Week in Review

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Week in Review

01/09/2010

For the week 1/4-1/8

Two late developments on Friday, coupled with a lousy jobs report earlier in the day, reaffirmed we have an economy that while no longer in intensive care still remains in recovery.  

First, consumer credit for the month of November dropped a record $17.5 billion, the 10th consecutive month of declines, which just shows you the real state of the consumer. Yes, as some of the Christmas shopping season data revealed this week, I may have been wrong in forecasting that sales would decline. One of the two barometers I grade myself on, the International Council of Shopping Centers, said December sales were up 2.8% (though down 2.0% for all of 2009). I now await the National Retail Federation’s report which should come out shortly. Some retailers, such as Saks, up 9.9%, did well. Some like Macy’s, up 1%, hung in there. And others, such as Abercrombie & Fitch, down 19%, laid an egg. What I guess I didn’t do a good enough job of taking into account was how lean many of the stores kept inventories and thus you didn’t see the drastic price-cutting we had in 2008. But bottom line there is zero compelling reason to go shopping today unless you forgot to buy a winter coat and you’ve already used up your 2010 sick days as a result.   

The second big development Friday afternoon concerns California Gov. Arnold Schwarzenegger’s declaration of fiscal emergency as his state faces yet another cash crisis as he tries to close a new $19.9 billion deficit. “There is simply no conceivable way to avoid more cuts and more pain,” he said. It means more furloughs for state workers, if they aren’t fired outright, or in effect further wage cuts. Those folks are not likely to be rushing to the mall to buy frivolous things. Most other states in the country face increasing pain of their own as revenues continue to slide. 

So the consumer credit and California items came on the heels of Friday morning’s employment report for December that showed the nation losing another 85,000 jobs, though November’s figure was revised upward to show a gain of 4,000. Yes, progress is being made on this front, in terms of a trend since the beginning of '09, but we have a long, long ways to go. 

Plus, while the official unemployment rate remains at 10.0%, the unofficial rate is still mired in the 17% area as more and more simply leave the job market. And we all know that the lion’s share of jobs that do become available are more often than not for less pay than one made before, along with reduced benefits. 

So we’re left with the same issues. The stimulus has indeed prevented the situation from being worse and will continue to do so in 2010, but once it wears off then what? 

The inventory readjustment will be completed shortly and I suspect you’ll see heavy discounting in February and March at some stores. 

State and local governments remain in desperate straights, to the detriment of workers. 

We continue to have tremendous overcapacity in areas such as shopping malls and hotels. Macy’s and Foot Locker are two recent examples of chains that continue to close locations.  

Some comment, including on the recommended next move for the Federal Reserve. 

“[It’s not unusual for the economy to have a strong quarter amidst a recessionary type economy.] They’re usually caused by an ‘inventory bounce.’ When the economy slumps, companies typically find themselves with large stocks of unsold goods. To work off their excess inventories, they slash production; once the excess has been disposed of, they raise production again, which shows up as a burst of growth in GDP. Unfortunately, growth caused by an inventory bounce is a one-shot affair unless underlying sources of demand, such as consumer spending and long-term investment, pick up. 

“Which brings us to the still grim fundamentals of the economic situation. 

“During the good years of the last decade, such as they were, growth was driven by a housing boom and a consumer spending surge. Neither is coming back. There can’t be a new housing boom while the nation is still strewn with vacant houses and apartments left behind by the previous boom, and consumers – who are $11 trillion poorer than they were before the housing bust – are in no position to return to the buy-now-save-never habits of yore.” 

Krugman’s main argument is that the Federal Reserve must recognize “the job of fighting the slump isn’t finished.” Congress, he says, in calling for further stimulus, must realize the same or if both don’t, “2010 will be a year that began in false economic hope and ended in grief.” 

But then you have Federal Reserve Bank of Kansas City President Thomas Hoenig, who said in a highly-publicized speech this week that the Fed must move “sooner rather than later” to reduce its stimulus and begin raising interest rates. Hoenig, who has a vote on the Open Market Committee this year, said: 

“The process of returning policy to a more balanced weighing of short-run and longer-run economic financial goals should occur sooner rather than later. 

“Maintaining excessively low interest rates for a lengthy period runs the risk of creating new kinds of asset misallocations, more volatile and higher long-run inflation, and more unemployment – not today, perhaps, but in the medium- and longer-run.” 

“The Federal Reserve must curtail its emergency credit and financial market support programs, raise the federal funds rate target from zero back to a more normal level, probably between 3.5 and 4.5 percent, and restore its balance sheet to pre-crisis size and configuration. 

“Fiscal and monetary stimulus will continue to provide major support to the economy. Much of the fiscal stimulus package announced last year will have its impact in 2010, and it might well be more substantial than initially projected due to delays in implementing spending programs.” 

Globally, in Asia and Australia the action is positive. Retail sales are rising amid an improving export picture, while in China, manufacturing, as measured by the PMI, hit its best level in five years, 56.1 (55.6 in India…50 being the dividing line between growth and contraction). China’s central bank, though, tightened (slightly) to slow excessive lending due to ongoing bubble concerns. 

The picture in Europe, however, remains mixed. The 16-nation eurozone unemployment rate hit 10.0% in November (only 3.9% in the Netherlands …in case you want to go Dutch), while it ticked up to 9.5% in the 27-nation European Union (including non-euro Britain). Eurozone manufacturing hit 51.6 on the PMI for December (the UK’s was 54.1), but eurozone retail sales fell 1.2% in November. Europe also has its ongoing sovereign debt issues, such as in Greece, with no mechanism in place should the EU want to bail it out (not likely).  

But back to the States, where many of us really are fired up for the NFL playoffs after being deluged with largely meaningless college bowl games, pending home sales unexpectedly plummeted for the month of November. Economist Martin Feldstein, in sounding his ongoing cautionary note for economic activity, said housing obviously remains a major concern, stimulus for both housing and the auto sector has either expired or is about to, and bank lending is still at dismal levels. 

Lastly, I remain focused as never before on the geopolitical scene. By the day the picture gets worse. 

--Stocks got off to a great start for 2010 on the heels of early positive news on manufacturing and construction spending in the U.S., before the dour employment data at week’s end, with the Dow Jones rising 1.8% to 10618 and the S&P 500 up 2.7%. Nasdaq tacked on 2.1%. Earnings season begins this coming week and it’s all about any future guidance that companies opt to cough up. 

--U.S. Treasury Yields 

The short end of the curve, such as the 2-year, rallied big on the realization the Federal Reserve may yet indeed hold the line on rates well into this year. 

“The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.  

“AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008.” 

The e-mails were obtained by Republican Congressman Darrell Issa. A Treasury spokeswoman said Secretary Geithner played no role in the decision, having been “recused from working on issues involving specific companies, including AIG” as he prepared for his nomination to be Treasury secretary. Congressman Barney Frank called the disclosure troubling and favors holding a hearing on the matter, which it appears will indeed take place. 

--I gave a presentation to the local chamber of commerce (3 towns) on Friday and I was asking one of the community bankers if she sensed any kind of pickup the past three months and it’s interesting how some attitudes are changing. As in when a customer hears of a 1.75% interest rate on a short-term CD, they no longer freak out. I brought up Citibank’s commercials during the BCS title game for a 2.50% rate on a 5-year CD and people are definitely more accepting. So score one positive in terms of investor sentiment. 

--The number of Americans filing for personal bankruptcy in 2009 rose by a third, driven by foreclosures and the putrid labor picture, while delinquencies on home-equity loans and lines of credit jumped to record levels in the third quarter, the latter according to the American Bankers Association. 

--Good news, relatively speaking. Spending on health-care in this country grew 4.4% in 2008 (the latest data point), the smallest increase in almost 50 years, though this was largely because of the recession as both consumers and employers cut back. Medicare spending, though, grew 8.6% to $469 billion. 

--According to Orin Kramer, chairman of New Jersey’s pension fund, the U.S. public pension system faces a shortfall of $2 trillion. Ergo, add this to the states’ issues, a la the overall revenue shortfall noted above. Other estimates come in around $500 billion. 

There’s only two things you can do. You either take more of the public’s money to shore up the funds (assuming last year’s equity performance wasn’t the start of a gigantic multi-year bull market), or, you reduce benefits. As Josh P. writes from time to time, those who don’t receive the benefits of these generous pensions just get angrier and angrier. Certainly at the local level it ticks you off, especially when the level of services by many of the same employees who will one day get these pensions is sorely lacking. [I waited on Thursday for a city fire inspector for five hours. The guy just plain forgot. And my taxes are paying for his future pension. Ask me if I’m happy.] 

--December auto sales rose 15% in the U.S., with Ford’s up 33.5%, Toyota’s up 32%, Honda’s 24.5%, Hyundai’s up 40.6%, and Kia Motors’ up 43.7%. GM’s, on the other hand, fell 5.6% and Chrysler’s 3.7%. 

--Ford’s sales in China, including with local partners, rose 44% in 2009, while GM’s there soared 67%. China surpassed the U.S. as the world’s biggest auto market last year, 12.7 million units (another figure I saw said 13.5 million) to 10.4 million. But while China’s sales soared 50% in 2009 owing to substantial government incentives, the stimulus in this regard is largely over and the car market is only expected to grow 5%-6% this year. 

--The Toyota Prius was the top-selling car in Japan in ’09, the first time a gas-electric hybrid has captured the top spot. 

--Natural-gas and orange juice futures were two of the commodities rising sharply on the record-setting cold wave across much of the country, including Florida. The U.S. Dept. of Agriculture expects Florida’s orange crop to decline by 17% this season. 

--With Democratic Senator Chris Dodd’s announcement he will not be running for reelection, the Street is wondering what the impact will be on financial regulatory reform legislation that Dodd is spearheading as chairman of the Senate banking committee. Chances are good there will be meaningful changes, especially since he is good friends with ranking Republican, Richard Shelby, with both viewing any bill as a legacy item, though many disagreements between the two remain. Nonetheless, both Dodd and Shelby noted in a joint statement that “Our country needs financial regulatory reform and we are committed to working together on legislation to create a sound regulatory structure.” 

--Michael Barone / New York Post: 

“It looks like a happy new year for you – if you’re a public employee. 

“That’s the takeaway from a recent Rasmussen poll that shows that 46% of government employees say the economy is getting better, while just 31% say it’s getting worse. In contrast, 32% of those with private-sector jobs say the economy is getting better, while 49% say it is getting worse…. 

“It sounds like public- and private-sector employees are looking at different Americas. And they are. 

“Private-sector employment peaked at 115.8 million in December 2007, when the recession officially began. It was down to 108.5 million last November. That’s a 6% decline. 

“Public-sector employment peaked at 22.6 million in August ’08. It fell a bit in ’09, then rebounded to 22.5 million in November. That’s less than a 1% decline. 

“This isn’t an accident; it’s the result of deliberate public policy. About a third of the $787 billion stimulus passed in February 2009 was directed at state and local governments… 

“The policy aim, say Democrats, was to maintain public services and aid. The political aim, although Democrats don’t say so, was to maintain public-sector jobs – and the flow of union dues to the public-employee unions that represent almost 40% of public-sector workers.” 

--UPS is cutting 1,800 management and administrative positions, even as it sees an improved environment for 2010. The company increased its profit outlook. 

--Bank of America will be paying out bonuses for 2009 that approach 2007 levels in an attempt to stem defections as a result of its takeover of Merrill Lynch, a fact that may not sit well with some in the public, but, in terms of the clash of cultures between BofA and Merrill, Merrill always paid far more. For instance, in 2008, BofA paid $13,580 per employee while Merrill shelled out $61,000. 

--So as I was saying last week, the whole U.S. dollar situation was way overhyped last year. In the end, for 2009 the dollar declined a whopping 2.43% against the euro and increased 2.60% against the yen. 

--Iceland’s president assured the British and Dutch governments that his country will pay off its debts, this after Olafur Grimsson first refused to sign off on a bill approved by parliament to do just that, only the second veto by an Icelandic president in 60 years. It’s a mess, with Fitch rating agency downgrading Iceland’s debt to “junk.” Iceland must pay off British and Dutch investors as well as obtain IMF loans if it is to gain admission to the European Union. The bill, though, is now headed for a referendum where anything can happen with a surly public. 

--Some good news on the global real estate front. According to the latest Knight Frank survey, house prices are rising in a majority of locations around the world – with 28 of the 42 countries surveyed reporting growth in the third quarter of 2009. Israel is the best performer on an annual basis (up 13.7%), followed by Austria and Australia, while prices in Dubai have fallen the most (47%) year over year, with Bulgaria’s down 28%. Ireland’s, which I follow closely, are down 40% from their peak in 2006, 20% in '09.

--Manhattan’s residential real estate picture continues to improve and sales and inventory stand at near normal levels for the first time since the late 2008 collapse here. 

--Not only is Abercrombie & Fitch struggling in terms of sales these days, but it has $230 million, or 33% of its cash, tied up in auction-rate securities, the scandalous section of the ‘money market alternatives’ market that brokerage firms hyped and then walked away from to a large extent. “Easy to tap as cash,” they said. Then, as in a game of musical chairs, when the music stopped the securities stopped being issued and existing values plummeted. It became virtually impossible to get out. So much for the liquidity feature. According to the Wall Street Journal, UBS is the only firm that committed to buy back the debt from all clients, though not at par. 

--Bed Bath & Beyond, one of my favorite stores, handily beat expectations on earnings and revenues for its quarter ending Nov. 28.  And another great franchise, Best Buy, said its sales for December rose 13%. 

--On the 10th anniversary of the $164 billion Time Warner-AOL deal, former Time Warner CEO Jerry Levin appeared on CNBC and apologized. 

“I presided over the worst deal of the century, apparently, and I guess it’s time for those who are involved in companies to stand up and say: you know what, I’m solely responsible for it. I was in charge. I’m really very sorry about the pain and the suffering and loss that was caused. I take responsibility. Where is the stand-up leadership that’s going to take responsibility for what’s happened and do something about it?” 

Then, citing a sickening piece in the New York Times on Sandy Weill – the former Citigroup boss who told the paper he felt “incredibly sad” about the bank’s decline, pinning it on his successor – Levin said Citigroup, AIG and General Electric had the same conglomerate problem as Time Warner. “It was not a supermarket, it was a [shopping] mall,” he said. “Not only the three companies I just mentioned but let’s hear publicly from Lehman Brothers, Bear Stearns, Merrill Lynch, on and on.” [Financial Times] 

--Google entered the mobile phone, touch-screen, market with its Nexus One, a hoped-for competitor to the likes of Apple’s iPhone.   

--Florida scientists found that mobile phone radiation actually protected the memories of mice programmed to get Alzheimer’s disease, an interesting finding after all the bad news on cellphone use. 

--The FAA is increasing oversight of American Airlines after three mishaps during landings in the past month, including the plane that overshot the runway during heavy rain in Jamaica on Dec. 22. It turns out that aircraft didn’t touch down until it was halfway down the strip. 

--Has your municipality and/or state already plowed through its snow removal budget? At least you know your roads will be taken care of. Now picture Ireland, where with the awful weather there they are literally running out of salt and are “forced to close a swathe of major roads over the weekend.” 

[As an aside, though, the bad weather in Ireland has led to a spike in whisky sales as consumers heat it up; ye olde hot toddy.]  

--So I ask you again. Just how is it that Jeff Zucker of NBC gets to keep his job? First NBC had a long-time ratings winner in Jay Leno but opted to replace him in the 11:35 pm slot with Conan O’Brien, who is more of an acquired taste. Leno got moved to 10:00 pm, where he has generally performed dismally in the ratings. [I was once fired up for this development but my own interest fizzled out like that of so many others.] 

But now NBC is thinking of moving Leno back to 11:35, though for just 30 minutes, followed by Conan. Just eat Conan’s contract, I say. All in all, it’s further proof of ‘if it ain’t broke, don’t fix it.’ 

--U.S. album sales in 2009 declined for the eighth time in nine years, down 13% from 2008, while individual song sales, such as from iTunes, increased 8.3%. Combining the two (and figuring 10 individual sales equal an album), sales were down 8.5%. 

By the way, the Black Eyed Peas had the two biggest selling songs: “Boom Boom Pow” and “I Gotta Feeling.” 

--“Avatar” crossed the $1 billion mark in domestic and international receipts, making it just the fifth film to do so. “Titanic” is the highest-grossing film ever with overall sales of $1.84 billion. 

--From AFP: “Workers at an Anheuser-Busch InBev brewery in eastern Belgium have taken their bosses hostage after an announcement of lay-offs at the world’s biggest brewer.” Goodness gracious. Ten were being held as I went to post as workers demand their jobs back. I’m assuming those on the scene are consuming massive quantities of their own product. 

--My portfolio: The Brazilian airliner continues to kick butt, while on the China front my large holding in Fuzhou finally reported that the new plant I went to visit in Nov. 2008 is up and running. The news was favorably received but I maintain I won’t really know how it’s all going to pan out until about mid-May and the 1st quarter earnings report (at which point I either dump it or continue to hold for probably another two years). I still own positions in companies involved in solar, electric cars, and geothermal. These have all become long-term holdings, along with a shorter-term position in an alternative fuel company. Just call me Mr. Green. 

Iran: The regime in Tehran said the West had until the end of January to accept their counter-proposal on swapping Iran’s low-enriched uranium for higher-enriched uranium but in small batches and on Iranian soil. Needless to say the West rejects this after Iran has already blown off the UN-drafted plan that would have required Iran send the bulk of its uranium out to Russia and France for processing, and then returned in fuel rods for use in medical research. 

Many are saying that with the latest round of protests by the opposition, the regime is at a tipping point. One of the leaders of the “Green Movement,” Mahdi Karrubi, came under attack late yesterday but he was unhurt. His house northwest of Tehran was surrounded by 500 Basij militia members who threw rocks and bricks and broke the windows. Karrubi’s armored car was hit by gunfire as it drove away. 

But Iran’s latest crackdown appears to be working, and the opposition has failed to say what it really stands for, nor has it laid down an agenda. Until then the hard-liners can maintain control. 

As to the New York Times story that Iran has increasingly placed large parts of its atomic complex in networked tunnels and bunkers deep into the mountains, the bottom line is these are primitive locations and not paramount to preventing Iran from getting the bomb; at least that’s my reading of the situation. Instead, it remains all about taking out Natanz, which is where the vast bulk of the centrifuges are operating. 

Afghanistan: We’ve learned the Jordanian who was recruited to kill the seven CIA employees at a base on the border with Pakistan was really a triple agent in that he supplied information to Jordan that helped abort some terror attacks, but then claimed he had information on al-Qaeda’s Ayman Zawahiri, bin Laden’s No. 2, so the CIA allowed the terrorist onto the base without first being searched. The suicide bomber’s Jordanian handler was a member of the royal family there. 

Ralph Peters / New York Post 

“The Taliban’s latest innovation was on display again last week, when a suicide bomber, reportedly garbed in an Afghan army uniform, killed seven Americans, including a CIA mission chief. 

“The terrorists are ‘inside the wire.’ Everywhere. From eastern Afghanistan to Texas. And we’re stalled. For all of our wealth, technology and power, our enemies have the strategic and psychological initiative…. 

“They (our enemies) still lose every classic firefight, but they are pioneering the means to win without directly confronting our combat troops…. 

“(Over) the last year or so, we’ve seen the ever more frequent use of their most insidious psychological weapon: the suicide assassin disguised as ‘one of ours.’ 

Separately, retired General Barry McCaffrey is predicting the U.S. will see 300-500 casualties per month during the peak fighting period here, while Afghan President Hamid Karzai saw 2/3s of his cabinet nominees rejected by parliament. The members, who are standing for election down the road, have found Karzai’s selections to be unresponsive to individual members of parliament. 

Pakistan: The government continues to express concern that the U.S. buildup in Afghanistan will lead to more Taliban returning to Pakistan’s border regions, but the fact is the government in Islamabad is not confronting the Taliban and al-Qaeda as they want us to believe. For example, in the two-month offensive in South Waziristan, Pakistan has failed to capture a single top Taliban figure and has declined to go after the Haqqani al-Qaeda network blamed for the attack on the CIA across the border. 

Yemen: Of the 198 suspected terrorists still being held in Guantanamo Bay, 91 are Yemenis and after the disclosure that at least six previously released have gone back to the terror front, President Obama said he was suspending repatriation, meaning that Guantanamo is likely to stay open another few years. 

For his part, Yemen’s President Saleh is in a box. His government really only has control of the capital, Sana, and while he has expressed cooperation with the United States, he is facing domestic concerns he’s ceding too much control to the Americans and appears weak. Saleh is also seeking to negotiate with the Shiite rebels. But he should be taken at his word when he says Yemen will do more to secure its border facing Somalia (across the Gulf of Aden), with Somalia’s al-Qaeda faction vowing to send reinforcements to its brethren in Yemen. 

Iraq: Gen. Ray Odierno, in celebrating the first month here without a U.S. combat death since the start of the war, sounded an optimistic tune in telling reporters that there had been a 90% decline in high-profile attacks, and that overall they’ve dropped from more than 200 a day two years ago to about 15 now. 

Israel: The Obama administration is working on a plan for the establishment of an independent Palestinian state within two years, starting with permanent borders, then on to the status of Palestinian refugees and the future of Jerusalem. Separately, Syrian officials were quoted as saying they would not sit idly by should Israel attack Hizbullah. 

China: Beijing blasted Washington for its pending arms sale to Taiwan amid signs it could lead to another freeze in relations between the Chinese and U.S. militaries. China is also upset President Obama may be meeting the Dalai Lama shortly. Said a Foreign Ministry spokesman: 

“The U.S. should see clearly the harm (of any such moves) and cancel the arms sale to Taiwan so as to avoid disturbing the overall situation.” 

Washington is sending Patriot air defense systems, 60 Black Hawk helicopters and other armaments. At issue is Chinese support for increased sanctions on Iran, which China has said it would not go along with. The White House also needs Beijing’s aid regarding North Korea. 

For its part Taiwan’s President Ma said China has ignored his calls for the mainland to redeploy its missiles. The bottom line is China has between 1,000 and 1,500 short-range missiles targeting Taiwan. Taiwan is not a threat. Beijing can stand down any time it wants. 

Russia: Interesting little tidbit involving the sports world, specifically the new owner of the New Jersey Nets basketball team, a Russian, Mikhail Prokhorov. Prokhorov is said to be the richest man in his country and over the holidays he hosted Vladimir Putin (and Putin’s entourage of 100) at Prokhorov’s $30 million French Alps chalet. This was a reward for Putin securing an apology from French authorities after Prokhorov’s name came up as part of a prostitution scandal stemming from a January 2007 arrest as Prokhorov celebrated the New Year with hookers.  Prokhorov was, cough cough, cleared of all charges. This character is now the owner of the Nets? Well, you gotta believe the Nets’ cheerleaders will be top-shelf.  But what a sight it would be if Putin ever attended a game. 

France: Interesting situation here as President Nicolas Sarkozy has been demanding that France’s elite colleges admit more students from working-class and immigrant backgrounds. But the grandes ecoles, the establishments that educate France’s leaders of both government and business, are defying Sarkozy because to comply with his demands would require the schools’ dropping their rigorous standards. In France, if you can’t get into the elite universities you are left to attend “free-for-all” schools that are sorely lacking. 

Britain: Prime Minister Gordon Brown survived a no-confidence vote among his own Labour Party, some seeing a bloodbath at the polls this spring. 

Mexico: Police captured another top drug lord, this time Carlos Beltran Leyva, two weeks after his more powerful brother was killed in a shootout with troops; another big victory for President Calderon. 

South Africa: President Jacob Zuma married for a fifth time and celebrated in a traditional ceremony wearing leopard skins and carrying a Zulu shield (as opposed to the Slomin Shield). The lovely Thobeka Madiba becomes Zuma’s third current wife. A fourth committed suicide and the fifth divorced him. Yes, Mr. Zuma is a real piece of work. 

President Obama said Thursday that the failure to connect the dots in the intelligence community before the Christmas Day attack on the Northwest Airlines flight from Amsterdam to Detroit was not the fault of any single individual or agency and it’s not likely anyone will be fired. But he did insist on sweeping changes, including the addition of hundreds more air marshals. 

In a nutshell, the intel community failed to understand what it had, which was more than enough information to identify the suspect and prevent him from getting on the plane in the first place, though the fact Abdulmutallab’s name was misspelled didn’t help either. 

Republican Senator Olympia Snowe said, “It is appalling that we have not learned from our mistakes, eight years after the worst terror attacks in our nation’s history.” 

But as some have also pointed out, it seems like all Obama is doing with some of his new edicts is simply reshuffling old ideas, such as directing the intel community to begin assigning direct responsibility for following up leads on high-priority threats.   You’re not alone in thinking, ‘You mean to tell me this wasn’t already being done?’ 

Obama did say, in his strongest terms yet, “We are at war, we are at war against al-Qaeda. We will do whatever it takes to defeat them.” 

David Ignatius / Washington Post 

“The Central Intelligence Agency should be asking some painful questions this week about its performance: How could a suicide bomber have flown to Detroit despite a strong warning to a CIA station that he might be a terrorist? How could a Jordanian double agent have penetrated a CIA base in Afghanistan and killed seven agency employees? 

“Talking to veteran counterterrorism officers, I hear a common theme that unites these two disastrous lapses: The CIA has adopted bureaucratic procedures that, while intended to avoid mistakes, may actually heighten the risks. In the words of one CIA veteran, ‘You have a system that is overwhelmed.’” 

As Ignatius points out, while the two cases are very different, it’s about intelligence managers who are eager for results but afraid of the risks. “The consequence is a breakdown in tradecraft that can have fatal consequences.” 

It also doesn’t help that, as we learned this week, the director of the National Counterterrorism Center, Michael Leiter, decided not to return to his agency’s “bat cave” until two days after Christmas. 

And how much confidence does it give you when at Newark Airport, sight of Sunday’s horrendous delay because of a security breach at a checkpoint, a surveillance camera had not been working for six days.  

Kathleen Parker / Washington Post 

“As the new year begins, two facts emerge: George W. Bush is officially retired as the fault-guy for the nation’s ills, and Barack Obama owns the game. 

“Every president deserves a year of grace to adapt to the job and adjust to its Himalayan learning curve. As Obama’s first year ends – almost with a bang, thanks to a lonely Nigerian who found love in jihad – his grace period is up. 

“Indeed, depending on how he responds to the security breach that almost brought down a Detroit-bound flight from Amsterdam, Obama’s presidency is at risk of being rendered prematurely impotent…. 

“The cool detachment that was so attractive when political opponents were trying to rile Obama is suddenly becoming annoying. Preternaturally unflappable, his demeanor in these circumstances borders on inappropriate. 

“What does it take to get a rise out of Barack Obama? Not that we need bombast and flared nostrils. Calm in the face of potential disaster is laudable, but it’s a fine line between executive tranquility and passive nonchalance. Like a tone-deaf disc jockey, Obama plays elevator music when the crowd wants John Philip Sousa…. 

“Full-cavity searches can’t be far from the minds of bureaucrats looking for ways to create a faux sense of security rather than figuring out how to draw simple inferences from red flags, recently in numbers sufficient to spell out ‘Allahu Akbar’ on a halftime football field.” 

Yup…but we stopped comedienne Joan Rivers! You see, Rivers, 76, was deemed a danger to national security and booted off a Continental Airlines flight from Newark to Costa Rica by a gate agent who found two names on her passport fishy. 

As reported by Nancy Dillon of the Daily News, “Her passport reads: Joan Rosenberg AKA Joan Rivers. Rosenberg was her late husband’s last name.” 

Rivers pleaded and pleaded, as only she can, but to no avail. I feel so much safer. 

--Good news…Defense Secretary Robert Gates will remain in his post another year, his spokesman announced this week. President Obama deserves credit for asking the secretary to stay on after the 2008 election though it was initially thought Gates would remain just one year. At least he’ll be able to manage the expansion of forces in Afghanistan, as well as the eventual withdrawal from Iraq. 

--Three key Democrats, Senators Chris Dodd (Conn.) and Byron Dorgan (N.D.), as well as Colorado Gov. Bill Ritter announced they wouldn’t seek reelection.   In terms of the Senate it is increasingly clear the critical 60-vote majority that the president currently has is on the verge of collapse. The most direct impacts will be felt on the health-care and financial reform legislative fronts. 

--Senator Richard Lugar (Ind.), the top Republican on the Senate Foreign Relations Committee, is taking issue with Dick Cheney’s criticisms of President Obama’s handling of recent terrorism threats. 

“It’s unfair,” said Lugar. “I think the president is focused.” Lugar, in an interview with Bloomberg to air this weekend, said Obama has demonstrated “firmness” and “decisiveness.” But Lugar adds the U.S. may be focusing too much on Afghanistan when al-Qaeda is finding new safe havens in Yemen and Somalia. 

--Veteran insider Sally Quinn, in an op-ed for the Washington Post, upon learning there was a third gate-crasher at the state dinner for Indian Prime Minister Singh. 

“The administration’s problem extends beyond (failing to prevent the three from gaining access). When White House counsel Greg Craig was fired over disagreements about the timing and publicity of closing the prison at Guantanamo Bay, many Obama supporters were troubled. Craig was one of the most admired and trusted men in Washington. His firing was a turning point for a lot of people, who began to question the president’s judgment….(It was chief of staff Rahm) Emanuel who was responsible for Craig’s departure. He should have taken the hit and spared the president so much bad feeling. 

“Emanuel, the most political animal in this town, also should understand that keeping (Desiree) Rogers on as social secretary reflects upon the president’s judgment. It’s possible that he has other  considerations. Emanuel is said to have told people that the chief-of-staff role is an 18-month job and that he is considering a run for mayor of Chicago…. 

“The attempted Christmas Day attack…brought another example of the president taking the blame. In the first interviews after the incident, Homeland Security Secretary Janet Napolitano said that ‘the system worked.’ But the system did not work, and her words reflected poorly on the president. The rampant finger-pointing since then has made Obama look weak and vacillating. Who was responsible? The CIA? The director of national intelligence? The counterterrorism people? The Department of Homeland Security? All of the above? There needed to be some reckoning. Someone should have taken the blame and resigned. Even if the person who did so was not solely culpable, the perception would be that it was not the president who screwed up. Emanuel knows well that if a head does not roll, it will only hurt Obama’s reputation more.” 

--President Obama’s budget director Peter Orszag has led an interesting life. We learned this week that he has a little girl from a relationship he had with a shipping heiress, Claire Milonas, born Nov. 17, even as six weeks later he was announcing his engagement to ABC News’ Bianna Golodryga, who, some would say, is kind of hot (or, as the New York Post puts it, “stunning”). It seems they met at the White House correspondents’ dinner. Said one insider, “Orszag knocked up (Claire) and now is dumping her to marry Bianna.” Get this, Claire was three months pregnant when Orszag dumped her. So next time you see Peter explaining the Obama budget, don’t trust anything he says.  It also goes without saying that this is the very definition of a "dirtball."

“Frigid temps rack up records as winter’s wrath grips much of USA” 

“North Asia pummeled by icy snap” 

“Seoul battles heaviest snow in more than 70 years” 

“Britain’s four-day battle against worst snow in 23 years” 

A village in Poland was split in two after flooding and ice collapsed bridges. 

In central Norway the temperature hit -42F, the coldest in decades. The UK is the coldest in 30 years. 

Southwestern France was hit by a rare heavy snow. 16 inches fell in some London suburbs. 

Beijing had a foot of snow, the biggest snowfall for January in 50 years. It’s the coldest there in 40 years. 

Seoul’s snowfall, over 10 inches, “was the worst since Korea began conducting meteorological surveys in 1937.” 

Mark R., AKA “Mr. Sunspots,” says he’s waiting for Lake Ontario to completely freeze over, which has happened only twice in the past 100 years, not that Mark and I will then go ice-fishing.  

“Australia in hottest decade on record” 

It was not only the hottest decade, but 2009 was the second warmest since records began there. I’ve always written that Australia is Ground Zero when it comes to the climate-change debate. Others say it’s simply all about El Nino. 

By the way, because of recent heavy rains in parts of Australia, there is an outbreak of “the painful and debilitating Ross River virus” after a huge increase in mosquito numbers. Ross River causes excruciating joint pain as well as fever, rashes and sometimes long-term fatigue. 

Get this… “Residents of flood-affected towns have reported plague numbers of large mosquitoes.” 

Pray for the men and women of our armed forces, and all the fallen. 

Returns for the week (and ytd) 

My podcast, suitable for dog-walking, though but a rehash of the beginning of this column, is normally up around 9:00 a.m., Saturdays. 

I’m moving locations this week and know already there is no way I’ll be keeping up with things as I normally do. But I’ll have something for you. 

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