For some perspective on the all-important US real estate market, today's chart illustrates the inflation-adjusted median price of a single-family home in the United States over the past 42 years. Not only did housing prices increase at a rapid rate from 1991 to 2005, the rate at which housing prices increased -- increased. All those gains were given back during the following 6.5 years. Over the past five months, however, the median price of a single-family home has surged by over 20% -- the biggest five-month gain on record (the data goes back to 1968). The sharp downward trend that began in mid-2005 is now over.So not only prices have jumped — something that will look like a blip in a few years — but the bullish tone of this report and the overconfidence are gutting.
Transcript from BloombergFaber on whether he still thinks that profit margins will shrink and record profits seen will be no more for U.S. corporations:
"Yes, if you look at the statements by corporations, it is very clear. Earlier on, you had a commentator who said the exports to Europe from the U.S. are irrelevant. I agree with that. What is relevant are the businesses of American corporations in Europe and the earnings they derive from these businesses. That is definitely slowing down. The revenue growth is slowing down and, in my view, you will have more and more corporations that report earnings that are actually good but they do not exceed expectations…The bottom line is I think the market will have difficulty moving up strongly on less we have a massive QE3 and if it moves here and makes the high above 1422, the second half of the year could witness a crash."
"A crash, like in 1987…because the market would become technically very weak. I would expect the market making a new high. If it happens, it would be a new high with very few stocks pushing up and the majority of stocks have already rolled over. The earnings outlook is not particularly good because most economies in the world are slowing down. People focus on Greece but Greece is completely irrelevant. What is relevant are two countries -- China and India -- 2.5 billion people combined. They are a huge market for goods and these economies are slowing down massively at the present time."
On whether more Fed stimulus will put a floor on the S&P 500 this year:
"Yes, I think we had a rally that began March 2009 at 666 on the S&P. We made an orthodox pop a year ago on May 2, 2011 at 1370. Then we made a new high on April 2 of this year. The new high was not confirmed by the majority of shares and many shares are already down 20% or so and every day, there are shares that are breaking down or they no longer go on good news which is a bad sign. I think maybe we have seen the high from the year unless you get a huge QE3. That may not be forthcoming."
On whether the Fed will issue QE3:
"I think that QE3 will come, but it depends on asset markets. If the S&P dropped here another 100-150 points, I think that QE3 will occur. But if the S&P bounces back and we are above 1400, I think the Fed will essentially be waiting to see how the economy develops. The economy in the U.S. consists of different economies, some of it is very strong. I was in southern California and there the economy is doing fine. In other places, it is not doing fine. It is not universally bad. Compared to other countries, it is actually doing relatively well."
On whether Greece will exit the euro:
"There is a very good chance they will exit the euro and it would have been desirable if the euro countries had kicked out Greece three years ago. It would have saved a lot of agony. As a result of the bailout, the problem has become bigger and bigger and bigger."
On whether policymakers can manage the exit properly:
"I think it would be much better for Greece and the entire euro area if Greece were kicked out. Spain kicked out. Italy out and even France should be out. At the end you just have Germany with the euro. The other countries can have their own currencies and still trade and use the euro as an international currency."
"The bureaucrats in Brussels and the media are brainwashing everybody that if Greece exited the euro, it would be a disaster. My view is the best would be to dissolve the whole euro zone and that the countries would go back to their own currencies and still use the euro as an international currency the way you travel through Latin America and with a dollar you can pay anywhere you with. In my view, that would be the best. These countries that have financial difficulties, you will have to write off their debts and make it difficult for them to access the capital market in the future. Just to keep bailing them out will increase the problem. It will not solve the problem."
On how economic catastrophe can be avoided if the euro is dissolved:
"Explain to me why there would be an economic catastrophe. Many countries have pegged currencies have given up the peg to another currency and it was not a catastrophe. The public has been brainwashed that the breakup of the euro would be a complete disaster when in fact, it may be the solution."
On whether there will be a race to the bottom among various countries to devalue their own currencies if the euro is dissolved:
"I do not have a high opinion of the U.S. government, but the bureaucrats in Brussels make the government in the U.S. look like an organization consisting of geniuses. The bureaucrats in Brussels are completely useless functionaries and they want to maintain their power. They always talk about austerity being bad but if you look at the government expenditures of the EU, in 2000, it was 44% of GDP. Since then, it has grown by 76% under the influence of the Keynesian clowns and now it is 49% of GDP. That is the problem of Europe -- too much government spending and lack of fiscal discipline."
