.) Epstein, especially in the wake of the 2004 World Series victory, believes the Red Sox have a unique opportunity to focus on the long-term instead of always looking for immediate gratification. In some very important ways, this difference in approach exacerbated the rift that led to Epstein’s resignation: when the Red Sox traded Nomar Garciaparra two years ago yesterday, Epstein was convinced that the process that led to that trade–dispassionately weighing the options, calmly considering the alternatives, and carefully looking at the future–was the right one. In the day or two immediately following the trade, when an Orlando Cabrera error resulted in a Sox loss and all of New England was bemoaning the departure of one of its heros, Epstein began hearing rumors that there were people within the organization who were telling the press that this had been a “bottom-up” trade, one orchestrated (and pushed through) by Epstein, not the team’s executives. Epstein not only felt betrayed, he began to wonder if the organization shared a commitment to the long-term goals he had laid out.

In the last two years, the Red Sox have repeatedly made player personnel decisions that reflect Epstein’s philosophy. They decided what they thought Pedro Martinez was worth and then stood firm when the Mets added a fourth year to their offer. Even after Lucchino told me he thought often of Johnny Damon’s “long-term value” to the franchise vis a vis the team’s relationship with its public, the Red Sox decided to not offer more than $11 million a year. But there have consistently been intimations that these moves reflected Epstein’s wishes, the implication being that even though Epstein was in control there were those who disagreed with him.* So far, that has not been the case this year, and the extent to which the Sox have stayed on the same page with their public “message” is striking. “We have a long-term plan,” Epstein said yesterday. “As much as we desperately wanted to do something to help our big-league team, it would have been shortsighted to sacrifice that long-term plan in order to incrementally increase our chances this year. We were asked over and over again for a lot of our good young players — good young players at the major league level who are part of our long-term plan — and it just wasn’t worth it.” The proposed Andruw Jones deal that got so much attention yesterday–in which the Red Sox would give up Coco Crisp, Craig Hansen, and Jon Lester–never was much of a possibility. The one deal that Sox were most eager to make, where Boston would get Houston’s Roy Oswalt in return for a group of players including some combination of Lester, Hansen, and Manny Delcarmen, didn’t work out in the end because Epstein and the Red Sox refused to give up more than they felt Oswalt was worth. This year, the Red Sox weren’t going to be caught up in the frenzy of the day or consumed by a need to counter the Yankees’ pick-up of Bobby Abreu. (An Oswalt acquisition, one article said, “[w]ould have been the classic ‘take that’ response to the Yankees”…which is precisely what the Sox were trying to avoid.)

Does this mean Lucchino’s power has been diminished? No, not necessarily; it means only that, when John Henry and Tom Werner promised Epstein that his running of the team’s on-field operation would not be compromised by leaks or outside pressure, they meant what they said. Lucchino, whose role within the team has never been clearly understood by the public, will continue to oversee every aspect of the organization and focus on the team’s revenue enhancement and long-term, off-field plans. And judging from what happened yesterday, Epstein will be freer than ever to shape the Sox’s roster without worrying about what’s going to show up in the next day’s papers.

***

It’s hard not to support Epstein’s push towards a future in which the Sox are less concerned with public reaction to the team’s every move. (At Saturday’s game, I listened as a very loud and very agitated fan bemoaned the fact that Willie Harris was not pinch-hitting when Jason Varitek was sent up late in the game to execute a bunt. Disregarding the fact that Willie Harris currently plays for Pawtucket, there are so many boneheaded sentiments expressed in that one sentence I barely knew where to begin. It would be frightening if the Sox did pay attention to this type of fan, who often shout the loudest but make the least sense.) But Epstein has always been more concerned with reactions in the clubhouse than on the street. On Sunday, in response to the Abreu trade, David Ortiz, who likely wanted a teammate on which he could unload some of his burden, asked a reporter, “What are we doing?” Baseball clubhouses are incredibly cliquey places (just ask Coco Crisp), and Epstein, who didn’t play baseball beyond high school, doesn’t have the easy rapport with players that former assistant general manager Josh Byrnes did. (Brynes was never a prospect, but he was a standout at Haverford, setting the school’s all-time home run mark.) “Josh is one of the people in the organization that I feel like I really have a good relationship with,” Gabe Kapler told me last September. “If I were to say you should go talk to somebody about the pulse of the organization, I’d say go talk to Josh. He’s going to be a great GM. I’m a big fan of Josh.” In October, Byrnes left Boston for Phoenix to become the GM of the Diamondbacks. If I were a fly on the wall this year, I’d be fascinated to watch how Epstein’s relationship (and his comfort level) with the players evolves.

Market's Set to Resume Losing Ways

By Helene Meisler
RealMoney.com Contributor
8/1/2006 8:51 AM EDT
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Technical Analysis

    * We seem to have swung from soft landing to hard takeoff.
    * Just look at the rush to commodities, away from defensives and utilities.
    * Stay focused on next week, when the market's likely to turn lower again.


Was Monday "commodity day" because it was the end of the month and folks felt compelled to mark these stocks up, or do people love the commodity stocks again?

The action is incongruous. Why wouldn't market participants have been just as excited Monday as they were Friday about the prospect of an economic slowdown?

Did they change their minds that fast? Did we go from "soft landing" to "taking off" so quickly?

If you believe the economy is slowing down, you are not about to load up on the likes of Nucor (NUE - commentary - Cramer's Take) or Peru Copper (CUP - commentary - Cramer's Take). And if you believe the economy is slowing down, you don't slam Procter & Gamble (PG - commentary - Cramer's Take).

Folks also seem to have suddenly stopped buying the utility stocks. The utes have been the best-performing group since May, but late last week folks just stopped buying them. I find that odd for two reasons. First, they tend to be classic defensive stocks. Second, the major heat wave in the U.S. should help push up the price of the gas stocks that make up the Dow Jones Utility Average.

But all of those surprising actions -- commodities got rushed while defensives and utilities were abandoned -- are exactly what occurred Monday. That tells me there really is no conviction among market players. What's hot today is not hot tomorrow. They can barely manage to put together a string of three decent up or down days lately -- and I hate that, because it makes my statistics choppy!

All this choppiness helps keep volume low, too. Monday was one of the lightest trading days we've seen. I had to go back two weeks to find a day with such light volume, and before that I had to go back to July 6, the Friday of a holiday week.

The oscillator ought to take a breather and come back down in the next two trading days, but I expect we will see it rise again in the latter part of the week. That's why I keep focusing on next week, when we'll be overbought and the market will likely start heading down again.
Overbought/Oversold Oscillators

For more explanation of these indicators, check out The Chartist's primer.

The Collapse of Judgment
By Hugh Hewitt
Thursday, August 3, 2006
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If you could save the victims of one of the following four events, which group would you save?

1. The victims of Fidel Castro's "revolution?"

2. The victims of Hezbollah's ambushes, rockets and missiles over the past three weeks?

3. The victims of the Seattle attack on the Jewish federation?

4. The victims of Mel Gibson's repulsive outburst of anti-Semitic venom?

If all human life is valued equally, you'd have to save Castro's millions of victims, the Hezbollah's thousands, then the one dead and many injured in Seattle, and then Gibson's offended.

As an extraordinary week draws to a close, though, you wouldn't have any sense of scale or importance if you had been watching American media or reading American commentary.

To MSM, Castro is the aging but charismatic leader of a defiant island-state, still bearded and wearing fatigues.

Hezbollah is the little terrorist organization that could hold out against the mighty IDF.

Naveed Haq, according to his lawyer, "had been diagnosed with bipolar disorder and had been taking medication to help control its symptoms, which generally include drastic mood swings."

And Gibson is the anti-Semitic rant-maker and Oscar-winner in whose explosive wrath upon arrest Arianna Huffington found "a chance for reasonable people to stand up and be counted. For the sane among us to identify, separate, and condemn the extremists, the fanatics, the fundamentalists, the bigots, the hate-mongers and say 'no more.' "

We are, it seems, in danger of losing any sense of priority, of scale, of genuine importance.

