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02/04/2012

For the week 1/30-2/3

[Posted 12:00 AM CT, Murray, Kentucky]

Europe, Washington and Wall Street

No doubt there has been decoupling when it comes to the U.S. and Europe, though in terms of the equity markets, on both sides of the pond stocks are rallying. But on the economic front, the U.S. has avoided a double-dip recession while the jury is still out in Europe with most believing a double-dip is what the continent will see, with a few exceptions.

But in the past week, the news for much of the eurozone and EU, including non-euro Britain, was a little better. A eurozone manufacturing index, the PMI, came in at 48.8 in January from 46.9 in December, while a combined reading that adds in the service sector was above 50 at 50.4. This is a little confusing because these figures are exactly as first estimated a few weeks earlier and not necessarily new but most news services were treating it that way. Britain actually had two good readings of its own; the PMI reading hit 52.1, ahead of December’s 49.7 (50 being the dividing line between growth and contraction, remember), while the U.K.’s service sector in January registered a 56, also up from December. This is good. Perhaps Prime Minister David Cameron’s austerity moves are now bearing fruit. Certainly business confidence there is up smartly.

But the news wasn’t all hunky-dory. The unemployment rate in the eurozone hit 10.4% in December, though here you have the contrasts. Germany’s jobless rate is down to 6.7% (a January reading), while Italy’s is up to 8.9% and you still have Spain’s record 22.8%, as it was announced there that the Spanish economy contracted 0.3% as the IMF projects Spain’s GDP to fall 1.7% for 2012.

[It’s interesting to note that in 2005, Germany’s unemployment rate was over 12% while Spain’s was just 8.5%. But Germany didn’t have a housing bubble and Spain did.]

Back to Italy, Mario Monti’s technocrat government has a 52% approval rating as the next election isn’t until 2013.

So that’s some of the good and bad. Here now the solely bad.

The Greek government has still not reached an agreement on a debt restructuring with its private creditors, with the government looking for bondholders to take a 70% loss, and accept a 3.6% coupon on a new 30-year bond with a GDP kicker if the economy ever starts growing again. Way back creditors were only supposed to take a 50% haircut.

Recall that Greece must wrap up this negotiation in time to put the final touches on its latest austerity plan before it faces a March 20 bond payment of $19 billion. Greece needs another round of bailout cash to meet this and future obligations, pay salaries, pensions and such.

Now the European Central Bank has profits on massive amounts of Greek paper that it’s holding but it doesn’t want to take losses as part of a public-private partnership so this all remains to be worked out…or not.

The thing is the Greek government has proved to be totally incompetent when it comes to implementing its austerity program and collecting revenue so it’s understandable that the likes of Germany are skeptical when it comes to granting further aid.

And so with this as backdrop, Greece’s political leaders on Friday rejected a new round of austerity cuts demanded by the IMF, ECB and EU as part of a new bailout package. So we’ll find out Monday just how bad this late development is.

Separately, at the 16th EU summit in two years, German Chancellor Angela Merkel got her new fiscal union treaty with the tougher budget rules, though the Czech Republic announced it would join the U.K. in not agreeing to it. Nonetheless, the agreement will be formally signed in March, even as Berlin was warned there were limits to how much sovereignty each government was poised to surrender for the sake of fiscal discipline. It was French President Nicolas Sarkozy who had to tell Merkel to back off the leaked German proposal to control Greece’s budget decision-making, telling her it “would not be reasonable, not be democratic nor would it be effective.” Sarkozy said Merkel agreed.

“The recovery process in Greece can only be enacted by the Greeks themselves, democratically,” Sarkozy added. [Financial Times]

Meanwhile, forgive me for being a bit confused. The 25 members sign the treaty in March, but Sarkozy said he would not ask the French parliament to sign off on it until after the April presidential election; this as the likely winner in the voting, Socialist candidate Francoise Hollande, has already said he would seek to renegotiate the pact. What am I missing? I thought every parliament had to sign off on it first, which was supposed to be a formality, and that the only issue was if Ireland needed a referendum first, which doesn’t seem likely.

Oh, and not for nothing but we were told this week not to worry about Portugal, even though at one point the yield on its 10-year bond was over 18%. Whatever.

Editorial / Financial Times: Lex column

“This must be what they mean by Disziplin, Germany’s reading of the debt crisis is that it is the fault of profligate governments. Monday’s ‘fiscal compact,’ with its coercive imposition of budgetary orthodoxy, debt sustainability and economic convergence, is meant finally to bring them to heel. That should provide Angela Merkel, the Chancellor, with the political cover she needs to increase Berlin’s commitment to addressing the crisis. The question now is whether Germany is ready to repay the favor to the eurozone.

“The compact is a reworking of the discredited Maastricht treaty. Among other things, this stipulated that budget deficits could not exceed 3 percent of gross domestic product and that a nation’s debt should ideally be no more than 60 percent of GDP. Germany itself undermined that agreement. The compact will be more securely enshrined in law, assuming that it will be ratified by the 25 countries that are subscribing to it. It encourages governments to aim for structural budget deficits of no more than 0.5 percent of GDP. This is a blueprint for economic stagnation….

“Having imposed coercive austerity on her fellows, Ms. Merkel now needs to don the armor they handed her and to look the sovereign debt crisis in the eye. The fiscal compact makes it more likely that indebted countries will need more emergency funding while markets remain closed to them. Berlin must be ready to underwrite that funding, through reinforced bailout mechanisms or joint Eurobonds. Germany should allow the European Central Bank greater leeway to intervene in the secondary bond markets. And it must reconcile austerity with the need for reviving the eurozone. The compact is a big ‘take’ for Germany. Now it’s time for some ‘give.’”

So there is much work to do. The European Financial Stability Facility and European Stability Mechanism still need to be reinforced to backstop Italy and Spain. China, though, is now said to be sincerely interested as of this past week in helping out on this front. Before, it was just a lot of talk but now Premier Wen Jiabao said China “is investigating and evaluating concrete ways in which it can, via the IMF, get more deeply involved in solving the European debt problem through [the EFSF and ESM.]”

Washington and Wall Street

What a week. What a start to the year. By the close on Friday, the Dow Jones and S&P 500 were at levels not seen since 2008, while the Nasdaq is at levels not reached since December 2000, the year it began to crash. Nasdaq is off to its best start for a year since 1991, up nearly 12%, while the S&P’s 6.9% gain thus far represents its best start since 1987. For yours truly, who for the time being is wrongly focused on debt levels and geopolitics, as Lloyd Bridges would have said, “Looks like I picked the wrong year to be bearish.”

Then again, the year is young, though I could just rehash what I wrote last time when talking about President Obama’s re-election chances, except this week they got stronger as the January employment report showed the economy adding 243,000 jobs and the unemployment rate falling to 8.3%. Good no matter how you slice it. Sure, we have a long ways to go to reach full employment of around 5%, and the jobless rate is still above the 8% level the president said he’d have us under years ago, but, again, it’s about trends and sentiment and both are working strongly in his favor. Barring an outside interference, some of the next polls will likely show Obama’s approval rating back over 50% for the first time in ages. Yes, as discussed down below, the election is likely to be decided in twelve battleground states and the latest figures have Mitt Romney tied with the president in these, but as long as the economy continues to show progress, even haltingly, I like the president’s odds.

A few more economic items of note: Auto sales, as noted below in detail, were strong for the month, but the S&P/Case-Shiller housing data showed further price declines for their 20-city index, down 1.3% in November over October, 3.7% year over year, and 32.9% from the July 2006 peak. There are few signs of a true price bottom in most parts of the country (Atlanta really taking it on the chin the past year, down 11.8%, 11/2010-11/2011) and there is still a mountain of foreclosures to work off. By the reading of the data, 1 in 5 also remain in negative equity.

Separately, readings on manufacturing were strong, though less than expected, with the Chicago Purchasing Managers Index coming in at a very solid 60.2, 63.0 being forecast, while the ISM for manufacturing was 54.1 vs. a projection of 54.5.

December construction spending was up 1.5%, better; while factory orders for the month, up 1.1%, were a little shy of expectations.

As for December readings on personal income and consumption, the former was up 0.5%, but the latter was unchanged, not a great sign (though part of an increase in the savings rate).

Then you had Federal Reserve Chairman Ben Bernanke speaking before a House committee and he tried to reassure a skeptical Republican chair, Paul Ryan, that the Fed is not seeking higher inflation at the expense of more jobs. In fact Congressman Ryan totally agrees with my own last take on the topic; that the Fed’s zero interest rate policy was appropriate for the crisis in 2008-09, but afterwards it should have normalized rates to give savers a break, adding that normalizing policy would still have left the Fed with an accommodative stance.

But there was another news item this week that got buried with the good news that followed; that being the Congressional Budget Office’s forecast of a fourth straight $1 trillion deficit for the fiscal year; which was an increase in the CBO’s earlier forecast. $5 trillion in debt will have been tacked on in the president’s first term. It was in February 2009 that Obama pledged to cut the then $1.3 trillion deficit in half by the end of his first four years. Not quite. And the $1.1 trillion the CBO is forecasting would rise to $1.2 trillion in fiscal 2012 if the payroll tax cut is extended thru year end, which, by the way, is this month’s mini-crisis du jour…the deadline is fast approaching on both this and the extension of unemployment benefits.

The CBO also expects the government will spend $1.6 trillion on Social Security, Medicare and Medicaid in 2012, 44% of the federal budget. In 2022, the triad could represent 54% of federal spending.

Michael Tanner of the Cato Institute had a piece in the New York Post last weekend in which he says if you include the unfunded liabilities on items such as Social Security and Medicare, the total U.S. debt is 885% of GDP. Greece is more like 875% and France is at 570%. Granted, everyone has different figures when it comes to this category, but here’s some advice to Republicans.

Quick! Pivot from the economy and just focus on the debt issue and foreign policy.

Along these lines, former Republican Senator Alan Simpson of Simpson-Bowles fame told Bloomberg Television’s Al Hunt that President Obama “walked away” from his bipartisan deficit-cutting commission’s plan “because he knew he’d be torn to bits.” Simpson said Obama is “terrified” of the deficit issue. “He didn’t deal with it” in his State of the Union address. Simpson added that the Republican presidential candidates are “almost like robots” in their aversion to any taxes as a way to help shrink the deficit.

For his part, President Obama said he will press Congress on the Buffett rule. He told Democratic members of the House on retreat last weekend that he’s seeking to raise taxes on wealthy Americans “not out of envy, but out of a sense of fairness, a sense of mutual responsibility.” Mr. Obama would fit in very nicely with France’s Socialist Party, I can’t help but add.

Street Bytes

--The Dow Jones finished the week at 12862. The all-time high is 14164, set back on Oct. 9, 2007. What the heck…make a run for it, Messrs. Dow and Jones. For January, the MSCI All-World index of 45 developed and emerging countries was up a whopping 5.7%.

--U.S. Treasury Yields

6-mo. 0.09% 2-yr. 0.23% 10-yr. 1.92% 30-yr. 3.12%

Rates backed up Friday on the strong employment report, but on the week hardly moved.

On Monday, though, Federal Reserve Bank of Philadelphia President Charles Plosser conceded to CNBC that he was one of six, among 17 Fed governors, to disagree on the consensus view that rates should be kept near zero until late 2014, saying he thought the Fed would need to raise the funds rate this year. More data like January’s jobs report and consistent readings on manufacturing and he just might be right.

--You look at the miniscule returns on bonds and not a day goes by when many of us think, just where the heck are pension funds going to get the kinds of returns they need to meet future liabilities? You can’t put 80-90% of the assets in the stock market and just roll the dice. Eventually you have to start funding the shortfall out of earnings, or, in the case of a public pension fund, you have to cut other programs to meet the obligations, and/or cut the benefits drastically. None of the above is good for the economy, though at least in the last instance it might be the prudent thing to do.

--The volume of property loans to both developers of commercial and residential in China fell 38% in 2011 over 2010 as the government reins in the sector following the bubble. China’s PMI for January came in at 50.5, which, coupled with December’s 50.3 reading certainly bolsters the argument for those in the soft landing camp, though with the Lunar New Year holiday occurring the last week in January, I’m not clear on what kinds of distortions need to be taken into consideration for February’s reading, for example.

