Stocks and News
Home | Week in Review Process | Terms of Use | About UsContact Us
   Articles Go Fund Me All-Species List Hot Spots Go Fund Me
Week in Review   |  Bar Chat    |  Hot Spots    |   Dr. Bortrum    |   Wall St. History
Week-in-Review
  Search Our Archives: 
 

 

Week in Review

https://www.gofundme.com/s3h2w8

AddThis Feed Button

   

02/05/2011

For the week 1/31-2/4

[Posted 7:00 AM ET]

Wall Street and the Crisis in the Middle East

Stocks resumed their rise after stumbling the week before when Egypt’s revolution took hold. For the most part this past week the focus was on fundamentals, which were strong, particularly on the manufacturing end with the Chicago Purchasing Managers Index for January coming in at 68.8, the best since 1988, and the national ISM reading on manufacturing registering 60.8, its best since May 2004; both being way above the 50 dividing line between contraction and growth and continuing positive trends in this regard.   December factory orders were up, when a slight decline was forecast, and then the personal consumption figure for December was up a better than expected 0.7%, which was later confirmed by continuing solid gains in the latest same-store sales figures for chain stores, up some 4.9%. The only number that was disappointing was construction spending for December, which was down a solid 2.5% when an increase was expected, but this was attributable to a still sick housing market and dismal weather.

Oh, but there was one other number that disappointed, or did it? The January report on employment showed a pathetic increase of just 36,000 jobs and an equally pathetic increase of 50,000 in the private sector. The consensus was for over 100,000 more than this. So since we’re told that we need to generate more than 150,000 jobs a month to begin to make a dent in unemployment, and instead we’ve had far less than this each of the last two months, how is it then that the jobless rate has plummeted from 9.8% to 9.0% during that time?! The easy answer is that hundreds of thousands are dropping out of the labor force, giving up. It’s nuts. But imagine if this seeming chicanery continues into 2012 and let’s say the jobless rate is 7.5% come that November, with most agreeing the figure is nowhere near a true reflection of the labor picture, can you picture the uproar that would then ensue as conspiracy theorists (of which I might be one myself at that point) talk of attempts to rig the election?

Alas, we don’t have to deal with the issue in this format for quite a while, and we all should hope that, legitimately, the unemployment rate is something like 7.5% in less than two years. That would be positive on so many different levels, including the fact that the Federal Reserve would finally be raising interest rates to give savers the break they have long deserved. [Of course that would also mean that bond fund holders would be getting crushed, at least of the Treasury variety.]

But while we look at the crazy jobs number, again, there was a lot to like this week, including one figure contained in the employment report, hourly earnings, which were up a solid 0.4% in January. This is good. We want rising wages, though also this week the Dept. of Labor said labor costs declined for a 5th quarter in six and were down 1.5% for all of 2010, vs. a decline of 1.6% in 2009.

Which brings us to the topic of inflation. Lots of talk on this front owing to soaring food costs, though for all the hue and cry over commodities, the CRB index, a broad-based barometer of everything from wheat to oil, is up just 1.8% this year.   Commodities corrected sharply at week’s end as no doubt some speculators sold their positions, including oil traders on talk that Egyptian President Hosni Mubarak was about to leave, thus taking some of the risk premium out of the oil trade.

Here’s what I’ve been talking about thus far in 2011. I believe that the spike we are seeing in food prices is partially warranted…not wholly because of ever-present speculation…due to rising demand in the Third World as more and more move into the middle class. This latter part is good. Compounding matters, however, is the hoarding now taking place in North Africa and the Middle East as governments scramble to ensure they have foodstuffs to meet the needs of an increasingly disgruntled populace. This is not good, especially after the plethora of weather disturbances we’ve seen around the world the past year. One worrisome development that will increasingly take center stage is the catastrophic drought in northern China. Imagine…Beijing and the surrounding area hasn’t seen any precipitation in 100-120 days. The counted on winter wheat crop is dead. On the sugar front, much of the world’s production comes from northeastern Australia, Queensland, and the sugar and banana crops were just devastated by the strongest storm to ever hit the continent, Cyclone Yasi. Incredibly, the death toll appears to be just three as I go to post, but the destruction is massive, including from the remnants of the storm that jogged south and did a number on Melbourne. [On a personal note, while the major city of Cairns was spared a direct hit, I was just there last October and I closely followed the evacuation plans. The authorities did a great job of preparing the people for the worst.]

But here’s my bottom line on food prices. Despite the weather issues, I do not believe the world is running out of food, and I believe by May we will receive much better news on the global harvest front. If we have another severe weather year, however, including zero rain in northern China and another drought in Russia, then we might as well all give up.

What I’ve been saying, though, is that this spike in inflation will slow the global economy, whether it is rising wheat or oil, and we are increasingly hearing of corporations taking a hit when it comes to profit margins.

So the combination of shrinking margins and a slowing global outlook means equity markets could struggle vs. expectations (food prices will then drop). Throw in geopolitical uncertainty and you end up in the United States with a down year for stocks, though not significantly so. That was my prediction at yearend in December, when looking at 2011, and you know I stick to my forecasts, unless we’re invaded by aliens next Tuesday, which would indeed be a game-changer for all of us.

I’ve been talking of a European economy, for example, that needs to grow at 4% to stabilize its debt issue but the forecast is for growth below 2% this year, downright putrid, especially if you take out Germany and, to a lesser extent, France when looking at the entire eurozone. The IMF’s chief economist said this week that “growth remains disturbingly biased toward Germany.” Every single eurozone figure on manufacturing and the service sector shows Germany leading the way, with many others struggling big time. It can’t continue this way, because we already know the German people have had enough with bailing out their weaker brethren.

Speaking of the weak, Ireland’s new government takes shape after early elections on Feb. 25 and it will immediately seek to renegotiate the terms of the $113 billion EU/IMF bailout, at which point they will be given the finger, while Spain’s finance minister and other government officials continue to try and convince all who will listen that despite 20% unemployment, the country is in great shape! Our saving banks, you ask? No problem. Forget those estimates for needed capital infusions ranging up to $130 billion.

And then we have the various austerity programs that are being enacted. I hope they work, with minimal disruption in terms of public outcry, but that’s not likely. I’ve been telling you of April 27 in Britain, for example, as being a day of planned labor unrest, right before the royal wedding. How many more countries in Europe, and perhaps elsewhere, will use the traditional May Day timeframe to voice their concerns? Will governments then cave?

Nobel Prize-winning Economist Joseph Stiglitz said this week that many European countries are pursuing “excessive austerity,” risking a marked slowdown in growth.

“There’s this disastrous policy that even in the countries that don’t need to have austerity, (they) are going for much more excessive austerity than they need. [Referring to the U.K.] We are already seeing around Europe the consequences of this austerity. The clear implication is that growth will be slower.”

That’s been my pitch since last summer.

[I just booked a trip to Paris this spring…a week bookended around May Day. I will be totally prepared for a bit of chaos, including strikes of all kinds.]

But let’s turn our attention to the U.S. budget deficit and national debt. Last week I wrote President Obama’s State of the Union was an “unmitigated disaster” for his failure to tackle the issue. The next day, Sunday, the Washington Post ran the following editorial.

[Excerpts]

“In his State of the Union address, President Obama failed to present a credible plan for long-term debt reduction….

“The president took a cagier route. He hailed the (bipartisan deficit) commission’s ‘important progress’ without endorsing any of its recommendations. He acknowledged that the government will have to raise taxes, but said it in such a convoluted way…that no one could possibly understand. He pledged a willingness to reform Social Security, but ‘without slashing benefits for future generations’ – phrasing that conceivably left him room to reduce benefits, below some slash threshold known only to him, while sounding as though he opposes any cuts at all.

“What could explain such cynicism? One theory would be that Mr. Obama doesn’t agree about the seriousness of the problem. If this is so, his rhetoric – two years ago he warned, ‘We can no longer afford to leave the hard choices for the next budget, the next administration or the next generation,’ and on Tuesday he reiterated, ‘Now, the final step – a critical step – in winning the future is to make sure we aren’t buried under a mountain of debt’ – is just that, rhetoric. But the arithmetic is so clear, and mainstream economists are so in agreement, that it seems unlikely that Mr. Obama would be a secret dissenter.

“A second possibility is that he calculated the chances of getting a deal at close to zero….

“The third, and scariest, possibility is this: The White House may have decided that debt reduction is so tough it has to await what officials, speaking not for attribution, have termed a ‘forcing event’ – a spike in interest rates, a reluctance by foreigners to buy U.S. debt or some other market disruption that would frighten Congress into action. What’s disturbing about this idea is that such ‘forcing events’ tend to take on lives of their own; once a panic starts, it’s not easily controlled.

“It’s not too late for Mr. Obama to apply a different kind of forcing event: presidential leadership. We understand it’s tough. Americans say they want deficit reduction, but they oppose just about every kind of tax hike or spending cut needed to make deficit reduction happen. But they also are genuinely worried about the debt and the European example. Candor, instead of caginess, might yield results.”

Morgan Stanley’s Stephen Roach issued a warning on the U.S. dollar front, which is tied to the discussion on deficit reduction.

“In the next three or five years China will move aggressively to increase its private consumption and reduce its surplus saving. The U.S. talks the talk, but there is actually no shred of evidence whatsoever that America is going to reduce its budget deficit over that same period.”

So China may post a trade deficit as early as this quarter, imports outpacing exports, which will remove a key incentive for China to support the dollar, all while the U.S. budget deficit will hit $1.5 trillion this year.

“If we don’t move to address our deficit before China addresses its surplus then we are going to be facing some pretty significant external funding constraints,” Roach adds. “That would lead to a significant downward pressure on the dollar and/or higher long-term U.S. interest rates.”

It’s a mess. But I’ll leave you with a final thought, and it concerns the terror threat. This week we had a slew of warnings…the U.S. warning about taking public transportation in London, an apparent Al-Qaeda in Yemen threat against Wall Street executives, and the release of WikiLeaks cables discussing the government’s concern that Al-Qaeda is vigorously pursuing the ability to unleash dirty bomb attacks, among others.

I said little about the Chechen terrorist bombing of the Moscow airport because it frankly doesn’t impact our financial markets. But the same act taking place in New York, London or Paris most definitely would…ditto a dirty bomb in one of these three. It’s beyond belief we can continue to be so lucky…and I’m not so sure how well the American people will handle it when the inevitable occurs.

---

Turning to the Middle East, it was a chaotic week in Egypt as anti-government protests were at one minute peaceful, the next not so when thugs sent out by the Mubarak regime wreaked havoc, with foreign journalists often caught in the crosshairs. Many journalists were rounded up, intimidated and/or beaten (one was killed). Early in the week, President Obama conferred with Mubarak and then issued the following.

“All of us who are privileged to serve in positions of political power do so at the will of our people.” It was “not the role of any other country to determine Egypt’s leaders,” but “what is clear, and what I indicated tonight to President Mubarak, is my belief that an orderly transition must be meaningful, it must be peaceful, and it must begin now.”

On Friday, after speaking with Mubarak a second time, Obama stiffened the message. No doubt the administration would like to see the Egyptian military take over during a transitional phase leading up to free and fair elections. It’s the Egyptian army that is receiving the bulk of U.S. aid, to the tune of $1.5 billion, after all, and cooperation is said to be deep between the Egyptians and the Pentagon. The new vice president, Gen. Omar Suleiman, would be a solid choice to lead the nation out of its current morass assuming Mubarak was exiled.

But then what? Everyone is talking about the future role of the Muslim Brotherhood, whose younger sibling is Hamas. Would the Brotherhood emerge victorious in elections, seeing as they are the most organized political entity in a country that otherwise has little formal political opposition, as exhibited these past two weeks, after 30 years of Mubarak’s hardline rule? Certainly Mohamed ElBaradei, formerly of the International Atomic Energy Agency, isn’t the answer, as much as he’d like to be. Plus he’s already aligning himself with the Muslim Brotherhood, the weasel.

Conservative foreign policy maven Robert Kagan addressed the fear (as told to Maureen Dowd of the New York Times) that an election with the Brotherhood would lead to the situation we witnessed in 2006, when then Secretary of State Condi Rice thought there was no way Hamas would emerge victorious in Gaza.

“We were overly spooked by the victory of Hamas,” said Kagan. “The great fear that people have with Islamist parties is that, if they take part in an election, that will be the last election. But we overlearned that lesson and we need to get beyond that panicky response. There’s no way for us to go through the long evolution of history without allowing Islamists to participate in democratic society.

“What are we going to do – support dictators for the rest of eternity because we don’t want Islamists taking their share of some political system in the Middle East? We’ve got to put our money where our mouth is.

“Obviously, Islam needs to make its peace with modernity and democracy. But the only way this is going to happen is when people speaking for Islam take part in the system. It’s incumbent on Islamists who are elected democratically to behave democratically.” 