Abe Foxman, as my new guest blogger Dean Barnett has noted, is deep into Mel commentary. As was Andrew Sullivan. As were and still are many thousands of others.

We are three weeks and two days into the longest, sustained terrorist attack since the V-2s fell on England. It is a war crime --recognized everywhere-- to employ indiscriminate weapons. More than 2,000 have fallen on Israel in a little over three weeks, every one of which is intended to kill civilians.

Castro, if we are lucky, is in renal shutdown or some similar panic-and-repentance initiating slow-shut down of his internal organs that might lead him to beg forgiveness of God and the people he so cruelly used. Tens of thousands executed; hundreds of thousands imprisoned. Millions impoverished. That is Castro's record, and it makes him --easily-- the Most Evil Man of the 20th Century, Western Hemisphere Division.

And Haq is just the most recent of a series of alarming but largely uninvestigated-by-the-MSM events: the arrest of seven in Miami; of 17 in Toronto; the UNC SUV attack; the El Al killings at LAX.

Mel, however, is covered.

In a passage from her famous book, Eichmann on Trial, Hannah Arendt asked: "Could the activity of thinking as such, the habit of examining and reflecting upon whatever happens to come to pass, regardless of specific content and quite independent of results, could this activity be of such a nature that it 'conditions' men against evildoing?" I will leave it to folks far more skilled than I to apply Arendt's observation to the effects of MSM on the public's appreciation of priorities, but here's a bit of background:

From The Internet Encyclopedia of Philosophy:

    As far as Arendt could discern, Eichmann came to his willing involvement with the program of genocide through a failure or absence of the faculties of sound thinking and judgement. From Eichmann's trial in Jerusalem (where he had been brought after Israeli agents found him in hiding in Argentina), Arendt concluded that far from exhibiting a malevolent hatred of Jews which could have accounted psychologically for his participation in the Holocaust, Eichmann was an utterly innocuous individual. He operated unthinkingly, following orders, efficiently carrying them out, with no consideration of their effects upon those he targeted. The human dimension of these activities were not entertained, so the extermination of the Jews became indistinguishable from any other bureaucratically assigned and discharged responsibility for Eichmann and his cohorts.

    Arendt concluded that Eichmann was constitutively incapable of exercising the kind of judgment that would have made his victims' suffering real or apparent for him. It was not the presence of hatred that enabled Eichmann to perpetrate the genocide, but the absence of the imaginative capacities that would have made the human and moral dimensions of his activities tangible for him. Eichmann failed to exercise his capacity of thinking, of having an internal dialogue with himself, which would have permitted self-awareness of the evil nature of his deeds. This amounted to a failure to use self-reflection as a basis for judgment, the faculty that would have required Eichmann to exercise his imagination so as to contemplate the nature of his deeds from the experiential standpoint of his victims. This connection between the complicity with political evil and the failure of thinking and judgment inspired the last phase of Arendt's work, which sought to explicate the nature of these faculties and their constitutive role for politically and morally responsible choices.It is easy to comment on the events of Malibu. It can be very hard to comment on Qana. It is inconvenient to bring up Armando Valladares as that requires some reading.

And it can be frightening to consider Haq.

The MSM never surprises, and almost always disappoints.

We are awash in Gibson denunciations, but very short on Castro and Hezbollah condemnations. "I don’t take sides for or against Hezbollah or for or against Israel," Michigan Democratic Congressman John Dingell rambled on Detroit television. Of course not. Nor have his colleagues commented on his ambivalence between the Jewish homeland and the terrorist killers of 241 Ameircan Marines and soldiers in 1983.

As blogger Major Mike at MySandmen has noted, it is hard to imagine winning this war with a media incapable of basic judgments about priorities; about obvious good and obvious evil. To save you the click through, I offer half of his post:

    It has occurred to me over the past couple of weeks, with the Middle East and Afghanistan in turmoil, because of the likes of Al Qaeda, the Taliban, Iraqi Insurgents, Hamas and Hezbollah; that we now live in a world where governments, borders, diplomatic protocols, and indeed, civilizations are on the brink of becoming extinct and obsolete.

    These groups, some quasi-governmental entities, (Taliban, Hamas, Hezbollah), others simply terror organizations (AQ, and the AQ led Iraqi insurgents) are on the verge of collapsing the existing, and long recognized, international conventions of government, and governmental interactions. Operating outside the frameworks of established political systems, these groups are capable of destroying the very essence of our existing, global, civilization.

    While they are attacking with conventional and non-traditional martial weapons, they are also attacking on many asymmetrical fronts, many of which we are either slow to recognize, or refusing to acknowledge. Their asymmetric attacks…IEDs, kidnappings, border incursions, unguided rocket attacks, Gitmo prison suicides, 24/7 MSM wind farm manipulation, are designed to create a perpetual din of violence that we soon become numb to, and are expected to submit to out into the future.

    All the while, they receive unsolicited and unwitting help in their messaging by a blinded and prejudiced free press that has let its loathing of Western culture, the culture that gave it birth, create a dire and slanted world view that leaves many apathetic and hopeless. The MSM, with their crass empathies for murderous nationalists and terror mongers, is fueling these anarchistic endeavors through publicity, supportive messaging and storytelling, tacit encouragement, and continual anti-government campaigning.

    Their first target is the erosion of institutional and governmental confidence worldwide. They are not seeking to defeat the US in battle. They are not seeking to defeat Israel in battle. They are seeking the destruction of our social, economic, and governmental structures through the simple erosion of public confidence over time. In essence, they are trying to drive the international community into an international malaise, similar to the one that the US experienced after the Vietnam War. And they will leverage this motive vacuum as an opportunity for cultural imposition and theocratic domination. And when successful, they will spiral the current civilized world into chaos, confusion, and repressive dominance that will eventually ruin modern Western society.

    They have already changed the government in Spain. They have infiltrated the fledgling democracy in Lebanon and pulled it into a devastating war. They have won control of the Palestinian government, and nearly immediately engaged Israel in a war. Their goal is not victory, it is anarchy. And anarchy is their entry into power. Afghanistan the first time around. Somalia in its current state of affairs.

    We are deep into this erosion of confidence and already on the path to ruin.  

Major Mike's been around. He's never been on Hardball, written for The New York Times, or been to Davos.

But he's got a clue. Many, in fact, and he hasn't been writing about Mel.

Our war
By Jonathan Medved
Thursday, August 3, 2006

Directly in front of my seat in shul (our neighborhood synagogue) is a plaque commemorating two local boys who fell in the Yom Kippur War of 1973. When we read Psalms and other prayers for the soldiers now fighting on the Lebanese front lines, one can’t help but stare at it and think of the sacrifice that all Israelis make in every generation, our price for freedom.

Yet because I never served in the IDF (I got here already too old), I have been susceptible to the feeling that somehow I was less connected to this primal, most basic Israeli experience of shared combat and loss. I was always envious of my immigrant friends who did manage to get real army experience—they had somehow entered a state of “Israeliness” that would forever elude me.

This feeling began to change for me during Israel’s War Against Terror (Intifada) between 2000-2004 when the frontlines were suddenly on the streets of Jerusalem, and we lost too many friends in the terror that struck too close to home, way too close. Israel’s civilians played an unfortunately major role in that conflict granting real combatant status on everyone who sent their kids to school on a bus or had coffee at Caffit or Café Hillel.

And now with Israel’s second Lebanese War entering its fourth week, whatever remained of my new immigrant feelings has gone completely. With so many of our shul’s sons and daughters in the thick of the fight: this war is our war.

While it may seem strange to feel at war while living in the eerily peaceful atmosphere of Jerusalem, seemingly far removed from the daily barrage of murderous missiles raining down on Israel’s north not more than a 90 minute drive from here, all it takes is a quick glance around shul to know that yes, our families are fighting for their very lives.

In front of me Bob’s two boys are missing from their regular shul seats and are sitting instead inside their tanks. Steve’s son is a commando, Asher’s son is in Field Intelligence, David’s daughter training soldiers, and Howie’s son Eli has emerged as one of this War’s first heroes. Eli, a lieutenant in the Paratroopers, managed to pick up a hand grenade that was thrown at him and a wounded comrade, and then throw it back at two Hizbollah terrorists killing them both.