Separately, the government reiterated its commitment to small business and making credit available where appropriate.

And we await President-in-waiting Xi’s visit to Washington on Feb. 14.

--India’s PMI for January was a robust 57.5, after a solid 54.2 in December, but India is still dealing with 9% inflation and has all manner of serious political issues.

--U.S. auto sales rose to a 14.2 million annualized rate in January, 11.4% better than last January. No doubt the mild winter weather helped, as well as a better employment outlook. Chrysler Group reported a 44.3% rise, its best January since 2008, before its 2009 bankruptcy reorganization. But Ford’s sales rose only 7.3%, while GM’s fell 6.1% when compared to last year and an average $600 in sales incentives per vehicle at that time.

Others…Volkswagen’s sales soared 39.5% as it registered its best January in the States since 1974. Audi, VW’s luxury brand, reported its 13th consecutive record sales month. Toyota’s rose 7.4%, Honda’s 8.8%, Nissan’s 10.4% and Hyundai’s 14.7%.

Back to Chrysler, it is looking to hire up to 1,800 production staff at an Illinois assembly plant. Workers will be paid the automaker’s new hire rate of $15.78 an hour.

--Homeownership in America fell to 66% in the fourth quarter, down from the peak of 69.2% in 2004.

--Gasoline consumption is plummeting, a 10-year low in the United States. Still high prices, like $3.90 a gallon on average in California, are doing a number on us.

--Follow-up: A reader suggested I should have noted in my discussions of the Keystone XL pipeline and a possible move by the Canadian government to build one to its west coast instead, that not just China would be a probable beneficiary. The oil would be available for everyone. Point taken. Canadian Prime Minister Harper goes to China shortly for what should prove to be most interesting negotiations.

--Overall, commodities tanked in the fourth quarter of last year but have rebounded smartly on the decent U.S. economic data and the feeling that the worst is over in Europe. Energy commodities, though, like natural gas, have lagged badly, which in its case is about massive amounts of supply, while each big storm you see in places like Nebraska and Kansas is a welcome relief and augurs well for coming harvests.

At the same time, the U.S. cattle herd has shrunk to its smallest level in 60 years, according to the Agriculture Department, as ranchers have culled hundreds of thousands of cattle during the drought.

[The average commodity hedge fund last year fell 1.7%, according to the Financial Times and Newedge, the first loss since the latter’s index was created in 2000 and down from a rise of 10.7% in 2010. By comparison, the CRB Index was down 8.3% in 2011.]

--Everyone was talking about the filing for the Facebook IPO, which is slated to come out this spring with the company being valued anywhere from $75 billion to $125 billion. About 1,000 new millionaires are expected to be minted in the process. 150 will make more than $25 million on the initial offering. One venture-capital firm, Accel Partners, invested $12.7 million in Facebook in 2005 and while it has sold a small percentage of its shares since, it still stands to reap a 1,000 times return, with its stake being potentially worth $9 billion. Greylock Partners and Meritech Capital Partners stand to see returns of around 200 times.

Meanwhile, Elevation Partners, founded by Roger McNamee, could see a return of $1.7 billion on its relatively late-stage investment. Bono is a major partner in the fund.

As to some of the company specifics, Facebook said its revenue for 2011 was $3.7 billion, with profit of $1 billion. It has 845 million members.

But 85% of its revenue comes from display ads and while it has 28% of the total market in this category, I just believe display ads were never effective (radio and television is, baby) and that this will be a dying stream for Facebook and others. So we’ll see.

Oh, and Mark Zuckerberg is currently worth about $24 billion, though the Financial Times says he may have a $1.5 billion tax bill and this could complicate the IPO itself.

--Amazon’s pace of sales growth is slowing, up a strong 35% in the last quarter but this was less than the previous quarter’s 44% growth rate, worrisome as management has convinced shareholders it’s all about sales over earnings, witness Amazon’s still outrageous valuation. Operating margin is shrinking and the company warned it could report a loss for the current quarter.

[Amazon finished the week at $187.50 and a price/earnings multiple of 99. Apple Computer, by comparison, trades at a multiple of 13.]

--AMR is cutting 13,000 jobs as part of its bankruptcy proceeding, or 15% of the work force. 4,600 will be in the maintenance area, 4,200 baggage handlers, 2,300 flight attendants, 1,400 management, and 400 pilots.

--Canada’s unemployment ticked up to 7.6%. GDP is forecast to rise just 2% in 2012.

--Gambling revenue in Macau jumped 35% in January to $3.13 billion, boosted by a record flow of Chinese visitors over the Lunar New Year holiday. Overall for 2011, growth surged 42%, though many expect it to drop to 15-20% in 2012, which would be just fine. Shelden Adelson of Sands China (and a Newt Gingrich Super Pac) said he sees no slowdown in Macau well into the future. Adelson has a new mammoth property opening there soon.

--Australian home prices fell the most on record in 2011, 4.8% for an index of eight major cities, though the data base only extends to March 2002.

--Singapore’s unemployment rate held near a three-year low at 2%, even as it struggles with the global trade outlook.

--This is too much. The Irish Independent had a story that started out:

“A Polish waitress living here has sparked fury after she boasted about living the good life on Irish welfare benefits. ‘Magda’ (36), not her real name, described her life on the dole in Donegal as a ‘Hawaiian massage.’

“She revealed how she had packed in her job so she could spend her days walking along beaches with her partner.

“He in turn bragged about the country’s wonderful golf courses.” [Ed. that indeed is true.]

“Magda claimed she earned 67 euro more a week on the dole than she did while working and that her welfare payments are 182 euro more every week than back in her native Poland.”

Plus she gets free schooling to take courses she wants and she surfs. She told a Polish newspaper:

“Sometime I sleep till noon and the nearest beach is five minutes away. What’s our house like? Well, you can hear the ocean from the windows.”

--Meanwhile, in January, an average of four companies collapsed each day in Ireland, but, “business name registrations” numbered 1,973 for the month. I can’t say I know enough about the past history of this latter figure, but this was up 12% over the same period a year ago. Back to the first part, 53% of construction companies in Ireland are deemed to be in danger of collapse…on top of the hundreds that already did.

--Panasonic reported that it would record a $10 billion loss for its fiscal year ending March 31, due in part to its acquisition of Sanyo as well as the ongoing fierce competition and price pressures in the television market.

--Micron Technology chairman and CEO Steve Appleton died in an experimental plane crash in Boise, Idaho. He was the only one on board.

--The U.S. Senate voted 96-3 to ban insider trading among its own members.

--Investigators say they know what happened to the $1.2 billion in customer money that disappeared from MF Global, but, as reported by the New York Times, “have not publicly disclosed their progress, fearing that doing so might cripple efforts to recover the cash and pursue potential wrongdoing,” according to people briefed by the investigation.

What makes this so bad is that in some cases, “securities customers withdrawing their money as MF Global began to collapse were paid from accounts that belonged to futures clients.” What a freakin’ mess…and tragedy. Compounding matters is you have three federal agencies and two bankruptcy trustees involved.

--Two former Credit Suisse traders pleaded guilty to charges they mispriced mortgage-related securities that resulted in a $2.8 billion writedown by the bank at the height of the financial crisis. Credit Suisse is not going to be charged as a result of the SEC investigation.

--In a further example of today’s employment environment, musicians with the New York Philharmonic reached a new two-year deal on a contract that freezes wage for the 2011-2012 fiscal year and grants them a 2% increase this September; this as costs are of course rising. One of the issues is $24 million in unfunded pension liabilities. Management wanted to move to a 401(k)-style defined-contribution plan, but the union prevailed for now in keeping it as is because they argue cutting pension benefits will hurt the orchestra’s ability to retain top musicians.

By the way, the minimum salary for an orchestra member is $134,940 a year, but, again, you’re dealing with the cost of living in New York.

--I’ve long written of my guilt for eating shark fin soup in Shanghai a number of years ago. I knew it was wrong, but boy was it delicious. So these days, various international groups are trying to make sure bans on the food are enforced as there are estimates some 79 million sharks are killed each year, many just for the fins. Some populations have dropped 90% in decades.

But shark fin soup remains on the menu of high-end establishments in China, Taiwan and Hong Kong, as reported by Jonathan Kaiman of the Los Angeles Times. So when you see a story about a shark attack in Australia or California, understand where the sharks are coming from.

--Fox just notched its 10th consecutive year as the most-watched cable news network. It was 15 years ago that chairman Roger Ailes launched it.

During 2011, FNC averaged 1.86 million viewers in prime time. MSNBC averaged 775,000 and CNN had 689,000.

--In a further sign of economic recovery, U.S. shipments of scotch, vodka, rum and other spirits in 2011 increased 2.7% over the previous year – the strongest increase in five years, according to industry data. Sales of “high-end” brands were up 5.3%.

--And tourist figures are up in Hawaii, 3.8% in 2011 to its highest level since 2007. Actual visitor spending was up 15.6% last year. Helping Hawaii is the bad publicity Mexico is facing with its crime story. The number of visitors to Hawaii had declined 16% between 2006 and 2009.

[Mexican officials say their traffic figures are improving recently despite the bad P.R.]

--I have my exclusive look at the Super Bowl and the markets on my “Wall Street History” link. I have to go with the Giants, 30-21.

--My portfolio: Finally, no one is more frustrated over the share price action of my large holding in Fujian, China than I am. There is nothing I can say until the company gives shareholders an update, which I had urged them to do in early January.  Knowing many of you are in it with me, I promise to provide a full analysis when the information is released. I spoke to the CFO about ten days ago and expect something out of them shortly.

But I can’t help but note the comments of an analyst at a Bloomberg sponsored conference this week on emerging markets. When it comes to Chinese stocks, fraud allegations such as at Sino-Forest have pretty much rendered them “untouchable,” while short sellers have “clobbered the valuation of the companies.” When you have P/E multiples of one, or in some cases less than that, you can only hope more rational thinking takes over.

Peter Siris, a longtime investor in China, told Barron’s he “laments that all U.S.-listed China small caps are being tarred with the bears’ brush. ‘Some of these are great companies,’ Siris says. ‘Now the companies feel frustrated, the investors feel frustrated and…it’s just sad.’”

Ain’t that the truth.

Foreign Affairs

Iran: Just last month, Israeli Defense Minister Ehud Barak said his country was “far” from launching an attack on Iran’s suspected nuclear weapons facilities. But on Thursday, Barak said Iran is approaching a stage “which may render any physical strike as impractical.”

Earlier in the week, Barak said, “It is time for much tougher diplomacy and sanctions because there is a risk not just to Israel but to the whole world. It will be much more complicated, much more dangerous and much more costly if we allow (Iran to get the bomb).”

Middle East troubleshooter Dennis Ross said, “The Israelis view this in existential terms. If the Israelis feel this is an existential threat it doesn’t matter what anybody says to them. They could do it unilaterally.”

Appearing on “60 Minutes” last Sunday, Defense Secretary Leon Panetta said Iran was probably one year away from being able to build a bomb. He added that it could take a year or two beyond that to develop the ability to deliver a warhead by missile.

“That’s a red line for us, and it’s a red line, obviously, for the Israelis,” Panetta said. “If we have to do it, we will do it,” he added, without elaborating.

It was a week when a senior official told CNN that Israel could attack Iran by summer, which begs the question, why would we say this about our friend’s potential actions, even if Barak is making it clear that if Israel is to act, it must do so soon.

The thing is, Iran’s uranium facilities are disappearing rapidly into newly constructed mountain bunkers that the Wall Street Journal first reported cannot be currently destroyed by the United States’ existing arsenal, including the heavy bombs that Israel is said to be purchasing.

It was also a week where in congressional testimony, U.S. intelligence officials indicated Iran has crossed a threshold in its relationship with the United States and that while there is no evidence Iran is actively plotting attacks on U.S. soil, the game may have changed with the thwarted plot to assassinate the Saudi ambassador in Washington. Director of National Intelligence James R. Clapper Jr. said it “shows that some Iranian officials – probably including Supreme Leader Ali Khamenei – have changed their calculus and are now more willing to conduct an attack in the United States in response to real or perceived U.S. actions that threaten the regime.”