The Wall Street Journal editorial board countered:

“If the Brotherhood wants to participate in elections, it should have to promise to play by democratic rules, respect religious and social pluralism, and honor Egypt’s treaty commitments, especially to Israel. And because promises can be broken by those in power, Egypt needs a constitutional system of checks and balances to withstand any attempt to impose one man, one vote, once. Egypt can have a viable democratic future, provided that the democracy is for democrats.”

The Obama administration has learned a painful lesson. Back in June 2009, when the president gave his speech to an audience in Cairo, he called for a “new beginning” between the U.S. and the Muslim world. But then aid to democracy promotion programs in Egypt was cut by half, after, as the Journal reported, “Ambassador Scobey advised that such programs annoyed Mr. Mubarak. This past November, the regime waved off U.S. calls for international monitors for parliamentary elections and cracked down on the opposition and media. The election was a fiasco of fraud, and again the U.S. said little.”

Hardly Reaganesque, and now the White House finds itself in a box. 

It was also hardly reassuring this week when we learned that hundreds of prisoners, mostly militants, were broken out of four prisons by undoubtedly Brotherhood supporters. As far as I can ascertain, scores are members of Hizbullah and by Thursday they were finding their way back to Lebanon. These are the same terrorists Mubarak had rounded up for plotting attacks in Egypt.

I discuss some of the other hot spots in the region down below, but for now I have to repeat a statement of mine from last week that is my core analysis, especially as one whose main adage is “wait 24 hours.” I’m ignoring much of the instant punditry being done on the fly.

“Even if there are some positive outcomes in the likes of Tunisia and Egypt, the transitions are going to be long and drawn out, with internal security focused on maintaining order and securing a new government. And that means one thing. The extremists will have safe haven, at a minimum, knowing that the security forces are focused elsewhere….Instead of having to dodge drones in Pakistan, Afghanistan, Somalia and Yemen, al-Qaeda-like groups will proliferate throughout the entire region. The West will be helpless, not having a strong relationship with the new leaders, whoever they might be. It will be a multi-year window where the Evil Doers can plot and export terror with little concern that they will be bothered inside their new homes.”

Street Bytes

--Stocks staged their broadest rally since the first week of December with the Dow Jones up 2.3% to 12092, the S&P 500 up 2.7% and Nasdaq advancing 3.1% to 2769. The S&P has now risen 94% from its March 2009 low, the biggest rally over equivalent time periods since 1936.

--U.S. Treasury Yields

6-mo. 0.17% 2-yr. 0.75% 10-yr. 3.64% 30-yr. 4.73%

Bonds tanked and yields rose to 9-month highs for a variety of reasons, including food inflation fears and the strong economic news, with the focus not on the actual pitiful job gains but rather the rapid decline in the unemployment rate. Should the economy prove to be as strong as the manufacturing data is foretelling, then the Fed will have to begin to tighten sooner than currently forecast…so say some in the bond pits.

The European Central Bank held the line on its own key interest rate yet again, even as eurozone inflation for the month of January remains above its 2% preferred target, 2.4%. The ECB, though, like the Federal Reserve, is sanguine on the inflation picture despite what it sees as “short-term pressures.”

Meanwhile, the euro-17 nations disagreed on some major issues, Germany and France vs. the rest, basically, as German Chancellor Angela Merkel and French President Nicolas Sarkozy unveiled their plan for a binding, euro-wide agreement on pension, tax and labor policies that would interfere with existing initiatives. For example, Germany and France don’t want to see anymore wage pacts pegged to the inflation rate, whereupon the likes of Belgium countered, “We will not allow our social model to be undone.” So the eurozone continues to have stark differences that, unless resolved, will continue to lead to bouts of severe uncertainty and financial stress.

--Eurozone unemployment is 10.0%. The entire European Union is at 9.6%.

--Investors pulled a whopping $7 billion from emerging market equity funds this week, the biggest withdrawal in more than three years, owing to the situation in the Middle East and fears food inflation could lead to economic instability in Asia as well as the Middle East.

--China’s manufacturing index for January came in at 52.9, a further decline as the government tries to engineer a soft landing. [An HSBC independent barometer came in at 54.5, a slight increase over December.] One source has home prices increasing 1% in January. Meanwhile, industrial production for January fell in Brazil, a second consecutive decline as it shows signs of slowing down in a big way.

--In the U.K., the estimate for GDP in 2011 has been revised down to 1.5%, with only 1.8% forecast for 2012.

--A lawsuit filed by the court-appointed trustee for Bernie Madoff’s victims, Irving Picard, is seeking a staggering $6.4 billion from JPMorgan Chase.

“Incredibly, the bank’s top executives were warned in blunt terms about speculation that Madoff was running a Ponzi scheme – yet the bank appears to have been concerned only with protecting its own investments,” said Deborah Renner, a lawyer on Picard’s team.

As noted in the New York Post:

“Starting in 1986, the bank enjoyed a close relationship with Madoff, and by the mid-2000s, it was making hundreds of millions of dollars by putting his firm together with hedge funds and other so-called ‘feeder funds’ that invested their own clients’ money with the scammer.”

JPM raked in some half a billion in fees and profits over the years. Bank officials deny the charges.

“But the 114-page complaint chronicles a damning list of e-mails and statements by top staffers that prove they were long suspicious of Madoff’s impossibly high returns and his unwillingness to disclose anything about his investment strategy, Picard said….

“ ‘While numerous financial institutions enabled Madoff’s fraud, [Chase] was at the very center of that fraud and totally complicit in it,’ the legal papers charge.”

JPMorgan decided to sever its ties in 2008 and months later, with Madoff exposed, the bankers congratulated each other. Now they will be tied up in court for years. What say you, Jamie Dimon?

[Separately, Picard’s suit against New York Mets ownership was unsealed and it is damaging. I’ll cover this topic extensively elsewhere on this site.]

--General Motors and Chrysler led the way in January with domestic sales that were up 22.7% each, while Ford saw a 13.2% increase and even Toyota registered a 17.3% gain, though this is in comparison to the prior January when it stopped selling temporarily eight models as part of its product recall. Nissan and Honda had 15% and 13% gains, respectively.

--But when it comes to President Obama’s goal of putting 1 million electric cars on the road by 2015, automakers aren’t planning on producing that many as yet. The demand just isn’t there. There are two immediate issues, aside from the high price tag for, say, the Nissan Leaf ($32,780) and Chevy Volt ($41,000), that being there are few battery charging stations and it can take hours to recharge.   Clearly $100 oil and $4.00 a gallon gasoline would increase interest but the charging issues are huge.

--Exxon Mobil’s earnings soared 53% and handily beat expectations, which really wasn’t a surprise given the price of crude recently, and the profit of $9.25 billion represented Exxon’s highest level since the third quarter of 2008, during which oil peaked at $147 a barrel. Capital spending for 2010 also hit $32 billion, owing in large part to its acquisition of natural gas producer XTO Energy.

--Meanwhile, Chevron Corp. said it was exiting the coal business because new technologies, such as coal-to-liquids, were developing too slowly. A spokeswoman for Chevron Mining Inc. said, “Those technologies are so far into the future, 10 to 15 years in the future, they made the strategic decision to focus on other operations other than mining.”

--And then there is the issue of the technology being used in the natural gas business, specifically the process of hydraulic fracturing, or fracking, which can involve the injection of chemical additives – including diesel fuel – along with water and sand, to open up natural gas deposits.

Congressional investigators charge the injections with violating the Safe Water Drinking Act. They are! And what’s come to light, as reported by Tom Zeller Jr. of the New York Times, is that Halliburton, Schlumberger and BJ Services “signed an agreement with the E.P.A. in 2003 intended to curtail the use of diesel in fracking in certain shallow formations.

“Two years later, when Congress amended the Safe Water Drinking Act to exclude regulation of hydraulic fracturing, it made an express exception that allowed regulation of diesel fuel used in fracking.”

I’m big time on the side of environmentalists when it comes to issues like this. If we allow this kind of crap, we become China, which in so many areas is poisoning its people through its irresponsible handling of its water supply. It’s pretty simple. Jack the executives up against the wall and say, “YOU CAN’T DO THIS!”

--Back to coal, demand is so great Alpha Natural Resources Inc. is buying Massey Energy Co. in the most expensive takeover in the industry’s history, $8.5 billion, just 10 months after Massey caused the worst U.S. coal mining accident in four decades.

--So you know how everyone talks of high oil prices as being a hidden, or not so hidden, tax? I was talking to our Dr. Bortrum the other day, a typical homeowner in the Jersey suburbs with a normal length driveway, and his snowplow bill came in for work thru January. Try $600! “That’s a tax, Bortrum!” I exclaimed. Imagine the vast swath in this region receiving similar bills. It’s got to have an impact on consumer spending in these parts. [And boy did I pick a good time not to be running the nearby townhouse association’s finances where I lived for 16 years until opting to rent.]

--John Garnaut had a piece in the Sydney Morning Herald on China and its ongoing boom, which has everything to do with Australia’s future as well, seeing as how the Aussie’s are supplying the Chinese with many of their raw materials. For example, Australia’s iron ore exports there were worth about $50 billion, or 5% of Australia’s GDP, with the Aussies accounting for 40% of China’s total ore imports.

A recent report by McKinsey & Co. envisions a China that will be building a new Chicago every year for the next two decades, including more than 1500 new skyscrapers higher than 30 stories. By 2025, China is on track to have 219 cities of more than a million people and 24 cities larger than Sydney.

So in Australia they are trying to calculate the impact of China going off the rails, which some say is inevitable. [I’m far from confident myself these days and watching closely.]

--PIMCO’s Bill Gross, in his monthly newsletter, had some of the following thoughts on money.

“Fifty years ago, the highest paid and most prestigious professions were that of a doctor or a 707 airline pilot who flew the ‘golden’ route from Los Angeles to Honolulu. Today the yellow brick road begins on Wall Street or the City. Aside from supernova innovators such as Steve Jobs or Mark Zuckerberg, the money is made from securitizing things instead of booting and rebuilding America. The tallest buildings in almost every major city are banks, with tens of thousands of people shuffling and trading paper for a living. One of this country’s premier investment banks paid each of its 26,000 employees an average of $370,000 in 2010, nearly ten times the take-home pay of other American workers. Almost a quarter of the 400 wealthiest people on Forbes annual richest list make their money from money, whereas only 8% could make that claim in its first issue in 1982, and probably close to 0% when I first read my economic primer in 1966.

“Having been part of this process and even a member of the rogue’s gallery itself, I know one thing for sure: This is not God’s work – it has the unmistakable odor of Mammon. PIMCO, while Mammonesque, is a company to be proud of. I can say with confidence that there are very few clients who have not benefited from our investment management over the years. Some of the rest of this industry, however, I’m not so sure of: rating agencies that perpetually fail at commonsensical quality judgments, bankers that make loans to subterranean credits and then extend the beggar’s bowl for themselves, and 80% of active money managers that underperform the market. As a profession we have failed miserably at our primary function – the efficient and productive allocation of capital: The S&L debacle of the early 1980s, the Asian crisis, LTCM, dotcoms, subprimes, Lehman and the resurrection, instead of the reformation, of Wall Street, are major sins of the modern era of money. Hang your heads, moneychangers. And no, it is not yet time to move on, as many banking CEOs suggest. How can bond traders make ten, one hundred, one thousand times more money than an engineer or social worker given their dismal historical performance? Why is it that some of today’s doctors are using food stamps while investment banking executives complain about millions of dollars in compensation that might be deferred in case of a future bailout?....

“To rebalance debt loads and re-equitize financial institutions that should have known better, central banks and policymakers are taking money from one class of asset holders and giving it to another. A low or negative real interest rate for an ‘extended period of time’ is the most devilish of all policy tools. And the asset class holder that it affects, or better yet, ‘infects,’ is the small saver and institutions such as insurance companies and pension funds that hold long-term fixed income assets. It is anyone who holds bonds with coupons that cannot keep up with inflation or the depositor in a local bank who cumulatively holds trillions of dollars in time deposits that don’t earn a real rate of interest. This is the framework that has been created by modern-day policymakers who have innovated far beyond their biblical counterparts. To put it bluntly, they are robbing savers and taking money surreptitiously from longer-term asset holders who are incorrectly measuring future inflation.” [pimco.com]

--Pfizer is slashing 1,100 jobs at its largest research and development site in Groton, Conn. 3,400 will remain.

--For the pharmaceutical industry these days, it’s all about pipeline. I now live across from a large Merck facility, with thousands of employees, and the other day the struggling giant missed estimates and guided lower for 2011. Revenues and the bottom line are OK, but new products are often acquired, rather than developed, while at the same time patents and “exclusives” are coming off leading to increased competition from generics. Merck said it’s proceeding with its plan to cut 15,000 jobs by 2012. Separately, the Dunkin’ Donuts in my building continues to do very well…but I digress.

--Amazon is developing a film-streaming service that would compete directly with Netflix, as reported first by the Financial Times. Amazon would bundle movies with Amazon Prime, a premium service that guarantees unlimited free shipping of books and other items. But Netflix has a helluva head start, some 20 million subscribers.