Maybe I am more affected by all of this because I am the father of three teenaged boys with my oldest son Momo due to be inducted into the IDF in a matter of weeks. He and all of his friends (Aaron, Zacki, Chanan, and dozens more) will soon be giving precious years for the defense of this country. My second son Yossi just got his first call up notice, and my third son Itamar will not be far behind. One is filled with love for all of these soldiers and potential soldiers. They are all our children.

And herein lies a great secret of why we fight, why we have gone to war after the kidnappings of Gilad Shalit in Gaza , and Ehud Goldwasser and Eldad Regev on the Lebanese border. Why the Israeli public completely backs this war with approval ratings of over 90%. Because our army is our kids, and Jewish kids will not be kidnapped and slaughtered ever again without having hell to pay. Because we will not sit idly by while our enemies openly call for our destruction and amass the means to carry out their threats.

Everyday’s paper brings new pictures of fallen soldiers—their smiles, their backgrounds, their unbelievable stories. Major Benji Hillman, 27, an English immigrant, who died leading his troops into Ras A Maroun, only three weeks after his wedding. Major Roi Klein, 31, died by jumping on a hand grenade, thereby shielding his soldiers from certain death—he leaves a wife and two young sons. Seargeant Michael Levine, 22, a new immigrant from Pennsylvania, rushed back to his unit after visiting his family in the states, to find death fighting Hizbollah in Ayta A-Shab. These heroes will not be forgotten nor will their deaths be turned into mere casualty statistics of a war viewed by cynics as “disproportionate”.

Tonight, starts the fast of the 9th of Av, when we read the book of Lamentations as we mourn the destruction of our Temples and other calamities that have befallen the Jewish people on this day. Sitting in the moonlight on a hill across from the Temple Mount, hundreds of our neighbors and friends read together the scary verses about the tragedy that has followed our people for generations. Yet there is a quiet determination which is palpable among the mourners---a feeling that this war, our war, will ultimately be won, that redemption is finally on the way, and that our families will prevail.

Don't 'Just Do It' With Trading
James DePorre (RevShark)
08/03/2006 9:15 AM

"Ambition is a poor excuse for not having sense enough to be lazy."

-- Charlie McCarthy

Investing in the stock market is one of the few business endeavors where laziness is often rewarded. Quite frequently, doing nothing as others make aggressive moves can be the best course of action. Unfortunately, most traders are conditioned to do just the opposite. When things aren't clear and we are feeling confused, sometimes we take action simply because it makes us feel like we are in control.

We are in a very uncertain market right now and if you have been staying defensive and raised cash, there is no rush to put it to work. If you are holding positions, keep your stops tight and don't try to add to them on weakness.

Too often market participants believe that if they are not fully invested the moment the market bottoms that they will miss out. Not only can you do equally well if you wait for a clear uptrend to start, you can avoid substantial losses caused by serial bottom calling. Trying to nail the exact turning point can be extremely costly when you fail at it repeatedly. It is quite easy to overlook the costs of that approach because you feel such great relief when you finally get it right.

If you feel you are well positioned now, today is probably going to be a very good day to do little. Go ahead and keep your eyes open ahead of the anticipation about the Fed decision next Tuesday, but the best thing you can do is realize that this is a very tough environment and there is no need to be aggressive if you have some cash on hand and are defensively positioned.

The Sands of Sentiment

By Rev Shark
RealMoney.com Contributor
8/4/2006 12:46 PM EDT
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The market has done a nasty rollover after the gap-up open, and that has left a lot of market players confused and uncertain. The poor jobs report was supposed to be an indication that the Fed is going to pause, but the market is struggling with whether that is the only issue we face.

I'm seeing a lot of discussion about overall market sentiment. The bears say things are too bullish -- just look at how much we have rallied in the last couple weeks and how strong the S&P 500 is.

The bulls say negativity is too extreme, nobody expects this market to rally for long and look at the pounding so many individual stocks have taken.

Is sentiment really that easily quantified? Do market players really have such black-and-white opinions? Isn't it possible there are many folks who may be bullish or bearish in a short time frame but feel completely different in a different time frame?

Or maybe they are only slightly negative or positive and inclined to change their minds quickly. Even if sentiment is clearly too positive or negative, how do we know there isn't plenty of untapped buying or selling power left to back up those feelings?

Sentiment is one of those things in which market players can find whatever they are seeking. The way we view it is always influenced to some extent by our own market opinions. We like to think our insights are unique and that we understand how others are thinking and acting, but that really isn't the case that often.

In fact, there simply isn't a single monolithic viewpoint for us to consider and judge anyway. Market sentiment is complex because the psychology of market players is complex. Don't try to form major market theories based on generalizations about the opinions of others.

Failure is not an option
By Charles Krauthammer
Friday, August 4, 2006
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WASHINGTON -- Israel's war with Hezbollah is a war to secure its northern border, to defeat a terrorist militia bent on Israel's destruction, to restore Israeli deterrence in the age of the missile. But even more is at stake. Israel's leaders do not seem to understand how ruinous a military failure in Lebanon would be to its relationship with America, Israel's most vital lifeline.

For decades there has been a debate in the U.S. over Israel's strategic value. At critical moments in the past, Israel has indeed shown its value. In 1970, Israeli military moves against Syria saved King Hussein and the moderate pro-American Hashemite monarchy of Jordan. In 1982, American-made Israeli fighters engaged the Syrian air force, shooting down 86 MiGs without a single loss, revealing a shocking Soviet technological backwardness that dealt a major blow to Soviet prestige abroad and self-confidence among its elites at home (including Politburo member Mikhail Gorbachev).

But that was decades ago. The question, as always, is: What have you done for me lately? There is fierce debate now in the U.S. about whether in the post-9/11 world Israel is a net asset or liability. Hezbollah's unprovoked attack on July 12 provided Israel the extraordinary opportunity to demonstrate its utility by making a major contribution to America's war on terror.

America's green light for Israel to defend itself is seen as a favor to Israel. But that is a tendentious, misleadingly partial analysis. The green light -- indeed, the encouragement -- is also an act of clear self-interest. America wants, America needs, a decisive Hezbollah defeat.

Unlike many of the other terror groups in the Middle East, Hezbollah is a serious enemy of the United States. In 1983, it massacred 241 American servicemen. Except for al-Qaeda, it has killed more Americans than any other terror organization.

More importantly, it is today the leading edge of an aggressive, nuclear-hungry Iran. Hezbollah is a wholly owned Iranian subsidiary. Its mission is to extend the Islamic Revolution's influence into Lebanon and Palestine, destabilize any Arab-Israeli peace, and advance an Islamist Shiite ascendancy, led and controlled by Iran, throughout the Levant.

America finds itself at war with radical Islam, a two-churched monster: Sunni al-Qaeda is now being challenged by Shiite Iran for primacy in its epic confrontation with the infidel West. With al-Qaeda in decline, Iran is on the march. It is intervening through proxies throughout the Arab world -- Hezbollah in Lebanon, Hamas in Palestine, Moqtada al-Sadr's Mahdi Army in Iraq -- to subvert modernizing, Western-oriented Arab governments and bring these territories under Iranian hegemony. Its nuclear ambitions would secure these advances, give it an overwhelming preponderance of power over the Arabs and an absolute deterrent against serious counteractions by the United States, Israel or any other rival.

The moderate pro-Western Arabs understand this very clearly. Which is why Egypt, Saudi Arabia and Jordan immediately came out against Hezbollah and privately urged the U.S. to let Israel take down Hezbollah. They know that Hezbollah is fighting Iran's proxy war not only against Israel but against them and, more generally, against the United States and the West.

Hence Israel's rare opportunity to demonstrate what it can do for its great American patron. Defeating Hezbollah would be a huge loss for Iran, both psychologically and strategically. It would lose its foothold in Lebanon. It would lose its major means to destabilize and inject itself into the heart of the Middle East. It would be shown to have vastly overreached in trying to establish itself as the regional superpower.