So what now? The U.N. nuclear team that visited Iran for three days earlier in the week said it planned to revisit Tehran “in the very near future,” which indicated some progress in the International Atomic Energy Agency’s quest for information. The mission leader, Herman Nackaerts, said, “We had three days of intensive discussions about all our priorities, and we are committed to resolve all the outstanding issues…But of course there’s still a lot of work to be done.”

That was Wednesday. However, two days later we learned that the IAEA had been barred from the key Parchin military site where they wanted to interview a top Iranian nuclear scientist. This is not good.

The White House says it wants Israel to hold off, to give the sanctions more time to have their desired effect, a miraculous toppling of the regime by a restive populous.

This is unrealistic. Israel won’t wait. I still say in the end, the U.S. will join them.

Lastly, should Iran close the Strait of Hormuz, Ali Naimi, Saudi Arabia’s oil minister, insisted again his kingdom could make up for any disruptions to global supplies, though most of it still has to transit through there.

Syria: At last word, the Syrian army continued to fight back against rebel forces that had taken some suburbs of Damascus, and there is a late report the military killed 200 in a night assault on Homs, this as the UN Security Council met on the crisis with China and Russia reiterating their opposition to the use of force, not that this is a realistic course of action at this point. Russian Foreign Minister Sergei Lavrov said his country would not support any action that would be imposed on Syria, such as an internal political settlement and the release of all political prisoners and increased press freedoms, and would avoid taking sides in an internal conflict.

“The international community unfortunately did take sides in Libya and we would never allow the Security Council to authorize anything similar to what happened in Libya.”

Russian Deputy Foreign Minister Gennady Gatilov offered: “Pushing this resolution is a path to civil war.”

For her part, U.S. Secretary of State Hillary Clinton joined the Arab League and European diplomats in calling for tougher action.

“We all have a choice: Stand with the people of Syria and the region, or become complicit in the continuing violence there.”

Qatari Prime Minister Hamad bin Jasim al-Thani said, “The killing machine is still at work.”

Over 6,000 are now estimated to have died in the uprising. The Arab League halted its observer mission over safety concerns.

As an aside, Hizbullah’s standing among the Arab people is falling rapidly as it stands by the Assad regime after praising other movements in the Arab Spring. The protesters in Syria are beginning to burn Hizbullah flags.

Egypt: In the rough and tumble city of Port Said on the Suez Canal, there was a football match between home team Al-Masry and favored Al-Ahly, based in Cairo and one of the country’s most popular teams. Al-Masry pulled off the upset, 3-1, whereupon the home fans stormed the field anyway and started to riot with knives, bottles, rocks, and flares that were shot into the stands. When it was over, at least 79 were dead and about 250 injured, many with severe concussions after being tossed out of the stands. Police did little to stop the madness and resultant stampede, where many of the deaths occurred. Some of the players were hurt as well. Said Al-Ahly goalkeeper Sharif Ikrami:

“There were people dying in front of us.   It’s over. We’ve all made a decision that we won’t play soccer anymore. How will we play soccer after 70 people died? We can’t think about it.”

Violence spread throughout Port Said, which was the scene of much bloodshed during the first weeks of the Arab Spring and the overthrow of President Hosni Mubarak.    Field Marshal Hussein Tantawi, head of the ruling military council, said:

“This will not bring Egypt down. These incidents happen anywhere in the world. We will not let those behind it go…This will not affect Egypt and its security.”

Meanwhile, the new parliament has opened for business and now young activists who galvanized the revolt have a new target, the Islamists who capitalized on the political changes by taking over 70% of the seats, between the Muslim Brotherhood and the radical Salafists.

The army has pledged to hand over power by the end of June, and now there is talk of a presidential election in May, but more are increasingly of the belief I brought up last time; that the Brotherhood is in alliance with the military and will give the latter a sizable portfolio, including foreign policy, post-election.

Separately, on the issue of the six American pro-democracy and human rights group workers being prevented from leaving the country, the Egyptian justice minister returned a letter from the U.S. Ambassador to Egypt asking to re-examine the issue without comment.

Lastly, Oren Dorell and Sarah Lynch of USA TODAY had a depressing piece on the plight of Christians in the Arab world, not that you didn’t already know this. What I didn’t realize is that the new dominant political party in Tunisia, Ennahda, is pushing for Sharia law in the new constitution. So much for Tunisia being a bright spot.

In Libya, the head of the Tripoli Military Council once led a militia movement with links to al-Qaeda and now he is planning to run for office in elections scheduled for April.

“In Afghanistan, no new building permits have been issued for churches, and the last church open to the public was demolished over the summer. In Iraq, the Christian community was decreased by two-thirds since 2003 amid bombings of churches and assassinations of priests.

“And Christians in Syria…have been subjected to murder, rape and kidnappings in Damascus and rebellious towns, according to Christian rights groups.”

For any who harbor the slightest bit of optimism about the entire Middle East, you need only know some of the above to recognize you are sadly mistaken. Of course our Jewish friends face the same issues, writ larger still.

Israel: Aside from the Iranian situation, Prime Minster Netanyahu won a leadership contest for his Likud Party over his ultranationalist rival, which was as expected, though his opponent, Moshe Feiglin, did better than projected. The far right considers the prime minister too soft on the settlements issue and peacemaking with the Palestinians, though this week Netanyahu’s government approved new incentives to entice Israelis to move to the West Bank, exactly what the Palestinians don’t want, of course.

[Hamas leader Khaled Meshal formally abandoned his longstanding base of operations in Damascus due to the uncertainty there and stopped in Jordan, his first official visit there since the Jordanian government shut down his headquarters in Amman in 1999. Jordan could allow Meshal to remain but only if he stays out of politics. In classic Jordan fashion, King Abdullah II and his government have to keep the peace with Hamas’ rival, Fatah, as well as Jordan’s allies, the United States and Israel. Others say Meshal will end up in Qatar, or possibly Egypt, where other Hamas officials are expected to settle to be in proximity to Gaza. If they return to Gaza directly, as opposed to on some package tour, Israel will target them; not that they aren’t targets already.]

Pakistan/Afghanistan: A leaked NATO report reaches conclusions that are hardly a surprise; that the Taliban in Afghanistan are being directly assisted by Pakistani security services, such as the ISI.   Pakistan, for example, knows the whereabouts of senior Taliban leaders. Of course the ISI has long denied such claims, but if you look up the word ‘duplicitous’ in the dictionary, you’re liable to see the ISI in the definition. The NATO report is based on 27,000 interrogations with more than 4,000 captured Taliban. It notes: “Pakistan’s manipulation of the Taliban senior leadership continues unabatedly.”

And, in the conclusion of the report, the document says, as reported by the BBC, “that in the last year there has been unprecedented interest, even from members of the Afghan government, in joining the Taliban cause.” And, from the document itself, “Afghan civilians frequently prefer Taliban governance over the Afghan government, usually as a result of government corruption.”

As for NATO operations in Afghanistan, I noted last time that French President Sarkozy announced he’ll speed France’s withdrawal from the country by the end of 2013, a year earlier than planned. Aside from the incident where an Afghan soldier the French were training turned his gun on French troops, killing four and wounding 15, the French public is overwhelmingly against the presence in Afghanistan and Sarkozy faces a very tough election.

So this week Defense Secretary Leon Panetta started off by saying he hoped to transition to training missions in Afghanistan in 2013, a year before withdrawal of all NATO forces. Needless to say this plays into the hands of the Taliban, who know they can just wait the U.S. and its allies out, so Panetta spent the rest of the week backtracking, saying the U.S. will indeed be participating in combat operations when needed. Nonetheless, the West is still out in less than three years.

Former Defense Secretary Robert Gates said, “We’ve invested too much to get too impatient because we’re tired.”

Lastly, back to Pakistan, the Supreme Court ruled that Prime Minister Gilani will indeed face contempt charges, with proceedings beginning Feb. 13, for not reopening a corruption investigation into President Zardari’s finances, going back to the 1990s and issues he allegedly had in Switzerland. Gilani has claimed that Zardari has immunity as president. To say the least this is yet another mess for the nation to face.

Lebanon: The Special Tribunal for Lebanon looking into the assassination of former Prime Minister Rafik Hariri said it will try the four accused (all members of Hizbullah…Hizbullah denies this) in absentia, having exhausted all attempts to arrest them. No date for when the trial will start has been announced but suffice it to say this could be explosive.

China: President Hu Jintao reasserted Communist Party control over the military, thus attempting to counter any movement toward nationalizing the force by making it ultimately responsible to the government rather than the party.

On the pollution front, the smoke from Lunar New Year fireworks sent air pollution readings soaring in Beijing, according to a new, more sensitive measuring system the government just instituted. It’s been a bad winter on this front but authorities have finally seen the light; more transparency is good.

Russia: Saturday’s (today’s) protests by the opposition in Moscow could be limited in scope given that the air temperature is likely to be minus 10. In all the polls for the March presidential vote, Vladimir Putin is under 50%, meaning he’d face a run-off. Just a few years ago, Putin’s popularity was consistently in the 70s.

France: President Sarkozy still trails in the opinion polls, and, assuming he makes it into the run-off, would lose by 20 points to Socialist Francois Hollande. Hollande issued a 60-point manifesto that included outlawing “toxic” financial products and banning stock options for all but start-ups, as well as re-lowering the retirement age back to 60. [Marine Le Pen is calling for the same on this last point.]

For his part, Sarkozy is calling for a transactions tax and a rise in the VAT, even if others in the EU don’t go along, especially in the case of the former. He is portraying himself as a courageous leader capable of making tough decisions, a la his dealings with German Chancellor Angela Merkel.

Britain/Argentina: Prince William has arrived for his training mission on the Falklands and the Argentines are none too happy as the 30th anniversary of the start of the war is April 2. Buenos Aires sees William’s arrival as a provocation. Britain’s Ministry of Defense said William is merely following the routine career path of a pilot on the RAF search-and-rescue team.

Separately, the Sunday Times of London had a scary piece on the vast numbers of British-Somalis who are going to Somalia for training and returning as Mujahidin fighters. Al-Shabaab, with links to al-Qaeda, is a major threat for Britain. Just two weeks ago, a British-Somali who had become an al-Shabaab commander, was killed by a U.S. drone outside Mogadishu.

And the Cameron government has another issue to deal with. Spain wants to reopen discussions on the sovereignty of Gibraltar with the ultimate goal of having the rock returned. Gibraltar’s 30,000 inhabitants would most likely not welcome the idea.

Random Musings

--What a race…Mitt Romney rolled in Florida, 46-32, over Newt Gingrich, with Rick Santorum at 13% and Ron Paul 7%; pretty much in line with the late polls that saw Romney surge in the final days in no small part due to his debate performance in the last two…that and $16 million in ad spending.

The Wall Street Journal editorialized on Gingrich’s failure:

“Mr. Gingrich…did not help himself with some of his own campaign arguments. In his fury against Mr. Romney, the speaker fired away in scattershot populist fashion, denouncing Wall Street, Goldman Sachs and other capitalist institutions in terms not all that different from Mr. Obama’s.

“This didn’t help the credibility of Mr. Gingrich’s theme that the race is between a ‘Reagan conservative and a Massachusetts moderate.’ Mr. Gingrich’s tax plan is better than Mr. Romney’s, but voters in Florida can be forgiven for not knowing it. The Speaker preferred to campaign against Bain Capital.”

[Today we have caucuses in Nevada and Maine. Tuesday, Feb. 7, sees more caucuses in Colorado, Minnesota and Missouri. Then you have a 3-week break until primaries in Arizona and Michigan. Super Tuesday is March 6.]

--What a field…Wednesday morning on CNN, Republican Mitt Romney said the following:

“I’m not concerned about the very poor. We have a safety net there. If it needs repair, I’ll fix it. I’m not concerned about the very rich. They’re doing just fine. I’m concerned about the very heart of America, the 90-95% of Americans, who right now are struggling.”