--With Ireland facing an early election, the vast majority (65%) of voters want spending cuts vs. just 7% who want to see higher taxes. 18% want a mixture of both.

Ireland’s economy has now shrunk 22% from its peak and by some estimates could take more than 15 years to recover. Exports may be doing well, but the domestic economy has been devastated beyond belief. Since Brian Cowen became Taoiseach in May 2008, 127 companies a week have gone under.

--Volcanologists believe that the recent eruptions on Japan’s Shinmoedake peak on the southern island of Kyushu closely resemble catastrophic blasts that occurred there nearly 300 years ago. Yet another reason to sleep with one eye open these days.

--Brian Moynihan, CEO of Bank of America, received total compensation of $10 million in 2010 for a job poorly done, though his base of $950,000 didn’t go up and his bonus of $9.05 million is in restricted stock.

--Asher Moses of the Sydney Morning Herald reported, “Microsoft has warned that the 900 million users of its Internet Explorer browser are at risk of having their computers hijacked and their personal information stolen by hackers.

“The company has yet to develop a permanent fix for the security hole but users are being told to apply a temporary fix that prevents hackers from exploiting a hole to install malicious scripts. Users could be targeted simply by visiting an infected website.”

The problem is the flaw affects all versions of Windows. But, this is important, users of other browsers such as Google Chrome and Firefox are not affected. According to analytics firm Net Applications, Internet Explorer remains the most-used web browser with a 57% share, followed by Firefox (23%), Google Chrome (10%) and Safari (6%).

Yes, as Bill Gates used to say, “We’re in the business of making great software”….not.

--There has been much talk that the commercial real estate market is rebounding, but at the same time the delinquency rate for commercial mortgage-backed securities hit a new high in January, 9.34%.

--Remember the helmeted motorcyclist who robbed the Bellagio hotel-casino in Las Vegas on Dec. 14 of $1.5 million in chips? He was arrested this week on the same casino floor. Turns out Anthony Carleo, the bankrupt son of a Las Vegas judge, had been spending his loot at the only place he really could, the Bellagio, seeing as how he couldn’t just cash them in at a bank or run ‘em through Coinstar.    He even spent a week at the resort in late January being comped, and back on New Year’s Eve lost $73,000 there. But he was done in when he tried to sell five $25,000 chips online.

--Speaking of casinos, Macau’s casino revenue jumped 33% in January from a year earlier, bolstered by hordes of mainland gamblers. If you want an economic indicator for China, and you’re skeptical about some of the numbers the government releases, then just look at this figure. It tells you everything about the ever-growing middle class. If it begins to stumble, then it’s also as good a warning sign as any. [Though you have to be careful because sometimes the mainland puts limits on the number of gamblers it will allow into Macau. However, there are times when the government sees it as being a good way for the people to let off steam, rather than direct their ire at officials; times like today.]

--Tiger Woods’ $1 billion golf project in Dubai has gone poof! Back to sand, as they say in these parts, due to the real estate crash there. Some $15 billion in high-end projects have been shelved in Dubai in recent months.

--30 seconds of ad time on the Super Bowl is selling for $3 million, up slightly from last year’s $2.97 million, according to Kantar Media. A typical prime-time commercial runs between $100,000 and $500,000, depending on the success of the program. During the game there are 42 minutes of ad time.

--My portfolio: I haven’t done anything since the last time I updated you, though my rare earth minerals play continues to do spectacularly well. The Fujian holding won’t move until the next earnings report which is still weeks away. [Considering the hammering both the Chinese and emerging markets are taking, my stock is holding up well.]

Foreign Affairs

Iran: A respected London-based think-tank, the International Institute for Strategic Studies (IISS), said Iran’s ambition to gain a nuclear weapon is “beyond reasonable doubt” and it already has enough low-enriched uranium from its Natanz enrichment facility to produce one or two bombs. Under the quickest scenario it will take “a little over a year and seven months” to then enrich to the higher level required for a bomb. Britain’s defense minister, Liam Fox, concurs in asserting that while there are those, such as in Israel currently, who say Iran couldn’t obtain the bomb until 2014 at the earliest, the Western powers should operate under the assumption that Iran has one next year.

But, and this is a big ‘but,’ Iran would still have to “break out,” or launch a “crash effort” to produce weapons-grade uranium which almost everyone believes could be detected and bring about the threat of military action.

Thus, the IISS concludes:

“Given the need for a replacement in case of bomb failure, as well as the presumed requirement for a second-strike capability and possibly for a test, it would seem foolhardy for a nation to go for broke, with the international reaction this would entail, before it could manufacture at least a handful of weapons.”

Bottom line, the consensus is that “the likelihood of detection allows time for a negotiated solution,” according to the director-general of the IISS. I hope he’s right. [Tom Coghlan / London Times]

Lebanon: Hizbullah’s leadership hailed the Egyptian revolution with the deputy secretary-general of the terrorist organization saying, “We should salute the resistant and proud Egyptian people who have set an example in rejecting normalization with Israel and in their continuous aspiration for freedom, independence and glory.” 

Hizbullah was angered when Egypt appeared to support Israel during the Israeli offensive on the Gaza Strip in late 2008, and then in 2010, Hizbullah was accused of planning attacks in Egypt with 26 allegedly with ties to the group arrested; the very ones it appears have now escaped.

On the political front, Prime Minister-designate Najib Mikati continues to try to form a government, whereas the March 14 coalition (the Saad Hariri, pro-West crowd) doesn’t want to join a coalition without knowing where Mikati stands on the Special Tribunal for Lebanon looking into Rafik Hariri’s assassination. Mikati, who wouldn’t be where he is without Hizbullah’s support, insists he made no commitments to them. For his part, Saad Hariri says Syria is responsible for his ouster.

But writing in the Daily Star, Michael Young commented on how Lebanon has suddenly become an afterthought with the crisis in Egypt, which is startling to yours truly as well. Young wonders why no one is referring back to Lebanon’s Independence Intifada of 2005.

“Far from perceiving developments in Lebanon as a bracing example of emancipation, many in the Arab world saw it as a victory of the United States and France over Syria and Hizbullah. Therefore, in the bizarre logic prevailing then (and now), it was interpreted as a setback for emancipation – defined as anything that might strengthen Western power in the Middle East. That is why there was none of Al-Jazeera’s selective outrage on hand to warm Arab spirits to the Independence Intifada. The station had always approved of Syria’s and Hizbullah’s agendas in Lebanon, and it still does. The behavior of the Al-Jazeera bureau chief in Beirut has amply demonstrated this fact.

“That said, to lament public marginalization of the Independence Intifada is meaningless on its own. That a majority of Arabs will reject any narrative that places the United States in a good light tells us much about Washington’s errors in the region. When was it not obvious, particularly during the post-Cold War period, that America would one day have to choose between its image as global defender of democracy and its sustained support for the most authoritarian regimes in the Middle East? Washington sees risks in allowing Arab states to go their own way, but these are hardly more threatening than propping up its regional alliance system with reviled despotisms.

“The Lebanese may complain that American approval brought them little after 2005. Syria and Hizbullah are back in the driver’s seat in the country. But nothing worries Damascus, Hizbullah, or Iran more than genuine political pluralism, alternations in leadership, and democratic self-determination. That’s where America’s cards are strongest, not its support for soulless, corroded republican monarchies that have humiliated and beaten their societies into submission, whose demise no one can possibly regret.”

Syria: The International Atomic Energy Agency (IAEA), the outfit for which Mohamed ElBaradei once acted in a most wimpy fashion, is prepared to issue a scathing report against Syria for refusing to allow IAEA inspectors to revisit the Dair Alzour suspected nuclear site that was bombed by Israel in 2007. Damascus claims the site is off-limits because it is military in nature. Syria refuses to sign what’s known as the Additional Protocol that would grant the IAEA unfettered access to inspect suspect Syrian sites. Now the IAEA will refer the matter to the Security Council where sanctions could result. [Confronting the Syrians in such a fashion never would have happened under ElBaradei.]

As for Syrian President Bashar Assad, he told the Wall Street Journal in a rare interview that he would be pushing through political reforms in light of the protests across North Africa and the Middle East, but while he seeks better ties with Washington it will not be at the expense of his relationship with Iran.

Jordan:  King Abdullah II dismissed his government and appointed a new prime minister, Bakhit, who was prime minister from 2005-07 and was not widely loved, to say the least, as he was seen as just another corrupt leader who helped rig elections. Bakhit does have extensive experience with the West, though, and Abdullah, who has the ultimate power in his country and can form and dismiss governments at will, has charged Bakhit with carrying out “true political reforms.”

But while Bakhit has invited the Muslim Brotherhood into his new government, the Brotherhood has turned him down, though they met with Abdullah for the first time in ten years. The Brotherhood has made it clear they are not out to oust the king, but they want to call the shots when it comes to governing

Yemen: President Salel, feeling the heat, said he would step down in 2013 after his latest term is up. The opposition counters Salel has said this twice before and then remained in office (he’s been ruling since 1978). Protests here thus far have been largely peaceful, mainly because the demonstrators are all drugged out…really.

Pakistan: The military has launched another attack against Islamist militants in a tribal region near the Afghan border, which is good, and the government then claims success, but there is little follow through.

Tunisia: Little is being said about what’s going on here since President Ben Ali was ousted in January, though the past week did see the return of the leader of Tunisia’s main Islamist movement, Rachid Ghannounchi, after 22 years in exile. The interim government permitted him to return and has said banned political parties such as Ghannounchi’s Ennahda party would be allowed to register and political prisoners granted amnesty. So far so good.

Afghanistan: The New York Times reports that the situation at Kabul Bank is far worse than first thought, with potential losses of as much as $900 million – “three times previous estimates – heightening concerns that the bank could collapse and trigger a broad financial panic in Afghanistan, according to American, European and Afghan officials.”

Recall this all started when bank funds were funneled into Dubai’s real estate bubble, with President Hamid Karzai’s brother heavily involved. The brother told the Times that there were approximately $800 million in loans still outstanding, and that the bank has negotiated agreements for the repayment of about $300 million, but little has been repaid.

China: A few tidbits as we enter the Year of the Rabbit. China has been restricting keyword searches on the protests in Egypt as it sanitizes news reports over fears it could spur calls for reform at home, though to be fair, I’ve read pretty extensive accounts in state newspapers.

China is proud of Australian Open women’s runner-up Li Na, the first Chinese tennis player to reach a Grand Slam final. In an editorial in Global Times:

“Li’s impressive performance on the court was driven by her own personality and it represents a social change in China during the past two decades. Mainly, the constraints on self-expression have been shaken off. This forthright girl represents a different China that allows her to ‘just be herself.’”

Li Na was funny during the final, which she lost to Kim Clijsters. At one point she went to the chair umpire to request, “Can you tell the Chinese don’t teach me how to play tennis?” after the Chinese in the crowd were shouting advice to her.

But on a different matter, Chinese officials are red-faced after news footage showcasing the J-10 fighter jet (not to be confused with the new J-20 stealth fighter) was found to be taken from the film “Top Gun.” Bloggers quickly picked up the similarities and the footage was removed from the official state-sponsored station’s website. No one fessed up to the fraud, which was incredibly stupid given the popularity of “Top Gun.”

North / South Korea: A confidential report prepared for the U.N. Security Council, and then leaked to Reuters, suggests that Pyongyang has even more secret nuclear facilities than it has let on so far. Separately, South Korean President Lee said he was now open to a summit with the North’s Kim Jong-il as long as Kim admits to two deadly attacks last year.

Russia: President Dmitry Medvedev and Prime Minister Vladimir Putin have a rift developing over the Domodedovo Airport blast, with Medvedev saying officials, such as Putin, were being premature in describing that attack as being “solved.” Hours earlier, Putin had gone on state TV to announce “We can take it that on the whole the case has been solved.” Medvedev then said it was “unacceptable when someone announces ahead of all investigative procedures and the indictment that a crime has been solved.” Medvedev is doing all he can to prove he is not a “lame duck” ahead of the 2012 presidential election as Putin seeks to retake the office.

Random Musings

--That was a fascinating interview with Julian Assange of WikiLeaks fame on “60 Minutes” last Sunday. I loved the following comments of Hugo Rifkind in the London Times:

“(My) views on Mr. Assange have evolved somewhat over the past few months. Whereas I used to think that he was a dangerous egotist who didn’t really matter, I now think that he’s a dangerous egotist who really, really does. I doubt that we’ll ever know to what extent the protests in Tunisia, and then Egypt, and then elsewhere, were influenced by the WikiLeaks release of U.S. diplomatic cables, but I’m inclined to be generous, at least in terms of timing.

“Mr. Assange and his more fervent supporters would probably claim a stronger link, and they might be right. I’m wondering, though, what sort of person sees riots, petrol bombs, tanks, thousands injured, hundreds dead and a man on camel – a bloody camel – riding through a crowd hitting people with a stick, and thinks to themselves: ‘You know what this looks like? Peace!’ Because, to my mind, that person is confusing peace with something else, and that something is ‘not peace.’