The U.S. has gone far out on a limb to allow Israel to win and for all this to happen. It has counted on Israel's ability to do the job. It has been disappointed. Prime Minister Ehud Olmert has provided unsteady and uncertain leadership. Foolishly relying on air power alone, he denied his generals the ground offensive they wanted, only to reverse himself later. He has allowed his war Cabinet meetings to become fully public through the kind of leaks no serious wartime leadership would ever countenance. Divisive Cabinet debates are broadcast to the world as was Olmert's own complaint that ``I'm tired. I didn't sleep at all last night." (Haaretz, July 28.) Hardly the stuff to instill Churchillian confidence.

His search for victory on the cheap has jeopardized not just the Lebanon operation, but America's confidence in Israel as well. That confidence -- and the relationship it reinforces -- is as important to Israel's survival as its own army. The tremulous Olmert seems not to have a clue.

An unappeasable global jihad
By David Limbaugh
Friday, August 4, 2006
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We are fighting a global war against international terrorists because the terrorists are engaged in a global jihad against infidels. The scariest thing about it is that a good many people in this country believe we actually have the luxury of opting out.

Isn't the operative assumption that we are dealing with a reasonable enemy that doesn't want war any more than we do?

Why else would Democratic Congressman Martin Frost tell Fox News -- approvingly -- that "a majority of the American people has now decided that it was a mistake for us to go into Iraq "? Why else would certain media elites treat the ranting, spooky 18-page letter of Iranian President Mahmoud Ahmadinejad to President Bush as a thoughtful, serious piece warranting the president's good faith consideration? Ahmadinejad, by the way, said on Aug. 3 that the solution to the Middle East crisis is to destroy Israel.

Why else would the Left be so quick to declare moral equivalence between the actions of the Hezbollah terrorist aggressors and those of Israeli defenders? Why else would the liberal media downplay Hezbollah's raining of over 200 rockets on potentially civilian targets in one day while ignoring the possibility that the report of civilian deaths in Qana from Israeli airstrikes was part of a terrorist-staged propaganda event? Doesn't the fact that terrorists traffic in lies as well as murder warrant skepticism at least?

Why else would "more than a third of the American public suspect that federal officials assisted in the 9/11 terrorist attacks or took no action to stop them so the United States could go to war in the Middle East" (according to a new Scripps Howard/Ohio University poll)?

Why else would former U.S. ambassador to Iraq, Ed Peck (and others) refuse to call Hezbollah a terrorist organization? "A terrorist organization," said the diplomat, "is in the eye of the beholder." When asked, point blank, whether Hezbollah was a terrorist organization, Peck said, "No, I think it has objectives to which we object very strongly, and some of them are bloody. But other people are doing things quite similar to that and they're not called terrorists because they're on our side."

Yes, many in this country stubbornly believe the United States, let alone Israel, is not an entirely innocent party in this war. They believe, variously, that terrorists have legitimate grievances that can be mollified through negotiation, that we can rectify those grievances by altering our "imperialistic" policies and that Muslim terrorists have a right to be outraged that we attacked Iraq and had the audacity to help the Iraqis establish a political system whereby they could choose their own leaders instead of submitting to an unelected dictator.

They believe the terrorists have a right to be outraged at our consistent support of the Israelis, which are no different from the terrorists and allegedly have no greater claim to the Holy Land than the Palestinians. They believe the Palestinians are victims who are willing to live in peace with Israel if it will just cede a little more land, and a little more land, and a little more land, and that the United States has no moral authority in demanding the cessation of Iran's nuclear weapons program since we have the world's most formidable nuclear arsenal ourselves. They believe that if we hadn't attacked Iraq, the terrorists wouldn't be so mad at us and might not be at war against us.

So what if they finally badger our policy makers into withdrawing from Iraq before the Iraqi security forces are capable of assuming the job themselves? Will this withdrawal make us less of a target for the terrorists? Or will we have to withdraw our support for Israel as well? Perhaps join the terrorists in attacking Israel? How about our presence in Saudi Arabia?

The uncomplicated answer is that no matter what we do, policy-wise, we will remain infidels with gigantic bull's-eyes on our backs unless we renounce our capitalistic ways, destroy our churches and synagogues, outlaw our pluralistic religious society, convert to a radical Islamic theocracy and join the global jihad en route to a worldwide caliphate.

We are in this war for the long haul whether we like it or not. The only question is whether we intend to fight it or roll over in shameful appeasement until we are in a much weaker position to fight at such time as even the appeasers realize we have no other choice.
Vote on this Article

By Popular Demand, the Bullish Picture
By Helene Meisler
RealMoney.com Contributor
8/4/2006 3:35 PM EDT

This column was originally published on RealMoney on Aug. 4 at 8:53 a.m. EDT. It's being republished as a bonus for TheStreet.com readers.

I have received countless emails this past week begging me to be bullish:

"What would it take to turn you bullish?"

"What if the S&P 500 were to break out through 1280, wouldn't that make you bullish?"

"Isn't it bullish that the American Association of Individual Investors numbers are so bearish?"

And so on.

But remember, I called for a rally, and now we've gotten one.

I looked for a low the week of July 17 that would lead to a rally into early August.

I harped on that theme in early July.

I haven't changed my view.

And on July 25, I wrote that there was no death cross in the S&P, even as folks kept trying to get me to look at the moving averages using exponential data so that I'd see one.

Perhaps it's because now we're solidly in week two or three of a rally that all of a sudden people want me to say the rally can last even longer.

I suppose if you arrive at the party late, you want the host to leave the bar open longer.

So today, by popular demand, I'll paint the bullish picture.

The advance/decline line has been very good these past few weeks.

It has been so good that it is now doing better than the S&P.

Because I'm not supposed to discuss the bear case, I will not point out that if we use cumulative volume, we are still well below the July 3 high.

The better advance/decline has helped the McClellan Summation Index rise. No complaints there.

The 10-day moving average of the new highs and new lows is also rising.

Then there's the oscillator, which I've been saying would not be overbought until next week. That's early August, isn't it? I can't change that timing. This is a mathematical calculation that has a time factor involved. What I can tell you is that if this market is truly strong, we will get overbought and stay overbought. (For more explanation of these indicators, check out The Chartist's primer.)

On the sentiment side, I did post in Columnist Conversation Thursday that the American Association of Individual Investors sentiment reading was showing a very high percentage of bears, which is a contrary indicator and therefore bullish.

That's the bull case as I see it. But I may as well add something anecdotal: Since I tend to be way too early on my calls anyway (especially at highs), perhaps I'm just fretting about a high in early August and I should be fretting about a high in late August or September. After all, the four-year-cycle folks are all looking for a low in October.

P.S. from TheStreet.com Editor-in-Chief, Dave Morrow
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Isolated Americans trying to connect

By DAVID CRARY, AP National Writer Sat Aug 5, 12:26 PM ET

NEW YORK - In bleak nursing homes and vibrant college dorms, in crowded cities and spread-out suburbs, Americans confront an ailment with no single cause or cure.
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Some call it social isolation or disconnectedness. Often, it's just plain loneliness.

An age-old ailment, to be sure, and yet by various measures — census figures on one-person households, a new study documenting Americans' shrinking circle of intimate friends — it is worsening.

It seems ironic, even to those who are affected. The nation has never been more populous, soon to reach the 300 million mark. And it has never been more connected — by phone, e-mail, instant message, text message, and on and on.

Yet so many are alone in the crowd.

"People are increasingly busy," said Margaret Gibbs, a psychologist at Fairleigh Dickinson University. "We've become a society where we expect things instantly, and don't spend the time it takes to have real intimacy with another person."

Some Americans are making a new commitment, getting reconnected in groups or one-on-one and combatting a phenomenon that can take a heavy toll on communities and individuals.

In its most pronounced forms, loneliness is considered a serious, even life-threatening condition, heightening the risks of heart disease and depression. A sense of isolation can strike at almost any age, in any demographic sector — parents struggling to adjust to empty-nest status, divorcees unable to rebuild a social life, even seemingly self-confident college students.