Oh brother. “You can focus on the very poor; that’s not my focus,” he later explained. Newt Gingrich was granted an opening: “I’m fed up with politicians in either party pitting Americans against each other. I am running to be president of all the American people; I am concerned about all the American people.”

Conservative Jonah Goldberg at the National Review was emblematic of the response Romney’s comments got.

“Every time he seems to get into his groove and pull away, he says things that make people think he doesn’t know how to play the game.”

Editorial / Wall Street Journal

“Mitt Romney was a turnaround artist in business, which is in contrast to his artlessness when he departs from his political script. Today we’ll try to decode his latest adventure in spontaneous lingua franca, and if necessary we’re prepared to make this a long-running series right through November. Like Twain said of Wagner’s music, Mr. Romney is better than he sounds….

“Asked to elaborate (on the above comments on the poor), he continued, awkwardly. ‘You can focus on the very poor; that’s not my focus. The middle-income Americans, they’re the folks that are really struggling right now and they need someone that can help get this economy going for them.’ So Mr. Romney finally got to his real point, which was about economic growth, but the wait was – how to put it? – excruciating.

“Democrats have responded by invoking Dickens at the blacking factory and worse, and if Mr. Romney came across as a less than compassionate conservative he has himself to blame.

“There’s a half-century of creative conservative thinking on antipoverty transfer programs, and it’s too bad Mr. Romney didn’t mention some of it. One note to strike is about growing dependency on government and its corrosive effect on human dignity. Refundable tax credits, Medicaid, unemployment insurance, food stamps and the like are almost 50% more generous than they were in 2007….

“Mr. Romney’s larger mistake is to think and speak in ‘class’ terms. He touts his concern for the ‘middle class’ all the time, as if he’s trying to show that a rich guy can identify with average Americans. But this is a game that Democrats play better, and it leads Mr. Romney into cul-de-sacs like saying the poor are fine because they benefit from government, while the middle class don’t. Mr. Obama will turn this into an argument for hooking the middle class on more government.”

Sebastian Mallaby / Financial Times

“(Like) George H.W. Bush…Mr. Romney has an enemy more terrible than any mortal rival: he has a problem with the Vision Thing. Despite the fuss about his tax returns, his trouble is not that he made millions as a private equity baron. It’s that managerial credentials are all he has going for him. His campaign is devoid of an animating idea.

“So here is a modest suggestion for Mr. Romney – one that allows him to be both staunchly capitalist and stirringly radical, pro-business and yet mad as hell. Mr. Romney should declare war on the central flaw of modern American capitalism; its addiction to debt. Government debt, household debt and especially bank debt should become his whipping boys. Equity-based capitalists – entrepreneurs who are willing to take the risk of owning things – should become his heroes.

“It is a good message for Mr. Romney, and not only because it’s on the mark. It would allow him to knit together technocratic insights that he espouses anyway. And it would give him the opportunity to blend his biography with his campaign pitch, playing up his strength as an equity investor while connecting with popular fury about the hangover from the credit bust.”

--A USA TODAY/Gallup Swing States survey of the dozen states likely to determine November’s election found that Mitt Romney essentially ties Barack Obama, Romney ahead 48-47. But Obama leads Newt Gingrich, 54-40. Ron Paul only trails Obama 50-43, the same margin as Rick Santorum, 51-44.

The swing states are: Colorado, Florida, Iowa, Michigan, Nevada, New Hampshire, New Mexico, North Carolina, Ohio, Pennsylvania, Virginia and Wisconsin.

--I couldn’t disagree more with this statement from Mark Halperin in Time:

“Mitch Daniels turned down the heat on a ‘Draft Mitch’ movement with a tepid performance in his televised response to the State of the Union speech.”

As I noted last time, I thought it was terrific and the commentators I saw in the immediate aftermath thought so as well.

--For the archives, Herman Cain endorsed Newt Gingrich, while Donald Trump jerked everyone around and ended up endorsing Mitt Romney.

--Your heart has to go out to Rick Santorum and the medical issues facing his three-year-old daughter, Bella, who has a rare and fatal genetic disorder and almost succumbed to pneumonia two weeks ago. The former senator opted to stay in the race.

But to give you a sense of how hard it is to run for president, until his daughter’s latest issue, Santorum hadn’t been home since Christmas. 

[In the interest of full disclosure, I gave Santorum a whopping $100 just out of principle, and sympathy.]

--USA TODAY’s Gregory Korte looked into Paul’s 2011 final campaign-finance report and found “164 separate entries for expenditures of $1 each,” easily the most for any candidate. Paul bought value meals at a McDonald’s in three different states, and he bought office supplies from Dollar Tree, among other things.

--I’m one Republican who prays we at least win the Senate and obviously hold onto the House.

--I think we’re all in agreement that the rise in the cost of college has been egregious and President Obama may have hit on a good theme with his effort to rein in costs, though he left out details as to just how he would do so and what triggers would be in place. What we do know is Obama wants to tie federal campus aid to tuition policies. Obama talks of penalizing colleges who fail to provide “good value” for the money. Heck, I’ll tell you what’s good value. Getting to a Final Four, that’s good value!

[Sorry, but your editor’s Wake Forest basketball team is sucking wind again, with little hope for the future when all I want before I die is a Final Four appearance out of them, plus another Mets World Series title and a Super Bowl from the Jets. But I digress…]

Meanwhile, some university presidents weighed in on the White House’s proposal of tying support to tuition controls. Illinois State Univ. President Al Bowman calls it “fuzzy math.” The head of the Univ. of Washington, Mike Young, called it little more than “political theater of the worst sort.”

If Obama can refine his proposal, it will hit home with those responsible for tuition and room and board that rose 8.3% this school year at four-year public colleges.

--Nice job by the Occupy Oakland movement. Through their wanton vandalism, they managed to alienate everyone, including their one-time supporters. What a bunch of scum.

--Editorial / New York Post

“Clergymen might want to think hard before opening their doors to Occupy Wall Street – unless they like losing property.

“It’s a lesson the Rev. Bob Brashear of the West Park Presbyterian Church on the Upper West Side didn’t immediately get.

“This month, Brashear noticed that the basin and lid of his baptismal font (worth $12,500) had gone missing.

“It was the second major theft since he welcomed Occupiers to his church after their Zuccotti Park ouster: Three weeks before, his MacBook Air (estimated value: $2,400) vanished into the Occupy ether.”

[The basin was later recovered.]

“Everyone knows OWS has no regard for private property; it’s Zuccotti Park takeover made that plain. Now, it’s clear, church items are fair game, too.”

--James Q. Wilson / Washington Post

“There is no doubt that incomes are unequal in the United States – far more so than in most European nations. This fact is part of the impulse behind the Occupy Wall Street movement, whose members claim to represent the 99 percent of us against the wealthiest 1 percent….

“But the mere existence of income inequality tells us little about what, if anything, should be done about it. First, we must answer some key questions. Who constitutes the prosperous and the poor? Why has inequality increased? Does an unequal income distribution deny poor people the chance to buy what they want? And perhaps most important: How do Americans feel about inequality?

“To answer these questions, it is not enough to take a snapshot of our incomes; we must instead have a motion picture of them and how people move in and out of various income groups over time.

“The ‘rich’ in America are not a monolithic, unchanging class. A study by Thomas A. Garrett, economist at the Federal Reserve Bank of St. Louis, found that less than half of people in the top 1 percent in 1996 were still there in 2005. Such mobility is hardly surprising: A business school student, for instance, may have little money and high debts, but nine years later he or she could be earning a big Wall Street salary and bonus.

“Mobility is not limited to the top-earning households. A study by economists at the Federal Reserve Bank of Minneapolis found that nearly half of the families in the lowest fifth of income earners in 2001 had moved up within six years. Over the same period, more than a third of those in the highest fifth of income-earners had moved down. Certainly, there are people such as Warren Buffett and Bill Gates who are ensconced in the top tier, but far more common are people who are rich for short periods.

“And who are the rich? Affluent people, compared with poor ones, tend to have greater education and spouses who work full time. The past three decades have seen significant increases in real earnings for people with advanced degrees. The Bureau of Labor Statistics found that between 1979 and 2010, hourly wages for men and women with at least a college degree rose by 33 percent and 20 percent, respectively, while they fell for all people with less than a high school diploma – by 9 percent for women and 31 percent for men….

“The real income problem in this country is not a question of who is rich, but rather of who is poor. Among the bottom fifth of income earners, many people, especially men, stay there their whole lives. Low education and unwed motherhood only exacerbate poverty, which is particularly acute among racial minorities. Brookings Institution economist Scott Winship has argued that two-thirds of black children in America experience a level of poverty that only 6 percent of white children will ever see, calling it a ‘national tragedy.’….

“Reducing poverty, rather than inequality, is also a difficult task, but at least the end is clearer. One new strategy for helping the poor improve their condition is known as the ‘social impact bond,’ which is being tested in Britain and has been endorsed by the Obama administration. Under this approach, private investors, including foundations, put up money to pay for a program or initiative to help low-income people get jobs, stay out of prison or remain in school, for example….

“As Harvard economist Jeffrey Liebman has pointed out, for this system to work there must be careful measures of success and a reasonable chance for investors to make a profit. Massachusetts is ready to try such an effort. It may not be easy for the social impact bond model to work consistently, but it offers one big benefit: Instead of carping about who is rich, we would be trying to help people who are poor.”

--How else to describe the winter of 2011-2012? How about the 3rd least snow for the lower 48 going back to 1967? Bismarck, N.D., 1/5th the normal amount. Chicago is having its warmest winter in 80 years. The weather here in Murray, Kentucky was spectacular on Thursday. Beautiful sunshine, 60 degrees. Everyone was walking around in t-shirts. 

Meanwhile, Punxsutawney Phil saw his shadow so six more weeks of winter golf!

But Fort Yukon, Alaska hit a record -66 last weekend.

--Good news…the Dallas-Fort Worth area is officially out of drought for the first time since July, though nearly 60% of the state still remains in dire shape.

--So why am I in Murray, Kentucky? Each year I pick a college football or basketball team to follow (seeing the sad state of my alma mater’s squads), and I take a flyer early in the season and get tickets. In the past this has meant trips to the likes of Oregon, San Diego State, Davidson, and Idaho; in this last one to see Boise State but in Idaho’s unique field house.

Early on in the current college basketball season, though, I decided Murray State had a chance to run the table and so I got a ticket to a Racers game, which was Thursday against Southeast Missouri State. It turned out to be a fabulous contest, with the Racers finally getting their act together in the second half to remain undefeated and possibly improve their No. 10 AP ranking another notch next poll.

The population of Murray is in the 18,000 neighborhood and to reach it you fly to Nashville and drive about 2 ½ hours. Or you take a 50-mile detour like I found myself doing on Wednesday. You know that bridge that’s out? The one that made the national news when an ocean-going caliber vessel, tooling down the Cumberland, plowed into it? The thing is the boat was carrying missile parts.

Anyway, I thought the bridge wasn’t part of my travel plans, until I learned it was. So I got to see a little more of Kentucky than I thought I would.

On Thursday, before the game, I went down to Ft. Donelson, scene of the first major victory of the Civil War for the Union and a place where Ulysses S. Grant began to really make his mark. If you’re a Civil War buff, you have to go.     

So that’s my story for this week and I’m sticking to it.

---

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

God bless America.
---

Gold closed at $1740…unchanged
Oil, $97.84

Returns for the week 1/30-2/3

Dow Jones +1.6% [12862]
S&P 500 +2.1% [1344]
S&P MidCap +3.1%
Russell 2000 +4.0%
Nasdaq +3.2% [2905]

Returns for the period 1/1/12-2/3/12

Dow Jones +5.3%
S&P 500 +6.9%
S&P MidCap +10.5%
Russell 2000 +12.2%
Nasdaq  +11.5%

Bulls 48.9
Bears 29.8 [Source: Investors Intelligence]

*Dr. Bortrum has posted a new column. 

Have a great week. I appreciate your support.