“Oh, sure, they might bring some sort of peace eventually. You’ve got to worry, though, about people who focus on peace eventually. You know what they’re like? They’re like Snorre Valen, the 26-year-old Norwegian pianist and politician. He’s the one who nominated WikiLeaks for the Nobel Peace Prize.

“ ‘WikiLeaks wants to make governments accountable for their actions,’ he has said, grandly. ‘Truth is always the first casualty in war.’

“No, dipstick. The first casualty in war is the person who gets shot in the face just after somebody else says: ‘It’s war.’ Truth is probably rarely even in the Top Ten. And if any of those real casualties of war are of the opinion that truth is more important than they are, well, that’s entirely humbling….

“The sad fact is that actual human beings riding a wave of history cannot always be relied upon to behave in the ways that our sense of history tell us that they ought to. Give Julian Assange a prize for promoting transparency, if you must, or even for advancing democracy. But only somebody who doesn’t care about actual humans at all could feel that it was a good idea to give him one for peace. In fact, it’s a terrible idea. Worse, even, than the open sandwich. And that’s saying something.”

--Sumathi Reddy of the Wall Street Journal reported on a classic example of the exploding public vs. private debate. Police pay in Nassau County on Long Island.

“The average salary of a sworn police officer in Nassau last year was $107,000.

“Cops receive free health care and up to five ‘blood days’ – comp days for every time they donate blood. The total package, including fringe benefits and overtime, averages $202,400 per officer.”

You’re reading that right. Blood days?! What kind of garbage is that? Of course you then also shouldn’t be surprised to learn Nassau’s police officers are protected by a no-layoff clause and have another pay raise coming in April, despite severe fiscal issues. In neighboring Suffolk County, the average salary for officers is $111,574. Needless to say you have some “cozy relationships” between elected officials and the police union. 

Now, granted, the cost of living on Long Island is sky high, but it’s the fringe benefits that is most upsetting to some of us. And then you also have severance payouts for retiring officers, the average of which is $300,000, owing to unused sick and vacation time.

The other night I was at a party and instigated a discussion on this whole public-private debate with my good friend from elementary school who recently retired as police chief of the town I used to live in. Doug has morals and after 28 years he said he used 10 sick days, total, and did not take a dime for unused sick or vacation time upon retirement. Boy, that is the exception, especially in New York and New Jersey. So I’ve asked the Pope to fast-track Doug for sainthood. Sadly, few others seem to be following his lead.

--The U.S. ambassador to China, Republican Jon Huntsman, resigned on Monday amid reports he may seek the Republican nomination for president. Huntsman, a former Utah governor, informed his boss he would stay on until April 30. Huntsman’s a jerk for accepting this key post in the first place if this was his intention all along, even as Obama thought it was a clever way of removing a potential rival. [This doesn’t mean I’m not allowed to vote for the guy should he indeed be the nominee. I’ve voted for a lot of jerks in my life.]

Huntsman would have a tough time in the early Republican primaries because of his support for same-sex civil unions and other positions viewed as too moderate for conservatives likely to vote in Iowa, New Hampshire, and South Carolina, let alone the fact he served in an Obama administration. Plus he’s a Mormon, which has proved a stumbling block for former Gov. Mitt Romney.

--New York Democratic Gov. Andrew Cuomo is keeping his campaign promises thus far as he “condemned the entire state budget process as a scam ginned up by special interests that added as much as $9 billion to the deficit before anyone – the governor included – laid a hand on the upcoming spending plan.”

In releasing his first budget, Cuomo expressed “shock” to find “a projected 13% spending increase driven largely by a series of automatic spending increases buried into law by generations of lobbyists and complicit legislators,” as reported by the New York Post.

So the budget is guaranteed to keep exploding in areas like education and Medicaid.

“This is the system that has brought New York to the brink,” Cuomo wrote in an op-ed for all the state’s newspaper, “and it is why we are the highest ‘spending-and-taxing’ state in the nation with programs that fail to perform for the people. This all must end.”

In his actual budget, Cuomo then cut nearly $9 billion, including $2.9 billion each in spending from Medicaid and local school aid.

“New York State is functionally bankrupt,” Cuomo warned in his presentation to lawmakers. “In a down economy, this is a death spiral.”

Cuomo also gave the unions a choice. Either $450 million in concessions or 9,800 layoffs.

--I forgot to note last time that I have President Dwight Eisenhower’s Farewell Address up on my “Hot Spots” link. It’s critically important for our political leaders to read it 50 years later as they deal with necessary cuts in defense spending. Of course the cuts can’t be reckless, but those who say we shouldn’t be cutting in light of the tensions in the world are missing Eisenhower’s admonition. Our defense industry is hopelessly corrupt. For example, did you know that, today, 80% of retiring 3- and 4-star generals find their way into the defense industry either as executives or consultants? Gee, do you think they then have a vested interest in ginning up contracts?

--Republican Rep. Michele Bachmann, Minn.

“We know there was slavery that was still tolerated when the nation began. We know that was evil. And it was a scourge, and a blot and a stain upon our history. But we also know that the very founders that wrote those documents worked tirelessly until slavery was no more in the United States.”

Oh brother.

--How bad was this week’s blizzard? Tulsa, Oklahoma, had its biggest one-day snowfall, 13.2 inches, since records began in 1900 and the Oklahoma Panhandle saw wind chills of 36 below, the lowest ever recorded in the state.

--For the first time, the Agriculture and Health and Human Services departments are telling people over the age of 51, as well as all African-Americans and anyone suffering from hypertension, diabetes or chronic kidney disease to reduce daily sodium intake to little more than half a teaspoon. This topic ticks me off as much as any other. Keep the salt virtually out of food, period, and let us salt it ourselves, food industry.

So I’ve gone into the kitchen and now have in front of me two products that your editor frequently uses; McIlhenny’s Tabasco Sauce and Campbell’s Chunky New England Clam Chowder. 

Tabasco sauce has 35mg of sodium per serving (a teaspoon), and I use two teaspoons on most meals. A can of New England Clam Chowder, which it says serves 2 but I eat it all myself, has 410mg of sodium, or 820mg per can! Dammit, Campbell’s, leave the freakin’ salt out!

Of course this is really like the Republicans and Democrats on the deficit; no one wants to be first in cutting way back.

--Speaking of the above guidelines, in an op-ed for the Wall Street Journal, Stanton Peele makes note of Chapter Three of the 2010 Dietary Guidelines for Americans, as put out by the Agriculture Department. Titled “Foods and Food Components to Reduce,” The Guidelines state:

“Alcohol consumption may have beneficial effects when consumed in moderation (up to two drinks daily). Strong evidence from observational studies has shown that moderate alcohol consumption is associated with a lower risk of cardiovascular disease. Moderate alcohol consumption is associated with reduced risk of all-cause mortality among middle-aged and older adults and may help to keep cognitive functions intact with age.”

As Stanton Peele observes, “Isn’t this news to most Americans. The Guidelines rush to list all the detriments of excessive drinking. They also say no one should begin drinking moderately for their health, since alcohol has so many negative effects.

“But aren’t most ‘middle-aged and older’ Americans drinking too little in terms of these Guidelines? The National Survey on Drug Use and Health (2009) says that only 55% of 50-year-olds have had a drink in the past month….

“These percentages surely drop drastically when considering daily drinking….

“Right about here we get into a technical discussion about the meaning of ‘associated with.’ Critics rush in to claim that drinkers appear to be healthier (a) because they have otherwise healthier habits, (b) alcoholics and those in poor health have been forced to quit drinking.

“Let me point out (a) this isn’t true and (b) it doesn’t matter.”

Of course my own big debate is between drinking ‘domestic’ and ‘premium’ beer; premium being defined as any beer brewed outside the United States. When times are good, i.e., low unemployment or your favorite sports team won a big game, it’s appropriate to pay up for premium and celebrate. When times are lousy, which despite the booming stock market is generally still the case these days, then one is relegated to drinking domestic. [Only two domestics…Shiner Bock and Yuengling…qualify in most circles as being a domestic with a premium taste.]

Back to Mr. Peele.

“If we did change our thinking in this direction, it would create a major shift in health policy. Health educators would have to explain that drinking can be good for you; advertisers could make health claims.”

--In the largest ever study on cholesterol, the Bulletin of the World Health Organization says too few people are put on cholesterol-lowering drugs. The data looked at 147 million people in seven nations. For example, in Japan, 53% of adults were diagnosed but remained untreated.

--According to a study in the medical journal The Lancet, about 68% of American adults are overweight, with 34% categorized as obese. By comparison, 10% of the world’s population was obese in 2008.

--Worrisomely, researchers report in the journal Science that the 2010 drought in the Amazon was more widespread than 2005, which had been termed a “one in a century” event. In drought years, the Amazon goes from being a net absorber of carbon dioxide to a net emitter. The Amazon River is at its lowest levels in half a century.

--Boy, this must be working out real well. Remember how Chelsea Clinton married this hedge fund guy, Marc Mezvinsky, just last summer? Well the New York Post reported that Mezvinsky took a leave of absence from his employer, G3 Capital, to go off to Jackson Hole, Wyoming, for a few months, right before the holidays, and that Chelsea “plans on visiting him every few weeks.” Now that’s a dirtball.

Of course Mezvinsky’s father, Ed Mezvinsky, is a former Iowa congressman who served five years in prison for defrauding investors out of $10 million. He’s been released but still owes a reported $9 million in restitution.

Other than all this, the 400 guests at the lavish wedding had a grand time and the couple is deeply in love.

--Did you see the deal with Bristol Palin? She was to speak to students at Washington University (St. Louis) on the topic of abstinence, as part of a panel discussion, but Bristol pulled out amid controversy on the campus. You see, sports fans, Bristol was to receive a $20,000 speaking fee! When this became public, the campus was outraged, especially with the money coming out of student funds. So we hereby nominate Student Health Advisory Committee President Scott Elman for “Idiot of the Year.”

[If you have a student group that needs a speaker, I’ll only charge $18,000 and I’ll talk about any topic you want. Abstinence? Yeah, what the hell. The kids will be on their BlackBerry or iPad anyway and won’t catch when I veer off into a discussion of the Mets and their ownership crisis.]

--Editorial / London Times

“With the discovery by NASA’s Kepler mission of six planets around a Sun-like star – and the prospect of finding one that may meet the crucial Goldilocks criteria of being neither too hot, nor too cold, to support life – we have just moved one step closer to being able to answer the question of whether there might be a world like ours out there.

“The step still leaves quite a way to go if we ever wished to visit this planetary system…At 2,000 light years away, it would take us 30 million years to get there even if we travelled by spaceship….

“Kepler’s discovery is (nonetheless) a humbling milestone in the journey of space exploration; a giant leap for science, but potentially an even bigger one for mankind. By extending the perimeter of our knowledge it has illuminated just how much we know we still don’t know. And by locating a planet that is potentially habitable, it has set us our next goal: to establish whether it is. Unless, of course, they find us first.”

Please find us, Carnalovians (I think this is what they are called). Life here is kind of the pits these days…unless you’re a Packers or Steelers fan. [Nice weather in Big D, eh?]

--Finally, we honor the memory of Ronald Reagan this weekend on what would have been his 100th birthday. I’m heading to the Reagan Library in a few weeks and will have more then, but for now, in TIME, historian Richard Norton Smith noted that Reagan was more popular when he left Washington than when he came in, a feat unmatched since Dwight Eisenhower. I like this passage in Norton’s essay.

“That’s not all the two men had in common. ‘You know why I like you, Ike?’ Winston Churchill asked the wartime commander who had labored, more or less harmoniously, alongside Bernard Law Montgomery, Charles de Gaulle and Franklin D. Roosevelt. ‘Because you ain’t no glory hopper.’ True to form, in the Oval Office, Eisenhower displayed a paperweight that read, in Latin, ‘Gently in manner, strong in deed.’ Equally revealing was the plaque Reagan placed atop his presidential desk. ‘There is no limit to what a man can do, or where he can go,’ it proclaimed, ‘if he doesn’t mind who gets the credit.’”

And:

“Long before Obama made hope his byword, Reagan was offering a share of the American Dream to all comers. And he did so with a smile on his lips, a decent regard for his adversaries and the conviction first planted in him by Nelle Reagan during his hardscrabble childhood that whatever happened in life was part of God’s plan…That Reagan told us we were capable of great things did not make him exceptional. Sooner or later, every President does this. That he made us believe it testifies to the enduring impact of the life that began a hundred years ago in a most conventional Illinois village.”

---

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

God bless America.
---

Gold closed at $1349
Oil, $89.02…unchanged two straight weeks despite all the shouting

Returns for the week 1/31-2/4

Dow Jones +2.3% [12092]
S&P 500 +2.7% [1310]
S&P MidCap +3.0%
Russell 2000 +3.2%
Nasdaq +3.1% [2769]

Returns for the period 1/1/11-2/4/11

Dow Jones +4.4%
S&P 500 +4.2%
S&P MidCap +4.2%
Russell 2000 +2.1%
Nasdaq +4.4%

Bulls 52.7
Bears 22.0 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore
 



AddThis Feed Button

-02/05/2011-      
Web Epoch NJ Web Design  |  (c) Copyright 2016 StocksandNews.com, LLC.