John Powell, a psychologist at the University of Illinois counseling center, says it's common for incoming freshmen to stay in their rooms, chatting by computer with high school friends rather than venturing out to get-acquainted activities on campus.

"The frequency of contact and volume of contact does not necessarily translate into the quality of contact," Powell said.

The trend toward isolation surfaced in the last U.S. census figures, which show that one-fourth of the nation's households — 27.2 million of them — consisted of just one person, compared to 10 percent in 1950.

In June, an authoritative study in the American Sociological Review found that the average American had only two close friends in whom they would confide on important matters, down from an average of three in 1985. The number of people who said they had no such confidant soared from 10 percent in 1985 to nearly 25 percent in 2004; an additional 19 percent said they had only one confidant — often their spouse.

"That may be the most worrisome thing," said Lynn Smith-Lovin, a Duke University sociologist who co-authored the study. "If you lose that one person, because the relationship declines or the person dies, you have no one to support you. If we're all becoming more dependent on our spouse or partner for that kind of complete knowing of each other, we're all vulnerable to losing that."

The study suggested an array of possible causes — including an increase in working/commuting hours and expanding use of the Internet to stay in touch with other people, lessening the need for face-to-face contacts.

"We e-mail each other rather than calling or meeting, so there can be a sense of connection but also a loss of actual time spent with friends and families," Gibbs said.

Some Americans shrug off the trend, content with their ever-evolving social circles. Others, though, are unsettled at what they see and feel, and search for remedies.

___

MID-LIFE SINGLES:

Karina Penaranda was at Mass in 2002 when it dawned on her that her peers at her Roman Catholic church in Phoenix — single adults 35 to 60 — had no fixed place in the diocese's social orbit.

"There were groups for elderly people, marriage encounters for couples — and youth groups are everywhere," said Penaranda, who is in her 40s. "Once single people reach this age they don't have a community. They don't really have a place to go where they can share their hopes and dreams."

With a few other parishioners, Penaranda founded a group called Catholic Singles Ministry. It now draws scores of people from across the Phoenix area and beyond to twice-yearly retreats and to events ranging from prayer breakfasts to bowling nights to food-bank volunteer work.

"We have people who've been divorced, been widowed, never been married," she said. "At our retreats we talk about loneliness, relationships. ... You know that you're not alone in going through this journey."

Penaranda, a project manager for a bank, has never been married. She savors socializing, but it takes conscious effort.

"The busyness in people's lives is one of things that prevents it," she said. "That happens to me — I get immersed in work, and have to step back and say, 'Time out.'"

One of Penaranda's colleagues in the ministry, Monica Smith, said community service is a key element.

"We're reaching out to others in our singleness, our aloneness," she said. "It gives us, without family, without children, a greater sense of belonging."

Singles ministries have proliferated nationwide, notably at megachurches. At Parkcrest Christian Church in Long Beach, Calif., about 150 of the 2,500-member congregation participate in a group for singles aged 35 to 65.

"They're looking to connect with other people in a society that's geared to married people, to people with families," said the Rev. Jim Vlahos, Parkcrest's singles minister.

Many of the group's members are divorced, said Vlahos, himself a never-married 41-year-old.

"Once someone gets divorced, they tend to lose their married friends," he observed. "It's not a stigma thing, it's an awkward thing — 'Oh, you're single now, and we do married things.'"

___

EMPTY NESTERS:

Having a spouse and children doesn't insulate adults from bouts of loneliness; one particularly vulnerable subset are parents confronting the empty-nest syndrome as their children reach young adulthood and leave home.

"Some take it really really hard," said Jeanine Herrin of Inglis, Fla., who launched an Internet chat room called Empty Nest Moms. "That's all they did — they lived and breathed kids, and all of the sudden the kids are gone."

She noted that many such parents had a network of adults they knew through their children's activities — a network that can shrink or vanish when the children leave.

"Some moms are almost basket cases when they come into our group," Herrin said. "But with most of them, you can feel that sense of relief, that they're not really going crazy, that there are so many others feeling the same way."

Some husbands share the emotional rollercoaster, while others "just don't understand at all," Herrin said. "Some are thrilled to death the kids are gone."

Many of the hundreds of women who have posted messages on the Web site candidly acknowledge their bouts of crying and self-pity. One mother described in detail her devastation over the departure of her youngest child, and then the elation of filling the emptiness by becoming a foster parent.

Ellen Ritter, who has a doctorate in psychology, works as a "family transitions coach" in Hudson, Ohio, and often counsels empty-nest mothers. "It's really hard to make new friends," she said, "and that's why so many women are reaching out to the Internet."

___

COLLEGE STUDENTS:

If some empty-nest parents feel a void in their lives, so do some of their absent children

"A lot of students go through periods of loneliness," said Zanny Altschuler, 20, of Menlo Park, Calif., who is completing her freshman year this summer at Dartmouth College in Hanover, N.H.

"The social life on campus can be crazy," she said. "Rather than sticking with close friendships that can be hard to maintain, people forge a broader circle of acquaintances."

Altschuler cited the phenomenon of Facebook.com, the social-networking Web site on which students can enumerate their "friends."

"You go on some profiles and they say they have 1,000 friends, and they probably don't even know half of them," she said.

John Powell, from his vantage point at the Illinois counseling center, says students increasingly have difficulty "making really satisfying connections" even though the university offers many activities to bring students together.

"All the students I work with have incredibly many pseudo-intimate relationships online — but without the kind of risk and vulnerability that goes with sitting across a cafe booth from another person," Powell said.

Sean Seepersad, who now teaches at California State University, Fresno, earned his doctorate at Illinois last year by designing an intervention program for lonely students.

Seepersad said some of the students were predictably shy and withdrawn, others on the surface seemed extroverted and socially skilled. He encouraged them to share their feelings, analyze why they felt lonely and work on their social skills.

"Lonely people may not be aware of things they're doing that perpetuate the problem," he said. "It's something that can be helped."

___

OLD AND ALONE:

She laughs gently at her blunt self-analysis, but Helen Granath doesn't mince words.

"It's a very lonely existence — most of the time the loneliness can be excruciating and painful," says the 84-year-old widow from San Francisco. "I have very few friends. They're either ill or they've passed away or moved somewhere else."

Her husband died 30 years ago; she says her son "is very busy in the computer business. I don't see him very often."

No data set enumerates how many elderly Americans feel such pangs of loneliness, but undoubtedly there are millions who could empathize with Granath. She ventures out of her apartment for errands and movies, but is slowed by leukemia and arthritis and — after the latest in a series of hip replacements — sought help and companionship from a volunteer group called Little Brothers-Friends of the Elderly.

For the past several years, the group has sent volunteers to visit her — bringing flowers on holidays and gifts on her birthday.

Jim Doyle, 48, who does promotional work in San Francisco for a movie theater chain, started volunteering for Little Brothers this year, and has become the sole loyal friend of a 67-year-old developmentally disabled man named Frank.

"He lives by himself, and does custodial work, but other than that he didn't have a whole lot to do," said Doyle. "He'd stay home and watch a lot of TV. Now we got out to the movies, for walks — he calls me all the time. He appreciates it, and it's been great for me."

Bob Moody, a retired Chicago businessman, has been volunteering for Little Brothers since 1981 — he had been visiting his cancer-stricken mother in a nursing home and noticed that many patients didn't have visitors.

Since then, he's devoted each Thanksgiving, Christmas and Easter to visits with isolated seniors, as well as making visits periodically throughout the year.

"Let's face it," Moody said. "Old people can be grouchy sometimes. With some, there's a little mistrust early on because they don't really know you. But as time goes on, they gradually open up."

One refrain he hears: "My kids don't live that far away, but they don't come to visit me."

His current Little Brothers friend is Rocky Lepore, an 85-year-old blind man who savors the visits. "He always wants to give me something," Moody said, "a box of candy, some little mints."

___

NEIGHBORS:

If anyone was pleased by the June report on shrinking circles of close friends, it was Harvard professor Robert Putnam, who viewed it as vindication of his best-selling book "Bowling Alone."

Some academics had challenged his thesis in 2000 that civic engagement and neighborliness were on the decline, but many Americans took the message to heart.