On whether it's a mistake to short the euro:
"I want to make this very clear -- the investment markets may move in different directions than the economic reality because if you print money. That's why in the Bloomberg poll, Mr. Bernanke is viewed so favorably because fund managers and analysts and strategists, they are only interested in having stocks up so their earnings increase and their bonus pool increases. But in reality, the economy can go downhill and stocks can go up just because of money printing and in Europe, the ECB has proven now that they are very good money printers."
On where to invest in Europe:
"Actually, usually when socialists come in or there is a crisis such as we have in Greece, it occurs usually near market lows. If someone really wanted to take speculative positions, he should look at quality non- financial stocks in countries like Spain, Italy, France, and Greece. I think rebound is coming. The market on a short-term basis is oversold. But if you look at the market action -- first of all, we made a low on the S&P last October at 1074. We went to 1422. The market is down from 1422 to less than 1360. The whole world is screaming we're in a bear market. This is a minor correction. I think it may become a more serious correction as the technical picture of the market has deteriorated very badly and as the S&P made a new high this year on April 2nd, all the European markets are lower than they were a year ago."
Turning Japanese? Not so fast, the US is different
“Turning Japanese” was a classic one-hit wonder by The Vapors in 1980 and three decades later it is certainly not music to the ears of US policymakers and debt-strapped households as the world’s largest economy struggles for traction.
The bursting of Japan’s debt bubble in the early 1990s heralded years of deflation and subdued growth, in spite of endless fiscal and monetary stimulus efforts. More That has seen equities languish, with the Nikkei 225 Average some 80 per cent below its peak, and kept the 10-year Japanese bond yield below 2 per cent since early 1999. Three years and counting since the bursting of the US credit and mortgage bubble, the yield on benchmark 10-year Treasury notes sits below 2 per cent, a level that suggests the US is in danger of emulating Japan’s experience of two lost decades.
One significant concern is that, unlike Japan in the 1990s, the US is struggling at a time when growth expectations across much of the world are slowing. China is tightening policy and no one really knows the extent of contagion that may erupt from the denouement of the eurozone debt crisis, safe haven buying is pulling Treasury yields lower.
While there are similarities between Japan and the US, there are crucial differences and 10-year yields below 2 per cent should be placed in context. For starters, the US does not face deflation at this juncture and also has a central bank that has been very proactive given its dual mandate of seeking stable prices and maximum employment. The US policy response since 2008 has been far faster than what occurred in Japan during the 1990s.
Therein resides the hope for investors that the process of repairing financial and consumer household balance sheets will conclude well before the end of the decade. [...]
Such efforts appear a hostage to the febrile political climate and a new stimulus plan announced by President Barack Obama to boost the economy this week, faces a tough ride through Congress. All of which leaves the Fed with the task of boosting the economy, as fiscal measures face the ranks of austerity hawks in Washington.[...]
The drop in the 10-year yield below 2 per cent reflects eurozone fears and positioning by investors who hope to sell their paper back to the Fed, rather than a signal that the US is moving into a Japanese-style deflationary spiral. With the Fed determined to stop the US from sliding into deflation, an eventual recovery slowly beckons as households rebuild their savings and home prices stabilise. And “Turning Japanese” will simply remain a 1980s pop music artefact.My take is that the author is not only completely ignorant of economics and the way the credit and fiat based currency system works, but is also completely incapable of even opening a history book and look at what happened in Japan.
This year’s tumble in U.S. stocks mirrors the Japanese selloff that began 11 years ago, an indication to hedge fund TTN AG that American equities may have further to fall.
The CHART OF THE DAY shows the pattern of gains and losses in the MSCI USA Index has followed the dollar-denominated MSCI Japan Index with an 11-year lag since 1990.
[...] “We may see a Japan 2.0 scenario”[...]I've been saying for many years that you do not need a crystal ball to figure out what will happen during the next 15 years: you need a history book of the great depression titled America's Great Depression by Murray Rothbard and a history book of the Japanese bubble economy's collapse from the peak of 1989-1990.
2011-08-09 (Bloomberg) Standard & Poor’s lowered the AAA ratings of thousands of municipal bonds tied to the federal government, including housing securities and debt backed by leases, following its Aug. 5 downgrade of the U.S.
[...]
S&P also cut ratings on securities backed by Fannie Mae and Freddie Mac, prerefunded issues and munis repaid by using federal assets, also known as defeased or escrow bonds. No state general-obligation ratings were affected and the company said some may remain unchanged.