Week in Review

02/05/2011

For the week 1/31-2/4

[Posted 7:00 AM ET]

Wall Street and the Crisis in the Middle East

Stocks resumed their rise after stumbling the week before when Egypt’s revolution took hold. For the most part this past week the focus was on fundamentals, which were strong, particularly on the manufacturing end with the Chicago Purchasing Managers Index for January coming in at 68.8, the best since 1988, and the national ISM reading on manufacturing registering 60.8, its best since May 2004; both being way above the 50 dividing line between contraction and growth and continuing positive trends in this regard.   December factory orders were up, when a slight decline was forecast, and then the personal consumption figure for December was up a better than expected 0.7%, which was later confirmed by continuing solid gains in the latest same-store sales figures for chain stores, up some 4.9%. The only number that was disappointing was construction spending for December, which was down a solid 2.5% when an increase was expected, but this was attributable to a still sick housing market and dismal weather.

Oh, but there was one other number that disappointed, or did it? The January report on employment showed a pathetic increase of just 36,000 jobs and an equally pathetic increase of 50,000 in the private sector. The consensus was for over 100,000 more than this. So since we’re told that we need to generate more than 150,000 jobs a month to begin to make a dent in unemployment, and instead we’ve had far less than this each of the last two months, how is it then that the jobless rate has plummeted from 9.8% to 9.0% during that time?! The easy answer is that hundreds of thousands are dropping out of the labor force, giving up. It’s nuts. But imagine if this seeming chicanery continues into 2012 and let’s say the jobless rate is 7.5% come that November, with most agreeing the figure is nowhere near a true reflection of the labor picture, can you picture the uproar that would then ensue as conspiracy theorists (of which I might be one myself at that point) talk of attempts to rig the election?

Alas, we don’t have to deal with the issue in this format for quite a while, and we all should hope that, legitimately, the unemployment rate is something like 7.5% in less than two years. That would be positive on so many different levels, including the fact that the Federal Reserve would finally be raising interest rates to give savers the break they have long deserved. [Of course that would also mean that bond fund holders would be getting crushed, at least of the Treasury variety.]

But while we look at the crazy jobs number, again, there was a lot to like this week, including one figure contained in the employment report, hourly earnings, which were up a solid 0.4% in January. This is good. We want rising wages, though also this week the Dept. of Labor said labor costs declined for a 5th quarter in six and were down 1.5% for all of 2010, vs. a decline of 1.6% in 2009.

Which brings us to the topic of inflation. Lots of talk on this front owing to soaring food costs, though for all the hue and cry over commodities, the CRB index, a broad-based barometer of everything from wheat to oil, is up just 1.8% this year.   Commodities corrected sharply at week’s end as no doubt some speculators sold their positions, including oil traders on talk that Egyptian President Hosni Mubarak was about to leave, thus taking some of the risk premium out of the oil trade.

Here’s what I’ve been talking about thus far in 2011. I believe that the spike we are seeing in food prices is partially warranted…not wholly because of ever-present speculation…due to rising demand in the Third World as more and more move into the middle class. This latter part is good. Compounding matters, however, is the hoarding now taking place in North Africa and the Middle East as governments scramble to ensure they have foodstuffs to meet the needs of an increasingly disgruntled populace. This is not good, especially after the plethora of weather disturbances we’ve seen around the world the past year. One worrisome development that will increasingly take center stage is the catastrophic drought in northern China. Imagine…Beijing and the surrounding area hasn’t seen any precipitation in 100-120 days. The counted on winter wheat crop is dead. On the sugar front, much of the world’s production comes from northeastern Australia, Queensland, and the sugar and banana crops were just devastated by the strongest storm to ever hit the continent, Cyclone Yasi. Incredibly, the death toll appears to be just three as I go to post, but the destruction is massive, including from the remnants of the storm that jogged south and did a number on Melbourne. [On a personal note, while the major city of Cairns was spared a direct hit, I was just there last October and I closely followed the evacuation plans. The authorities did a great job of preparing the people for the worst.]

But here’s my bottom line on food prices. Despite the weather issues, I do not believe the world is running out of food, and I believe by May we will receive much better news on the global harvest front. If we have another severe weather year, however, including zero rain in northern China and another drought in Russia, then we might as well all give up.

What I’ve been saying, though, is that this spike in inflation will slow the global economy, whether it is rising wheat or oil, and we are increasingly hearing of corporations taking a hit when it comes to profit margins.

So the combination of shrinking margins and a slowing global outlook means equity markets could struggle vs. expectations (food prices will then drop). Throw in geopolitical uncertainty and you end up in the United States with a down year for stocks, though not significantly so. That was my prediction at yearend in December, when looking at 2011, and you know I stick to my forecasts, unless we’re invaded by aliens next Tuesday, which would indeed be a game-changer for all of us.

I’ve been talking of a European economy, for example, that needs to grow at 4% to stabilize its debt issue but the forecast is for growth below 2% this year, downright putrid, especially if you take out Germany and, to a lesser extent, France when looking at the entire eurozone. The IMF’s chief economist said this week that “growth remains disturbingly biased toward Germany.” Every single eurozone figure on manufacturing and the service sector shows Germany leading the way, with many others struggling big time. It can’t continue this way, because we already know the German people have had enough with bailing out their weaker brethren.

Speaking of the weak, Ireland’s new government takes shape after early elections on Feb. 25 and it will immediately seek to renegotiate the terms of the $113 billion EU/IMF bailout, at which point they will be given the finger, while Spain’s finance minister and other government officials continue to try and convince all who will listen that despite 20% unemployment, the country is in great shape! Our saving banks, you ask? No problem. Forget those estimates for needed capital infusions ranging up to $130 billion.

And then we have the various austerity programs that are being enacted. I hope they work, with minimal disruption in terms of public outcry, but that’s not likely. I’ve been telling you of April 27 in Britain, for example, as being a day of planned labor unrest, right before the royal wedding. How many more countries in Europe, and perhaps elsewhere, will use the traditional May Day timeframe to voice their concerns? Will governments then cave?

Nobel Prize-winning Economist Joseph Stiglitz said this week that many European countries are pursuing “excessive austerity,” risking a marked slowdown in growth.

“There’s this disastrous policy that even in the countries that don’t need to have austerity, (they) are going for much more excessive austerity than they need. [Referring to the U.K.] We are already seeing around Europe the consequences of this austerity. The clear implication is that growth will be slower.”

That’s been my pitch since last summer.

[I just booked a trip to Paris this spring…a week bookended around May Day. I will be totally prepared for a bit of chaos, including strikes of all kinds.]

But let’s turn our attention to the U.S. budget deficit and national debt. Last week I wrote President Obama’s State of the Union was an “unmitigated disaster” for his failure to tackle the issue. The next day, Sunday, the Washington Post ran the following editorial.

[Excerpts]

“In his State of the Union address, President Obama failed to present a credible plan for long-term debt reduction….

“The president took a cagier route. He hailed the (bipartisan deficit) commission’s ‘important progress’ without endorsing any of its recommendations. He acknowledged that the government will have to raise taxes, but said it in such a convoluted way…that no one could possibly understand. He pledged a willingness to reform Social Security, but ‘without slashing benefits for future generations’ – phrasing that conceivably left him room to reduce benefits, below some slash threshold known only to him, while sounding as though he opposes any cuts at all.

“What could explain such cynicism? One theory would be that Mr. Obama doesn’t agree about the seriousness of the problem. If this is so, his rhetoric – two years ago he warned, ‘We can no longer afford to leave the hard choices for the next budget, the next administration or the next generation,’ and on Tuesday he reiterated, ‘Now, the final step – a critical step – in winning the future is to make sure we aren’t buried under a mountain of debt’ – is just that, rhetoric. But the arithmetic is so clear, and mainstream economists are so in agreement, that it seems unlikely that Mr. Obama would be a secret dissenter.

“A second possibility is that he calculated the chances of getting a deal at close to zero….

“The third, and scariest, possibility is this: The White House may have decided that debt reduction is so tough it has to await what officials, speaking not for attribution, have termed a ‘forcing event’ – a spike in interest rates, a reluctance by foreigners to buy U.S. debt or some other market disruption that would frighten Congress into action. What’s disturbing about this idea is that such ‘forcing events’ tend to take on lives of their own; once a panic starts, it’s not easily controlled.

“It’s not too late for Mr. Obama to apply a different kind of forcing event: presidential leadership. We understand it’s tough. Americans say they want deficit reduction, but they oppose just about every kind of tax hike or spending cut needed to make deficit reduction happen. But they also are genuinely worried about the debt and the European example. Candor, instead of caginess, might yield results.”

Morgan Stanley’s Stephen Roach issued a warning on the U.S. dollar front, which is tied to the discussion on deficit reduction.

“In the next three or five years China will move aggressively to increase its private consumption and reduce its surplus saving. The U.S. talks the talk, but there is actually no shred of evidence whatsoever that America is going to reduce its budget deficit over that same period.”

So China may post a trade deficit as early as this quarter, imports outpacing exports, which will remove a key incentive for China to support the dollar, all while the U.S. budget deficit will hit $1.5 trillion this year.

“If we don’t move to address our deficit before China addresses its surplus then we are going to be facing some pretty significant external funding constraints,” Roach adds. “That would lead to a significant downward pressure on the dollar and/or higher long-term U.S. interest rates.”

It’s a mess. But I’ll leave you with a final thought, and it concerns the terror threat. This week we had a slew of warnings…the U.S. warning about taking public transportation in London, an apparent Al-Qaeda in Yemen threat against Wall Street executives, and the release of WikiLeaks cables discussing the government’s concern that Al-Qaeda is vigorously pursuing the ability to unleash dirty bomb attacks, among others.

I said little about the Chechen terrorist bombing of the Moscow airport because it frankly doesn’t impact our financial markets. But the same act taking place in New York, London or Paris most definitely would…ditto a dirty bomb in one of these three. It’s beyond belief we can continue to be so lucky…and I’m not so sure how well the American people will handle it when the inevitable occurs.

---

Turning to the Middle East, it was a chaotic week in Egypt as anti-government protests were at one minute peaceful, the next not so when thugs sent out by the Mubarak regime wreaked havoc, with foreign journalists often caught in the crosshairs. Many journalists were rounded up, intimidated and/or beaten (one was killed). Early in the week, President Obama conferred with Mubarak and then issued the following.

“All of us who are privileged to serve in positions of political power do so at the will of our people.” It was “not the role of any other country to determine Egypt’s leaders,” but “what is clear, and what I indicated tonight to President Mubarak, is my belief that an orderly transition must be meaningful, it must be peaceful, and it must begin now.”

On Friday, after speaking with Mubarak a second time, Obama stiffened the message. No doubt the administration would like to see the Egyptian military take over during a transitional phase leading up to free and fair elections. It’s the Egyptian army that is receiving the bulk of U.S. aid, to the tune of $1.5 billion, after all, and cooperation is said to be deep between the Egyptians and the Pentagon. The new vice president, Gen. Omar Suleiman, would be a solid choice to lead the nation out of its current morass assuming Mubarak was exiled.

But then what? Everyone is talking about the future role of the Muslim Brotherhood, whose younger sibling is Hamas. Would the Brotherhood emerge victorious in elections, seeing as they are the most organized political entity in a country that otherwise has little formal political opposition, as exhibited these past two weeks, after 30 years of Mubarak’s hardline rule? Certainly Mohamed ElBaradei, formerly of the International Atomic Energy Agency, isn’t the answer, as much as he’d like to be. Plus he’s already aligning himself with the Muslim Brotherhood, the weasel.

Conservative foreign policy maven Robert Kagan addressed the fear (as told to Maureen Dowd of the New York Times) that an election with the Brotherhood would lead to the situation we witnessed in 2006, when then Secretary of State Condi Rice thought there was no way Hamas would emerge victorious in Gaza.

“We were overly spooked by the victory of Hamas,” said Kagan. “The great fear that people have with Islamist parties is that, if they take part in an election, that will be the last election. But we overlearned that lesson and we need to get beyond that panicky response. There’s no way for us to go through the long evolution of history without allowing Islamists to participate in democratic society.

“What are we going to do – support dictators for the rest of eternity because we don’t want Islamists taking their share of some political system in the Middle East? We’ve got to put our money where our mouth is.

“Obviously, Islam needs to make its peace with modernity and democracy. But the only way this is going to happen is when people speaking for Islam take part in the system. It’s incumbent on Islamists who are elected democratically to behave democratically.” 

The Wall Street Journal editorial board countered:

“If the Brotherhood wants to participate in elections, it should have to promise to play by democratic rules, respect religious and social pluralism, and honor Egypt’s treaty commitments, especially to Israel. And because promises can be broken by those in power, Egypt needs a constitutional system of checks and balances to withstand any attempt to impose one man, one vote, once. Egypt can have a viable democratic future, provided that the democracy is for democrats.”