Close to Putnam's home base at Harvard, for example, David Crowley has founded an organization called Social Capital Inc. that is striving to connect neighbors and build civic spirit in the Boston-area communities of Woburn, Dorchester and Lynn.

"People are less connected to their neighbors today, and they miss that," Crowley said.

His projects seek to use the Internet as a connecting tool.

Last winter, for example, SCI members in Woburn received an e-mail notice that one elderly, low-income resident was worried how he would get his driveway cleared of snow. Within a day, Crowley said, a neighbor volunteered to use his snowblower to the keep the driveway clear all winter.

Putnam, in an interview, said vibrant social networks have benefits for individuals in terms of health and happiness, and for communities as well.

"The crime rates are lower, the schools work better, the economy works better," he said.

The challenges to connectedness are many. Strolls through the neighborhood and visits on front porches have been replaced in many cases by retreats indoors to be entertained by TVs, computers and video games.

Spouses are more likely to be both working and less likely to have one or two other couples with whom they forge close, long-lasting ties. Instead, they may have a broader circle of couples they know only casually through their children's schools or sports leagues.

"We've brought more women into the workplace, but we have not addressed the consequences for families and communities," Putnam said. "We need to invent new ways of connecting."

President's Speech

    Speech at the Golden Gate University Speakers Series
    San Francisco, California
    By Janet L. Yellen, President and CEO of the Federal Reserve Bank of San Francisco
    For delivery July 31, 2006 – 8:45 AM Pacific Daylight Time, 11:45 AM Eastern

Prospects for the U.S. Economy

Thank you very much for inviting me to join you. It's a real pleasure to be part of this outstanding speakers series. Today I will discuss my views on the prospects for the U.S. economy—for labor markets and economic activity and also for inflation. This focus mirrors the two main objectives for monetary policy enunciated in the Federal Reserve Act, namely maximum employment and price stability. I plan to explore the implications of these developments for monetary policy. Then, of course, I would welcome your questions and comments. Before I begin, let me note that my remarks represent my own views and are not necessarily those of my colleagues in the Federal Reserve System.

The U.S. economy has shown remarkable resilience in the face of some severe shocks—in particular, the surge in energy prices that began a couple of years ago and the devastation from the twin hurricanes last summer. Over the past two years, economic growth has averaged just over 31/4 percent, moderately above current estimates of the growth rate that is sustainable in the long run. As a result, the economy now appears to have moved within range of the full utilization of its resources—in other words, the slack in labor and product markets that was apparent a year ago has most likely been eliminated. For example, over that time, both the rate of unused capacity in the industrial sector and the civilian unemployment rate have fallen noticeably.

Indeed, the unemployment rate dropped by one full percentage point, coming in at just over 4½ percent in June. This rate is actually a bit lower than conventional estimates of so-called "full employment," and therefore suggests that there may be a bit of excess demand in labor markets.

However, the benchmark for these calculations—full employment or utilization—cannot be measured with a lot of precision, and may change over time. As a check on the degree of utilization, I like to look at the behavior of labor compensation, including both wages and benefits. If, for example, labor markets were excessively tight, it seems likely that we would see a pickup in the growth of labor compensation as firms competed for scarce workers. Instead, based on the most recent data, we find that broad measures of compensation increased at a moderate rate over the past year. Nonetheless, tight labor markets could affect labor compensation with a lag, so it's possible that there is pressure for acceleration in the pipeline. Moreover, these broad measures may have been held down by a deceleration in benefits costs—for example, there has been a sharp slowdown in the growth of health insurance costs—which may have only a temporary effect on overall compensation. So, while moderate growth in compensation provides me with some degree of comfort that we have not overshot full utilization, or, at least, not by very much, the jury is still out on this issue.

With labor and product markets close to full utilization, the key concern going forward is whether economic growth will slow enough and for long enough to avoid a buildup of inflationary pressures. Recent data indicate that real GDP growth did slow noticeably in the second quarter, coming in at 2½ percent. This is well below the rapid 5½ rate in the first quarter, and moderately below most estimates of the rate that is sustainable in the long run.

My best guess is that growth will still be healthy but will remain somewhat below the sustainable rate as the year progresses. This outlook represents the net effect of a number of disparate forces. The impetus to keep the economy ticking along includes factors such as ongoing strength in the fundamentals for productivity and relatively rapid growth in business investment in equipment and software—including the vital high-tech sector—as well as in spending on nonresidential structures.

As for the factors that are likely to restrain growth, there is the rise in both short- and long-term interest rates over the past couple of years as the Fed has removed monetary policy accommodation. Since mid-2004 when the Fed began this process, most short-term interest rates have increased between 3½ and 4 percentage points. Many long-term rates are up by ¼ to ½ of a percentage point, with most of this increase occurring since early this year. These higher rates should reduce demand, particularly in interest-sensitive sectors, notably, autos, consumer durables, and housing.

Indeed, we have already seen some cooling in the housing sector, and this brings me to another factor that is likely to restrain growth—that is, the significant moderation in the rate of house-price appreciation. Slower increases in house prices could put a crimp in consumer spending in a couple of ways. First, some observers believe that consumers have been keeping their spending up by withdrawing equity from the increased value of their homes; of course, this source of funds starts to shrink as the pace of appreciation slows. Furthermore, there may be some pullback by consumers due what is called the wealth effect—that is, slower house-price appreciation reduces growth in their wealth and therefore their tendency to increase their spending.

While I expect the housing situation to have only moderating effects on economic activity going forward, I should note that we can't ignore the risks of more unpleasant scenarios developing. One scenario that we have heard a lot about in recent years is the possibility that there is a house-price "bubble," implying that prices got out of line with the fundamental value of houses and that the current softening could be just the beginning of a more precipitous fall. While I seriously doubt that we'll see anything like a "popping of the bubble"—in part because I'm not convinced there is a bubble, at least on a national level—I certainly do acknowledge that there is more reason to worry that house prices would fall sharply than that they would rise sharply.

A second scenario has to do with the wealth effect I mentioned and its impact on household saving behavior. In the U.S., the personal saving rate has been declining for years, and in the second quarter it reached minus 1½ percent. Part of this development probably relates to the growth in consumers' wealth in housing. As it has become easier and easier to tap into that wealth, people have felt less of a need to save from current income. But with the softening in house prices acting to slow consumers' accumulation of wealth, the urge to save rather than spend may resurge. In fact, consumer wealth is getting another hit from the recent declines in the stock market, which also may induce people to build up savings. So, the very low—in fact, negative—saving rate makes the chance of a sizeable drop-off in consumer spending seem larger than the chance of a big surge.

Since housing is so important for the outlook, I'll spend a moment sketching in the overall picture for this sector. So far, the signs of cooling, including the deceleration in house-price appreciation, are broadly consistent with the degree of moderation I've envisioned, and fortunately these developments seem to be unfolding in an orderly way. After adjusting for inflation, residential investment has dropped by a total of 2 percent over the past three quarters. Housing permits are down from highs established earlier this year. In addition, inventories of unsold houses are up significantly, sales of new and existing homes are off their peaks, and surveys of home buyers and builders are showing more pessimistic attitudes. Finally, after long being stagnant, rents are finally moving up more vigorously. This may reflect, in part, expectations of lower house-price appreciation, as landlords raise rents to try to maintain the total rate of return on rental properties and as those in the market for housing grow more inclined to rent than to buy.

Of course, housing markets are a big issue in the Bay Area, and we have seen the same kind of cooling as in the nation. The question of whether the housing stock here is overvalued and therefore particularly vulnerable to downside risk, however, is one I can't answer with any certainty. I would note that there are some special things about the Bay Area on both sides of the question. For example, consider some tentative evidence on the side of greater vulnerability. First, average house prices in the Bay Area are now about six times what they were in 1982, versus only 3½ times in the U.S. as a whole. Moreover, the ratio of house prices to rental rates—a measure of the price of houses relative to the flow of housing services they provide—has more than doubled since 1982, far out-stripping the national average. Even so, there are well-known and unique features of this area that lend some justification to its high housing values. First, there is not much land available for new home building, so the supply of new homes is fairly limited. In addition, this area enjoys very favorable lifestyle amenities and it has a job base that attracts high-income residents.