“It’s expected, but nobody is happy about it,” Bud Byrnes, chief executive officer of Encino, California-based RH Investment Corp., said in a telephone interview. “No one that I know thinks it was justified to cut the U.S. bonds to AA+. Once that happened, you knew that any prerefunded bonds or escrowed bonds would be downgraded too. It’s a domino effect.”
Byrnes said funds required to invest in AAA bonds would be most affected by the downgrades and may be forced to liquidate some holdings. “They will have a hard time replacing that yield,” he said.
[...] Matt Fabian, a managing director of Concord, Massachusetts- based Municipal Market Advisors, a financial research company, said in a telephone interview that he expected “hundreds and hundreds of municipal downgrades,” which may hurt investor confidence.
“Treasuries may be able to shake off a real impact from the downgrade,” he said. “Munis, I’m less sure about.”
[...]
Any state and local government downgrades from S&P may be similar to potential rating cuts Moody’s mapped out last month, DeGroot said in his report. Moody’s on July 13 said a possible U.S. downgrade would affect 7,000 municipal credits totaling $130 billion that are directly linked to U.S. credit.
Moody’s also said it would review indirectly linked debt and last month said it may downgrade five of the 15 states it ranks Aaa because of their vulnerability to cuts in federal spending. The company wound up reaffirming those top ratings last week, assigning a negative outlook.
[...]
(Bloomberg) Standard & Poor’s downgraded the U.S.’s AAA credit rating for the first time, slamming the nation’s political process and criticizing lawmakers for failing to cut spending enough to reduce record budget deficits.
S&P lowered the U.S. one level to AA+ while keeping the outlook at “negative” as it becomes less confident Congress will end Bush-era tax cuts or tackle entitlements. The rating may be cut to AA within two years if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” result in higher general government debt, the New York-based firm said yesterday.
[...]
“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” S&P said in a statement late yesterday after markets closed.
The U.S. immediately lashed out at S&P, with a Treasury Department spokesman saying the firm’s analysis contains a $2 trillion error. The spokesman, who asked not to be identified by name, didn’t elaborate, saying the mistake speaks for itself.
Moody’s Investors Service and Fitch Ratings affirmed their AAA credit ratings on Aug. 2, the day President Barack Obama signed a bill that ended the debt-ceiling impasse that pushed the Treasury to the edge of default. Moody’s and Fitch also said that downgrades were possible if lawmakers fail to enact debt reduction measures and the economy weakens.
“This move should not be much of a surprise to markets, though the timing is at a point where market sentiment is fragile after the drop in stocks this week,” said Ajay Rajadhyaksha, a managing director at Barclays Capital in New York. “What really matters is whether the markets are willing to ‘downgrade’ the U.S. bond market. As this week’s move showed, U.S. Treasuries remain the flight-to-quality asset of choice.”
[...]
“More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating,” S&P said.
S&P put the U.S. government on notice on April 18 that it risks losing the AAA rating it has had since 1941 unless lawmakers agreed on a plan by 2013 to reduce budget deficits and the national debt. It indicated last month that anything less than $4 trillion in cuts would jeopardize the rating.
[...]
“That impact on Treasury rates is significant,” Belton, global head of fixed-income strategy at JPMorgan, said during the call. “That $100 billion a year is money being used for higher interest rates and that’s money being taken away from other goods and services.”
Our economy is not creating enough jobs, and the policies coming out of Washington are a big reason why. Because of Washington, we have a tax code that is stifling job creation. Because of Washington, we have a debt crisis that is sowing uncertainty and sapping the confidence of small businesses. Because of Washington, our children are financing a government spending binge that is jeopardizing their future.My friend Tony, over at MacroStory mentions:
Since the moment I became Speaker, I’ve urged President Obama to lock arms with me and seize this moment to do something significant to address these challenges. I’ve urged him to partner with congressional Republicans to do something dramatic to change the fiscal trajectory of our country . . . something that will boost confidence in our economy, renew a measure of faith in our institutions of government, and help small businesses get back to creating jobs.
[...]
During these discussions — as in my earlier discussions — it became evident that the White House is simply not serious about ending the spending binge that is destroying jobs and endangering our children’s future.
A deal was never reached, and was never really close.
[...]
The president is emphatic that taxes have to be raised. As a former small businessman, I know tax increases destroy jobs.
The president is adamant that we cannot make fundamental changes to our entitlement programs. As the father of two daughters, I know these programs won’t be there for their generation unless significant action is taken now.[...]