The Obama administration has learned a painful lesson. Back in June 2009, when the president gave his speech to an audience in Cairo, he called for a “new beginning” between the U.S. and the Muslim world. But then aid to democracy promotion programs in Egypt was cut by half, after, as the Journal reported, “Ambassador Scobey advised that such programs annoyed Mr. Mubarak. This past November, the regime waved off U.S. calls for international monitors for parliamentary elections and cracked down on the opposition and media. The election was a fiasco of fraud, and again the U.S. said little.”

Hardly Reaganesque, and now the White House finds itself in a box. 

It was also hardly reassuring this week when we learned that hundreds of prisoners, mostly militants, were broken out of four prisons by undoubtedly Brotherhood supporters. As far as I can ascertain, scores are members of Hizbullah and by Thursday they were finding their way back to Lebanon. These are the same terrorists Mubarak had rounded up for plotting attacks in Egypt.

I discuss some of the other hot spots in the region down below, but for now I have to repeat a statement of mine from last week that is my core analysis, especially as one whose main adage is “wait 24 hours.” I’m ignoring much of the instant punditry being done on the fly.

“Even if there are some positive outcomes in the likes of Tunisia and Egypt, the transitions are going to be long and drawn out, with internal security focused on maintaining order and securing a new government. And that means one thing. The extremists will have safe haven, at a minimum, knowing that the security forces are focused elsewhere….Instead of having to dodge drones in Pakistan, Afghanistan, Somalia and Yemen, al-Qaeda-like groups will proliferate throughout the entire region. The West will be helpless, not having a strong relationship with the new leaders, whoever they might be. It will be a multi-year window where the Evil Doers can plot and export terror with little concern that they will be bothered inside their new homes.”

Street Bytes

--Stocks staged their broadest rally since the first week of December with the Dow Jones up 2.3% to 12092, the S&P 500 up 2.7% and Nasdaq advancing 3.1% to 2769. The S&P has now risen 94% from its March 2009 low, the biggest rally over equivalent time periods since 1936.

--U.S. Treasury Yields

6-mo. 0.17% 2-yr. 0.75% 10-yr. 3.64% 30-yr. 4.73%

Bonds tanked and yields rose to 9-month highs for a variety of reasons, including food inflation fears and the strong economic news, with the focus not on the actual pitiful job gains but rather the rapid decline in the unemployment rate. Should the economy prove to be as strong as the manufacturing data is foretelling, then the Fed will have to begin to tighten sooner than currently forecast…so say some in the bond pits.

The European Central Bank held the line on its own key interest rate yet again, even as eurozone inflation for the month of January remains above its 2% preferred target, 2.4%. The ECB, though, like the Federal Reserve, is sanguine on the inflation picture despite what it sees as “short-term pressures.”

Meanwhile, the euro-17 nations disagreed on some major issues, Germany and France vs. the rest, basically, as German Chancellor Angela Merkel and French President Nicolas Sarkozy unveiled their plan for a binding, euro-wide agreement on pension, tax and labor policies that would interfere with existing initiatives. For example, Germany and France don’t want to see anymore wage pacts pegged to the inflation rate, whereupon the likes of Belgium countered, “We will not allow our social model to be undone.” So the eurozone continues to have stark differences that, unless resolved, will continue to lead to bouts of severe uncertainty and financial stress.

--Eurozone unemployment is 10.0%. The entire European Union is at 9.6%.

--Investors pulled a whopping $7 billion from emerging market equity funds this week, the biggest withdrawal in more than three years, owing to the situation in the Middle East and fears food inflation could lead to economic instability in Asia as well as the Middle East.

--China’s manufacturing index for January came in at 52.9, a further decline as the government tries to engineer a soft landing. [An HSBC independent barometer came in at 54.5, a slight increase over December.] One source has home prices increasing 1% in January. Meanwhile, industrial production for January fell in Brazil, a second consecutive decline as it shows signs of slowing down in a big way.

--In the U.K., the estimate for GDP in 2011 has been revised down to 1.5%, with only 1.8% forecast for 2012.

--A lawsuit filed by the court-appointed trustee for Bernie Madoff’s victims, Irving Picard, is seeking a staggering $6.4 billion from JPMorgan Chase.

“Incredibly, the bank’s top executives were warned in blunt terms about speculation that Madoff was running a Ponzi scheme – yet the bank appears to have been concerned only with protecting its own investments,” said Deborah Renner, a lawyer on Picard’s team.

As noted in the New York Post:

“Starting in 1986, the bank enjoyed a close relationship with Madoff, and by the mid-2000s, it was making hundreds of millions of dollars by putting his firm together with hedge funds and other so-called ‘feeder funds’ that invested their own clients’ money with the scammer.”

JPM raked in some half a billion in fees and profits over the years. Bank officials deny the charges.

“But the 114-page complaint chronicles a damning list of e-mails and statements by top staffers that prove they were long suspicious of Madoff’s impossibly high returns and his unwillingness to disclose anything about his investment strategy, Picard said….

“ ‘While numerous financial institutions enabled Madoff’s fraud, [Chase] was at the very center of that fraud and totally complicit in it,’ the legal papers charge.”

JPMorgan decided to sever its ties in 2008 and months later, with Madoff exposed, the bankers congratulated each other. Now they will be tied up in court for years. What say you, Jamie Dimon?

[Separately, Picard’s suit against New York Mets ownership was unsealed and it is damaging. I’ll cover this topic extensively elsewhere on this site.]

--General Motors and Chrysler led the way in January with domestic sales that were up 22.7% each, while Ford saw a 13.2% increase and even Toyota registered a 17.3% gain, though this is in comparison to the prior January when it stopped selling temporarily eight models as part of its product recall. Nissan and Honda had 15% and 13% gains, respectively.

--But when it comes to President Obama’s goal of putting 1 million electric cars on the road by 2015, automakers aren’t planning on producing that many as yet. The demand just isn’t there. There are two immediate issues, aside from the high price tag for, say, the Nissan Leaf ($32,780) and Chevy Volt ($41,000), that being there are few battery charging stations and it can take hours to recharge.   Clearly $100 oil and $4.00 a gallon gasoline would increase interest but the charging issues are huge.

--Exxon Mobil’s earnings soared 53% and handily beat expectations, which really wasn’t a surprise given the price of crude recently, and the profit of $9.25 billion represented Exxon’s highest level since the third quarter of 2008, during which oil peaked at $147 a barrel. Capital spending for 2010 also hit $32 billion, owing in large part to its acquisition of natural gas producer XTO Energy.

--Meanwhile, Chevron Corp. said it was exiting the coal business because new technologies, such as coal-to-liquids, were developing too slowly. A spokeswoman for Chevron Mining Inc. said, “Those technologies are so far into the future, 10 to 15 years in the future, they made the strategic decision to focus on other operations other than mining.”

--And then there is the issue of the technology being used in the natural gas business, specifically the process of hydraulic fracturing, or fracking, which can involve the injection of chemical additives – including diesel fuel – along with water and sand, to open up natural gas deposits.

Congressional investigators charge the injections with violating the Safe Water Drinking Act. They are! And what’s come to light, as reported by Tom Zeller Jr. of the New York Times, is that Halliburton, Schlumberger and BJ Services “signed an agreement with the E.P.A. in 2003 intended to curtail the use of diesel in fracking in certain shallow formations.

“Two years later, when Congress amended the Safe Water Drinking Act to exclude regulation of hydraulic fracturing, it made an express exception that allowed regulation of diesel fuel used in fracking.”

I’m big time on the side of environmentalists when it comes to issues like this. If we allow this kind of crap, we become China, which in so many areas is poisoning its people through its irresponsible handling of its water supply. It’s pretty simple. Jack the executives up against the wall and say, “YOU CAN’T DO THIS!”

--Back to coal, demand is so great Alpha Natural Resources Inc. is buying Massey Energy Co. in the most expensive takeover in the industry’s history, $8.5 billion, just 10 months after Massey caused the worst U.S. coal mining accident in four decades.

--So you know how everyone talks of high oil prices as being a hidden, or not so hidden, tax? I was talking to our Dr. Bortrum the other day, a typical homeowner in the Jersey suburbs with a normal length driveway, and his snowplow bill came in for work thru January. Try $600! “That’s a tax, Bortrum!” I exclaimed. Imagine the vast swath in this region receiving similar bills. It’s got to have an impact on consumer spending in these parts. [And boy did I pick a good time not to be running the nearby townhouse association’s finances where I lived for 16 years until opting to rent.]

--John Garnaut had a piece in the Sydney Morning Herald on China and its ongoing boom, which has everything to do with Australia’s future as well, seeing as how the Aussie’s are supplying the Chinese with many of their raw materials. For example, Australia’s iron ore exports there were worth about $50 billion, or 5% of Australia’s GDP, with the Aussies accounting for 40% of China’s total ore imports.

A recent report by McKinsey & Co. envisions a China that will be building a new Chicago every year for the next two decades, including more than 1500 new skyscrapers higher than 30 stories. By 2025, China is on track to have 219 cities of more than a million people and 24 cities larger than Sydney.

So in Australia they are trying to calculate the impact of China going off the rails, which some say is inevitable. [I’m far from confident myself these days and watching closely.]

--PIMCO’s Bill Gross, in his monthly newsletter, had some of the following thoughts on money.

“Fifty years ago, the highest paid and most prestigious professions were that of a doctor or a 707 airline pilot who flew the ‘golden’ route from Los Angeles to Honolulu. Today the yellow brick road begins on Wall Street or the City. Aside from supernova innovators such as Steve Jobs or Mark Zuckerberg, the money is made from securitizing things instead of booting and rebuilding America. The tallest buildings in almost every major city are banks, with tens of thousands of people shuffling and trading paper for a living. One of this country’s premier investment banks paid each of its 26,000 employees an average of $370,000 in 2010, nearly ten times the take-home pay of other American workers. Almost a quarter of the 400 wealthiest people on Forbes annual richest list make their money from money, whereas only 8% could make that claim in its first issue in 1982, and probably close to 0% when I first read my economic primer in 1966.

“Having been part of this process and even a member of the rogue’s gallery itself, I know one thing for sure: This is not God’s work – it has the unmistakable odor of Mammon. PIMCO, while Mammonesque, is a company to be proud of. I can say with confidence that there are very few clients who have not benefited from our investment management over the years. Some of the rest of this industry, however, I’m not so sure of: rating agencies that perpetually fail at commonsensical quality judgments, bankers that make loans to subterranean credits and then extend the beggar’s bowl for themselves, and 80% of active money managers that underperform the market. As a profession we have failed miserably at our primary function – the efficient and productive allocation of capital: The S&L debacle of the early 1980s, the Asian crisis, LTCM, dotcoms, subprimes, Lehman and the resurrection, instead of the reformation, of Wall Street, are major sins of the modern era of money. Hang your heads, moneychangers. And no, it is not yet time to move on, as many banking CEOs suggest. How can bond traders make ten, one hundred, one thousand times more money than an engineer or social worker given their dismal historical performance? Why is it that some of today’s doctors are using food stamps while investment banking executives complain about millions of dollars in compensation that might be deferred in case of a future bailout?....

“To rebalance debt loads and re-equitize financial institutions that should have known better, central banks and policymakers are taking money from one class of asset holders and giving it to another. A low or negative real interest rate for an ‘extended period of time’ is the most devilish of all policy tools. And the asset class holder that it affects, or better yet, ‘infects,’ is the small saver and institutions such as insurance companies and pension funds that hold long-term fixed income assets. It is anyone who holds bonds with coupons that cannot keep up with inflation or the depositor in a local bank who cumulatively holds trillions of dollars in time deposits that don’t earn a real rate of interest. This is the framework that has been created by modern-day policymakers who have innovated far beyond their biblical counterparts. To put it bluntly, they are robbing savers and taking money surreptitiously from longer-term asset holders who are incorrectly measuring future inflation.” [pimco.com]

--Pfizer is slashing 1,100 jobs at its largest research and development site in Groton, Conn. 3,400 will remain.

--For the pharmaceutical industry these days, it’s all about pipeline. I now live across from a large Merck facility, with thousands of employees, and the other day the struggling giant missed estimates and guided lower for 2011. Revenues and the bottom line are OK, but new products are often acquired, rather than developed, while at the same time patents and “exclusives” are coming off leading to increased competition from generics. Merck said it’s proceeding with its plan to cut 15,000 jobs by 2012. Separately, the Dunkin’ Donuts in my building continues to do very well…but I digress.

--Amazon is developing a film-streaming service that would compete directly with Netflix, as reported first by the Financial Times. Amazon would bundle movies with Amazon Prime, a premium service that guarantees unlimited free shipping of books and other items. But Netflix has a helluva head start, some 20 million subscribers.

--With Ireland facing an early election, the vast majority (65%) of voters want spending cuts vs. just 7% who want to see higher taxes. 18% want a mixture of both.