In closing my description of the forecast for economic activity, I have to mention the big "wild card"—energy prices. And I'll return it to it when I discuss the inflation outlook. It is quite likely that rising energy prices have restrained consumer spending moderately even though offsets from job gains and wealth have kept it rising overall. If energy prices stabilize around their current levels, as futures markets indicate is expected, then the negative effect of energy on spending should dissipate over 2007. While we all certainly hope the energy futures markets are right, to be honest, their record hasn't been so great. During the whole period of rising energy prices that began in 2004, futures markets have usually predicted that the path of prices would be relatively flat, and they've had to revise the path up as energy prices have continued to exceed expectations. Basically, over this period, energy markets have been marked by strong demand, including demand from emerging markets—notably China—and by reportedly limited capacity to expand production. In addition, of course, there have been extraordinary events that threaten to restrict supply and therefore jack up energy prices, like the current situation in Lebanon and Israel. Needless to say, then, future energy prices are a big question mark, and any sustained rise or fall in these prices could either depress or spur economic activity beyond my current expectations.

Inflation

This brings me to the inflation part of the picture. The recent news has been disappointing. The measure of core consumer inflation that the FOMC projects for Congress—the personal consumption expenditures price index excluding the volatile food and energy components—has risen rather sharply in recent months. It rose by nearly 3 percent in the second quarter, which implies an increase over the past year of 2¼ percent. This rate is somewhat above my "comfort zone"—a range between one and two percent that I consider an appropriate long-run inflation objective for the Fed.

Therefore, it is critical that core inflation trend in a downward direction over the medium term, and I think this is the most likely outcome. As I've said, I expect that the economy has entered a period of slightly below-trend growth that should relieve any underlying inflationary pressures emanating from tightness in labor and product markets. In addition, there are three other underlying factors that tend to bode well for future inflation. One I've already mentioned—labor compensation has been rising at a moderate rate. While there may be increases in the pipeline for the reasons I spelled out earlier, we haven't seen convincing signs of them so far. Second, productivity growth has remained strong, maintaining the pattern of strength established in the latter half of the 1990s. Finally, markups by businesses of product prices over costs are at historic highs. So, even if costs begin to rise, firms would have the room to absorb the increases without raising their prices.

Next, there is the issue of the role of energy prices in the recent disappointing data on core inflation. As I said, core inflation excludes energy prices. But there may have been some passthrough of higher energy prices into the prices of core goods that use energy as an input to production—airfares are a good example. If this is the case, and if energy prices level out as expected by futures markets, this pressure is likely to dissipate at some point. However, the whole question of passthrough is actually the subject of some debate. For example, recent evidence suggests that there has been much less passthrough in the past twenty-five years than there was back in the 1970s, when inflation got out of control in the face of soaring energy prices. If it's true that there's only a very small passthrough of higher energy prices to inflation currently, then that raises the concern that something more fundamental is pushing up inflation. Unfortunately, at this point, it's too soon to untangle these alternative interpretations.

Finally, inflation expectations must be considered in any discussion of inflation. No matter what the cause of the recent increases in core inflation, it is important that they do not get built into longer-term inflation expectations and, in turn, wages. Research suggests that expectations have been well-anchored to price stability in recent years because people have confidence that the Fed will act to limit any sustained rise in inflation. This result shows up in the stability of survey and market measures of inflation expectations in the face of the large energy price increases we've seen. But, I want to emphasize that this is not something that I—or my colleagues—take for granted. Maintaining credibility requires that we act when necessary to keep inflation under control.

I've explained why I think there are reasons to expect inflation to move gradually lower in the future. However, I am keenly aware that this pattern has yet to show up in the data. And, given the inherent uncertainties, I would say that there are currently upside risks to this inflation forecast.

Policy issues

This leads me to the concluding topic in my presentation today—the implications of recent economic developments for monetary policy. With inflation now too high and labor and product markets in the vicinity of full utilization—or perhaps even a bit beyond it—a period of growth modestly below trend would ease any cyclical pressures on core inflation and, given the other elements in the inflation outlook that I just discussed, would be likely to set the stage for a gradual decline back into my comfort zone.

In these circumstances, it might be thought that policy should continue to tighten until the inflation data move back to a rate consistent with price stability. But I would argue that a gradual approach is likely to be better. Let me illustrate this point with a medical analogy. Suppose you go to the doctor for your annual physical and she finds you have high blood pressure—say, 150 over 100. The doctor prescribes medication to get it down toward 120 over 80. She tells you that the evidence indicates that it takes a while for the medication to work, so you should take one pill a day for a week and then retest your blood pressure. You take the pill the first day. On the second day, you're worried and nervous—elevated blood pressure is no laughing matter—and you can't resist taking another reading. When you do, you find that your pressure is still up there. You are so worried about the ill effects of your condition that you figure that it's okay to take two pills instead of the one the doctor prescribed. You repeat this pattern on the third day, as well, upping the dosage to three pills. This approach almost certainly will reduce your blood pressure. But by not properly considering the lags between the time you take the medicine and the time it takes effect, you could end up with blood pressure that's too low, and that could well present its own health hazards.

The need to incorporate lags between policy actions and effects on the economy is a key issue for monetary policy as well. We don't know what the lags are with precision, but we still need to do the best we can to take them into account. We simply don't get the necessary feedback on the effects of our policy actions for a long time. So if we kept automatically raising rates until we saw inflation start to respond, we most likely would have gone too far. Instead we need to be forward-looking.

That is why I've focused today on the economic outlook, and particularly on those aspects of the outlook that pertain to the dual mandate the Congress has given the Fed. We are charged with achieving both price stability and maximum sustainable employment. So, for all of these reasons, it makes sense for us to target a forecast for inflation, output, and employment—in other words, to set the funds rate at a level that is likely to foster a desirable path for the economy.

However, forecasts are uncertain and depend heavily on the particular view of the world—or model—that is being used. That's why I also like to use other methods to obtain benchmarks for the thrust of our policies in the future. One alternative approach is to estimate the so-called neutral federal funds rate, which is defined as the rate—or policy setting—that would be consistent in the intermediate run with stable inflation and full employment. If we could determine what the neutral rate is, we could set the actual rate appropriately. For example, in the present circumstances, I would consider it appropriate for the actual rate to be a bit above the neutral rate—in other words, I'd like it to be modestly restrictive—to promote price stability, especially given that the economy may be operating with labor and product markets that are a bit on the tight side. Estimates of the neutral rate can be based on a variety of large and small models and on statistical techniques. Of course, we can't get precise estimates, only an indication that can be helpful along with other benchmarks.

Another approach involves monetary policy rules—such as the so-called Taylor rule—that can be consulted for appropriate policy settings. These rules incorporate estimates of the neutral federal funds rate as a benchmark. They then prescribe how the actual funds rate should stand relative to the neutral rate depending on how inflation and resource utilization stand relative to our dual mandates—price stability and full utilization. So, for example, if inflation is above a particular definition of price stability, the rules will say that the funds rate should be above the neutral rate. These rules have been shown to broadly characterize actual Fed monetary policies that have been successful in the past.

Consulting all of these approaches, it appears to me that the federal funds rate currently lies in a vicinity that is roughly appropriate for the Fed to attain its key objectives over the medium run. However, since all such approaches are inherently imprecise, policy must be responsive to the data that actually emerges. When I say that policy should be responsive to the data, I mean that the extent and timing of any additional firming should depend on how emerging developments affect the economic outlook. And when I say data, I don't just mean data on inflation, output, and employment. I also mean data on factors that might affect those variables in the future—such as energy prices, the dollar, the stock market, long-term interest rates, housing prices and inflation expectations.

I believe that the wording of the policy statement the FOMC issued at the end of June—following our last meeting—succinctly captures the essence of the basic point I'm making: it states that "Although the moderation in the growth of aggregate demand should help to limit inflation pressures over time, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information."

Thank you for having me today, and I will be pleased to address your questions.