The real dark horse, black swan, whatever you want to call it may very well be right here in the US and that is BAC stock breaking down as it currently is. At some point the capital markets will shut it out of raising the capital they need even though they say they don’t. The “contagion” to WFC, JPM, etc could very well be the elephant in the room right now that no one is watching.On my side, I am wondering if on top of that, what we were calling a charade, a play, a joke — the debt ceiling debate — might not actually lead a real event?
Anyone notice a lot of people in the administration talking about how they now have Dodd Frank to unwind a TBTF. Imagine the political gain of saying you took down a Wall Street bank. Get the equity low enough, then BAC is either done or requiring another TARP.
NYT — For eight years, government officials turned to Dennis Montgomery, a California computer programmer, for eye-popping technology that he said could catch terrorists. Now, federal officials want nothing to do with him and are going to extraordinary lengths to ensure that his dealings with Washington stay secret.There's a lot more details in the full report, for inquiring minds.
The Justice Department, which in the last few months has gotten protective orders from two federal judges keeping details of the technology out of court, says it is guarding state secrets that would threaten national security if disclosed. But others involved in the case say that what the government is trying to avoid is public embarrassment over evidence that Mr. Montgomery bamboozled federal officials.
[...]
Interviews with more than two dozen current and former officials and business associates and a review of documents show that Mr. Montgomery and his associates received more than $20 million in government contracts by claiming that software he had developed could help stop Al Qaeda’s next attack on the United States. But the technology appears to have been a hoax, and a series of government agencies, including the Central Intelligence Agency and the Air Force, repeatedly missed the warning signs, the records and interviews show.
Mr. Montgomery’s former lawyer, Michael Flynn — who now describes Mr. Montgomery as a “con man” — says he believes that the administration has been shutting off scrutiny of Mr. Montgomery’s business for fear of revealing that the government has been duped.
“The Justice Department is trying to cover this up,” Mr. Flynn said. “If this unravels, all of the evidence, all of the phony terror alerts and all the embarrassment comes up publicly, too. The government knew this technology was bogus, but these guys got paid millions for it.”
[...]
“Dennis would always say, ‘My technology is real, and it’s worth a fortune,’ ” recounted Steve Crisman, a filmmaker who oversaw business operations for Mr. Montgomery and a partner until a few years ago. “In the end, I’m convinced it wasn’t real.”
Government officials, with billions of dollars in new counterterrorism financing after Sept. 11, eagerly embraced the promise of new tools against militants.
C.I.A. officials, though, came to believe that Mr. Montgomery’s technology was fake in 2003, but their conclusions apparently were not relayed to the military’s Special Operations Command, which had contracted with his firm. In 2006, F.B.I. investigators were told by co-workers of Mr. Montgomery that he had repeatedly doctored test results at presentations for government officials. But Mr. Montgomery still landed more business.
In 2009, the Air Force approved a $3 million deal for his technology, even though a contracting officer acknowledged that other agencies were skeptical about the software, according to e-mails obtained by The New York Times.
Hints of fraud by Mr. Montgomery, previously raised by Bloomberg Markets and Playboy, provide a cautionary tale about the pitfalls of government contracting. A Pentagon study in January found that it had paid $285 billion in three years to more than 120 contractors accused of fraud or wrongdoing.
[...]
French officials, upset that their planes were being grounded, commissioned a secret study concluding that the technology was a fabrication. Presented with the findings soon after the 2003 episode, Bush administration officials began to suspect that “we got played,” a former counterterrorism official said.
[...]
The litigation worried intelligence officials. The Bush administration declared that some classified details about the use of Mr. Montgomery’s software were a “state secret” that could cause grave harm if disclosed in court. In 2008, the government spent three days “scrubbing” the home computers of Mr. Montgomery’s lawyer of all references to the technology. And this past fall, federal judges in Montana and Nevada who are overseeing several of the lawsuits issued protective orders shielding certain classified material.
The secrecy was so great that at a deposition Mr. Montgomery gave in November, two government officials showed up to monitor the questioning but refused to give their full names or the agencies they worked for.
[...]
(CNSNews) - China has dropped 97 percent of its holdings in U.S. Treasury bills, decreasing its ownership of the short-term U.S. government securities from a peak of $210.4 billion in May 2009 to $5.69 billion in March 2011, the most recent month reported by the U.S. Treasury.Another very bullish news for treasuries is that China has sold 97% of their T-Bills holding. At first you might think I've lost it and that it is the opposite. But then, consider that they have sold this huge amount of treasuries, and that the market rose nonetheless. It shows a lot resiliency in the demand (thank you Ben Bernanke...) and also shows that there aren't many sellers left (except of course the treasury department themselves...).