Ireland’s economy has now shrunk 22% from its peak and by some estimates could take more than 15 years to recover. Exports may be doing well, but the domestic economy has been devastated beyond belief. Since Brian Cowen became Taoiseach in May 2008, 127 companies a week have gone under.

--Volcanologists believe that the recent eruptions on Japan’s Shinmoedake peak on the southern island of Kyushu closely resemble catastrophic blasts that occurred there nearly 300 years ago. Yet another reason to sleep with one eye open these days.

--Brian Moynihan, CEO of Bank of America, received total compensation of $10 million in 2010 for a job poorly done, though his base of $950,000 didn’t go up and his bonus of $9.05 million is in restricted stock.

--Asher Moses of the Sydney Morning Herald reported, “Microsoft has warned that the 900 million users of its Internet Explorer browser are at risk of having their computers hijacked and their personal information stolen by hackers.

“The company has yet to develop a permanent fix for the security hole but users are being told to apply a temporary fix that prevents hackers from exploiting a hole to install malicious scripts. Users could be targeted simply by visiting an infected website.”

The problem is the flaw affects all versions of Windows. But, this is important, users of other browsers such as Google Chrome and Firefox are not affected. According to analytics firm Net Applications, Internet Explorer remains the most-used web browser with a 57% share, followed by Firefox (23%), Google Chrome (10%) and Safari (6%).

Yes, as Bill Gates used to say, “We’re in the business of making great software”….not.

--There has been much talk that the commercial real estate market is rebounding, but at the same time the delinquency rate for commercial mortgage-backed securities hit a new high in January, 9.34%.

--Remember the helmeted motorcyclist who robbed the Bellagio hotel-casino in Las Vegas on Dec. 14 of $1.5 million in chips? He was arrested this week on the same casino floor. Turns out Anthony Carleo, the bankrupt son of a Las Vegas judge, had been spending his loot at the only place he really could, the Bellagio, seeing as how he couldn’t just cash them in at a bank or run ‘em through Coinstar.    He even spent a week at the resort in late January being comped, and back on New Year’s Eve lost $73,000 there. But he was done in when he tried to sell five $25,000 chips online.

--Speaking of casinos, Macau’s casino revenue jumped 33% in January from a year earlier, bolstered by hordes of mainland gamblers. If you want an economic indicator for China, and you’re skeptical about some of the numbers the government releases, then just look at this figure. It tells you everything about the ever-growing middle class. If it begins to stumble, then it’s also as good a warning sign as any. [Though you have to be careful because sometimes the mainland puts limits on the number of gamblers it will allow into Macau. However, there are times when the government sees it as being a good way for the people to let off steam, rather than direct their ire at officials; times like today.]

--Tiger Woods’ $1 billion golf project in Dubai has gone poof! Back to sand, as they say in these parts, due to the real estate crash there. Some $15 billion in high-end projects have been shelved in Dubai in recent months.

--30 seconds of ad time on the Super Bowl is selling for $3 million, up slightly from last year’s $2.97 million, according to Kantar Media. A typical prime-time commercial runs between $100,000 and $500,000, depending on the success of the program. During the game there are 42 minutes of ad time.

--My portfolio: I haven’t done anything since the last time I updated you, though my rare earth minerals play continues to do spectacularly well. The Fujian holding won’t move until the next earnings report which is still weeks away. [Considering the hammering both the Chinese and emerging markets are taking, my stock is holding up well.]

Foreign Affairs

Iran: A respected London-based think-tank, the International Institute for Strategic Studies (IISS), said Iran’s ambition to gain a nuclear weapon is “beyond reasonable doubt” and it already has enough low-enriched uranium from its Natanz enrichment facility to produce one or two bombs. Under the quickest scenario it will take “a little over a year and seven months” to then enrich to the higher level required for a bomb. Britain’s defense minister, Liam Fox, concurs in asserting that while there are those, such as in Israel currently, who say Iran couldn’t obtain the bomb until 2014 at the earliest, the Western powers should operate under the assumption that Iran has one next year.

But, and this is a big ‘but,’ Iran would still have to “break out,” or launch a “crash effort” to produce weapons-grade uranium which almost everyone believes could be detected and bring about the threat of military action.

Thus, the IISS concludes:

“Given the need for a replacement in case of bomb failure, as well as the presumed requirement for a second-strike capability and possibly for a test, it would seem foolhardy for a nation to go for broke, with the international reaction this would entail, before it could manufacture at least a handful of weapons.”

Bottom line, the consensus is that “the likelihood of detection allows time for a negotiated solution,” according to the director-general of the IISS. I hope he’s right. [Tom Coghlan / London Times]

Lebanon: Hizbullah’s leadership hailed the Egyptian revolution with the deputy secretary-general of the terrorist organization saying, “We should salute the resistant and proud Egyptian people who have set an example in rejecting normalization with Israel and in their continuous aspiration for freedom, independence and glory.” 

Hizbullah was angered when Egypt appeared to support Israel during the Israeli offensive on the Gaza Strip in late 2008, and then in 2010, Hizbullah was accused of planning attacks in Egypt with 26 allegedly with ties to the group arrested; the very ones it appears have now escaped.

On the political front, Prime Minister-designate Najib Mikati continues to try to form a government, whereas the March 14 coalition (the Saad Hariri, pro-West crowd) doesn’t want to join a coalition without knowing where Mikati stands on the Special Tribunal for Lebanon looking into Rafik Hariri’s assassination. Mikati, who wouldn’t be where he is without Hizbullah’s support, insists he made no commitments to them. For his part, Saad Hariri says Syria is responsible for his ouster.

But writing in the Daily Star, Michael Young commented on how Lebanon has suddenly become an afterthought with the crisis in Egypt, which is startling to yours truly as well. Young wonders why no one is referring back to Lebanon’s Independence Intifada of 2005.

“Far from perceiving developments in Lebanon as a bracing example of emancipation, many in the Arab world saw it as a victory of the United States and France over Syria and Hizbullah. Therefore, in the bizarre logic prevailing then (and now), it was interpreted as a setback for emancipation – defined as anything that might strengthen Western power in the Middle East. That is why there was none of Al-Jazeera’s selective outrage on hand to warm Arab spirits to the Independence Intifada. The station had always approved of Syria’s and Hizbullah’s agendas in Lebanon, and it still does. The behavior of the Al-Jazeera bureau chief in Beirut has amply demonstrated this fact.

“That said, to lament public marginalization of the Independence Intifada is meaningless on its own. That a majority of Arabs will reject any narrative that places the United States in a good light tells us much about Washington’s errors in the region. When was it not obvious, particularly during the post-Cold War period, that America would one day have to choose between its image as global defender of democracy and its sustained support for the most authoritarian regimes in the Middle East? Washington sees risks in allowing Arab states to go their own way, but these are hardly more threatening than propping up its regional alliance system with reviled despotisms.

“The Lebanese may complain that American approval brought them little after 2005. Syria and Hizbullah are back in the driver’s seat in the country. But nothing worries Damascus, Hizbullah, or Iran more than genuine political pluralism, alternations in leadership, and democratic self-determination. That’s where America’s cards are strongest, not its support for soulless, corroded republican monarchies that have humiliated and beaten their societies into submission, whose demise no one can possibly regret.”

Syria: The International Atomic Energy Agency (IAEA), the outfit for which Mohamed ElBaradei once acted in a most wimpy fashion, is prepared to issue a scathing report against Syria for refusing to allow IAEA inspectors to revisit the Dair Alzour suspected nuclear site that was bombed by Israel in 2007. Damascus claims the site is off-limits because it is military in nature. Syria refuses to sign what’s known as the Additional Protocol that would grant the IAEA unfettered access to inspect suspect Syrian sites. Now the IAEA will refer the matter to the Security Council where sanctions could result. [Confronting the Syrians in such a fashion never would have happened under ElBaradei.]

As for Syrian President Bashar Assad, he told the Wall Street Journal in a rare interview that he would be pushing through political reforms in light of the protests across North Africa and the Middle East, but while he seeks better ties with Washington it will not be at the expense of his relationship with Iran.

Jordan:  King Abdullah II dismissed his government and appointed a new prime minister, Bakhit, who was prime minister from 2005-07 and was not widely loved, to say the least, as he was seen as just another corrupt leader who helped rig elections. Bakhit does have extensive experience with the West, though, and Abdullah, who has the ultimate power in his country and can form and dismiss governments at will, has charged Bakhit with carrying out “true political reforms.”

But while Bakhit has invited the Muslim Brotherhood into his new government, the Brotherhood has turned him down, though they met with Abdullah for the first time in ten years. The Brotherhood has made it clear they are not out to oust the king, but they want to call the shots when it comes to governing

Yemen: President Salel, feeling the heat, said he would step down in 2013 after his latest term is up. The opposition counters Salel has said this twice before and then remained in office (he’s been ruling since 1978). Protests here thus far have been largely peaceful, mainly because the demonstrators are all drugged out…really.

Pakistan: The military has launched another attack against Islamist militants in a tribal region near the Afghan border, which is good, and the government then claims success, but there is little follow through.

Tunisia: Little is being said about what’s going on here since President Ben Ali was ousted in January, though the past week did see the return of the leader of Tunisia’s main Islamist movement, Rachid Ghannounchi, after 22 years in exile. The interim government permitted him to return and has said banned political parties such as Ghannounchi’s Ennahda party would be allowed to register and political prisoners granted amnesty. So far so good.

Afghanistan: The New York Times reports that the situation at Kabul Bank is far worse than first thought, with potential losses of as much as $900 million – “three times previous estimates – heightening concerns that the bank could collapse and trigger a broad financial panic in Afghanistan, according to American, European and Afghan officials.”

Recall this all started when bank funds were funneled into Dubai’s real estate bubble, with President Hamid Karzai’s brother heavily involved. The brother told the Times that there were approximately $800 million in loans still outstanding, and that the bank has negotiated agreements for the repayment of about $300 million, but little has been repaid.

China: A few tidbits as we enter the Year of the Rabbit. China has been restricting keyword searches on the protests in Egypt as it sanitizes news reports over fears it could spur calls for reform at home, though to be fair, I’ve read pretty extensive accounts in state newspapers.

China is proud of Australian Open women’s runner-up Li Na, the first Chinese tennis player to reach a Grand Slam final. In an editorial in Global Times:

“Li’s impressive performance on the court was driven by her own personality and it represents a social change in China during the past two decades. Mainly, the constraints on self-expression have been shaken off. This forthright girl represents a different China that allows her to ‘just be herself.’”

Li Na was funny during the final, which she lost to Kim Clijsters. At one point she went to the chair umpire to request, “Can you tell the Chinese don’t teach me how to play tennis?” after the Chinese in the crowd were shouting advice to her.

But on a different matter, Chinese officials are red-faced after news footage showcasing the J-10 fighter jet (not to be confused with the new J-20 stealth fighter) was found to be taken from the film “Top Gun.” Bloggers quickly picked up the similarities and the footage was removed from the official state-sponsored station’s website. No one fessed up to the fraud, which was incredibly stupid given the popularity of “Top Gun.”

North / South Korea: A confidential report prepared for the U.N. Security Council, and then leaked to Reuters, suggests that Pyongyang has even more secret nuclear facilities than it has let on so far. Separately, South Korean President Lee said he was now open to a summit with the North’s Kim Jong-il as long as Kim admits to two deadly attacks last year.

Russia: President Dmitry Medvedev and Prime Minister Vladimir Putin have a rift developing over the Domodedovo Airport blast, with Medvedev saying officials, such as Putin, were being premature in describing that attack as being “solved.” Hours earlier, Putin had gone on state TV to announce “We can take it that on the whole the case has been solved.” Medvedev then said it was “unacceptable when someone announces ahead of all investigative procedures and the indictment that a crime has been solved.” Medvedev is doing all he can to prove he is not a “lame duck” ahead of the 2012 presidential election as Putin seeks to retake the office.

Random Musings

--That was a fascinating interview with Julian Assange of WikiLeaks fame on “60 Minutes” last Sunday. I loved the following comments of Hugo Rifkind in the London Times:

“(My) views on Mr. Assange have evolved somewhat over the past few months. Whereas I used to think that he was a dangerous egotist who didn’t really matter, I now think that he’s a dangerous egotist who really, really does. I doubt that we’ll ever know to what extent the protests in Tunisia, and then Egypt, and then elsewhere, were influenced by the WikiLeaks release of U.S. diplomatic cables, but I’m inclined to be generous, at least in terms of timing.

“Mr. Assange and his more fervent supporters would probably claim a stronger link, and they might be right. I’m wondering, though, what sort of person sees riots, petrol bombs, tanks, thousands injured, hundreds dead and a man on camel – a bloody camel – riding through a crowd hitting people with a stick, and thinks to themselves: ‘You know what this looks like? Peace!’ Because, to my mind, that person is confusing peace with something else, and that something is ‘not peace.’