Liberal Jihad
By Bill O'Reilly
Saturday, August 5, 2006

Perhaps the biggest reason why so many Americans are confused about the chilling dangers posed by Islamic fascism is the reportage of the terror war by the liberal print press. Day after day, committed left-wing newspapers frame their coverage with an emphasis on the inadequacies of the Bush administration or Israel, not the aggressive worldwide jihad that seeks nuclear weapons. Routinely, those who act confrontationally against the fascists are marginalized and sometimes personally attacked. Rarely, do the left-wing dailies give a fair hearing to both sides of the terror war controversy.

But, of course, the journalists toiling at the committed liberal papers don't see it that way. In a recent appearance on National Public Radio, Los Angeles Times reporter Tom Hamburger presented a point of view that is anything but rare in liberal circles: "targeting the mainstream, even establishment media -- as having a liberal bias, has been one of the most successful campaigns that's been organized by the conservative right. And it's made editors and reporters cautious about what they say."

According to Hamburger, his paper and others like The New York Times are not liberal at all, their images have been distorted by the right. Well, let's examine the facts.

The New York Times has four uber liberal op-ed columnists who, within the last 18 months, have written more than 150 columns about the Bush administration. None of the columns were positive, not one. The Times has no pro-Bush columnists.

In addition, the TV columnists for the Times, its business media writer, and the lead film critic, A.O. Scott, are also committed liberals, as is sports columnist William Rhoden. I don't know about the head obit writer.

And it's the same thing at most of the other left-wing papers -- the deck is stacked with liberal writers not only on the editorial pages but also in every other section of the paper. The result is a constant barrage of negativity toward those who believe we are fighting World War III and we'd better get serious.

The Fox News Channel generally takes a strong anti-terrorist position, and it is not well received by the print press. I get a clip file every day from newspapers around the country, and the coverage of FNC, and my program, "The O'Reilly Factor," is relentlessly negative. Yet everyday Americans somehow overwhelmingly choose us over our competition, so at least there is some balance in the media.

Truthfully, this nonsense about "conservatives" falsely describing the newspaper industry as predominately liberal is flat out dishonest. Even a recent media study done by UCLA professor Tim Groseclose and University of Missouri professor Jeffrey Milyo came to the conclusion that "almost all major media outlets tilt to the left."

And the tilt becomes a freefall when President Bush's name comes up. The liberal newspapers generally consider him an inarticulate bumbler, too unsophisticated to deal with complicated issues like stem cell research and global warming. The committed left editors remain furious Bush defeated Al Gore in the Supreme Court and are crazed that many of them bought into the WMD threat in Iraq.

Thus, no matter what the president does now, and no matter how much danger nations like Iran present to the world, the liberal dailies are not going to play it strong. The big story is, and will remain, that Bush is an idiot.

That kind of narrow media groupthink is dangerous. Granting Hezbollah moral equivalency with Israel, putting forth that America is a nation of human rights violators, and labeling Iraq a failure before all the dust has settled -- all these things absolutely make life easier for the jihadists.

That may not be the intention of the left-wing press, but that very well may be the result of their own jihad.

Sports Sentiment and Stock Returns

http://www.afajof.org/afa/forthcoming/3096.pdf

The girl was raped by a 51 year old and brutally slaughetered  in accoradance with Iranian law. Truely an evil society. After watching this documentry I am incredibly thankful for living in a fully democratic western society.





Execution of a teenage girl
A television documentary team has pieced together details surrounding the case of a 16-year-old girl, executed two years ago in Iran.

Newspaper article in Farsi about Atefah's execution
Atefah Sahaaleh: wrongly described as being 22 years old

On 15 August, 2004, Atefah Sahaaleh was hanged in a public square in the Iranian city of Neka.

Her death sentence was imposed for "crimes against chastity".

The state-run newspaper accused her of adultery and described her as 22 years old.

But she was not married - and she was just 16.

Sharia Law

In terms of the number of people executed by the state in 2004, Iran is estimated to be second only to China.

In the year of Atefah's death, at least 159 people were executed in accordance with the Islamic law of the country, based on the Sharia code.

Since the revolution, Sharia law has been Iran's highest legal authority.

Alongside murder and drug smuggling, sex outside marriage is also a capital crime.

As a signatory of the International Convention on Civil and Political Rights, Iran has promised not to execute anyone under the age of 18.

But the clerical courts do not answer to parliament. They abide by their religious supreme leader, Ayatollah Khamenei, making it virtually impossible for human rights campaigners to call them to account.

Code of behaviour

At the time of Atefah's execution in Neka, journalist Asieh Amini heard rumours the girl was just 16 years old and so began to ask questions.



Crane for hanging in silhouette
To teach others a lesson, Atefah's execution was held in public

"When I met with the family," says Asieh, "they showed me a copy of her birth certificate, and a copy of her death certificate. Both of them show she was born in 1988. This gave me legitimate grounds to investigate the case."

So why was such a young girl executed? And how could she have been accused of adultery when she was not even married?

Disturbed by the death of her mother when she was only four or five years old, and her distraught father's subsequent drug addiction, Atefah had a difficult childhood.

She was also left to care for her elderly grandparents, but they are said to have shown her no affection.

In a town like Neka, heavily under the control of religious authorities, Atefah - often seen wandering around on her own - was conspicuous.

It was just a matter of time before she came to the attention of the "moral police", a branch of the Islamic Revolutionary Guard, whose job it is to enforce the Islamic code of behaviour on Iran's streets.

Secret relationship

Being stopped or arrested by the moral police is a fact of life for many Iranian teenagers.

Previously arrested for attending a party and being alone in a car with a boy, Atefah received her first sentence for "crimes against chastity" when she was just 13.

Although the exact nature of the crime is unknown, she spent a short time in prison and received 100 lashes.

     
Atefah was soon caught in a downward spiral of arrest and abuse

When she returned to her home town, she told those close to her that lashes were not the only things she had to endure in prison. She described abuse by the moral police guards.

Soon after her release, Atefah became involved in an abusive relationship with a man three times her age.

Former revolutionary guard, 51-year-old Ali Darabi - a married man with children - raped her several times.

She kept the relationship a secret from both her family and the authorities.

Atefah was soon caught in a downward spiral of arrest and abuse.

Local petition

Circumstances surrounding Atefah's fourth and final arrest were unusual.

The moral police said the locals had submitted a petition, describing her as a "source of immorality" and a "terrible influence on local schoolgirls".

But there were no signatures on the petition - only those of the arresting guards.

     
Men's word is accepted much more clearly and much more easily than women
Mohammad Hoshi,
Iranian lawyer and exile

Three days after her arrest, Atefah was in a court and tried under Sharia law.

The judge was the powerful Haji Rezai, head of the judiciary in Neka.

No court transcript is available from Atefah's trial, but it is known that for the first time, Atefah confessed to the secret of her sexual abuse by Ali Darabi.

However, the age of sexual consent for girls under Sharia law - within the confines of marriage - is nine, and furthermore, rape is very hard to prove in an Iranian court.

"Men's word is accepted much more clearly and much more easily than women," according to Iranian lawyer and exile Mohammad Hoshi.

"They can say: 'You know she encouraged me' or 'She didn't wear proper dress'."

Court of appeal

     
Atefah's father holding prayer beads
She was my love, my heart... I did everything for her, everything I could
Atefah's father

When Atefah realised her case was hopeless, she shouted back at the judge and threw off her veil in protest.

It was a fatal outburst.

She was sentenced to execution by hanging, while Darabi got just 95 lashes.

Shortly before the execution, but unbeknown to her family, documents that went to the Supreme Court of Appeal described Atefah as 22.

"Neither the judge nor even Atefah's court appointed lawyer did anything to find out her true age," says her father.

And a witness claims: "The judge just looked at her body, because of the developed physique... and declared her as 22."

Judge Haji Rezai took Atefah's documents to the Supreme Court himself.

And at six o'clock on the morning of her execution he put the noose around her neck, before she was hoisted on a crane to her death.

Pain and death

During the making of the documentary about Atefah's death the production team telephoned Judge Haji Rezai to ask him about the case, but