[...]
Mainland Chinese holdings of U.S. Treasury bills are reported in column 9 of the Treasury report.
- was interviewed last week on Yahoo! Daily Ticker. Although he is full off Keynesian nonsense, he also makes some good arguments about the silly situation in the US, and the nonsensical battle between the Democrats and the Republicans.March 15 (Bloomberg) The world’s largest fund managers are shifting away from Asian stocks in the first quarter over inflation concerns in favor of North American equities on an improving economic outlook, said a HSBC Holdings Plc (HSBA) survey.Here's yet another bullish report on equities (HT to my friend SS who sent me the link).
Half of the fund managers have a positive outlook on non- Japan Asian stocks, down from 75 percent in the fourth quarter, according to the quarterly survey. All of the 12 houses, which manage a total of $3.98 trillion of assets, or 16 percent of global funds under management, are bullish about North American equities, up from 25 percent in the fourth quarter.
Investors had added capital to funds investing in Asia- Pacific stocks outside of Japan from the first quarter of 2009 until the third quarter of 2010, according to HSBC data. Yet such funds have seen outflows since the fourth quarter as frequent central bank actions heightened concerns about imported inflation and rising interest rates, said Bruno Lee, HSBC’s Hong Kong-based Asia-Pacific head of wealth management.
“Fund managers are looking to North American equities because of improving economic conditions, merger and acquisition activities and encouraging company reports,” Lee added. “Fund managers are lukewarm on Asia-Pacific ex-Japan due to concerns over rising inflation in the region and less bullish on Greater China equities as the market takes in the impact of ongoing austerity measures to contain inflation.”
March 17 (Bloomberg) The Standard & Poor’s 500 Index will fall to 1,232 by March 31, marking the bottom of a “modest correction,” according to Birinyi Associates Inc., which cited data measuring average drops of at least 5 percent since 1945.
[...]
“History suggests that the current decline will be short- lived, and most likely presents a buying opportunity,” the Westport, Connecticut-based research and money-management firm said in a report today.
[...]
While the average 5 percent decline leads to an 8.3 percent drop for the benchmark equity index, Birinyi said a correction forms 33 percent of the time and becoming a bear market is “even less likely,” according to the report. Slides that lead to bear markets have occurred in 10 percent of the cases. A correction is often defined as a 10 percent drop.
Laszlo Birinyi, the firm’s founder, said in December that the S&P 500 may climb to 1,333 in 2011. The firm said in its February report that may be conservative, as “2011 has gotten off to a positive start.” The index is forecast to rally 11 percent to 1,400 from yesterday’s close, according to the average projection of 13 strategists surveyed by Bloomberg.
March 21 (Bloomberg) -- Billionaire investor Warren Buffett said Japan’s record earthquake is a buying opportunity and he won’t sell his shares in the country as its future hasn’t been changed because of the temblor.Here's another Bloomberg report about fund managers who are still very bullish:
[...]
“If I owned Japanese stocks, I would certainly not be selling them because of the events of the past 10 days or so,” said Buffett, speaking to reporters in the South Korean city of Daegu, where he arrived yesterday to attend a ceremony for a new factory being built by TaeguTec Ltd. “Something out of the blue like this, an extraordinary event, really creates a buying opportunity.”
[...]
“It’ll take some time to rebuild, but it will not change the future of, the economic future of Japan,” said Buffett, Berkshire’s chairman and chief executive officer.
South Korea is a “hunting ground” for acquisitions, said Buffett, who prefers larger companies. Berkshire committed more than $35 billion to takeovers in the last two years.
“We’re ready to invest, and basically the bigger the better,” said the 80-year-old billionaire investor. “Large companies appeal to me and Korea has a number of large companies obviously, so it’s a hunting ground.”
Buffett reiterated that he is open to buying non-U.S. companies, while also saying U.S. businesses remain more likely his targets. Berkshire invested in TaeguTec through Iscar, the Tefen, Israel-based toolmaking unit.
“We do pile up cash, month by month, and we’re looking for large businesses to buy,” Buffett said. The U.S. is “the most familiar to me, so it’s most likely where we would do something.”
March 15 (Bloomberg) The biggest decline in Japanese stocks in two years pushed valuations below levels in November, when a 19 percent rally began, luring investors who say equities will prove bargains as the country rebuilds from its largest earthquake on record.