“Oh, sure, they might bring some sort of peace eventually. You’ve got to worry, though, about people who focus on peace eventually. You know what they’re like? They’re like Snorre Valen, the 26-year-old Norwegian pianist and politician. He’s the one who nominated WikiLeaks for the Nobel Peace Prize.

“ ‘WikiLeaks wants to make governments accountable for their actions,’ he has said, grandly. ‘Truth is always the first casualty in war.’

“No, dipstick. The first casualty in war is the person who gets shot in the face just after somebody else says: ‘It’s war.’ Truth is probably rarely even in the Top Ten. And if any of those real casualties of war are of the opinion that truth is more important than they are, well, that’s entirely humbling….

“The sad fact is that actual human beings riding a wave of history cannot always be relied upon to behave in the ways that our sense of history tell us that they ought to. Give Julian Assange a prize for promoting transparency, if you must, or even for advancing democracy. But only somebody who doesn’t care about actual humans at all could feel that it was a good idea to give him one for peace. In fact, it’s a terrible idea. Worse, even, than the open sandwich. And that’s saying something.”

--Sumathi Reddy of the Wall Street Journal reported on a classic example of the exploding public vs. private debate. Police pay in Nassau County on Long Island.

“The average salary of a sworn police officer in Nassau last year was $107,000.

“Cops receive free health care and up to five ‘blood days’ – comp days for every time they donate blood. The total package, including fringe benefits and overtime, averages $202,400 per officer.”

You’re reading that right. Blood days?! What kind of garbage is that? Of course you then also shouldn’t be surprised to learn Nassau’s police officers are protected by a no-layoff clause and have another pay raise coming in April, despite severe fiscal issues. In neighboring Suffolk County, the average salary for officers is $111,574. Needless to say you have some “cozy relationships” between elected officials and the police union. 

Now, granted, the cost of living on Long Island is sky high, but it’s the fringe benefits that is most upsetting to some of us. And then you also have severance payouts for retiring officers, the average of which is $300,000, owing to unused sick and vacation time.

The other night I was at a party and instigated a discussion on this whole public-private debate with my good friend from elementary school who recently retired as police chief of the town I used to live in. Doug has morals and after 28 years he said he used 10 sick days, total, and did not take a dime for unused sick or vacation time upon retirement. Boy, that is the exception, especially in New York and New Jersey. So I’ve asked the Pope to fast-track Doug for sainthood. Sadly, few others seem to be following his lead.

--The U.S. ambassador to China, Republican Jon Huntsman, resigned on Monday amid reports he may seek the Republican nomination for president. Huntsman, a former Utah governor, informed his boss he would stay on until April 30. Huntsman’s a jerk for accepting this key post in the first place if this was his intention all along, even as Obama thought it was a clever way of removing a potential rival. [This doesn’t mean I’m not allowed to vote for the guy should he indeed be the nominee. I’ve voted for a lot of jerks in my life.]

Huntsman would have a tough time in the early Republican primaries because of his support for same-sex civil unions and other positions viewed as too moderate for conservatives likely to vote in Iowa, New Hampshire, and South Carolina, let alone the fact he served in an Obama administration. Plus he’s a Mormon, which has proved a stumbling block for former Gov. Mitt Romney.

--New York Democratic Gov. Andrew Cuomo is keeping his campaign promises thus far as he “condemned the entire state budget process as a scam ginned up by special interests that added as much as $9 billion to the deficit before anyone – the governor included – laid a hand on the upcoming spending plan.”

In releasing his first budget, Cuomo expressed “shock” to find “a projected 13% spending increase driven largely by a series of automatic spending increases buried into law by generations of lobbyists and complicit legislators,” as reported by the New York Post.

So the budget is guaranteed to keep exploding in areas like education and Medicaid.

“This is the system that has brought New York to the brink,” Cuomo wrote in an op-ed for all the state’s newspaper, “and it is why we are the highest ‘spending-and-taxing’ state in the nation with programs that fail to perform for the people. This all must end.”

In his actual budget, Cuomo then cut nearly $9 billion, including $2.9 billion each in spending from Medicaid and local school aid.

“New York State is functionally bankrupt,” Cuomo warned in his presentation to lawmakers. “In a down economy, this is a death spiral.”

Cuomo also gave the unions a choice. Either $450 million in concessions or 9,800 layoffs.

--I forgot to note last time that I have President Dwight Eisenhower’s Farewell Address up on my “Hot Spots” link. It’s critically important for our political leaders to read it 50 years later as they deal with necessary cuts in defense spending. Of course the cuts can’t be reckless, but those who say we shouldn’t be cutting in light of the tensions in the world are missing Eisenhower’s admonition. Our defense industry is hopelessly corrupt. For example, did you know that, today, 80% of retiring 3- and 4-star generals find their way into the defense industry either as executives or consultants? Gee, do you think they then have a vested interest in ginning up contracts?

--Republican Rep. Michele Bachmann, Minn.

“We know there was slavery that was still tolerated when the nation began. We know that was evil. And it was a scourge, and a blot and a stain upon our history. But we also know that the very founders that wrote those documents worked tirelessly until slavery was no more in the United States.”

Oh brother.

--How bad was this week’s blizzard? Tulsa, Oklahoma, had its biggest one-day snowfall, 13.2 inches, since records began in 1900 and the Oklahoma Panhandle saw wind chills of 36 below, the lowest ever recorded in the state.

--For the first time, the Agriculture and Health and Human Services departments are telling people over the age of 51, as well as all African-Americans and anyone suffering from hypertension, diabetes or chronic kidney disease to reduce daily sodium intake to little more than half a teaspoon. This topic ticks me off as much as any other. Keep the salt virtually out of food, period, and let us salt it ourselves, food industry.

So I’ve gone into the kitchen and now have in front of me two products that your editor frequently uses; McIlhenny’s Tabasco Sauce and Campbell’s Chunky New England Clam Chowder. 

Tabasco sauce has 35mg of sodium per serving (a teaspoon), and I use two teaspoons on most meals. A can of New England Clam Chowder, which it says serves 2 but I eat it all myself, has 410mg of sodium, or 820mg per can! Dammit, Campbell’s, leave the freakin’ salt out!

Of course this is really like the Republicans and Democrats on the deficit; no one wants to be first in cutting way back.

--Speaking of the above guidelines, in an op-ed for the Wall Street Journal, Stanton Peele makes note of Chapter Three of the 2010 Dietary Guidelines for Americans, as put out by the Agriculture Department. Titled “Foods and Food Components to Reduce,” The Guidelines state:

“Alcohol consumption may have beneficial effects when consumed in moderation (up to two drinks daily). Strong evidence from observational studies has shown that moderate alcohol consumption is associated with a lower risk of cardiovascular disease. Moderate alcohol consumption is associated with reduced risk of all-cause mortality among middle-aged and older adults and may help to keep cognitive functions intact with age.”

As Stanton Peele observes, “Isn’t this news to most Americans. The Guidelines rush to list all the detriments of excessive drinking. They also say no one should begin drinking moderately for their health, since alcohol has so many negative effects.

“But aren’t most ‘middle-aged and older’ Americans drinking too little in terms of these Guidelines? The National Survey on Drug Use and Health (2009) says that only 55% of 50-year-olds have had a drink in the past month….

“These percentages surely drop drastically when considering daily drinking….

“Right about here we get into a technical discussion about the meaning of ‘associated with.’ Critics rush in to claim that drinkers appear to be healthier (a) because they have otherwise healthier habits, (b) alcoholics and those in poor health have been forced to quit drinking.

“Let me point out (a) this isn’t true and (b) it doesn’t matter.”

Of course my own big debate is between drinking ‘domestic’ and ‘premium’ beer; premium being defined as any beer brewed outside the United States. When times are good, i.e., low unemployment or your favorite sports team won a big game, it’s appropriate to pay up for premium and celebrate. When times are lousy, which despite the booming stock market is generally still the case these days, then one is relegated to drinking domestic. [Only two domestics…Shiner Bock and Yuengling…qualify in most circles as being a domestic with a premium taste.]

Back to Mr. Peele.

“If we did change our thinking in this direction, it would create a major shift in health policy. Health educators would have to explain that drinking can be good for you; advertisers could make health claims.”

--In the largest ever study on cholesterol, the Bulletin of the World Health Organization says too few people are put on cholesterol-lowering drugs. The data looked at 147 million people in seven nations. For example, in Japan, 53% of adults were diagnosed but remained untreated.

--According to a study in the medical journal The Lancet, about 68% of American adults are overweight, with 34% categorized as obese. By comparison, 10% of the world’s population was obese in 2008.

--Worrisomely, researchers report in the journal Science that the 2010 drought in the Amazon was more widespread than 2005, which had been termed a “one in a century” event. In drought years, the Amazon goes from being a net absorber of carbon dioxide to a net emitter. The Amazon River is at its lowest levels in half a century.

--Boy, this must be working out real well. Remember how Chelsea Clinton married this hedge fund guy, Marc Mezvinsky, just last summer? Well the New York Post reported that Mezvinsky took a leave of absence from his employer, G3 Capital, to go off to Jackson Hole, Wyoming, for a few months, right before the holidays, and that Chelsea “plans on visiting him every few weeks.” Now that’s a dirtball.

Of course Mezvinsky’s father, Ed Mezvinsky, is a former Iowa congressman who served five years in prison for defrauding investors out of $10 million. He’s been released but still owes a reported $9 million in restitution.

Other than all this, the 400 guests at the lavish wedding had a grand time and the couple is deeply in love.

--Did you see the deal with Bristol Palin? She was to speak to students at Washington University (St. Louis) on the topic of abstinence, as part of a panel discussion, but Bristol pulled out amid controversy on the campus. You see, sports fans, Bristol was to receive a $20,000 speaking fee! When this became public, the campus was outraged, especially with the money coming out of student funds. So we hereby nominate Student Health Advisory Committee President Scott Elman for “Idiot of the Year.”

[If you have a student group that needs a speaker, I’ll only charge $18,000 and I’ll talk about any topic you want. Abstinence? Yeah, what the hell. The kids will be on their BlackBerry or iPad anyway and won’t catch when I veer off into a discussion of the Mets and their ownership crisis.]

--Editorial / London Times

“With the discovery by NASA’s Kepler mission of six planets around a Sun-like star – and the prospect of finding one that may meet the crucial Goldilocks criteria of being neither too hot, nor too cold, to support life – we have just moved one step closer to being able to answer the question of whether there might be a world like ours out there.

“The step still leaves quite a way to go if we ever wished to visit this planetary system…At 2,000 light years away, it would take us 30 million years to get there even if we travelled by spaceship….

“Kepler’s discovery is (nonetheless) a humbling milestone in the journey of space exploration; a giant leap for science, but potentially an even bigger one for mankind. By extending the perimeter of our knowledge it has illuminated just how much we know we still don’t know. And by locating a planet that is potentially habitable, it has set us our next goal: to establish whether it is. Unless, of course, they find us first.”

Please find us, Carnalovians (I think this is what they are called). Life here is kind of the pits these days…unless you’re a Packers or Steelers fan. [Nice weather in Big D, eh?]

--Finally, we honor the memory of Ronald Reagan this weekend on what would have been his 100th birthday. I’m heading to the Reagan Library in a few weeks and will have more then, but for now, in TIME, historian Richard Norton Smith noted that Reagan was more popular when he left Washington than when he came in, a feat unmatched since Dwight Eisenhower. I like this passage in Norton’s essay.

“That’s not all the two men had in common. ‘You know why I like you, Ike?’ Winston Churchill asked the wartime commander who had labored, more or less harmoniously, alongside Bernard Law Montgomery, Charles de Gaulle and Franklin D. Roosevelt. ‘Because you ain’t no glory hopper.’ True to form, in the Oval Office, Eisenhower displayed a paperweight that read, in Latin, ‘Gently in manner, strong in deed.’ Equally revealing was the plaque Reagan placed atop his presidential desk. ‘There is no limit to what a man can do, or where he can go,’ it proclaimed, ‘if he doesn’t mind who gets the credit.’”

And:

“Long before Obama made hope his byword, Reagan was offering a share of the American Dream to all comers. And he did so with a smile on his lips, a decent regard for his adversaries and the conviction first planted in him by Nelle Reagan during his hardscrabble childhood that whatever happened in life was part of God’s plan…That Reagan told us we were capable of great things did not make him exceptional. Sooner or later, every President does this. That he made us believe it testifies to the enduring impact of the life that began a hundred years ago in a most conventional Illinois village.”

---

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

God bless America.
---

Gold closed at $1349
Oil, $89.02…unchanged two straight weeks despite all the shouting

Returns for the week 1/31-2/4

Dow Jones +2.3% [12092]
S&P 500 +2.7% [1310]
S&P MidCap +3.0%
Russell 2000 +3.2%
Nasdaq +3.1% [2769]

Returns for the period 1/1/11-2/4/11

Dow Jones +4.4%
S&P 500 +4.2%
S&P MidCap +4.2%
Russell 2000 +2.1%
Nasdaq +4.4%

Bulls 52.7
Bears 22.0 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore