Since 1990, the U.S. government, through the Pentagon’s arms export program, has arranged for the delivery of more than $39.6 billion in  foreign military sales to Saudi Arabia, and an additional $394 million worth of arms were delivered to the Saudi regime through the State Department’s direct commercial sales program during that same period.  This has been part of the deal we've struck with Saudi Arabia to keep cheap sweet crude flowing to the US.  In return we've armed them to the teeth.

One can certainly debate the logic of such a move but for now let's assume that this was at one time in our national security interest to do so.  Such interests are being threatened by the emergence of Russia as a serious economic player in the Middle East.  Russia has already be a strategic trading partner with Iran for years.  They have shared military and energy interests across the board, even going so as far as to make passenger jets together.  Up until this point, the dividing line as been that Saudi Arabia was (ostensibly) our ally and Iran was Russia's.  The deck has been shuffled again, to the US' strategic disadvantage.

Reuters UK is reporting that, "Saudi Arabia has offered to award major arms contracts to Russia in return for Moscow curtailing cooperation with Iran, Russia's Kommersant newspaper reported on Tuesday, citing unidentified diplomatic sources.

The Kremlin declined to comment immediately on the report, as did Saudi Arabia's embassy in Moscow.

Saudi Prince Bandar bin Sultan met Russian President Dmitry Medvedev and Prime Minister Vladimir Putin in Moscow for talks on Monday that focused on widening bilateral cooperation.

Kommersant said Saudi Foreign Minister Prince Saud al-Faisal suggested Russia curtail its cooperation with Iran at a meeting in Moscow this February. The proposal was made to the Kremlin in the name of King Abdullah.

"The Kingdom's leadership advised Moscow to phase out cooperation with Tehran and in return promised attractive contracts with Saudi Arabia," said the paper, one of Russia's most respected dailies.

"In essence, Russia was offered to become a major partner in the Middle East.""

Saudi Arabia is interested in Russian tanks and helicopters, which would be a fairly significant loss to US manufacturers.  However, the US may still be in the game yet with 

"Overseas sales of the U.S. Army's core missile defense system appear set to boom, spurred by tensions surrounding Iran, North Korea and other regional disputes.

Poland, Taiwan, Kuwait, Turkey, South Korea, Saudi Arabia and Qatar are among countries that could spin off billions of dollars in related revenue over the next five years, according to Raytheon Co (RTN.N: Quote, Profile, Research, Stock Buzz), the army's primary contractor for the Patriot air and missile defence system.

Raytheon Chief Executive Bill Swanson said in April that sales could be in the "big billions" by 2013 or 2014 for what the company calls the world's premier system of its kind."

The lesson here is as more countries big and small enter the marketplace, no US industry is safe from competition.  The sooner CEO's figure this out and adapt, the less likely we are to be completely surprised and thus suffer significant loss in our market share as we are currently are.

 

 

 

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Today we talked about McCain and Obama's economic plans and what the actual economists think. We discussed the problem of cockfighting in New Mexico, Child Prostitution on Craigs List and Child Athletes getting Adult injuries. Also, listen to us live every Sunday Morning at 10:00 AM on PC Live.

I’ll be the first one to admit when things are going bad in this economy and I hold no punches nor do I have any sacred cows.  In the free-market of criticism, everyone is fair game.  You’ve heard me skewer the car companies and the oil companies as well as any number of other global enterprises when I believe they are doing bad things or are contributing to an inevitable bubble bursting.

Now with the news that Starbucks’ recently returned chief executive officer, Howard Schultz, has announced that the company was applying the brakes on the Starbucks express growth strategy and closing 600 of its 16,000 stores worldwide, one would think that I’d be quick to jump on the bandwagon proclaiming that this is yet another example how of economy is tanking.

On NPR’s Weekend Edition Saturday, July 5, 2008 it was stated that, “Starbucks’ retail woes may indicate a larger slump in the retail sector. The coffee chain announced this week that it’s closing about 600 stores, but it’s not the only chain slimming down to meet hard economic times.

Retail consultant Howard Davidowitz says consumers are going to get so scared they will start saving and that fear will also lead them to spend less.”

There are a slew of these sorts of reports going around blaming the closure of 600 stores on what looks to be a looming recession.  However, a deeper look into these stories shows that coffee drinking isn’t slowing down nor are people backing away from the “coffee shop culture” that Starbucks commoditized and was successful with.

So what exactly is going on here?

Lewis Black once quipped that, “if you walk to the end of the block (The corner of South Shepherd and West Gray in Houston, TX), there sits a Starbucks. And directly across the street — in the exact same building as that Starbucks — there is… another Starbucks. There is a Starbucks across the street from a Starbucks! And ladies and gentlemen, THAT is the end of the universe.”

When he originally told this joke I thought he meant the ones in Northridge, CA that I discovered eight years ago.  Alas, no, there are many locations across the US that feature a Starbucks across the street from a Starbucks.  In fact, developers recently added on an entire wing to our local mall here in a popular suburban location outside of the city of Tampa, FL that features an Apple Store, Torrid, Books-a-Million and a some other mid – to high end stores, and of course a Starbucks.  However, there was already a Starbucks at the other end of the mall.  That makes 2 in the same building folks.

The problem with Starbucks is not necessarily joblessness or a looming recession.  I get people all of the time in my office with no pot to pee in and no job but they are usually sporting anything from overpriced coffee drinks to overly sugared energy drinks; trust me when I tell you, in America, even the poor somehow get their caffeine drinks from somewhere and it ain’t their own home.

The problem is that there are limits to growth and if you flood the market with your product eventually the market becomes to saturated to sustain it.  There is a fine line between convenience and over saturation and Starbucks blew past it probably about 600 stores ago, if not more.  Even if the economy and the US dollar were sound and things were looking good, I doubt Starbucks could have avoided this fate.  Aside from there being way too many too close together, like in the same mall or across the street from one another, Starbucks the product has lost its luster and novelty in the eyes of the consumer.

Along side of reports that the economy has hit Starbucks hard are even more stories about dissatisfied customers.  Apparently when you pay for a $4 dollar cup-a-Joe, you are not just paying for the drink but for the experience as well.  People want to drink their beverage kibitz about how hard it is to live with ones parents or complain about how George W. Bush is a Nazi, or whatever is you people babble on about.  The point is that, many of the new Starbucks stores are not made for lounging.  They are coffee stands; come in, order, get out!  Well you can get that and better coffee for cheap at 7-11 or Dunkin Donuts.  Unless you make a superior product (which they don’t) there has to be some other facets of the product that will make people spend the extra money, whether it’s value, experience or even culture cache.  However, once you’ve lost some or all of those variables your product is merely overpriced and you lose sales.  That’s the story with Starbucks so far.

So let’s have no more of this rubbish about how what happened with Starbucks is a sign of a failing economy.  All this really is, is a sign that Starbucks expansion plan makes no logical economic sense and a correction is long overdue.