Brian Trumbore



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Week in Review

02/04/2012

For the week 1/30-2/3

[Posted 12:00 AM CT, Murray, Kentucky]

Europe, Washington and Wall Street

No doubt there has been decoupling when it comes to the U.S. and Europe, though in terms of the equity markets, on both sides of the pond stocks are rallying. But on the economic front, the U.S. has avoided a double-dip recession while the jury is still out in Europe with most believing a double-dip is what the continent will see, with a few exceptions.

But in the past week, the news for much of the eurozone and EU, including non-euro Britain, was a little better. A eurozone manufacturing index, the PMI, came in at 48.8 in January from 46.9 in December, while a combined reading that adds in the service sector was above 50 at 50.4. This is a little confusing because these figures are exactly as first estimated a few weeks earlier and not necessarily new but most news services were treating it that way. Britain actually had two good readings of its own; the PMI reading hit 52.1, ahead of December’s 49.7 (50 being the dividing line between growth and contraction, remember), while the U.K.’s service sector in January registered a 56, also up from December. This is good. Perhaps Prime Minister David Cameron’s austerity moves are now bearing fruit. Certainly business confidence there is up smartly.

But the news wasn’t all hunky-dory. The unemployment rate in the eurozone hit 10.4% in December, though here you have the contrasts. Germany’s jobless rate is down to 6.7% (a January reading), while Italy’s is up to 8.9% and you still have Spain’s record 22.8%, as it was announced there that the Spanish economy contracted 0.3% as the IMF projects Spain’s GDP to fall 1.7% for 2012.

[It’s interesting to note that in 2005, Germany’s unemployment rate was over 12% while Spain’s was just 8.5%. But Germany didn’t have a housing bubble and Spain did.]

Back to Italy, Mario Monti’s technocrat government has a 52% approval rating as the next election isn’t until 2013.

So that’s some of the good and bad. Here now the solely bad.

The Greek government has still not reached an agreement on a debt restructuring with its private creditors, with the government looking for bondholders to take a 70% loss, and accept a 3.6% coupon on a new 30-year bond with a GDP kicker if the economy ever starts growing again. Way back creditors were only supposed to take a 50% haircut.

Recall that Greece must wrap up this negotiation in time to put the final touches on its latest austerity plan before it faces a March 20 bond payment of $19 billion. Greece needs another round of bailout cash to meet this and future obligations, pay salaries, pensions and such.

Now the European Central Bank has profits on massive amounts of Greek paper that it’s holding but it doesn’t want to take losses as part of a public-private partnership so this all remains to be worked out…or not.

The thing is the Greek government has proved to be totally incompetent when it comes to implementing its austerity program and collecting revenue so it’s understandable that the likes of Germany are skeptical when it comes to granting further aid.

And so with this as backdrop, Greece’s political leaders on Friday rejected a new round of austerity cuts demanded by the IMF, ECB and EU as part of a new bailout package. So we’ll find out Monday just how bad this late development is.

Separately, at the 16th EU summit in two years, German Chancellor Angela Merkel got her new fiscal union treaty with the tougher budget rules, though the Czech Republic announced it would join the U.K. in not agreeing to it. Nonetheless, the agreement will be formally signed in March, even as Berlin was warned there were limits to how much sovereignty each government was poised to surrender for the sake of fiscal discipline. It was French President Nicolas Sarkozy who had to tell Merkel to back off the leaked German proposal to control Greece’s budget decision-making, telling her it “would not be reasonable, not be democratic nor would it be effective.” Sarkozy said Merkel agreed.

“The recovery process in Greece can only be enacted by the Greeks themselves, democratically,” Sarkozy added. [Financial Times]

Meanwhile, forgive me for being a bit confused. The 25 members sign the treaty in March, but Sarkozy said he would not ask the French parliament to sign off on it until after the April presidential election; this as the likely winner in the voting, Socialist candidate Francoise Hollande, has already said he would seek to renegotiate the pact. What am I missing? I thought every parliament had to sign off on it first, which was supposed to be a formality, and that the only issue was if Ireland needed a referendum first, which doesn’t seem likely.

Oh, and not for nothing but we were told this week not to worry about Portugal, even though at one point the yield on its 10-year bond was over 18%. Whatever.

Editorial / Financial Times: Lex column

“This must be what they mean by Disziplin, Germany’s reading of the debt crisis is that it is the fault of profligate governments. Monday’s ‘fiscal compact,’ with its coercive imposition of budgetary orthodoxy, debt sustainability and economic convergence, is meant finally to bring them to heel. That should provide Angela Merkel, the Chancellor, with the political cover she needs to increase Berlin’s commitment to addressing the crisis. The question now is whether Germany is ready to repay the favor to the eurozone.

“The compact is a reworking of the discredited Maastricht treaty. Among other things, this stipulated that budget deficits could not exceed 3 percent of gross domestic product and that a nation’s debt should ideally be no more than 60 percent of GDP. Germany itself undermined that agreement. The compact will be more securely enshrined in law, assuming that it will be ratified by the 25 countries that are subscribing to it. It encourages governments to aim for structural budget deficits of no more than 0.5 percent of GDP. This is a blueprint for economic stagnation….

“Having imposed coercive austerity on her fellows, Ms. Merkel now needs to don the armor they handed her and to look the sovereign debt crisis in the eye. The fiscal compact makes it more likely that indebted countries will need more emergency funding while markets remain closed to them. Berlin must be ready to underwrite that funding, through reinforced bailout mechanisms or joint Eurobonds. Germany should allow the European Central Bank greater leeway to intervene in the secondary bond markets. And it must reconcile austerity with the need for reviving the eurozone. The compact is a big ‘take’ for Germany. Now it’s time for some ‘give.’”

So there is much work to do. The European Financial Stability Facility and European Stability Mechanism still need to be reinforced to backstop Italy and Spain. China, though, is now said to be sincerely interested as of this past week in helping out on this front. Before, it was just a lot of talk but now Premier Wen Jiabao said China “is investigating and evaluating concrete ways in which it can, via the IMF, get more deeply involved in solving the European debt problem through [the EFSF and ESM.]”

Washington and Wall Street

What a week. What a start to the year. By the close on Friday, the Dow Jones and S&P 500 were at levels not seen since 2008, while the Nasdaq is at levels not reached since December 2000, the year it began to crash. Nasdaq is off to its best start for a year since 1991, up nearly 12%, while the S&P’s 6.9% gain thus far represents its best start since 1987. For yours truly, who for the time being is wrongly focused on debt levels and geopolitics, as Lloyd Bridges would have said, “Looks like I picked the wrong year to be bearish.”

Then again, the year is young, though I could just rehash what I wrote last time when talking about President Obama’s re-election chances, except this week they got stronger as the January employment report showed the economy adding 243,000 jobs and the unemployment rate falling to 8.3%. Good no matter how you slice it. Sure, we have a long ways to go to reach full employment of around 5%, and the jobless rate is still above the 8% level the president said he’d have us under years ago, but, again, it’s about trends and sentiment and both are working strongly in his favor. Barring an outside interference, some of the next polls will likely show Obama’s approval rating back over 50% for the first time in ages. Yes, as discussed down below, the election is likely to be decided in twelve battleground states and the latest figures have Mitt Romney tied with the president in these, but as long as the economy continues to show progress, even haltingly, I like the president’s odds.

A few more economic items of note: Auto sales, as noted below in detail, were strong for the month, but the S&P/Case-Shiller housing data showed further price declines for their 20-city index, down 1.3% in November over October, 3.7% year over year, and 32.9% from the July 2006 peak. There are few signs of a true price bottom in most parts of the country (Atlanta really taking it on the chin the past year, down 11.8%, 11/2010-11/2011) and there is still a mountain of foreclosures to work off. By the reading of the data, 1 in 5 also remain in negative equity.

Separately, readings on manufacturing were strong, though less than expected, with the Chicago Purchasing Managers Index coming in at a very solid 60.2, 63.0 being forecast, while the ISM for manufacturing was 54.1 vs. a projection of 54.5.

December construction spending was up 1.5%, better; while factory orders for the month, up 1.1%, were a little shy of expectations.

As for December readings on personal income and consumption, the former was up 0.5%, but the latter was unchanged, not a great sign (though part of an increase in the savings rate).

Then you had Federal Reserve Chairman Ben Bernanke speaking before a House committee and he tried to reassure a skeptical Republican chair, Paul Ryan, that the Fed is not seeking higher inflation at the expense of more jobs. In fact Congressman Ryan totally agrees with my own last take on the topic; that the Fed’s zero interest rate policy was appropriate for the crisis in 2008-09, but afterwards it should have normalized rates to give savers a break, adding that normalizing policy would still have left the Fed with an accommodative stance.

But there was another news item this week that got buried with the good news that followed; that being the Congressional Budget Office’s forecast of a fourth straight $1 trillion deficit for the fiscal year; which was an increase in the CBO’s earlier forecast. $5 trillion in debt will have been tacked on in the president’s first term. It was in February 2009 that Obama pledged to cut the then $1.3 trillion deficit in half by the end of his first four years. Not quite. And the $1.1 trillion the CBO is forecasting would rise to $1.2 trillion in fiscal 2012 if the payroll tax cut is extended thru year end, which, by the way, is this month’s mini-crisis du jour…the deadline is fast approaching on both this and the extension of unemployment benefits.

The CBO also expects the government will spend $1.6 trillion on Social Security, Medicare and Medicaid in 2012, 44% of the federal budget. In 2022, the triad could represent 54% of federal spending.

Michael Tanner of the Cato Institute had a piece in the New York Post last weekend in which he says if you include the unfunded liabilities on items such as Social Security and Medicare, the total U.S. debt is 885% of GDP. Greece is more like 875% and France is at 570%. Granted, everyone has different figures when it comes to this category, but here’s some advice to Republicans.

Quick! Pivot from the economy and just focus on the debt issue and foreign policy.

Along these lines, former Republican Senator Alan Simpson of Simpson-Bowles fame told Bloomberg Television’s Al Hunt that President Obama “walked away” from his bipartisan deficit-cutting commission’s plan “because he knew he’d be torn to bits.” Simpson said Obama is “terrified” of the deficit issue. “He didn’t deal with it” in his State of the Union address. Simpson added that the Republican presidential candidates are “almost like robots” in their aversion to any taxes as a way to help shrink the deficit.

For his part, President Obama said he will press Congress on the Buffett rule. He told Democratic members of the House on retreat last weekend that he’s seeking to raise taxes on wealthy Americans “not out of envy, but out of a sense of fairness, a sense of mutual responsibility.” Mr. Obama would fit in very nicely with France’s Socialist Party, I can’t help but add.

Street Bytes

--The Dow Jones finished the week at 12862. The all-time high is 14164, set back on Oct. 9, 2007. What the heck…make a run for it, Messrs. Dow and Jones. For January, the MSCI All-World index of 45 developed and emerging countries was up a whopping 5.7%.

--U.S. Treasury Yields

6-mo. 0.09% 2-yr. 0.23% 10-yr. 1.92% 30-yr. 3.12%

Rates backed up Friday on the strong employment report, but on the week hardly moved.

On Monday, though, Federal Reserve Bank of Philadelphia President Charles Plosser conceded to CNBC that he was one of six, among 17 Fed governors, to disagree on the consensus view that rates should be kept near zero until late 2014, saying he thought the Fed would need to raise the funds rate this year. More data like January’s jobs report and consistent readings on manufacturing and he just might be right.

--You look at the miniscule returns on bonds and not a day goes by when many of us think, just where the heck are pension funds going to get the kinds of returns they need to meet future liabilities? You can’t put 80-90% of the assets in the stock market and just roll the dice. Eventually you have to start funding the shortfall out of earnings, or, in the case of a public pension fund, you have to cut other programs to meet the obligations, and/or cut the benefits drastically. None of the above is good for the economy, though at least in the last instance it might be the prudent thing to do.

--The volume of property loans to both developers of commercial and residential in China fell 38% in 2011 over 2010 as the government reins in the sector following the bubble. China’s PMI for January came in at 50.5, which, coupled with December’s 50.3 reading certainly bolsters the argument for those in the soft landing camp, though with the Lunar New Year holiday occurring the last week in January, I’m not clear on what kinds of distortions need to be taken into consideration for February’s reading, for example.

Separately, the government reiterated its commitment to small business and making credit available where appropriate.

And we await President-in-waiting Xi’s visit to Washington on Feb. 14.

--India’s PMI for January was a robust 57.5, after a solid 54.2 in December, but India is still dealing with 9% inflation and has all manner of serious political issues.

--U.S. auto sales rose to a 14.2 million annualized rate in January, 11.4% better than last January. No doubt the mild winter weather helped, as well as a better employment outlook. Chrysler Group reported a 44.3% rise, its best January since 2008, before its 2009 bankruptcy reorganization. But Ford’s sales rose only 7.3%, while GM’s fell 6.1% when compared to last year and an average $600 in sales incentives per vehicle at that time.

Others…Volkswagen’s sales soared 39.5% as it registered its best January in the States since 1974. Audi, VW’s luxury brand, reported its 13th consecutive record sales month. Toyota’s rose 7.4%, Honda’s 8.8%, Nissan’s 10.4% and Hyundai’s 14.7%.

Back to Chrysler, it is looking to hire up to 1,800 production staff at an Illinois assembly plant. Workers will be paid the automaker’s new hire rate of $15.78 an hour.

--Homeownership in America fell to 66% in the fourth quarter, down from the peak of 69.2% in 2004.

--Gasoline consumption is plummeting, a 10-year low in the United States. Still high prices, like $3.90 a gallon on average in California, are doing a number on us.

--Follow-up: A reader suggested I should have noted in my discussions of the Keystone XL pipeline and a possible move by the Canadian government to build one to its west coast instead, that not just China would be a probable beneficiary. The oil would be available for everyone. Point taken. Canadian Prime Minister Harper goes to China shortly for what should prove to be most interesting negotiations.

--Overall, commodities tanked in the fourth quarter of last year but have rebounded smartly on the decent U.S. economic data and the feeling that the worst is over in Europe. Energy commodities, though, like natural gas, have lagged badly, which in its case is about massive amounts of supply, while each big storm you see in places like Nebraska and Kansas is a welcome relief and augurs well for coming harvests.

At the same time, the U.S. cattle herd has shrunk to its smallest level in 60 years, according to the Agriculture Department, as ranchers have culled hundreds of thousands of cattle during the drought.

[The average commodity hedge fund last year fell 1.7%, according to the Financial Times and Newedge, the first loss since the latter’s index was created in 2000 and down from a rise of 10.7% in 2010. By comparison, the CRB Index was down 8.3% in 2011.]

--Everyone was talking about the filing for the Facebook IPO, which is slated to come out this spring with the company being valued anywhere from $75 billion to $125 billion. About 1,000 new millionaires are expected to be minted in the process. 150 will make more than $25 million on the initial offering. One venture-capital firm, Accel Partners, invested $12.7 million in Facebook in 2005 and while it has sold a small percentage of its shares since, it still stands to reap a 1,000 times return, with its stake being potentially worth $9 billion. Greylock Partners and Meritech Capital Partners stand to see returns of around 200 times.

Meanwhile, Elevation Partners, founded by Roger McNamee, could see a return of $1.7 billion on its relatively late-stage investment. Bono is a major partner in the fund.

As to some of the company specifics, Facebook said its revenue for 2011 was $3.7 billion, with profit of $1 billion. It has 845 million members.

But 85% of its revenue comes from display ads and while it has 28% of the total market in this category, I just believe display ads were never effective (radio and television is, baby) and that this will be a dying stream for Facebook and others. So we’ll see.

Oh, and Mark Zuckerberg is currently worth about $24 billion, though the Financial Times says he may have a $1.5 billion tax bill and this could complicate the IPO itself.

--Amazon’s pace of sales growth is slowing, up a strong 35% in the last quarter but this was less than the previous quarter’s 44% growth rate, worrisome as management has convinced shareholders it’s all about sales over earnings, witness Amazon’s still outrageous valuation. Operating margin is shrinking and the company warned it could report a loss for the current quarter.

[Amazon finished the week at $187.50 and a price/earnings multiple of 99. Apple Computer, by comparison, trades at a multiple of 13.]

--AMR is cutting 13,000 jobs as part of its bankruptcy proceeding, or 15% of the work force. 4,600 will be in the maintenance area, 4,200 baggage handlers, 2,300 flight attendants, 1,400 management, and 400 pilots.

--Canada’s unemployment ticked up to 7.6%. GDP is forecast to rise just 2% in 2012.

--Gambling revenue in Macau jumped 35% in January to $3.13 billion, boosted by a record flow of Chinese visitors over the Lunar New Year holiday. Overall for 2011, growth surged 42%, though many expect it to drop to 15-20% in 2012, which would be just fine. Shelden Adelson of Sands China (and a Newt Gingrich Super Pac) said he sees no slowdown in Macau well into the future. Adelson has a new mammoth property opening there soon.

--Australian home prices fell the most on record in 2011, 4.8% for an index of eight major cities, though the data base only extends to March 2002.

--Singapore’s unemployment rate held near a three-year low at 2%, even as it struggles with the global trade outlook.

--This is too much. The Irish Independent had a story that started out:

“A Polish waitress living here has sparked fury after she boasted about living the good life on Irish welfare benefits. ‘Magda’ (36), not her real name, described her life on the dole in Donegal as a ‘Hawaiian massage.’

“She revealed how she had packed in her job so she could spend her days walking along beaches with her partner.

“He in turn bragged about the country’s wonderful golf courses.” [Ed. that indeed is true.]

“Magda claimed she earned 67 euro more a week on the dole than she did while working and that her welfare payments are 182 euro more every week than back in her native Poland.”

Plus she gets free schooling to take courses she wants and she surfs. She told a Polish newspaper:

“Sometime I sleep till noon and the nearest beach is five minutes away. What’s our house like? Well, you can hear the ocean from the windows.”

--Meanwhile, in January, an average of four companies collapsed each day in Ireland, but, “business name registrations” numbered 1,973 for the month. I can’t say I know enough about the past history of this latter figure, but this was up 12% over the same period a year ago. Back to the first part, 53% of construction companies in Ireland are deemed to be in danger of collapse…on top of the hundreds that already did.

--Panasonic reported that it would record a $10 billion loss for its fiscal year ending March 31, due in part to its acquisition of Sanyo as well as the ongoing fierce competition and price pressures in the television market.

--Micron Technology chairman and CEO Steve Appleton died in an experimental plane crash in Boise, Idaho. He was the only one on board.

--The U.S. Senate voted 96-3 to ban insider trading among its own members.

--Investigators say they know what happened to the $1.2 billion in customer money that disappeared from MF Global, but, as reported by the New York Times, “have not publicly disclosed their progress, fearing that doing so might cripple efforts to recover the cash and pursue potential wrongdoing,” according to people briefed by the investigation.

What makes this so bad is that in some cases, “securities customers withdrawing their money as MF Global began to collapse were paid from accounts that belonged to futures clients.” What a freakin’ mess…and tragedy. Compounding matters is you have three federal agencies and two bankruptcy trustees involved.

--Two former Credit Suisse traders pleaded guilty to charges they mispriced mortgage-related securities that resulted in a $2.8 billion writedown by the bank at the height of the financial crisis. Credit Suisse is not going to be charged as a result of the SEC investigation.

--In a further example of today’s employment environment, musicians with the New York Philharmonic reached a new two-year deal on a contract that freezes wage for the 2011-2012 fiscal year and grants them a 2% increase this September; this as costs are of course rising. One of the issues is $24 million in unfunded pension liabilities. Management wanted to move to a 401(k)-style defined-contribution plan, but the union prevailed for now in keeping it as is because they argue cutting pension benefits will hurt the orchestra’s ability to retain top musicians.

By the way, the minimum salary for an orchestra member is $134,940 a year, but, again, you’re dealing with the cost of living in New York.

--I’ve long written of my guilt for eating shark fin soup in Shanghai a number of years ago. I knew it was wrong, but boy was it delicious. So these days, various international groups are trying to make sure bans on the food are enforced as there are estimates some 79 million sharks are killed each year, many just for the fins. Some populations have dropped 90% in decades.

But shark fin soup remains on the menu of high-end establishments in China, Taiwan and Hong Kong, as reported by Jonathan Kaiman of the Los Angeles Times. So when you see a story about a shark attack in Australia or California, understand where the sharks are coming from.

--Fox just notched its 10th consecutive year as the most-watched cable news network. It was 15 years ago that chairman Roger Ailes launched it.

During 2011, FNC averaged 1.86 million viewers in prime time. MSNBC averaged 775,000 and CNN had 689,000.

--In a further sign of economic recovery, U.S. shipments of scotch, vodka, rum and other spirits in 2011 increased 2.7% over the previous year – the strongest increase in five years, according to industry data. Sales of “high-end” brands were up 5.3%.

--And tourist figures are up in Hawaii, 3.8% in 2011 to its highest level since 2007. Actual visitor spending was up 15.6% last year. Helping Hawaii is the bad publicity Mexico is facing with its crime story. The number of visitors to Hawaii had declined 16% between 2006 and 2009.

[Mexican officials say their traffic figures are improving recently despite the bad P.R.]

--I have my exclusive look at the Super Bowl and the markets on my “Wall Street History” link. I have to go with the Giants, 30-21.

--My portfolio: Finally, no one is more frustrated over the share price action of my large holding in Fujian, China than I am. There is nothing I can say until the company gives shareholders an update, which I had urged them to do in early January.  Knowing many of you are in it with me, I promise to provide a full analysis when the information is released. I spoke to the CFO about ten days ago and expect something out of them shortly.

But I can’t help but note the comments of an analyst at a Bloomberg sponsored conference this week on emerging markets. When it comes to Chinese stocks, fraud allegations such as at Sino-Forest have pretty much rendered them “untouchable,” while short sellers have “clobbered the valuation of the companies.” When you have P/E multiples of one, or in some cases less than that, you can only hope more rational thinking takes over.

Peter Siris, a longtime investor in China, told Barron’s he “laments that all U.S.-listed China small caps are being tarred with the bears’ brush. ‘Some of these are great companies,’ Siris says. ‘Now the companies feel frustrated, the investors feel frustrated and…it’s just sad.’”

Ain’t that the truth.

Foreign Affairs

Iran: Just last month, Israeli Defense Minister Ehud Barak said his country was “far” from launching an attack on Iran’s suspected nuclear weapons facilities. But on Thursday, Barak said Iran is approaching a stage “which may render any physical strike as impractical.”

Earlier in the week, Barak said, “It is time for much tougher diplomacy and sanctions because there is a risk not just to Israel but to the whole world. It will be much more complicated, much more dangerous and much more costly if we allow (Iran to get the bomb).”

Middle East troubleshooter Dennis Ross said, “The Israelis view this in existential terms. If the Israelis feel this is an existential threat it doesn’t matter what anybody says to them. They could do it unilaterally.”

Appearing on “60 Minutes” last Sunday, Defense Secretary Leon Panetta said Iran was probably one year away from being able to build a bomb. He added that it could take a year or two beyond that to develop the ability to deliver a warhead by missile.

“That’s a red line for us, and it’s a red line, obviously, for the Israelis,” Panetta said. “If we have to do it, we will do it,” he added, without elaborating.

It was a week when a senior official told CNN that Israel could attack Iran by summer, which begs the question, why would we say this about our friend’s potential actions, even if Barak is making it clear that if Israel is to act, it must do so soon.

The thing is, Iran’s uranium facilities are disappearing rapidly into newly constructed mountain bunkers that the Wall Street Journal first reported cannot be currently destroyed by the United States’ existing arsenal, including the heavy bombs that Israel is said to be purchasing.

It was also a week where in congressional testimony, U.S. intelligence officials indicated Iran has crossed a threshold in its relationship with the United States and that while there is no evidence Iran is actively plotting attacks on U.S. soil, the game may have changed with the thwarted plot to assassinate the Saudi ambassador in Washington. Director of National Intelligence James R. Clapper Jr. said it “shows that some Iranian officials – probably including Supreme Leader Ali Khamenei – have changed their calculus and are now more willing to conduct an attack in the United States in response to real or perceived U.S. actions that threaten the regime.”

So what now? The U.N. nuclear team that visited Iran for three days earlier in the week said it planned to revisit Tehran “in the very near future,” which indicated some progress in the International Atomic Energy Agency’s quest for information. The mission leader, Herman Nackaerts, said, “We had three days of intensive discussions about all our priorities, and we are committed to resolve all the outstanding issues…But of course there’s still a lot of work to be done.”

That was Wednesday. However, two days later we learned that the IAEA had been barred from the key Parchin military site where they wanted to interview a top Iranian nuclear scientist. This is not good.

The White House says it wants Israel to hold off, to give the sanctions more time to have their desired effect, a miraculous toppling of the regime by a restive populous.

This is unrealistic. Israel won’t wait. I still say in the end, the U.S. will join them.

Lastly, should Iran close the Strait of Hormuz, Ali Naimi, Saudi Arabia’s oil minister, insisted again his kingdom could make up for any disruptions to global supplies, though most of it still has to transit through there.

Syria: At last word, the Syrian army continued to fight back against rebel forces that had taken some suburbs of Damascus, and there is a late report the military killed 200 in a night assault on Homs, this as the UN Security Council met on the crisis with China and Russia reiterating their opposition to the use of force, not that this is a realistic course of action at this point. Russian Foreign Minister Sergei Lavrov said his country would not support any action that would be imposed on Syria, such as an internal political settlement and the release of all political prisoners and increased press freedoms, and would avoid taking sides in an internal conflict.

“The international community unfortunately did take sides in Libya and we would never allow the Security Council to authorize anything similar to what happened in Libya.”

Russian Deputy Foreign Minister Gennady Gatilov offered: “Pushing this resolution is a path to civil war.”

For her part, U.S. Secretary of State Hillary Clinton joined the Arab League and European diplomats in calling for tougher action.

“We all have a choice: Stand with the people of Syria and the region, or become complicit in the continuing violence there.”

Qatari Prime Minister Hamad bin Jasim al-Thani said, “The killing machine is still at work.”

Over 6,000 are now estimated to have died in the uprising. The Arab League halted its observer mission over safety concerns.

As an aside, Hizbullah’s standing among the Arab people is falling rapidly as it stands by the Assad regime after praising other movements in the Arab Spring. The protesters in Syria are beginning to burn Hizbullah flags.

Egypt: In the rough and tumble city of Port Said on the Suez Canal, there was a football match between home team Al-Masry and favored Al-Ahly, based in Cairo and one of the country’s most popular teams. Al-Masry pulled off the upset, 3-1, whereupon the home fans stormed the field anyway and started to riot with knives, bottles, rocks, and flares that were shot into the stands. When it was over, at least 79 were dead and about 250 injured, many with severe concussions after being tossed out of the stands. Police did little to stop the madness and resultant stampede, where many of the deaths occurred. Some of the players were hurt as well. Said Al-Ahly goalkeeper Sharif Ikrami:

“There were people dying in front of us.   It’s over. We’ve all made a decision that we won’t play soccer anymore. How will we play soccer after 70 people died? We can’t think about it.”

Violence spread throughout Port Said, which was the scene of much bloodshed during the first weeks of the Arab Spring and the overthrow of President Hosni Mubarak.    Field Marshal Hussein Tantawi, head of the ruling military council, said:

“This will not bring Egypt down. These incidents happen anywhere in the world. We will not let those behind it go…This will not affect Egypt and its security.”

Meanwhile, the new parliament has opened for business and now young activists who galvanized the revolt have a new target, the Islamists who capitalized on the political changes by taking over 70% of the seats, between the Muslim Brotherhood and the radical Salafists.

The army has pledged to hand over power by the end of June, and now there is talk of a presidential election in May, but more are increasingly of the belief I brought up last time; that the Brotherhood is in alliance with the military and will give the latter a sizable portfolio, including foreign policy, post-election.

Separately, on the issue of the six American pro-democracy and human rights group workers being prevented from leaving the country, the Egyptian justice minister returned a letter from the U.S. Ambassador to Egypt asking to re-examine the issue without comment.

Lastly, Oren Dorell and Sarah Lynch of USA TODAY had a depressing piece on the plight of Christians in the Arab world, not that you didn’t already know this. What I didn’t realize is that the new dominant political party in Tunisia, Ennahda, is pushing for Sharia law in the new constitution. So much for Tunisia being a bright spot.

In Libya, the head of the Tripoli Military Council once led a militia movement with links to al-Qaeda and now he is planning to run for office in elections scheduled for April.

“In Afghanistan, no new building permits have been issued for churches, and the last church open to the public was demolished over the summer. In Iraq, the Christian community was decreased by two-thirds since 2003 amid bombings of churches and assassinations of priests.

“And Christians in Syria…have been subjected to murder, rape and kidnappings in Damascus and rebellious towns, according to Christian rights groups.”

For any who harbor the slightest bit of optimism about the entire Middle East, you need only know some of the above to recognize you are sadly mistaken. Of course our Jewish friends face the same issues, writ larger still.

Israel: Aside from the Iranian situation, Prime Minster Netanyahu won a leadership contest for his Likud Party over his ultranationalist rival, which was as expected, though his opponent, Moshe Feiglin, did better than projected. The far right considers the prime minister too soft on the settlements issue and peacemaking with the Palestinians, though this week Netanyahu’s government approved new incentives to entice Israelis to move to the West Bank, exactly what the Palestinians don’t want, of course.

[Hamas leader Khaled Meshal formally abandoned his longstanding base of operations in Damascus due to the uncertainty there and stopped in Jordan, his first official visit there since the Jordanian government shut down his headquarters in Amman in 1999. Jordan could allow Meshal to remain but only if he stays out of politics. In classic Jordan fashion, King Abdullah II and his government have to keep the peace with Hamas’ rival, Fatah, as well as Jordan’s allies, the United States and Israel. Others say Meshal will end up in Qatar, or possibly Egypt, where other Hamas officials are expected to settle to be in proximity to Gaza. If they return to Gaza directly, as opposed to on some package tour, Israel will target them; not that they aren’t targets already.]

Pakistan/Afghanistan: A leaked NATO report reaches conclusions that are hardly a surprise; that the Taliban in Afghanistan are being directly assisted by Pakistani security services, such as the ISI.   Pakistan, for example, knows the whereabouts of senior Taliban leaders. Of course the ISI has long denied such claims, but if you look up the word ‘duplicitous’ in the dictionary, you’re liable to see the ISI in the definition. The NATO report is based on 27,000 interrogations with more than 4,000 captured Taliban. It notes: “Pakistan’s manipulation of the Taliban senior leadership continues unabatedly.”

And, in the conclusion of the report, the document says, as reported by the BBC, “that in the last year there has been unprecedented interest, even from members of the Afghan government, in joining the Taliban cause.” And, from the document itself, “Afghan civilians frequently prefer Taliban governance over the Afghan government, usually as a result of government corruption.”

As for NATO operations in Afghanistan, I noted last time that French President Sarkozy announced he’ll speed France’s withdrawal from the country by the end of 2013, a year earlier than planned. Aside from the incident where an Afghan soldier the French were training turned his gun on French troops, killing four and wounding 15, the French public is overwhelmingly against the presence in Afghanistan and Sarkozy faces a very tough election.

So this week Defense Secretary Leon Panetta started off by saying he hoped to transition to training missions in Afghanistan in 2013, a year before withdrawal of all NATO forces. Needless to say this plays into the hands of the Taliban, who know they can just wait the U.S. and its allies out, so Panetta spent the rest of the week backtracking, saying the U.S. will indeed be participating in combat operations when needed. Nonetheless, the West is still out in less than three years.

Former Defense Secretary Robert Gates said, “We’ve invested too much to get too impatient because we’re tired.”

Lastly, back to Pakistan, the Supreme Court ruled that Prime Minister Gilani will indeed face contempt charges, with proceedings beginning Feb. 13, for not reopening a corruption investigation into President Zardari’s finances, going back to the 1990s and issues he allegedly had in Switzerland. Gilani has claimed that Zardari has immunity as president. To say the least this is yet another mess for the nation to face.

Lebanon: The Special Tribunal for Lebanon looking into the assassination of former Prime Minister Rafik Hariri said it will try the four accused (all members of Hizbullah…Hizbullah denies this) in absentia, having exhausted all attempts to arrest them. No date for when the trial will start has been announced but suffice it to say this could be explosive.

China: President Hu Jintao reasserted Communist Party control over the military, thus attempting to counter any movement toward nationalizing the force by making it ultimately responsible to the government rather than the party.

On the pollution front, the smoke from Lunar New Year fireworks sent air pollution readings soaring in Beijing, according to a new, more sensitive measuring system the government just instituted. It’s been a bad winter on this front but authorities have finally seen the light; more transparency is good.

Russia: Saturday’s (today’s) protests by the opposition in Moscow could be limited in scope given that the air temperature is likely to be minus 10. In all the polls for the March presidential vote, Vladimir Putin is under 50%, meaning he’d face a run-off. Just a few years ago, Putin’s popularity was consistently in the 70s.

France: President Sarkozy still trails in the opinion polls, and, assuming he makes it into the run-off, would lose by 20 points to Socialist Francois Hollande. Hollande issued a 60-point manifesto that included outlawing “toxic” financial products and banning stock options for all but start-ups, as well as re-lowering the retirement age back to 60. [Marine Le Pen is calling for the same on this last point.]

For his part, Sarkozy is calling for a transactions tax and a rise in the VAT, even if others in the EU don’t go along, especially in the case of the former. He is portraying himself as a courageous leader capable of making tough decisions, a la his dealings with German Chancellor Angela Merkel.

Britain/Argentina: Prince William has arrived for his training mission on the Falklands and the Argentines are none too happy as the 30th anniversary of the start of the war is April 2. Buenos Aires sees William’s arrival as a provocation. Britain’s Ministry of Defense said William is merely following the routine career path of a pilot on the RAF search-and-rescue team.

Separately, the Sunday Times of London had a scary piece on the vast numbers of British-Somalis who are going to Somalia for training and returning as Mujahidin fighters. Al-Shabaab, with links to al-Qaeda, is a major threat for Britain. Just two weeks ago, a British-Somali who had become an al-Shabaab commander, was killed by a U.S. drone outside Mogadishu.

And the Cameron government has another issue to deal with. Spain wants to reopen discussions on the sovereignty of Gibraltar with the ultimate goal of having the rock returned. Gibraltar’s 30,000 inhabitants would most likely not welcome the idea.

Random Musings

--What a race…Mitt Romney rolled in Florida, 46-32, over Newt Gingrich, with Rick Santorum at 13% and Ron Paul 7%; pretty much in line with the late polls that saw Romney surge in the final days in no small part due to his debate performance in the last two…that and $16 million in ad spending.

The Wall Street Journal editorialized on Gingrich’s failure:

“Mr. Gingrich…did not help himself with some of his own campaign arguments. In his fury against Mr. Romney, the speaker fired away in scattershot populist fashion, denouncing Wall Street, Goldman Sachs and other capitalist institutions in terms not all that different from Mr. Obama’s.

“This didn’t help the credibility of Mr. Gingrich’s theme that the race is between a ‘Reagan conservative and a Massachusetts moderate.’ Mr. Gingrich’s tax plan is better than Mr. Romney’s, but voters in Florida can be forgiven for not knowing it. The Speaker preferred to campaign against Bain Capital.”

[Today we have caucuses in Nevada and Maine. Tuesday, Feb. 7, sees more caucuses in Colorado, Minnesota and Missouri. Then you have a 3-week break until primaries in Arizona and Michigan. Super Tuesday is March 6.]

--What a field…Wednesday morning on CNN, Republican Mitt Romney said the following:

“I’m not concerned about the very poor. We have a safety net there. If it needs repair, I’ll fix it. I’m not concerned about the very rich. They’re doing just fine. I’m concerned about the very heart of America, the 90-95% of Americans, who right now are struggling.”

Oh brother. “You can focus on the very poor; that’s not my focus,” he later explained. Newt Gingrich was granted an opening: “I’m fed up with politicians in either party pitting Americans against each other. I am running to be president of all the American people; I am concerned about all the American people.”

Conservative Jonah Goldberg at the National Review was emblematic of the response Romney’s comments got.

“Every time he seems to get into his groove and pull away, he says things that make people think he doesn’t know how to play the game.”

Editorial / Wall Street Journal

“Mitt Romney was a turnaround artist in business, which is in contrast to his artlessness when he departs from his political script. Today we’ll try to decode his latest adventure in spontaneous lingua franca, and if necessary we’re prepared to make this a long-running series right through November. Like Twain said of Wagner’s music, Mr. Romney is better than he sounds….

“Asked to elaborate (on the above comments on the poor), he continued, awkwardly. ‘You can focus on the very poor; that’s not my focus. The middle-income Americans, they’re the folks that are really struggling right now and they need someone that can help get this economy going for them.’ So Mr. Romney finally got to his real point, which was about economic growth, but the wait was – how to put it? – excruciating.

“Democrats have responded by invoking Dickens at the blacking factory and worse, and if Mr. Romney came across as a less than compassionate conservative he has himself to blame.

“There’s a half-century of creative conservative thinking on antipoverty transfer programs, and it’s too bad Mr. Romney didn’t mention some of it. One note to strike is about growing dependency on government and its corrosive effect on human dignity. Refundable tax credits, Medicaid, unemployment insurance, food stamps and the like are almost 50% more generous than they were in 2007….

“Mr. Romney’s larger mistake is to think and speak in ‘class’ terms. He touts his concern for the ‘middle class’ all the time, as if he’s trying to show that a rich guy can identify with average Americans. But this is a game that Democrats play better, and it leads Mr. Romney into cul-de-sacs like saying the poor are fine because they benefit from government, while the middle class don’t. Mr. Obama will turn this into an argument for hooking the middle class on more government.”

Sebastian Mallaby / Financial Times

“(Like) George H.W. Bush…Mr. Romney has an enemy more terrible than any mortal rival: he has a problem with the Vision Thing. Despite the fuss about his tax returns, his trouble is not that he made millions as a private equity baron. It’s that managerial credentials are all he has going for him. His campaign is devoid of an animating idea.

“So here is a modest suggestion for Mr. Romney – one that allows him to be both staunchly capitalist and stirringly radical, pro-business and yet mad as hell. Mr. Romney should declare war on the central flaw of modern American capitalism; its addiction to debt. Government debt, household debt and especially bank debt should become his whipping boys. Equity-based capitalists – entrepreneurs who are willing to take the risk of owning things – should become his heroes.

“It is a good message for Mr. Romney, and not only because it’s on the mark. It would allow him to knit together technocratic insights that he espouses anyway. And it would give him the opportunity to blend his biography with his campaign pitch, playing up his strength as an equity investor while connecting with popular fury about the hangover from the credit bust.”

--A USA TODAY/Gallup Swing States survey of the dozen states likely to determine November’s election found that Mitt Romney essentially ties Barack Obama, Romney ahead 48-47. But Obama leads Newt Gingrich, 54-40. Ron Paul only trails Obama 50-43, the same margin as Rick Santorum, 51-44.

The swing states are: Colorado, Florida, Iowa, Michigan, Nevada, New Hampshire, New Mexico, North Carolina, Ohio, Pennsylvania, Virginia and Wisconsin.

--I couldn’t disagree more with this statement from Mark Halperin in Time:

“Mitch Daniels turned down the heat on a ‘Draft Mitch’ movement with a tepid performance in his televised response to the State of the Union speech.”

As I noted last time, I thought it was terrific and the commentators I saw in the immediate aftermath thought so as well.

--For the archives, Herman Cain endorsed Newt Gingrich, while Donald Trump jerked everyone around and ended up endorsing Mitt Romney.

--Your heart has to go out to Rick Santorum and the medical issues facing his three-year-old daughter, Bella, who has a rare and fatal genetic disorder and almost succumbed to pneumonia two weeks ago. The former senator opted to stay in the race.

But to give you a sense of how hard it is to run for president, until his daughter’s latest issue, Santorum hadn’t been home since Christmas. 

[In the interest of full disclosure, I gave Santorum a whopping $100 just out of principle, and sympathy.]

--USA TODAY’s Gregory Korte looked into Paul’s 2011 final campaign-finance report and found “164 separate entries for expenditures of $1 each,” easily the most for any candidate. Paul bought value meals at a McDonald’s in three different states, and he bought office supplies from Dollar Tree, among other things.

--I’m one Republican who prays we at least win the Senate and obviously hold onto the House.

--I think we’re all in agreement that the rise in the cost of college has been egregious and President Obama may have hit on a good theme with his effort to rein in costs, though he left out details as to just how he would do so and what triggers would be in place. What we do know is Obama wants to tie federal campus aid to tuition policies. Obama talks of penalizing colleges who fail to provide “good value” for the money. Heck, I’ll tell you what’s good value. Getting to a Final Four, that’s good value!

[Sorry, but your editor’s Wake Forest basketball team is sucking wind again, with little hope for the future when all I want before I die is a Final Four appearance out of them, plus another Mets World Series title and a Super Bowl from the Jets. But I digress…]

Meanwhile, some university presidents weighed in on the White House’s proposal of tying support to tuition controls. Illinois State Univ. President Al Bowman calls it “fuzzy math.” The head of the Univ. of Washington, Mike Young, called it little more than “political theater of the worst sort.”

If Obama can refine his proposal, it will hit home with those responsible for tuition and room and board that rose 8.3% this school year at four-year public colleges.

--Nice job by the Occupy Oakland movement. Through their wanton vandalism, they managed to alienate everyone, including their one-time supporters. What a bunch of scum.

--Editorial / New York Post

“Clergymen might want to think hard before opening their doors to Occupy Wall Street – unless they like losing property.

“It’s a lesson the Rev. Bob Brashear of the West Park Presbyterian Church on the Upper West Side didn’t immediately get.

“This month, Brashear noticed that the basin and lid of his baptismal font (worth $12,500) had gone missing.

“It was the second major theft since he welcomed Occupiers to his church after their Zuccotti Park ouster: Three weeks before, his MacBook Air (estimated value: $2,400) vanished into the Occupy ether.”

[The basin was later recovered.]

“Everyone knows OWS has no regard for private property; it’s Zuccotti Park takeover made that plain. Now, it’s clear, church items are fair game, too.”

--James Q. Wilson / Washington Post

“There is no doubt that incomes are unequal in the United States – far more so than in most European nations. This fact is part of the impulse behind the Occupy Wall Street movement, whose members claim to represent the 99 percent of us against the wealthiest 1 percent….

“But the mere existence of income inequality tells us little about what, if anything, should be done about it. First, we must answer some key questions. Who constitutes the prosperous and the poor? Why has inequality increased? Does an unequal income distribution deny poor people the chance to buy what they want? And perhaps most important: How do Americans feel about inequality?

“To answer these questions, it is not enough to take a snapshot of our incomes; we must instead have a motion picture of them and how people move in and out of various income groups over time.

“The ‘rich’ in America are not a monolithic, unchanging class. A study by Thomas A. Garrett, economist at the Federal Reserve Bank of St. Louis, found that less than half of people in the top 1 percent in 1996 were still there in 2005. Such mobility is hardly surprising: A business school student, for instance, may have little money and high debts, but nine years later he or she could be earning a big Wall Street salary and bonus.

“Mobility is not limited to the top-earning households. A study by economists at the Federal Reserve Bank of Minneapolis found that nearly half of the families in the lowest fifth of income earners in 2001 had moved up within six years. Over the same period, more than a third of those in the highest fifth of income-earners had moved down. Certainly, there are people such as Warren Buffett and Bill Gates who are ensconced in the top tier, but far more common are people who are rich for short periods.

“And who are the rich? Affluent people, compared with poor ones, tend to have greater education and spouses who work full time. The past three decades have seen significant increases in real earnings for people with advanced degrees. The Bureau of Labor Statistics found that between 1979 and 2010, hourly wages for men and women with at least a college degree rose by 33 percent and 20 percent, respectively, while they fell for all people with less than a high school diploma – by 9 percent for women and 31 percent for men….

“The real income problem in this country is not a question of who is rich, but rather of who is poor. Among the bottom fifth of income earners, many people, especially men, stay there their whole lives. Low education and unwed motherhood only exacerbate poverty, which is particularly acute among racial minorities. Brookings Institution economist Scott Winship has argued that two-thirds of black children in America experience a level of poverty that only 6 percent of white children will ever see, calling it a ‘national tragedy.’….

“Reducing poverty, rather than inequality, is also a difficult task, but at least the end is clearer. One new strategy for helping the poor improve their condition is known as the ‘social impact bond,’ which is being tested in Britain and has been endorsed by the Obama administration. Under this approach, private investors, including foundations, put up money to pay for a program or initiative to help low-income people get jobs, stay out of prison or remain in school, for example….

“As Harvard economist Jeffrey Liebman has pointed out, for this system to work there must be careful measures of success and a reasonable chance for investors to make a profit. Massachusetts is ready to try such an effort. It may not be easy for the social impact bond model to work consistently, but it offers one big benefit: Instead of carping about who is rich, we would be trying to help people who are poor.”

--How else to describe the winter of 2011-2012? How about the 3rd least snow for the lower 48 going back to 1967? Bismarck, N.D., 1/5th the normal amount. Chicago is having its warmest winter in 80 years. The weather here in Murray, Kentucky was spectacular on Thursday. Beautiful sunshine, 60 degrees. Everyone was walking around in t-shirts. 

Meanwhile, Punxsutawney Phil saw his shadow so six more weeks of winter golf!

But Fort Yukon, Alaska hit a record -66 last weekend.

--Good news…the Dallas-Fort Worth area is officially out of drought for the first time since July, though nearly 60% of the state still remains in dire shape.

--So why am I in Murray, Kentucky? Each year I pick a college football or basketball team to follow (seeing the sad state of my alma mater’s squads), and I take a flyer early in the season and get tickets. In the past this has meant trips to the likes of Oregon, San Diego State, Davidson, and Idaho; in this last one to see Boise State but in Idaho’s unique field house.

Early on in the current college basketball season, though, I decided Murray State had a chance to run the table and so I got a ticket to a Racers game, which was Thursday against Southeast Missouri State. It turned out to be a fabulous contest, with the Racers finally getting their act together in the second half to remain undefeated and possibly improve their No. 10 AP ranking another notch next poll.

The population of Murray is in the 18,000 neighborhood and to reach it you fly to Nashville and drive about 2 ½ hours. Or you take a 50-mile detour like I found myself doing on Wednesday. You know that bridge that’s out? The one that made the national news when an ocean-going caliber vessel, tooling down the Cumberland, plowed into it? The thing is the boat was carrying missile parts.

Anyway, I thought the bridge wasn’t part of my travel plans, until I learned it was. So I got to see a little more of Kentucky than I thought I would.

On Thursday, before the game, I went down to Ft. Donelson, scene of the first major victory of the Civil War for the Union and a place where Ulysses S. Grant began to really make his mark. If you’re a Civil War buff, you have to go.     

So that’s my story for this week and I’m sticking to it.

---

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

God bless America.
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Gold closed at $1740…unchanged
Oil, $97.84

Returns for the week 1/30-2/3

Dow Jones +1.6% [12862]
S&P 500 +2.1% [1344]
S&P MidCap +3.1%
Russell 2000 +4.0%
Nasdaq +3.2% [2905]

Returns for the period 1/1/12-2/3/12

Dow Jones +5.3%
S&P 500 +6.9%
S&P MidCap +10.5%
Russell 2000 +12.2%
Nasdaq  +11.5%

Bulls 48.9
Bears 29.8 [Source: Investors Intelligence]

*Dr. Bortrum has posted a new column. 

Have a great week. I appreciate your support.

Brian Trumbore