AMP Capital Investors Ltd., which oversees about $98 billion in Sydney, raised its Japan rating to “overweight” from “neutral” yesterday after the Topix Index’s 7.5 percent tumble made its price equal to its net asset value, said strategist Nader Naeimi. Polar Capital Holdings Plc’s Japan Fund, which beat more than 85 percent of peers since 2006, bought steel and construction companies, manager James Salter said.
[...]
“If there are no further aftershocks, I believe that in six months, you’ll turn around and find that this was a great opportunity to buy,” said Salter, head of Japan for Polar Capital, which manages $4 billion in London. “We’ve got stocks in our portfolio that are down 20 percent. Some of the reactions, I think, have been completely crazy.”
Feb. 18 (Bloomberg) -- Egypt approved a request from Iran to send two naval ships through the Suez Canal on their way to Syria, a move that has ratcheted up Middle East tensions and driven oil prices higher as Israel calls it a “provocation.”To that, I have two points to make:
[...]
The ships will go to Syria, where they will anchor “for a few days” after a trip through the canal that is “routine according to international law,” Iran’s state-run Islamic Republic News Agency said, citing the country’s ambassador to Syria, Ahmad Mousavi.
[...]
The U.S. is “monitoring” Iran’s plan to send warships through the Suez Canal, White House press secretary Jay Carney said today. Iran doesn’t show “responsible behavior in the region, which is always a concern to us,” Carney told reporters traveling on Air Force One to an appearance by President Barack Obama in Portland, Oregon.
[...]
The passage of the Iranian vessels would be a “provocation” to Israel, Israeli Foreign Minister Avigdor Lieberman said two days ago. He warned the international community that Israel would not “ignore forever” such acts.
After the Egyptian approval for the ships’ passage, Israeli Foreign Ministry spokesman Yigal Palmor said by telephone that he had nothing to add to what Lieberman had said on the issue.
Iran hasn’t sent warships through the canal in “many years,” Lieberman said yesterday.
(The Guardian) A Chinese stealth fighter jet that could pose a significant threat to American air superiority may borrow from US technology, it has been claimed.But then, this doesn't really come as a surprise neither. It might actually something less dark than technology stealing, given that US companies (and generally speaking Western economies) are more than happy to make massive technology transfer in order to gain contracts that rather meaningless in comparison. Yet, this has been what the Siemens, Areva, Airbus, Boeing, Alsthom, and so forth have been doing during the past 5-10 years.
Balkan military officials and other experts said China may have gleaned knowledge from a US F-117 Nighthawk that was shot down over Serbia in 1999.
"At the time, our intelligence reports told of Chinese agents crisscrossing the region where the F-117 disintegrated, buying up parts of the plane from local farmers," said Admiral Davor Domazet-Loso, Croatia's military chief of staff during the Kosovo war. "We believe the Chinese used those materials to gain an insight into secret stealth technologies ... and to reverse-engineer them."
The Nighthawk was downed by a Serbian anti-aircraft missile during a bombing raid on 27 March 1999. It was the first time one of the fighters had been hit, and the Pentagon blamed clever tactics and sheer luck. The pilot ejected and was rescued.
A senior Serbian military official confirmed that pieces of the wreckage were removed by souvenir collectors, and that some ended up "in the hands of foreign military attaches". Efforts to get comment from China's defence ministry and the Pentagon were unsuccessful.
Parts of the F-117 wreckage, including its left wing, cockpit canopy, ejection seat, pilot's helmet and radio, are exhibited at Belgrade's aviation museum. Zoran Milicevic, deputy director of the museum, said: "I don't know what happened to the rest of the plane. A lot of delegations visited us in the past, including the Chinese, Russians and Americans ... but no one showed any interest in taking any part of the jet."
Zoran Kusovac, a Rome-based military consultant, said the regime of the former Serbian president Slobodan Milosevic routinely shared captured western equipment with its Chinese and Russian allies. "The destroyed F-117 topped that wish-list for both the Russians and Chinese," Kusovac said.
China's multi-role stealth fighter known as the Chengdu J-20 made its inaugural flight on 11 January, revealing dramatic progress in the country's efforts to develop cutting-edge military technologies. It is at least eight or nine years from entering service.
Russia's Sukhoi T-50 prototype stealth fighter made its maiden flight last year and is due to enter service in about four years. It is likely that the Russians also gained knowledge of stealth technology from the downed Nighthawk.
As China strives for leadership in the world’s most advanced industries, it sees commercial jetliners — planes that may someday challenge the best from Boeing and Airbus — as a top prize.
And no Western company has been more aggressive in helping China pursue that dream than one of the aviation industry’s biggest suppliers of jet engines and airplane technology, General Electric.
On Friday, during the visit of the Chinese president, Hu Jintao, to the United States, G.E. plans to sign a joint-venture agreement in commercial aviation that shows the tricky risk-and-reward calculations American corporations must increasingly make in their pursuit of lucrative markets in China.
G.E., in the partnership with a state-owned Chinese company, will be sharing its most sophisticated airplane electronics, including some of the same technology used in Boeing’s new state-of-the-art 787 Dreamliner.
For G.E., the pact is a chance to build upon an already well-established business in China, where the company has booming sales of jet engines, mainly to Chinese airlines that are now buying Boeing and Airbus planes. But doing business in China often requires Western multinationals like G.E. to share technology and trade secrets that might eventually enable Chinese companies to beat them at their own game — by making the same products cheaper, if not better.
The other risk is that Western technologies could help China play catch-up in military aviation — a concern underscored last week when the Chinese military demonstrated a prototype of its version of the Pentagon’s stealth fighter, even though the plane could be a decade away from production.
The first customer for the G.E. joint venture will be the Chinese company building a new airliner, the C919, that is meant to be China’s first entry in competition with Boeing and Airbus.
[...]
G.E., which said it had briefed the commerce, defense and state departments on details of the deal, acknowledges that pairing up with a Chinese firm is a delicate dance. But because the commercial aircraft market in China is expected to generate sales of more than $400 billion over the next two decades, it is not a party the company is willing to miss.
[...]
Several other American companies have also been chosen as suppliers for the C919 aircraft, providing power generators, fuel tanks, hydraulic controls, brakes, tires and other gear. The roster of United States suppliers includes Rockwell Collins, Honeywell, Hamilton Sundstrand, Parker Aerospace, Eaton Corporation and Kidde Aerospace.
In fact, the corporate competition for contracts on the C919 became a “frenzy,” said Mark Howes, president of Honeywell Aerospace Asia Pacific. The Chinese government, he said, had made it clear to Western companies that they should be “willing to share technology and know-how.”
[...]
“I think you’re naïve if you don’t take into account that you could be standing up a future competitor,” Mr. Statler said. Any company in a global business is in a race, he added, and staying ahead is the only defense. “At the end of the day, our technologies and processes have to continue to improve,” Mr. Statler said. “It comes down to who can innovate faster.”
On January 5th, Rep. Mike Rogers (R-MI) introduced a bill to add yet another year to the soon to be expiring Patriot Act. This would extend it until February of 2012, and passage is likely to happen with little debate or contention. If passed, this would be the second time the Obama administration has punted on campaign promises to roll back excessive surveillance measures allowed under the act passed in the wake of 9/11.
When the Patriot Act was first signed in 2001, it was billed as a temporary measure required because of the extreme circumstances created by the terrorist threat. The fear from its opponents was that executive power, once given, is seldom relinquished. In retrospect, that fear appears well founded. Not only has Obama not given the power back, but he has continued to abuse it to spy on citizens without due process.
In 2007, candidate Obama said during his Presidency there would be "no more National Security Letters to spy on citizens who are not suspected of a crime" because "that is not who we are, and it is not what is necessary to defeat the terrorists." The hope that he'll make good on that statement is seeming pretty audacious.Continue reading on Examiner.com: Patriot Act up for renewal and no one notices
Jan. 14 (Bloomberg) -- Secretary of Defense Robert Gates said that the apparent lack of communication between China’s civilian and military leadership is “something of a worry” for the United States.
Gates, speaking in Japan following a three-day trip to China, said Chinese President Hu Jintao and the civilian leadership seemed to be unaware that its military was carrying out a test flight on Jan. 11 of a new jet fighter that may have stealth capabilities.
“This is an area where, over the last several years, we have seen some signs of, I guess I would call it a disconnect, between the military and the civilian leadership,” Gates said, adding that while such lapses occasionally occur in the U.S. too, “this is something of a worry.”
U.S. military structure is based on civilian control by the commander-in-chief, the president. In China, Communist Party politics and infighting over promotions may affect the military’s decisions to pass information to the leadership, leading to misunderstandings and tensions with other countries, said Huang Jing, a professor at National University of Singapore’s Lee Kuan Yew School of Public Diplomacy.
“Maybe the military has its own agenda that may not be exactly on the same page as Hu Jintao,” Huang said in an interview. “The Party commands the gun, but who should hold the gun?”
Huang and others have cited several instances where China’s military may have been acting without direct authority from Beijing, or failed to quickly inform top leaders of incidents.
In March 2009 Chinese fishing boats harassed a U.S. surveillance ship in international waters near a Chinese submarine base on Hainan island, risking a bigger crisis between the two countries.
In April 2001, then-U.S. Ambassador to China Joseph Prueher said it took 60 hours to get permission from the Chinese for American consular officials to visit the detained crew of a U.S. spy plane that was forced to land on Hainan after a mid-air collision with a Chinese jet. The incident took place on a Sunday and U.S. officials were not able to immediately reach their counterparts, Prueher said at the time.
China says its military modernization is peaceful and understandable given the rise of China’s economy.
“China follows the path of peaceful development and follows a national defense policy which is defensive in nature and poses a threat to no one,” Foreign Ministry Spokesman Hong Lei said on Jan. 11. Vice Foreign Minister Cui Tiankai, speaking the next day in Beijing, said military hardware such as the stealth fighter “is not targeted at any other country.”
Improving communication between the Chinese and U.S. militaries was a top goal for Gates’s visit to Beijing this week. Regular talks and more transparency over new weapons systems such as the new fighter help clear up misunderstandings among the U.S. and its allies such as Japan and South Korea at a time when the U.S. is looking to cut its defense spending and asking its allies to shoulder more of the burden.
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Gates said that while he had no doubt about Hu’s control of the government, the lack of communication was one of the main reasons why the U.S. wants to improve high-level dialogue with China on military issues. Hu is also the head of the Communist Party and the Chairman of the Central Military Commission.
“This is an internal matter for the Chinese,” Gates said. “In the larger sense of who controls the Chinese military and who has the ultimate authority, there is no doubt in my mind that it is President Hu Jintao and the civilian leadership.”
President Barack Obama is due to meet Hu in Washington next week for the first full state visit by a Chinese leader since 1997. Yesterday Obama met with advocates for greater human rights and civil liberties in China at the White House, the Washington Post reported.
Jan. 9 (Bloomberg) -- Defense Secretary Robert Gates said en route to Beijing that China’s military development could represent a risk for the U.S. and that the Pentagon is rearranging budget priorities partly in response.Oh yes, the perfect excuse to add to the ever increasing defense and intelligence budgets and to restrict freedoms of speech and movement in the country.
“They clearly have the potential to put some of our capabilities at risk,” Gates told reporters traveling with him yesterday. “We have to pay attention to them, and we have to respond appropriately with our own programs.”What kind of joke is that? Be more forthcoming about the intent of its weapons? By the way, are they going to find some lame excuse and invade China like they did in Afghanistan and Irak?
The defense chief said China may be developing a stealth fighter more quickly than the U.S. had believed, marking the second time in a week that a Pentagon official has said the U.S. may have underestimated China’s weapons development speed.
“We knew they were working on a stealth aircraft,” Gates said. “They may be somewhat further ahead in development of that aircraft than our intelligence had earlier predicted.”
Gates arrives today in China three days after announcing a five-year plan to cut defense spending by $78 billion, reduce the number of troops and shift funds to new weapons. His visit will restore ties that soured a year ago over a $6.4 billion U.S. arms sale to Taiwan. He will spend three days in Beijing before going to Tokyo and Seoul for talks focused mainly on North Korea.
The atmosphere with China is “perhaps better” now than his last visit in 2007, Gates said. He said the Chinese government last year played a “constructive role” in easing tensions after North Korea’s deadly attacks on South Korea, and restoring military ties with China will be “evolutionary” rather than marked by any “dramatic breakthrough.”
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Gates last week unveiled an overhaul of budget priorities, carving savings from some spending plans and shifting them to other areas. In one case, the Navy plans to speed development of electronic jammers intended to thwart other militaries from restricting U.S. access on the seas and in the air.
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Gates, like predecessors in multiple U.S. administrations, has struggled to persuade China to be more forthcoming about the intent of its weapons build-up. Chinese officials say their purpose is purely defensive.
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The two sides also disagree over territorial issues such as how close to Chinese shores U.S. military vessels can operate. Gates said he aims to achieve more stable military relations and end the on-again, off-again pattern of interruptions during disputes over issues such as U.S. arms sales to Taiwan.
