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02/11/2012

For the week 2/6-2/10

[Posted 6:00 AM ET]

Europe, Washington and Wall Street

The situation in Greece is rapidly coming to a head after basically two years of kicking the teargas canister down the road. Greece has a 14.5 billion euro debt payment due March 20 and before then needs the first installment of Greek bailout II, which is to amount to 130 billion euro, or about $170 billion. The Troika (European Union, European Central Bank and International Monetary Fund) have been going round and round with Greek political leaders on the terms of the bailout and as one Euro leader put it, Greece isn’t very good at keeping its promises so much of the discussion centers around implementation.

As you’ve also seen on your television screens this week, the Greek people have once again hit the streets in protest and the demonstrations threaten to explode at a moment’s notice. Unemployment for the month of November (just announced) hit 21% vs. 18% in October, a huge jump. Industrial production in December fell 11%. As part of a new austerity plan put forward by Greece’s coalition government (headed by an unelected technocrat, you’ll recall), 15,000 more public sector workers were to be eliminated and the Troika is demanding a 20% to 22% cut in the minimum wage, as well as another cut in pensions. In a nutshell, the situation is unbearable for the people. They may have deserved it to a certain extent for their excessive partying of years past, but no people could take such a sudden, and extreme, decline in living standards…from middle class to poverty in the blink of an eye.

The process is supposed to work something like this…the politicians reach agreement, hold a cabinet meeting, present it to the Troika, and then it goes back to the Greek parliament for approval before the country receives its bailout package. At the same time, and very importantly, an agreement with private sector creditors was to be reached where they were to take haircuts on their sovereign debt of up to 70%. Both agreements must be finalized before the cash is disbursed and Athens can make its bond payment.

So on Thursday, Greek political leaders said they had clinched a deal on the economic reform side of the package, it was whisked to Brussels by the finance minister, but his 16 eurozone counterparts demanded more steps be taken plus an affirmative vote of the Greek parliament.

Jean-Claude Juncker, who chairs the Eurogroup, set three conditions, saying parliament must ratify the package when it meets on Sunday and a further 325 million euros of spending reductions needed to be identified by next Wednesday, after which finance ministers would meet again.

“Thirdly, we would need to obtain strong political assurances from the leaders of the coalition parties on the implementation of the program,” said Juncker. “Those elements need to be in place before we can take decisions. In short, no disbursement before implementation.”

One problem (among many). The Greek coalition may not survive the weekend. Finance Minister Evangelos Venizelos said his country faced a choice of staying in the euro or leaving.

“Until the next Eurogroup, which will most likely convene on Wednesday, our country, our people should think and make a final strategic choice. If we see the future of our country within the eurozone, within Europe, we should do what we have to do for the program to be approved and for the PSI (private-sector initiative) to be concluded on time before major bonds expire in March.”

A leading Greek labor union leader said, “The painful measures that create misery for the youth, the unemployed and pensioners do not leave us much room. We won’t accept them. There will be a social uprising.”

Prime Minister Lucas Papademos said on Friday night, “A disorderly default would cast our country into a catastrophic adventure. It would create conditions of uncontrollable economic chaos and social explosion.”

At this point chaos seems inevitable. It’s why I’ve said those who think Greece doesn’t matter are sadly mistaken. There is much talk today of a ‘manageable bankruptcy’ there and I don’t see it. I see bank panics that will spread in the region.  Heck, Romania’s Prime Minister resigned under pressure to “defuse political and social tension,” in his words, after protests over austerity measures, including a 25% cut in public sector wages and a freeze on pensions. And Romania’s economy was doing relatively well until recently.

Which leads me to Eastern Europe in general. European corporate defaults are projected to soar this year as banks continue to cut back on lending amidst the deteriorating economic backdrop. Smaller or indebted companies are under immense pressure. Credit has frozen up. Banks are under major pressure to raise capital or shrink their loan books, with most choosing the latter. And it was Eastern Europe that relied on the very French and Italian banks, for example, that are retrenching the most. The banks see an indebted corporate customer and in light of the recessionary environment throughout much of the region are asking, why throw good money after bad?

But many of the euro stock markets are off to great starts in 2012 and it’s largely because interest rates for the likes of Italy and Spain have come down and stabilized in the 5.25% to 5.50% range, or far below the 7% “danger level.” Granted, neither could afford to pay 6% for long, but confidence has returned, at least in the short term.

Separately, factory orders in Germany for the month of December rose 1.7% over November, but the breakdown was telling. Orders outside the euro area rose 12.3%, while euro region orders dropped 6.8%. There are signs the January data, however, is better and business confidence in Germany is up. Of course that could change in a flash.

In the U.K., factory production was up 1.0% in December, better than expected, while the Bank of England, in keeping its key lending rate at 0.5% also expanded its asset-purchase program, their version of quantitative easing.

Turning to Washington, it was a week of little economic news aside from another solid report on weekly jobless claims, down to the 358,000 level. Federal Reserve Chairman Ben Bernanke appeared before another congressional panel and reiterated he plans on keeping interest rates low into 2014. It’s also clear the Fed will do all it can to keep long-term rates low as well until housing recovers for real, or what is known as the Bernanke put.

Earnings season for the S&P 500 companies is winding down and while profits are still strong, sales growth is beginning to flatten out and profit margins are shrinking. [And depending on how you measure it, if you take out Apple, profits are up less than 4%.]

On the consumer front, 20 top retailers reported same-store sales were up 4.2% in January vs. year ago levels, better than expectations of 2%. Coincidentally, consumer borrowing jumped in December for the highest two-month surge in debt since 2001. So we’re feeling better.

And on the topic of debt, the U.S. Treasury Department said the deficit declined to $27 billion last month, from $50 billion in January 2011. Most of the drop, however, was due to several accounting changes that resulted in some benefit payments being made in December rather than January. The deficit would have still fallen, though, even excluding the impact of the changes.

The Congressional Budget Office is forecasting a budget gap of $1.1 trillion in fiscal year 2012, which began Oct. 1, and in the first four months of the 2012 budget year the deficit fell by $70 billion to $349 billion. Higher corporate tax receipts have helped boost government revenue to $790 billion, October through January, while spending was at $1.14 trillion over the same period.

As for Congress, the end of the month is fast approaching and they have yet to extend the payroll-tax cut (holiday) as well as emergency unemployment benefits through year end.

Finally, the nation’s five largest mortgage servicers – Bank of America, JPMorgan, Wells Fargo & Co., Citigroup and Ally Financial – reached a $25 billion settlement with 49 states (Oklahoma settled separately) and the federal government to end the long-running probe of abusive foreclosure practices stemming from the collapse of the housing bubble. It’s being billed as the largest federal-state civil settlement in the nation’s history. The banks committed $20 billion in various mortgage relief programs and $5 billion goes to state and federal government.

Lynn Turner, former chief accounting officer at the Securities and Exchange Commission, told Bloomberg, “There are something like 10-million-plus homes [Ed. most say 11 million…of which only 1 million benefit] under water to the tune of half a trillion dollars. I don’t think this settlement, which lets all the bank executives off the hook for filing false documents with courts, is going to make much of a dent.”

Among the features of the agreement, $1.5 billion in payments will go to 750,000 borrowers who lose their homes to foreclosure. About $17 billion will pay for mortgage debt forgiveness, forbearance, short sales and other assistance to homeowners. Servicers will provide $3 billion in refinancing to lower homeowners’ interest rates.

Bank of America has committed the lion’s share, as much as $11.8 billion, while Wells Fargo and JPMorgan provide over $5 billion; Citigroup $2.2 billion; and Ally/GMAC $310 million.

The government is looking for the next nine largest mortgage servicers to sign on, which could bring the total settlement to $40 billion.

The banks have already set aside reserves to cover most of the costs, with JPMorgan and Citi saying existing reserves are sufficient.

Individual restitution to borrowers depends on how many make claims but should be around $1,500 to $2,000, which is chump change if you’ve been kicked out of your home.

Iowa Attorney General Tom Miller, who led the 50-state talks, said the $2,000 checks represent the homeowners’ best hope of being reimbursed for any amount.

For the banks, they now get to proceed with millions of foreclosures that have been stalled.

Wells Fargo economist Mark Vitner said, “We’ve got a lot of issues to work our way through in the housing market. What this settlement does is allow that process to get started.”

The banks get a major break. If each state had sued the lenders and won, the total could have been in the hundreds of billions.

As part of the deal, foreclosure is supposed to be a last resort and the banks can’t foreclose on a homeowner who is being considered for a loan modification.

But if, as Vitner says, the banks really start clearing some properties, home prices will of course go down further in the short term though this will help the housing sector get back to normal more quickly; or at least so that’s the theory.

And if the banks thought they were now in the clear, authorities can still investigate various fraud claims, including those involving the securitization of the mortgage bond market that helped bring down the financial system.

In the meantime, if you are a borrower who is struggling to make your loan payments, owe more than the home is worth, or have lost the home to foreclosure, and, importantly, your mortgage is with one of the above banks, understand it is going to take a while to get the process rolling. Servicers may start reaching out in the coming weeks, but under the agreement they have up to three years to provide the required help. Borrowers are supposed to get letters from their mortgage company.

Street Bytes

--Stocks finished fractionally lower on the week, with the S&P 500 (-0.2%) and Nasdaq (-0.1%) registering their first down performances of the year, while the Dow Jones lost 0.5% to close at 12801. Friday’s Dow drop of 0.7%, 89 points, was the biggest since Dec. 28, to give you a sense of how little volatility there has been thus far in 2012.

Laurence Fink, CEO of BlackRock Inc., said investors should be 100% in equities, because of depressed stock valuations and the Federal Reserve’s pledge to keep interest rates low, while Warren Buffett said low interest rates and inflation should dissuade investors from buying bonds. “They are among the most dangerous of assets.”

--U.S. Treasury Yields

6-mo. 0.12% 2-yr. 0.27% 10-yr. 1.99% 30-yr. 3.14%

Inflation data this coming week will give us something to talk about here.

--According to an analysis of Labor Department data by Sentier Research, inflation-adjusted median household income increased 4%, from $49,434 to $51,413, from August to December, the biggest jump since the start of the recession in December 2007. This is good. The study is consistent with recent economic data. 

Real median household income is still 7% lower than it was 12/07 and 3.9% lower than in June 2009, when the recession officially ended, the study says; the result of Americans’ income continuing to fall during the recovery as a result of more workers seeking fewer jobs and the unemployed taking lower-paying jobs to get by. [Paul Davidson / USA TODAY]

--There was a slew of economic data in China this week and it is hard to get a true picture due to the Lunar New Year holiday falling the last week in January (vs. February in 2011), which impacts spending but also production figures as many factories shut down for it.

For example, imports in January fell 15.3% vs. year ago figures, or the lowest since August 2009, while exports fell 0.5% over the same period, the worst showing since November 2009.

But analysts at Bank of America/Merrill Lynch said in a client note that making swift adjustments for actual days worked transformed the data.

“There were 22 working days in January last year and 17 working days this year. With the adjustment, export growth was a positive 28.7%, year-over-year, in January and import growth was at a positive 10.0% year-on-year,” the note said. [South China Morning Post…actually, easy to do on the back of a beer coaster]

Overall, Lunar New Year holiday sales were up 16% vs. up 19% in 2011.

Auto sales were also distorted as many dealerships closed for a longer period than just the holiday. Passenger-vehicle deliveries cratered 24% in the month, though many are still expecting auto sales for 2012 to accelerate 8%.

On the inflation front, January’s number surprised to the upside, with consumer prices rising 4.5% from a year earlier, up from December’s 4.1% pace. But this too was distorted by the Chinese New Year, which pushed up food prices, which has regularly been seen and is assumed to be temporary. Core inflation, stripped of food costs, rose more slowly.

As for the broad picture, China’s economy has been growing at a 10.4% clip the past decade, including 9.2% in 2011. The consensus is still for about 8.5% this year, but the IMF warns that this growth rate would be cut in half if Europe’s debt crisis worsened. Singapore’s Prime Minister Lee said China is in for a “rough landing, but they will get through it.” China’s Ministry of Industry and Information Technology warned in a statement:

“The global economy is slowing down, Europe’s sovereign debt crisis is deepening and the downside risks to the world economy are rising with international demand still slack and global commodities and financial markets continuing to be volatile.”

--Canadian Prime Minister Stephen Harper traveled to China and reached agreement on a number of fronts, but no big oil deals as yet (which would be tied to the western pipeline that will inevitably be built). Regarding uranium, however, Canada, which produces 1/5th of it and exports more than 80% of its production, No. 2 after Kazakhstan, with most of the exports going to the U.S., Europe and Japan, will now start shipping to China.

Heretofore, the Chinese market was closed to Canadian producers but now the two have reached agreement whereby Canadian producers can compete with China’s suppliers in exporting for nuclear-energy generation.

One other important item for Harper and Canada; Canadian beef exports will continue after a nine-year pause.

Overall, Canada is anxious to diversify away from the U.S., which takes about 75% of all Canadian exports.

--The Indian government is projecting economic growth will fall below 7% for the 2011-2012 financial year. Growth in 2010-2011 was 8.4%.

--Indonesia’s fourth-quarter GDP rose a stronger than expected 6.5%, year-over-year.

--Retail sales in Australia grew 2.4% in 2011, the smallest increase since records started being kept in 1984. They actually ticked down in December, when a rise was expected.

--The loss for MF Global commodity customers is now an estimated $1.6 billion, up from a previous $1.2 billion.

--Credit Suisse Group reported a surprise loss of $1.1 billion for restructuring costs and revenue fell 46% as the bank accelerated cuts in risky assets. Bonuses have been slashed 41% across all divisions.

--UBS AG notified employees it will claw back part of bonuses due to its best-paid investment bankers. As reported by the Wall Street Journal, “The UBS board has decided to take back 50% of share-based bonuses awarded last year to investment bankers whose bonuses exceeded two million Swiss francs, or $2 million, one of the biggest clawbacks seen to date at any bank.”

Needless to say, morale there isn’t real high these days. This follows word the bonus pool is being cut 60% for investment bankers following the trading scandal last fall that cost UBS $2.3 billion.

Others, such as Deutsche Bank and Morgan Stanley, are limiting the cash portion of bonuses to about $125,000, while MS and Goldman Sachs said they would claw back pay from those whose actions put the banks at risk.

--Networking giant Cisco Systems Inc. reported net income for its fiscal second quarter ending Jan. 28 grew 43.5%, while revenue increased 11%, higher growth than projected last fall. But for the current quarter, Cisco sees modest revenue growth of 5% to 7%, with CEO John Chambers calling the outlook “conservative” in light of “significant uncertainty” in the economy.

--PepsiCo Inc. plans to cut 8,700 jobs, while boosting marketing spending as much as $600 million. CEO Indra Nooyi is under increasing fire. Pepsi stock has drastically underperformed rival Coca-Cola. For its part, Coke beat expectations on its earnings report.

--Global food prices rose 1.9% in January, according to the UN, this as China’s food costs rose 10.5% in the month from a year earlier.

--U.S. farmers will plant the most acres in a generation this year, according to a Bloomberg survey of farmers, bankers and analysts, owing to some of the highest agricultural prices in at least four decades. The USDA projects food costs will moderate and increase 2.5% to 3.5% in 2012, below last year’s 3.7% gain.

--Hong Kong continues to have the world’s priciest office space, followed by London, Tokyo, Moscow and now Beijing, which supplanted New York in the fifth spot. Prime office rents in Beijing’s central business district rose 75% last year.

--Terry Keenan / New York Post

“More than a quarter of all the new jobs the Labor Department expects to be created by 2020 will come from the health care and social-assistance sectors, where pay is well below that of the average manufacturing job, and pension and insurance benefits are typically sub-par.

“Compare that with the projection that only about 3.5% of new jobs will be in the highly paid financial services industry, and just 0.7% in technology, and you can grasp the growing disparity.”

--Walter Hamilton / Los Angeles Times

“More than four-fifths of bankruptcy attorneys say they’ve seen a notable jump in the number of potential clients with student loan debt…

“Nearly one-quarter of attorneys say the number of potential student loan clients has risen 50% to 100%....

“The average student loan debt of 2010 college graduates topped $25,000.”

--Nokia is cutting about 4,000 jobs at smartphone manufacturing plants in Hungary, Mexico and Finland, Nokia’s home base. Nokia remains the world’s largest handset maker by unit shipments and the company said it is moving device assembly closer to suppliers in Asia.

--Walt Disney Co. reported revenue for the quarter ended Dec. 31 was up just 1% from a year earlier, though earnings per share rose 18%. ESPN’s prime-time ratings fell 15% in the quarter as viewership for “Monday Night Football” was impacted by “an underwhelming lineup,” according to one analyst. ESPN has become the key driver at Disney and the NBA player lockout didn’t help either.

Overall, Disney CEO Bob Iger said “The trends we’re seeing in advertising are good.”

Revenue at Disney parks and resorts rose 10% in another sign of an improving economy.

--A leading real estate broker in Ireland expects further home price depreciation of at least a fifth, which would mean an eventual peak to trough decline of 60% in that country.

--The cost of rebuilding the World Trade Center site has skyrocketed to $14.8 billion. The 2008 estimate was $11.5 billion. A joint report commissioned by New York Gov. Andrew Cuomo and New Jersey Gov. Chris Christie called the Port Authority of New York and New Jersey “dysfunctional.” The agency’s debt has more than doubled in the last decade to $19.5 billion from $9.1 billion in 2001.

--Foxconn, the world’s biggest tech manufacturer, was hacked with highly sensitive data leaked online, according to Asher Moses of the Sydney Morning Herald. The hacktivist group known as Swagg Security broke into Foxconn’s systems “using a vulnerability contained in an old version of Internet Explorer that had been installed on a staff member’s computer.”

Foxconn is a major contract partner of Apple, as well as IBM and Dell, and its working conditions have been under fire for years, with Apple among those struggling to do damage control.

SwaggSec wrote in an online message:

“They say you got your employees all worked up, committing suicide ’n stuff…We got somethin’ served up good…real good. Your (sic) not gonna’ know what hit you by time you finish this release. Your company gonna’ crumble, and you deserve it.”

Isn’t today’s high-tech world great?! 

--Glencore and Xstrata announced an all-share merger that would create a $90 billion giant, combining the world’s largest commodities trading house with one of the bigger miners of coal and copper. Glencore already owns a 34% stake in Xstrata but is not permitted to vote on the proposed deal, with many leading shareholders against the move.

--The House by a 417-2 vote, and the Senate, 96-3, approved legislation explicitly prohibiting members of Congress and other top officials from trading on inside information. Under the House bill, lawmakers and their aides would have to disclose new financial transactions within 30 or 45 days from when they occurred. The Senate bill requires disclosure within 30 days. The bill would also prevent members of Congress from getting access to IPOs. In 2008, Democratic leader Nancy Pelosi’s husband purchased shares in a Visa IPO while a credit-card bill was before the House. There are a few details to be worked out between the two versions.

Meanwhile, Rep. Spencer Bachus (R-Ala.) is under formal investigation by the Office of Congressional Ethics over possible insider-trading violations, first profiled a while back on “60 Minutes.” In a statement, Bachus said he welcomed the opportunity “to present the facts and set the record straight.”

--I’ve always said the global warming debate is mislabeled; that it’s about global pollution. My friend Mark R. constantly brings up the issue of airplane contrails and I saw this week where the aviation industry accounts for about 3% of global carbon emissions, but, its share is rising rapidly. The issue came up when China said its airlines would not participate in Europe’s carbon trading scheme.

--According to the Centers for Disease Control and Prevention, bread and rolls, not snack foods like potato chips, are the No. 1 source of salt in the American diet. Said CDC Director Dr. Thomas Frieden, “Potato chips, pretzels, and popcorn – which we think of as the saltiest foods in our diet – are only No. 10.”

Bread and rolls account for about 7% of the salt that the average American eats in a day. Next on the list: cold cuts and cured meats; pizza; fresh and processed poultry; soups; fast-food hamburgers and sandwiches and cheese.

Dietary guidelines recommend no more than 2,300 milligrams of sodium a day, equal to about a teaspoon of salt.

--For nine years I commuted over New York’s Tappan Zee Bridge when I worked in Stamford, Conn. It was clear then the bridge needed replacing and now, 13 years after it was last part of my daily routine, the Federal Highway Administration labels it “structurally deficient.” This is a major problem for the New York area. No one will be surprised if a span suddenly collapses, which would kill a few, no doubt, but 140,000 vehicles cross it each day and the economic impact would be substantial. But while a new bridge has been fast-tracked, it will be a decade or more before we see one.

--Only three New Yorkers made the list of 2011’s top 50 philanthropists, down from 14 in 2010, a big drop. California boasted 14 of the top 50. Said the Chronicle of Philanthropy’s editor Stacy Palmer, “We’re starting to see a shift towards the technology money in philanthropy. We’re seeing a soaring interest in philanthropy among Silicon Valley folks and I think that will continue.”

New York’s most generous donors were George Soros, who gave away $335 million last year; Mayor Michael Bloomberg, with gifts of $311 million; and telecom mogul Gustave Hauser, who gave away $40 million.

--The Oglala Sioux Tribe is suing the world’s biggest beer companies for $500 million over severe alcohol-related issues in the community. I write about this one because I know quite a bit about the tribe, which hails from the Pine Ridge Indian Reservation in South Dakota. I’ve been to Pine Ridge numerous times over the years, including to perhaps the scariest place in America, at least after noon, Whiteclay, which is on the South Dakota/Nebraska border. I’ve described Whiteclay as like a scene out of “Night of the Living Dead” and a BBC story notes that it “has four beer shops that sold nearly five million cans of beer in 2010 despite having only about a dozen residents.” That’s true.

Alcohol is outlawed on the reservation so Whiteclay is where tribal members drive to get their beer.

So the key to going through Whiteclay is to do it early enough in the day before the drunks have woken up. I was once followed for miles after passing through the town and it was clearly with an intent to scare the hell out of me.

--Heck of a weather stretch in Europe. The heaviest snowfall in Rome in 27 years. Parts of Serbia received six feet in 24 hours! At least 300 have died across the continent.

--Qatar bought Paul Cezanne’s painting The Card Players for more than $250 million, by far the highest price yet paid for a work of art, according to the Sydney Morning Herald. Previously a Jackson Pollock held the record at $140 million back in 2006. There are actually five Card Players paintings, part of a series Cezanne painted in the 1890s. The other four are all housed in world-class museums like the Musee d’Orsay in Paris and the Metropolitan in New York. All parties involved in the sale declined to comment.

And now you almost know…the rest of the story.

---

Foreign Affairs

Iran: According to the London Times, “Saudi Arabia could acquire nuclear warheads within weeks of Iran developing atomic weapons as the threat from Tehran triggers an arms race across the Middle East.

“In the event of a successful Iranian nuclear test, Riyadh would immediately launch a twin-track nuclear weapons program, The Times has learnt.

“Warheads would be purchased off the shelf from abroad, with work on a new ballistic missile platform getting under way to build an immediate deterrent, according to Saudi sources.”

That’s the nightmare scenario in the aftermath of Iran testing its first device. Pakistan would be the vendor of choice for warheads, the Saudis having fronted the cost of Pakistan’s nuclear program.

In a bizarre twist to the story concerning the assassination of Iranian nuclear scientists, NBC News reported Thursday that the hits have been carried out by an Iranian opposition group, MEK, with logistical and financial support from the Mossad. The report was based on an interview with one of Supreme Leader Ayatollah Khamenei’s senior advisers, who detailed the relationship between the opposition group and Israel, which “two senior U.S. officials” confirmed as accurate.

What’s bizarre is the disturbing source of the story; leaks out of the White House. MEK is a designated terrorist organization by the United States.

So imagine the debate in Israel these days. Prime Minister Benjamin Netanyahu is receiving advice and information from all sides and in the end it’s his call. As Chuck Freilich of the Los Angeles Times simply sums it up, “Neither side can afford to be wrong. Netanyahu, by all indications of the existentialist mind-set, certainly cannot.”

Israel is also faced with hundreds of Iranian Shahab missiles capable of striking Israel, plus Hizbullah’s arsenal of 50,000 rockets, a far greater force than Israel faced in the 2006 Lebanon war when Hizbullah fired 4,000 rockets at Israel out of 13,000 available.

For his part, President Obama said in an interview on Super Bowl Sunday that the aim was to resolve the crisis diplomatically, but no option was off the table. He added Washington was working “in lockstep” with Israel, which was right to be very concerned about Iran’s activities.

Bret Stephens / Wall Street Journal

“Can Israel attack Iran? If it can, will it? If it will, when? If when, how?

“And what happens after that?

“On Sunday…President Obama said ‘I don’t think that Israel has made a decision on what they need to do.’ That didn’t square with the view of Defense Secretary Leon Panetta, who’s been reported as saying he expects an Israeli attack this spring. Nor does it square with public warnings from Israeli Defense Minister Ehud Barak that the Iranians would soon enter a ‘zone of immunity’ from foreign military attack if nothing is done to stop them.

“Yes, these war drums have been beaten before. But this time it’s different.

“Diplomacy has run its course: Even UN diplomats now say Iran uses negotiations as a tactic to buy time. The sanctions are too late: Israel can’t afford to wait a year or two to see if Europe’s embargo on Iranian oil or the administration’s squeeze on Iran’s financial institutions will alter Tehran’s nuclear calculations….

“Two additional points. Washington and Jerusalem are at last operating from a common timetable – Iran is within a year of getting to the point when it will be able to assemble a bomb essentially at will. And speaking of timetables, Jerusalem knows that Mr. Obama will be hard-pressed to oppose an Israeli strike – the way Dwight Eisenhower did during the Suez crisis – before Election Day. A re-elected President Obama is a different story.”

Meanwhile, reports this week have Iran bolstering its uranium refinement efforts at its subterranean Qom complex. 

Speaking of uranium efforts, the International Atomic Energy Agency’s recent three-day mission to Iran failed to address the concerns of U.S. and European officials. So fill in that box on your “Bomb Iran” checklist.

Syria: Last Saturday, Russia and China exercised their Security Council vetoes and squelched a Western- and Arab-backed resolution at the United Nations that would have condemned Syrian President Bashar Assad and his regime’s crackdown while calling on him to relinquish some of his powers to his deputy. It was a heavily watered-down version at that. 

Turkish Prime Minister Erdogan called the Security Council veto a “fiasco” and said his country wouldn’t remain silent. U.S. Ambassador to the UN, Susan Rice, condemned the vetoes as “shameful.” She said it showed how Russia and China aimed to “sell out the Syrian people and shield a craven tyrant. Any further bloodshed that flows will be on their hands.”

U.S. Secretary of State Hillary Clinton said, “To block this resolution is to bear the responsibility for the horrors on the ground in Syria.”

French Ambassador Gerard Araud said: “It is a sad day for this council, a sad day for all Syrians, and a sad day for democracy.”

Russian Ambassador Vitaly Churkin insisted the draft resolution lacked balance.

“Some influential members of the international community unfortunately…have been undermining the opportunity for political settlement, calling for regime change, pushing the oppositionists to power.”

Russian Foreign Minister Sergei Lavrov then went to Damascus and received a hero’s welcome. He urged Assad to negotiate with the opposition and adopt some reforms. As soon as he left, Assad stepped up the violence.

Editorial / Wall Street Journal

“Moscow had been signaling for weeks that it would protect its client in Damascus even as Mr. Assad added to his death toll, now at more than 5,000. [Ed. Well over 6,000] Foreign Minister Sergei Lavrov has defended Russian arms sales to Syria and ruled out any new UN moves….

“This is what happens when a U.S. administration sees the world as it would like it to be, not the way it is. The White House apparently believed its own spin that last year’s Libyan operation signaled a brave new multilateral era. But Russia abstained on that UN resolution, and strongman Vladimir Putin raged that he had been duped when NATO used the resolution to claim the authority to oust Moammar Gaddafi. The Libyan mission succeeded after much needless delay only because the U.S. military provided most of the firepower behind a NATO and Arab façade....

“Moscow has played this game at the UN with special relish in the post-Cold War era. Russia has little other leverage in global affairs, and by any economic, political or military standard deserves even less of a say….

“Most of the world – nearly all the Arab states, neighboring Turkey, the U.S. and Europe – say the killings must stop. The dictator’s ‘veto’ at the Security Council need not veto action. On their own, all these countries can arm and fund the opposition, and further tighten the noose of sanctions around Mr. Assad and his cronies. A ‘no fly zone’ above Syria can’t be ruled out either.

“The U.S. (a.k.a. the sole superpower) would in most circumstances be best placed to corral them together. By throwing its ‘killing machine,’ to use President Obama’s phrase, into a higher gear in recent weeks, the Syrian regime must figure that this White House lacks the stomach to lead a ‘coalition of the willing’…After all, the administration has made the Security Council the final say in matters of ‘collective security,’ and it said no.

“Americans are preoccupied by domestic issues, but Syria is a good test of President Obama’s foreign policy. He has put the credibility of his office on the line by declaring that Syria’s tyrant must leave. With each week of Mr. Assad’s brutality, the cost in lives and the odds of civil war will continue to rise unless Mr. Obama does more than bow before the false moral authority of the UN.”

Egypt: The Muslim Brotherhood demanded the military council cede control of the government, calling for a new coalition government formed by Parliament. Previously the Brotherhood had said it was willing to let the generals remain in charge until June and a presidential election. I have to admit this might ruin my theory the two will reach a power-sharing agreement, with the military being given the foreign policy/military portfolio, but now the ruling council has been beset by all manner of issues, including the soccer riot and the probable loss of aid from the United States.   [In the aftermath of the soccer riot, at least another 15 have been killed in the violence.]

But liberals in opposition don’t want the Brotherhood to assume immediate control, which would place them in charge of drafting the new constitution.

And then you have the military rulers trumping up charges for crimes-against-the-state against 19 Americans representing nongovernmental organizations (NGOs), most of whom have fled the country but six are holed up for protection in the U.S. embassy. Egypt is threatening show trials…pure idiocy if the rulers want to keep the $1.5 billion in annual aid Washington supplies it.

Editorial / Wall Street Journal

“The sad irony is that these groups (NGOs) are the good guys – people trying to encourage a free press, freedom to worship and political tolerance. Yet the military government can’t seem to understand its own interest in allowing the development of political voices other than the Muslim Brotherhood and Salafists.

“The government is trying to court public support by trumping up a case against ‘foreign influence,’ especially Americans. This is the oldest ruse in authoritarian politics. If it stays on this path, the military leadership will lose U.S. money and support and find itself weaker against the rise of political Islam.”

Israel: No one seems to know what the Doha agreement between the Palestinian Authority (Fatah) and Hamas actually means, but one thing is clear. Israel does not want the international community accepting a coalition government that contains an unreformed Hamas. The Quartet (UN, U.S., EU and Russia) established three criteria for engaging with Hamas: that it give up terrorism, recognize Israel and accept previous Israeli-Palestinian agreements. But the agreement signed in Doha on Monday calls for the establishment of an interim unity government.

Until the picture becomes clearer, Israel is withholding any further aid to the Palestinians. Prime Minister Netanyahu has said the PA has to choose: peace with Israel or peace with Hamas. Hamas head Khaled Mashaal, after all, said the PA-Hamas deal would create greater unity “in order to be free for confronting the enemy.”

As for the United States, since it designates Hamas a terrorist organization, it’s not known yet just what the State Department will do in terms of the military assistance currently being granted Palestinian security forces. The aid has been critical in improving security in the Palestinian territories, as Israel itself admits.

[I just saw Hamas leader Mashaal is in Iran this weekend.]

Libya: So you know how I’ve said for months that one thing that keeps me up at night is all the missing shoulder-fired missiles from Libya? This week, in the Feb. 6 issue of Defense News, we have the headline:

“U.S. Still Hunting for Missing Libyan Missiles”
As reported by Kate Brannen:

“The U.S. State Department believes the majority of anti-aircraft missiles that went missing when Moammar Gaddafi’s regime was defeated are still in Libya.

“However, while there is no definitive evidence that any of the weapons left the country, the U.S. government is not ruling out that possibility, according to Andrew Shapiro, assistant secretary of state for political-military affairs.”

It’s believed Gaddafi had about 20,000 of the man-portable air defense systems, or MANPADS, which Shapiro admits pose a “major proliferation challenge.” He says 5,000 MANPADS have been identified, recovered and secured.

USA TODAY also had a story on the topic.

Republican Senator Susan Collins of Maine, the ranking Republican on the Homeland Security Committee, said she is concerned that the White House was late in trying to get an accounting of the missiles.

Reminder…a coordinated attack on two commercial aircraft, anywhere in the Western world, would send the global economy spiraling into Depression. [One sends us back into recession.]

Separately, the New York Times had a story that the militias are sowing chaos, not that you didn’t already know that from reading this space.

Anthony Shadid:

“The country that witnessed the Arab world’s most sweeping revolution is foundering. So is its capital, where a semblance of normality has returned after the chaotic days of the fall of Tripoli last August. But no one would consider a city ordinary where militiamen tortured to death an urbane former diplomat two weeks ago, where hundreds of refugees deemed loyal to Col. Gaddafi waited hopelessly in a camp and where a government official acknowledged that ‘freedom is a problem.’”

Afghanistan: Recall how President Obama said just the other day that we were winning in Afghanistan (and it was mission accomplished in Iraq). Well a UN report revealed that the number of civilians killed and injured in the Afghan war has risen for the fifth year in a row. 3,021 civilian deaths in 2011 compared with 2,790 in 2010 and 2,412 in 2009.

And from Army Times’ Lance M. Bacon:

“An Army officer is fed up with ‘rosy official statements’ that paint Afghanistan as a picture of progress, and he is demanding military leaders come clean about the ‘absence of success on virtually every level.’

“ ‘How many more men must die in support of a mission that is not succeeding and behind an array of more than seven years of optimistic statements by U.S. senior leaders in Afghanistan?’ Lt. Col. Daniel Davis asked in a four-page essay titled ‘Truth, Lies & Afghanistan: How military leaders have let us down.’

“ ‘No one expects our leaders to always have a successful plan. But we do expect – and the men who do the living, fighting and dying deserve – to have our leaders tell us the truth about what’s going on,’ Davis wrote.”

[Davis’ essay is part of an 82-page report he wrote for the January/February issue of Armed Forces Journal, though it’s a complicated situation as the Army’s Public Affairs bureau ordered the journal to hold publication.]

Davis covered 9,000 miles during a year-long tour and said he conducted interviews with more than 250 soldiers.

“ ‘What I saw bore no resemblance to rosy official statements by U.S. military leaders about conditions on the ground,’ Davis wrote in the essay. He goes on to say conditions are not improving, local governments and military are not progressing toward self-sufficiency, insurgents control virtually every piece of land beyond eyesight of allied bases and local governments are unable to provide basic needs.”

And get this, as reported by Lance Bacon, “Six percent of overall NATO deaths in Afghanistan have been attributed to attacks by Afghan security forces, according to a confidential alliance report leaked to the media last month….

“In his report, Davis said that ‘to a man, the U.S. officers in that unit told me they had nothing but contempt for the Afghan troops in their area.”

Lt. Col. Davis’ career could be over because of these comments.

Pakistan: The Supreme Court rejected Prime Minister Gilani’s appeal against a contempt charge, which will no doubt plunge the country into further political turmoil when the case begins, shortly. Recall, Gilani is refusing to reopen corruption proceedings against President Zardari, with Gilani arguing that Zardari has immunity from prosecution while in office.

And as far as I know, former President Musharraf is still slated to return to Pakistan this month, where he faces arrest. His return is not a welcome development in terms of the nation’s stability.

Christians Under Attack:  Ayaan Hirsi Ali had a piece in Newsweek on Christians being murdered for their faith from one end of the Muslim world to the other. In part:

“(A) fair-minded assessment of recent events and trends leads to the conclusion that the scale and severity of Islamophobia pales in comparison with the bloody Christophobia currently coursing through Muslim-majority nations from one end of the globe to the other. The conspiracy of silence surrounding this violent expression of religious intolerance has to stop. Nothing less than the fate of Christianity – and ultimately of all religious minorities – in the Islamic world is at stake.

“From blasphemy laws to brutal murders to bombings to mutilations and the burning of holy sites, Christians in so many nations live in fear. In Nigeria many have suffered all of these forms of persecution. The nation has the largest Christian minority (40%) in proportion to its population (160 million) of any majority-Muslim country. For years, Muslims and Christians in Nigeria have lived on the edge of civil war. Islamist radicals provoke much if not most of the tension. The newest such organization is an outfit that calls itself Boko Haram, which means ‘Western education is sacrilege.’ Its aim is to establish Sharia in Nigeria. To this end it has stated that it will kill all Christians in the country.”

The same Ayaan Hirsi Ali in an op-ed this week for the Financial Times:

“A year ago many western commentators were celebrating an Arab spring. [Ed. not yours truly.] The internet generation personified by Wael Ghonim, the Google marketing executive, would take over power from military dictators and absolute monarchs in democratic elections. Those of us who warned that political Islam would be the principal beneficiary of elections in North Africa and the Middle East were dismissed as scaremongers…

“To compare Islamists of today with the Christian democrats of postwar Europe is absurd. To take them at their word that they will govern like the Islamists of Turkey is not much better. Europe’s Christian democrats may claim to be inspired by the Bible but they would not dream of proposing legislation straight from the book of Leviticus. By contrast, the Islamists of North Africa and the Middle East have for decades promoted the agenda that legislation should come from the suras of the Koran and other Islamic scripture.

“The leaders of the political parties of the Brotherhood movement in Egypt, Morocco and Tunisia have insisted they are no different from Turkey’s ruling Justice and Development Party (AKP). They say they will adopt the same economic policies as the AKP. Surveys by Pew and others show that, all over North Africa, the government in Ankara is seen as a role model.

“Yet the circumstances of Turkey are radically different from these North African states. In the 1920s, under Kemal Ataturk, Turkey embarked on a sustained policy of westernization. Ataturk’s reforms, more than anything the AKP has done, help explain why the Turkish economy is among the most dynamic in the Muslim world. The AKP’s Islamist zeal is checked by the military, judiciary and press – though for how much longer remains to be seen.

“These checks and balances are largely absent in the Arab world, as are the basic institutions conducive to economic prosperity. What is the likelihood then that Islamist parties will discard the project to impose Sharia law that they have been promoting for decades?  I think it is very low. My expectation is that Islamist parties will sweet-talk their voters and the west until their power is well established and then govern like Iran’s regime or Hamas in Gaza.

“The transition from closed to open societies will be slow and painful for the Arab-Muslim world. Given that, it would be better for the west to invest in the future by offering more support to the secular groups that brought about this revolution. Cairo is not Ankara post-Ataturk, much less Bonn post-Adenauer. It is time to abandon the overconfident assumption that there is a moderate mainstream in the Arab world.”

Russia: Despite temperatures below zero, tens of thousands (estimates ranged from 50,000 to 120,000) braved the elements in Moscow last Saturday to demand fair elections next month, March 4, as demonstrators carried anti-Vladimir Putin banners. Putin, in turn, has accused the United States of inciting mass protests. He also wrote an op-ed in the Washington Post this week that was such a bunch of garbage, I didn’t find one line worth citing in this column.

Gideon Rachman / Financial Times

“No one is yet talking of a ‘Moscow spring.’…But there is definitely a Moscow thaw. After a long period of close political control in Russia, the ice is cracking. The intoxicating sense that taboos are being broken is reminiscent of the outbreak of glasnost under Mikhail Gorbachev, which signaled the beginning of the end of the Soviet era….

“One possibility is that Mr. Putin heeds the calls for a rerun of the parliamentary elections of last December. Genuinely free elections would lead to a Duma with a real opposition that would be able to challenge the Kremlin rather than simply acting as its echo chamber.

“Another possibility is to repeat the procedure that ended the presidency of Boris Yeltsin at the end of 1999. Mr. Yeltsin was persuaded to step down, in favor of Mr. Putin, in return for guarantees that he, his family and his business cronies would not be pursued for corrupt practices. Many of the people who made fortunes in the Putin era will be worrying about what the future might hold for them. They might be amenable to some kind of amnesty deal – if the offer were made.

“These scenarios may sound far-fetched. [Ed. yours truly has been predicting a similar one.] But in Moscow at the moment, the most far-fetched idea of all is the notion that President Putin will still be running Russia in 2024. The Moscow River was frozen over last week but listen carefully and you could hear the sound of the ice cracking beneath the surface.”

Thomas L. Friedman / New York Times

“Putin’s Russia is at a crossroads. It has become a ‘sort-of-but-not-really-country.’ Russia today is sort of a democracy, but not really. It’s sort of a free market, but not really. It’s sort of got the rule of law to protect businesses, but not really. It’s sort of a European country, but not really. It has sort of a free press, but not really. It’s cold war with America is sort of over, but not really. It’s sort of trying to become something more than a petro-state, but not really….

“Real reform will require a huge re-set on Putin’s part. Could it happen? Does he get it? On the evidence available now, I’d say: sort of, but not really.”

China: Vice President (soon to be president) Xi Jinping arrives in Washington this week in what will be a clear attempt to deal with the existing “trust deficit” between our two nations. There are certainly some big issues for Xi to discuss with President Obama and Vice President Biden, whether its trade disputes, North Korea, territorial issues in the South China Sea, or China’s veto, along with Russia’s, of a UN Resolution condemning Syria’s Assad.

France: I’m on record as saying National Front candidate Marine Le Pen will finish second ahead of President Sarkozy in the first round of voting in the French presidential election April 22. Some analysts there say she’s near 25% and that might do it. Of course she’d then get her butt kicked by the Socialist candidate, Francois Hollande. But one poll published Feb. 6 had Hollande at 34% and Sarkozy at 26%, with Le Pen just at 16%, after which Hollande would defeat Sarkozy in round two, 58-42.

[I also just saw where Le Pen has yet to formally qualify for the presidential ballot due to France’s crazy qualification requirement – gaining the signature of 500 parliamentarians or council leaders. Boy, that would suck.]

Mexico: Working with the Mexican government, the U.S. State Department has issued an updated travel warning for tourists visiting the country, adding more specificity, which Mexican tourism officials agree with. The number of U.S. citizens reported to the Department of State as murdered in Mexico jumped from 35 in 2007 to 120 in 2011. If you’re traveling there, go to the State Department web site.

Random Musings

--Last Saturday, Mitt Romney cleaned up in the Nevada caucuses with 50% to Newt Gingrich’s 21% and Ron Paul’s 19%; this while Rick Santorum was focusing on the next three contests a few days later. Santorum spent his time wisely because he then romped in all three, thus shaking up the Republican race once again.

Colorado…Santorum 40  Romney 35
Minnesota…Santorum 45  Paul 27
Missouri…Santorum 55  Romney 25

“I don’t claim to be the conservative alternative to Mitt Romney,” Santorum said Tuesday night in his victory speech. “I stand here to be the conservative alternative to Barack Obama.”

Now Missouri was a ‘beauty’ contest in that delegates are to be selected later, and many say Minnesota also was more of a beauty contest though delegates were divvied up (at least in this first round of an extended process), but the fact is Rick Santorum, coupled with his win in Iowa, can claim he came out in front in four states thus far, while Mitt Romney has three wins (New Hampshire, Florida and Nevada). And when it comes to delegates, the AP and USA TODAY have it:

Romney 112
Santorum 72
Gingrich 32
Paul 9

1,144 are needed for the nomination so, yes, this thing is far from over and there is zero reason for anyone, including Newt Gingrich, to concede anything to Mitt Romney until perhaps Super Tuesday (March 6), in the case of the former speaker. Next up (aside from the results from Maine’s weeklong caucuses…where Romney is said to be in trouble) are primaries in Arizona and Michigan on Feb. 28.

For Santorum’s shoestring campaign, the three wins translated into $1 million in donations the day after, which isn’t bad, but he’s obviously scrambling to build organizations in the upcoming states. At year’s end, Santorum had a 10-member campaign payroll at a quarterly cost of $49,000, while Romney reported a 92-member staff and a quarterly payroll of $1.3 million. [Barack Obama reported a 430-person campaign staff, which cost $4.7 million for the final three months of 2011.]

So is there any chance this race goes all the way to the convention? Us political junkies would love that, but let’s wait to see where we are after March 6. Some of us are praying for chaos to allow for a Jeb Bush or Mitch Daniels to emerge as a consensus pick. [Not sure on Christie these days.]

--During his first week in office, President Obama pledged to close Guantanamo, but he has yet to do so. No problem for him, however. 70% of Americans approve of the decision to keep it open, according to a new Washington Post/ABC News poll.

--Albert R. Hunt / Bloomberg

“President Barack Obama is headed for political turbulence.

“That prediction isn’t based on any private polling data or inside information. It’s just common sense: National political campaigns are cyclical, and after an especially good cycle, the Democratic president is due for some downtime.

“On re-election prospects, the Obamaites are confident when they look at the state of the race, especially the Republicans. They’re showing signs of cockiness.

“Like many politicians, Obama courts trouble when he’s riding high. Following his victory in the Iowa caucuses four years ago he was a favorite to end Hillary Clinton’s campaign with a blowout victory in New Hampshire. In a debate there, he showed veiled disdain for his opponent, saying that she was ‘likeable enough.’ He then lost that primary.

“Today, the administration’s chest-thumping over the State of the Union address is illustrative. It was a good political pitch, putting Republicans on the defensive on the fairness issue. It also was devoid of governing substance, something political handlers and White House spin doctors have tried to deny.

“The president didn’t mention the Bowles-Simpson deficit commission. He appointed that panel two years ago. Then, when it issued a bipartisan report on how to fix the government’s books in December 2010, the president went silent. Privately, the White House’s explanation was that they kept quiet because they wanted to smoke out the budget proposal of the House Republicans, which was being drafted by Representative Paul Ryan of Wisconsin. That was unveiled a year ago, and the Democrats got lots of political mileage out of it….

“Over the last couple of months, Obama hasn’t been held to the same standard as the Republicans. That’s not because of any bias or media love affair with the president; it’s because his foes have provided so much ammunition about each other. That’s also part of the cycle, not likely to last.

“Another illustration of presidential hubris involved the Bush family. The White House put out a picture of a private meeting in the Oval Office on Jan. 27 that included former President George H.W. Bush and his son, Jeb, the former governor of Florida.

“The Bushes were in town for the annual black tie dinner the next night at the Alfalfa club, a gathering of business and political elites. The two featured speakers, both intended to be brief and humorous, were Obama and Jeb Bush. The president spoke to good reviews. He left before Bush spoke.

“Obama hates such dinners. Some of his aides, in particular his political adviser David Plouffe, urged him not to spend an evening mingling with the 1 percent. Yet he chose to go, and attendees said it was the first time they could recall a speaker leaving before the other side had its fun. In addition, Obama’s 87-year-old predecessor was present.

“Imagine the criticism five years ago if President George W. Bush had walked out on a dinner before Hillary Clinton spoke, with Bill Clinton in the audience.

“In 2004, Democrats expressed outrage that Karl Rove served simultaneously as both the top White House adviser and as the head of George W. Bush’s re-election campaign. That, they said, was a blatant conflict of interest. Yet today, Plouffe is performing those two functions for Obama; the only difference is that Plouffe is a little better on politics and Rove had a better grasp of policy.

“The most dangerous sign of arrogance is Team Obama’s insularity. It’s an exclusive club, with no room for outsiders. Inside the White House, that dynamic is personified by Valerie Jarrett, the president and first lady’s longtime confidante, who conducts the loyalty litmus test….

“The same generally applies to the political team. Conversations last week with five of the smartest and most experienced Democratic political strategists – none associated with the Obama campaign – yielded the same bottom line: They’re only consulted occasionally and the outreach is pro forma. If it’s a runaway election, that approach will work out fine for the White House; if it gets tight, Obama may need some other counsel.”

The above is at least the third piece I’ve cited on Obama’s aloofness and insularity over the past few months. Again, I can’t help but repeat that when I see a poll showing how much Americans like Obama, even if they don’t approve of his policies, it cracks me up. He doesn’t like you. 

--Obama told NBC’s Matt Lauer in a pre-Super Bowl interview, “I deserve a second term.”

It was three years ago, and only 10 days into his presidency, that Obama told Lauer that with regards to the state of the economy, “If I don’t have this done in three years, then it’s going to be a one-term proposition.”

--The foreign policy of the Republican presidential candidates is a mess. George Will comments in his Washington Post column…much of which should sound very familiar to readers of “Week in Review.”

“The U.S. defense budget is about 43 percent of the world’s total military spending – more than the combined defense spending of the next 17 nations, many of which are U.S. allies. Are Republicans really going to warn voters that America will be imperiled if the defense budget is cut 8 percent from projections over the next decade? In 2017, defense spending would still be more than that of the next 10 countries combined.

“Do Republicans think it is premature to withdraw as many as 7,000 troops from Europe two decades after the Soviet Union’s death? About 73,000 will remain, most of them in prosperous, pacific, largely unarmed and utterly unthreatened Germany. Why do so many remain?

“Since 2001, the United States has waged war in three nations, and some Republicans appear ready to bring the total to five, adding Iran and Syria…GOP critics say that Obama’s proposed defense cuts will limit America’s ability to engage in troop-intensive nation-building. Most Americans probably say: Good.

“Critics say that defense cuts will limit America’s ability to intervene abroad as it has recently done. Well. Even leaving aside Iraq and Afghanistan, do Americans want defense spending to enable a rump of NATO – principally, Britain and France – to indulge moral ambitions and imperial nostalgia in Libya, and perhaps elsewhere, using U.S. materiel and competence?

“Defense Secretary Leon Panetta says that the Army should contract from 570,000 soldiers to 490,000 in a decade. Romney says that the military should have 100,000 more troops than it does. (The Army is 88,000 larger than it was before Afghanistan and Iraq.) Romney may be right, but he should connect that judgment to specific assessments of threats and ambitions.

“Romney says: ‘It is unacceptable for Iran to have a nuclear weapon,’ that if he is elected, Iran will not get such a weapon, and if Obama is reelected, it will. He also says that Obama ‘has made it very clear that he’s not willing to do those things necessary to get Iran to be dissuaded from its nuclear ambitions.’ Romney may, however, be premature in assuming the futility of new sanctions the Obama administration is orchestrating, and Panetta says Iran acquiring nuclear weapons is ‘unacceptable’ and ‘a red line for us’ and if ‘we get intelligence that they are proceeding with developing a nuclear weapon, then we will take whatever steps necessary to stop it.’ What then is the difference between Romney and Obama regarding Iran?

“Osama bin Laden and many other ‘high-value targets’ are dead, the drone war is being waged more vigorously than ever, and Guantanamo is still open, so Republicans can hardly say that Obama has implemented dramatic and dangerous discontinuities regarding counterterrorism. Obama says that, even with his proposed cuts, the defense budget would increase at about the rate of inflation through the next decade. Republicans who think America is being endangered by ‘appeasement’ and military parsimony have worked that pedal on their organ quite enough.”

I agree with Mr. Will on the numbers. On the actual policy front, however, I believe Obama’s been for the most part a disaster. As 2012 develops, this will become increasingly clear, only Republicans are incredibly weak themselves on the issue. The world isn’t black and white, which is why I spend so much time each week on the topic.

--Editorial / Wall Street Journal

“The Senate last passed a budget 1,106 days ago – that would be almost three years – and now the White House is telling Democrats not to bother this year either. Harry Reid will be pleased, because last week the Majority Leader said he had no plans to do so.

“Asked yesterday about the lack of a Senate budget, spokesman Jay Carney said that ‘Well, I don’t have an opinion to express on how the Senate does its business with regards to this issue.’ ABC’s Jake Tapper pressed, incredulously, ‘The White House has no opinion about whether or not the Senate should pass a budget?’

“Mr. Carney reiterated that President Obama has ‘no option,’ only that he ‘looks forward to the Senate acting on the policy initiatives contained within his budget.’ But Mr. Carney refused to say the Senate should act by even proposing a budget, let alone, you know, actually passing one.”

The Congressional Budget Act of 1974, created by Democrats, mandates that both the House and Senate submit formal budget blueprints. House Republicans continue to submit theirs.

--According to the latest Gallup Poll, only 10% of Americans approve of the job Congress is doing, another record low. 86% disapprove. In October 2001, Congress registered a record-high approval rating of 84% in the wake of 9/11.

--Last week I said you’d begin to see polls showing President Obama with a 50% approval rating and the latest Washington Post/ABC News survey does indeed have Obama at 50. Among the key independent bloc, 47% approve and 50% disapprove of the way he is handling his job. His positive rating among independents had dipped to as low as 34% in the fall.

In a general election matchup, Obama leads Romney 51-45 among registered voters.

--A few weeks ago I pointed out the issue of President Obama signing off on a Health and Human Services ruling that under Obamacare, Catholic institutions – including hospitals – would be required for the first time ever to provide and pay for insurance coverage that includes contraception. Failure to do so results in huge fines. New York Archbishop Timothy Dolan blasted the president.

Peggy Noonan / Wall Street News

“President Obama just may have lost the election….

“In other words, the Catholic Church was told that its institutions can’t be Catholic anymore.

“I invite you to imagine the moment we are living in without the church’s charities, hospitals and schools. And if you know anything about those organizations, you know it is a fantasy that they can afford millions in fines.

“There was no reason to make this ruling – none. Except ideology.

“The conscience clause, which keeps the church itself from having to bow to such decisions, has always been assumed to cover the church’s institutions.”

So the church has been fighting back.

“If they stay strong…they will win. This is in fact a potentially unifying moment for American Catholics, long split left, right and center. Catholic conservatives will immediately and fully oppose the administration’s decision. But Catholic liberals, who feel embarrassed and undercut, have also come out in opposition.

“The church is split on many things. But do Catholics in the pews want the government telling their church to contravene its beliefs?....

“In 2008…Mr. Obama carried the Catholic vote, 54% to 45%. They helped him win.

“They won’t this year. And guess where a lot of Catholics live? In the battleground states.

“There was no reason to pick this fight. It reflects political incompetence on a scale so great as to make Mitt Romney’s gaffes a little bitty thing.

“There was nothing for the president to gain, except, perhaps, the pleasure of making a great church bow to him.

“Enjoy it while you can. You have awakened a sleeping giant.”

*On Friday, President Obama announced a birth control compromise he said would protect religious liberties and ensure that the nation’s women have access to free contraception. Obama will allow workers at institutions where contraception is not currently available because it runs counter to their beliefs, to get it directly from health insurance companies.

“Religious liberty will be protected, and a law that requires free preventive care will not discriminate against women. I understand some folks in Washington want to treat this as another political wedge issue. But it shouldn’t be. I certainly never saw it that way,” Obama said. “This is an issue where people of good will on both sides of the debate have been sorting through some very complicated questions.”

Cardinal-designate Dolan said the changes were a “first step in the right direction” but that there were too few details to comment further. [Ben Fuller / AP]

It’s too late for the president. Many Catholics who once supported him won’t forget what he was trying to do. They won’t forget the arrogance.

--Editorial / New York Post

“After years of preaching the evils of ‘super PACs,’ President Obama has decided to dance with the devil – aligning himself with Priorities USA Action, a fund-raising committee that can take nearly unlimited campaign donations.

“Sure, he said last year that super PACs pose ‘a threat to our democracy’ because they’ll produce ‘a flood of attack ads run by shadowy groups with harmless-sounding names. We don’t know who’s behind these ads…who’s paying for them.’

“Never mind, he said yesterday.

“Now the White House will dispatch Cabinet officials and top advisers to work with Priorities – and Obama wants his top donors to start shelling out big-time.

“ ‘We’re not going to fight this fight with one hand tied behind our back,’ said campaign manager Jim Messina.

“To which we say: Hahahahahahahaha.”

--New Jersey Republican Gov. Chris Christie has a 55% approval rating among registered voters in a Monmouth University/NJ Press Media Poll, which is sizable for a Republican in my state, but nearly half say he is more concerned with his political future than with running New Jersey. I went to see the governor at a town hall meeting in Westfield the other day and my friend and I were bored to tears and left after four dumb questions (for this kind of forum), this after Christie spent too long going into his first two years and all his achievements. Yet he turned out 600 people for a Tuesday morning.

I forgot to tell you that a few weeks earlier, I saw former New Jersey Gov. Christie Whitman, who is on the board of the new Internet-based group Americans Elect, which is looking to promote a bipartisan presidential ticket later this spring and summer. Americans Elect is supposed to gain access to the ballot in all 50 states. I’d love a viable third party candidate this go ‘round but I don’t see how they’ll attract a top-shelf ticket, and one that can get into the debates.

--As if Greece didn’t already have enough problems, as Bloomberg reported, the nation’s doctors are fighting a pneumonia-causing superbug that is resistant to most antibiotics. “The culprit is spreading through health centers already weighed down by a shortage of nurses.  The hospital-acquired germ killed as many as half of people with blood cancers infected at Laiko General Hospital, a 500-bed facility in central Athens.” The K. pneumonia bacteria (KPC as it is being dubbed) has a mutation that allows them to evade powerful drugs. Partly because of the lowest nurse-to-patient ratio in Europe, Greece has one of the highest rates of antibiotic use – and abuse – on the continent.

--Just when the cruise industry needs some good PR, there’s a wave of norovirus incidents.

--Prince Harry qualified as an Apache helicopter pilot after 18 months of training in the U.K. and the U.S. So Harry now has limited “combat-ready status,” which is very cool. Eight weeks of the training was in California and Arizona, carrying out exercises designed to prepare pilots for action in Afghanistan, though there is little chance Harry is going back after he served 10 weeks there in 2007-8, only to have his deployment become public.

--Feb. 6 marked 60 years on the throne for Queen Elizabeth II, now 85. Queen Victoria reigned for more than 63 years.

--Feb. 7 was the bicentennial of the birth of Charles Dickens. The Times (of London…which is why I call it the London Times for convenience), was around back then and in 1867, Dickens wrote a letter to the paper seeking “to refute a rumor that he was in poor health. ‘Will you allow me to state in your columns,’ he asked, ‘that the statement is wholly destitute of foundation, and that I never was better in my life?’

“Much the same might be said of Dickens’ posthumous reputation. The author enjoyed extraordinary acclaim in his lifetime. Yet, if anything, the characters that he depicted pervade public life and popular consciousness still more vividly now.

“They do so because their creator, born 200 years ago, was more than a great writer. Dickens is a central figure in the nation’s history. He illuminated an age in which England became an industrial power and a modern state, amid immense deprivation. He transformed the art of the novel from picaresque accounts of personal quests to panoramas of whole societies. In his use of social and psychological realism, he was an artistic pioneer. But beyond all these achievements, he created characters that live.

“From The Pickwick Papers and David Copperfield to his last and greatest finished work, Our Mutual Friend, Dickens portrays the consequences of discovering one’s identity. If modern readers fault him for sentimentality, they miss his insights into the nature of benevolence and evil, and the complexities of the human condition. The damaged characters of Miss Havisham in Great Expectations or Miss Wade in Little Dorrit, say, are unique in literature while being instantly recognizable in life. There lies the cause for celebration. More than almost any other English writer, Dickens holds the mirror up to nature, and shows the very age and body of the time.” [The Times]

---

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

God bless America.
---

Gold closed at $1725
Oil, $98.67

Returns for the week 2/6-2/10

Dow Jones -0.5% [12801]
S&P 500 -0.2% [1342]
S&P MidCap -0.7%
Russell 2000 -2.1%
Nasdaq -0.1% [2903]

Returns for the period 1/1/12-2/10/12

Dow Jones +4.8%
S&P 500 +6.8%
S&P MidCap +9.7%
Russell 2000 +9.8%
Nasdaq +11.5%

Bulls 52.1
Bears 28.7 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore



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Week in Review

02/11/2012

For the week 2/6-2/10

[Posted 6:00 AM ET]

Europe, Washington and Wall Street

The situation in Greece is rapidly coming to a head after basically two years of kicking the teargas canister down the road. Greece has a 14.5 billion euro debt payment due March 20 and before then needs the first installment of Greek bailout II, which is to amount to 130 billion euro, or about $170 billion. The Troika (European Union, European Central Bank and International Monetary Fund) have been going round and round with Greek political leaders on the terms of the bailout and as one Euro leader put it, Greece isn’t very good at keeping its promises so much of the discussion centers around implementation.

As you’ve also seen on your television screens this week, the Greek people have once again hit the streets in protest and the demonstrations threaten to explode at a moment’s notice. Unemployment for the month of November (just announced) hit 21% vs. 18% in October, a huge jump. Industrial production in December fell 11%. As part of a new austerity plan put forward by Greece’s coalition government (headed by an unelected technocrat, you’ll recall), 15,000 more public sector workers were to be eliminated and the Troika is demanding a 20% to 22% cut in the minimum wage, as well as another cut in pensions. In a nutshell, the situation is unbearable for the people. They may have deserved it to a certain extent for their excessive partying of years past, but no people could take such a sudden, and extreme, decline in living standards…from middle class to poverty in the blink of an eye.

The process is supposed to work something like this…the politicians reach agreement, hold a cabinet meeting, present it to the Troika, and then it goes back to the Greek parliament for approval before the country receives its bailout package. At the same time, and very importantly, an agreement with private sector creditors was to be reached where they were to take haircuts on their sovereign debt of up to 70%. Both agreements must be finalized before the cash is disbursed and Athens can make its bond payment.

So on Thursday, Greek political leaders said they had clinched a deal on the economic reform side of the package, it was whisked to Brussels by the finance minister, but his 16 eurozone counterparts demanded more steps be taken plus an affirmative vote of the Greek parliament.

Jean-Claude Juncker, who chairs the Eurogroup, set three conditions, saying parliament must ratify the package when it meets on Sunday and a further 325 million euros of spending reductions needed to be identified by next Wednesday, after which finance ministers would meet again.

“Thirdly, we would need to obtain strong political assurances from the leaders of the coalition parties on the implementation of the program,” said Juncker. “Those elements need to be in place before we can take decisions. In short, no disbursement before implementation.”

One problem (among many). The Greek coalition may not survive the weekend. Finance Minister Evangelos Venizelos said his country faced a choice of staying in the euro or leaving.

“Until the next Eurogroup, which will most likely convene on Wednesday, our country, our people should think and make a final strategic choice. If we see the future of our country within the eurozone, within Europe, we should do what we have to do for the program to be approved and for the PSI (private-sector initiative) to be concluded on time before major bonds expire in March.”

A leading Greek labor union leader said, “The painful measures that create misery for the youth, the unemployed and pensioners do not leave us much room. We won’t accept them. There will be a social uprising.”

Prime Minister Lucas Papademos said on Friday night, “A disorderly default would cast our country into a catastrophic adventure. It would create conditions of uncontrollable economic chaos and social explosion.”

At this point chaos seems inevitable. It’s why I’ve said those who think Greece doesn’t matter are sadly mistaken. There is much talk today of a ‘manageable bankruptcy’ there and I don’t see it. I see bank panics that will spread in the region.  Heck, Romania’s Prime Minister resigned under pressure to “defuse political and social tension,” in his words, after protests over austerity measures, including a 25% cut in public sector wages and a freeze on pensions. And Romania’s economy was doing relatively well until recently.

Which leads me to Eastern Europe in general. European corporate defaults are projected to soar this year as banks continue to cut back on lending amidst the deteriorating economic backdrop. Smaller or indebted companies are under immense pressure. Credit has frozen up. Banks are under major pressure to raise capital or shrink their loan books, with most choosing the latter. And it was Eastern Europe that relied on the very French and Italian banks, for example, that are retrenching the most. The banks see an indebted corporate customer and in light of the recessionary environment throughout much of the region are asking, why throw good money after bad?

But many of the euro stock markets are off to great starts in 2012 and it’s largely because interest rates for the likes of Italy and Spain have come down and stabilized in the 5.25% to 5.50% range, or far below the 7% “danger level.” Granted, neither could afford to pay 6% for long, but confidence has returned, at least in the short term.

Separately, factory orders in Germany for the month of December rose 1.7% over November, but the breakdown was telling. Orders outside the euro area rose 12.3%, while euro region orders dropped 6.8%. There are signs the January data, however, is better and business confidence in Germany is up. Of course that could change in a flash.

In the U.K., factory production was up 1.0% in December, better than expected, while the Bank of England, in keeping its key lending rate at 0.5% also expanded its asset-purchase program, their version of quantitative easing.

Turning to Washington, it was a week of little economic news aside from another solid report on weekly jobless claims, down to the 358,000 level. Federal Reserve Chairman Ben Bernanke appeared before another congressional panel and reiterated he plans on keeping interest rates low into 2014. It’s also clear the Fed will do all it can to keep long-term rates low as well until housing recovers for real, or what is known as the Bernanke put.

Earnings season for the S&P 500 companies is winding down and while profits are still strong, sales growth is beginning to flatten out and profit margins are shrinking. [And depending on how you measure it, if you take out Apple, profits are up less than 4%.]

On the consumer front, 20 top retailers reported same-store sales were up 4.2% in January vs. year ago levels, better than expectations of 2%. Coincidentally, consumer borrowing jumped in December for the highest two-month surge in debt since 2001. So we’re feeling better.

And on the topic of debt, the U.S. Treasury Department said the deficit declined to $27 billion last month, from $50 billion in January 2011. Most of the drop, however, was due to several accounting changes that resulted in some benefit payments being made in December rather than January. The deficit would have still fallen, though, even excluding the impact of the changes.

The Congressional Budget Office is forecasting a budget gap of $1.1 trillion in fiscal year 2012, which began Oct. 1, and in the first four months of the 2012 budget year the deficit fell by $70 billion to $349 billion. Higher corporate tax receipts have helped boost government revenue to $790 billion, October through January, while spending was at $1.14 trillion over the same period.

As for Congress, the end of the month is fast approaching and they have yet to extend the payroll-tax cut (holiday) as well as emergency unemployment benefits through year end.

Finally, the nation’s five largest mortgage servicers – Bank of America, JPMorgan, Wells Fargo & Co., Citigroup and Ally Financial – reached a $25 billion settlement with 49 states (Oklahoma settled separately) and the federal government to end the long-running probe of abusive foreclosure practices stemming from the collapse of the housing bubble. It’s being billed as the largest federal-state civil settlement in the nation’s history. The banks committed $20 billion in various mortgage relief programs and $5 billion goes to state and federal government.

Lynn Turner, former chief accounting officer at the Securities and Exchange Commission, told Bloomberg, “There are something like 10-million-plus homes [Ed. most say 11 million…of which only 1 million benefit] under water to the tune of half a trillion dollars. I don’t think this settlement, which lets all the bank executives off the hook for filing false documents with courts, is going to make much of a dent.”

Among the features of the agreement, $1.5 billion in payments will go to 750,000 borrowers who lose their homes to foreclosure. About $17 billion will pay for mortgage debt forgiveness, forbearance, short sales and other assistance to homeowners. Servicers will provide $3 billion in refinancing to lower homeowners’ interest rates.

Bank of America has committed the lion’s share, as much as $11.8 billion, while Wells Fargo and JPMorgan provide over $5 billion; Citigroup $2.2 billion; and Ally/GMAC $310 million.

The government is looking for the next nine largest mortgage servicers to sign on, which could bring the total settlement to $40 billion.

The banks have already set aside reserves to cover most of the costs, with JPMorgan and Citi saying existing reserves are sufficient.

Individual restitution to borrowers depends on how many make claims but should be around $1,500 to $2,000, which is chump change if you’ve been kicked out of your home.

Iowa Attorney General Tom Miller, who led the 50-state talks, said the $2,000 checks represent the homeowners’ best hope of being reimbursed for any amount.

For the banks, they now get to proceed with millions of foreclosures that have been stalled.

Wells Fargo economist Mark Vitner said, “We’ve got a lot of issues to work our way through in the housing market. What this settlement does is allow that process to get started.”

The banks get a major break. If each state had sued the lenders and won, the total could have been in the hundreds of billions.

As part of the deal, foreclosure is supposed to be a last resort and the banks can’t foreclose on a homeowner who is being considered for a loan modification.

But if, as Vitner says, the banks really start clearing some properties, home prices will of course go down further in the short term though this will help the housing sector get back to normal more quickly; or at least so that’s the theory.

And if the banks thought they were now in the clear, authorities can still investigate various fraud claims, including those involving the securitization of the mortgage bond market that helped bring down the financial system.

In the meantime, if you are a borrower who is struggling to make your loan payments, owe more than the home is worth, or have lost the home to foreclosure, and, importantly, your mortgage is with one of the above banks, understand it is going to take a while to get the process rolling. Servicers may start reaching out in the coming weeks, but under the agreement they have up to three years to provide the required help. Borrowers are supposed to get letters from their mortgage company.

Street Bytes

--Stocks finished fractionally lower on the week, with the S&P 500 (-0.2%) and Nasdaq (-0.1%) registering their first down performances of the year, while the Dow Jones lost 0.5% to close at 12801. Friday’s Dow drop of 0.7%, 89 points, was the biggest since Dec. 28, to give you a sense of how little volatility there has been thus far in 2012.

Laurence Fink, CEO of BlackRock Inc., said investors should be 100% in equities, because of depressed stock valuations and the Federal Reserve’s pledge to keep interest rates low, while Warren Buffett said low interest rates and inflation should dissuade investors from buying bonds. “They are among the most dangerous of assets.”

--U.S. Treasury Yields

6-mo. 0.12% 2-yr. 0.27% 10-yr. 1.99% 30-yr. 3.14%

Inflation data this coming week will give us something to talk about here.

--According to an analysis of Labor Department data by Sentier Research, inflation-adjusted median household income increased 4%, from $49,434 to $51,413, from August to December, the biggest jump since the start of the recession in December 2007. This is good. The study is consistent with recent economic data. 

Real median household income is still 7% lower than it was 12/07 and 3.9% lower than in June 2009, when the recession officially ended, the study says; the result of Americans’ income continuing to fall during the recovery as a result of more workers seeking fewer jobs and the unemployed taking lower-paying jobs to get by. [Paul Davidson / USA TODAY]

--There was a slew of economic data in China this week and it is hard to get a true picture due to the Lunar New Year holiday falling the last week in January (vs. February in 2011), which impacts spending but also production figures as many factories shut down for it.

For example, imports in January fell 15.3% vs. year ago figures, or the lowest since August 2009, while exports fell 0.5% over the same period, the worst showing since November 2009.

But analysts at Bank of America/Merrill Lynch said in a client note that making swift adjustments for actual days worked transformed the data.

“There were 22 working days in January last year and 17 working days this year. With the adjustment, export growth was a positive 28.7%, year-over-year, in January and import growth was at a positive 10.0% year-on-year,” the note said. [South China Morning Post…actually, easy to do on the back of a beer coaster]

Overall, Lunar New Year holiday sales were up 16% vs. up 19% in 2011.

Auto sales were also distorted as many dealerships closed for a longer period than just the holiday. Passenger-vehicle deliveries cratered 24% in the month, though many are still expecting auto sales for 2012 to accelerate 8%.

On the inflation front, January’s number surprised to the upside, with consumer prices rising 4.5% from a year earlier, up from December’s 4.1% pace. But this too was distorted by the Chinese New Year, which pushed up food prices, which has regularly been seen and is assumed to be temporary. Core inflation, stripped of food costs, rose more slowly.

As for the broad picture, China’s economy has been growing at a 10.4% clip the past decade, including 9.2% in 2011. The consensus is still for about 8.5% this year, but the IMF warns that this growth rate would be cut in half if Europe’s debt crisis worsened. Singapore’s Prime Minister Lee said China is in for a “rough landing, but they will get through it.” China’s Ministry of Industry and Information Technology warned in a statement:

“The global economy is slowing down, Europe’s sovereign debt crisis is deepening and the downside risks to the world economy are rising with international demand still slack and global commodities and financial markets continuing to be volatile.”

--Canadian Prime Minister Stephen Harper traveled to China and reached agreement on a number of fronts, but no big oil deals as yet (which would be tied to the western pipeline that will inevitably be built). Regarding uranium, however, Canada, which produces 1/5th of it and exports more than 80% of its production, No. 2 after Kazakhstan, with most of the exports going to the U.S., Europe and Japan, will now start shipping to China.

Heretofore, the Chinese market was closed to Canadian producers but now the two have reached agreement whereby Canadian producers can compete with China’s suppliers in exporting for nuclear-energy generation.

One other important item for Harper and Canada; Canadian beef exports will continue after a nine-year pause.

Overall, Canada is anxious to diversify away from the U.S., which takes about 75% of all Canadian exports.

--The Indian government is projecting economic growth will fall below 7% for the 2011-2012 financial year. Growth in 2010-2011 was 8.4%.

--Indonesia’s fourth-quarter GDP rose a stronger than expected 6.5%, year-over-year.

--Retail sales in Australia grew 2.4% in 2011, the smallest increase since records started being kept in 1984. They actually ticked down in December, when a rise was expected.

--The loss for MF Global commodity customers is now an estimated $1.6 billion, up from a previous $1.2 billion.

--Credit Suisse Group reported a surprise loss of $1.1 billion for restructuring costs and revenue fell 46% as the bank accelerated cuts in risky assets. Bonuses have been slashed 41% across all divisions.

--UBS AG notified employees it will claw back part of bonuses due to its best-paid investment bankers. As reported by the Wall Street Journal, “The UBS board has decided to take back 50% of share-based bonuses awarded last year to investment bankers whose bonuses exceeded two million Swiss francs, or $2 million, one of the biggest clawbacks seen to date at any bank.”

Needless to say, morale there isn’t real high these days. This follows word the bonus pool is being cut 60% for investment bankers following the trading scandal last fall that cost UBS $2.3 billion.

Others, such as Deutsche Bank and Morgan Stanley, are limiting the cash portion of bonuses to about $125,000, while MS and Goldman Sachs said they would claw back pay from those whose actions put the banks at risk.

--Networking giant Cisco Systems Inc. reported net income for its fiscal second quarter ending Jan. 28 grew 43.5%, while revenue increased 11%, higher growth than projected last fall. But for the current quarter, Cisco sees modest revenue growth of 5% to 7%, with CEO John Chambers calling the outlook “conservative” in light of “significant uncertainty” in the economy.

--PepsiCo Inc. plans to cut 8,700 jobs, while boosting marketing spending as much as $600 million. CEO Indra Nooyi is under increasing fire. Pepsi stock has drastically underperformed rival Coca-Cola. For its part, Coke beat expectations on its earnings report.

--Global food prices rose 1.9% in January, according to the UN, this as China’s food costs rose 10.5% in the month from a year earlier.

--U.S. farmers will plant the most acres in a generation this year, according to a Bloomberg survey of farmers, bankers and analysts, owing to some of the highest agricultural prices in at least four decades. The USDA projects food costs will moderate and increase 2.5% to 3.5% in 2012, below last year’s 3.7% gain.

--Hong Kong continues to have the world’s priciest office space, followed by London, Tokyo, Moscow and now Beijing, which supplanted New York in the fifth spot. Prime office rents in Beijing’s central business district rose 75% last year.

--Terry Keenan / New York Post

“More than a quarter of all the new jobs the Labor Department expects to be created by 2020 will come from the health care and social-assistance sectors, where pay is well below that of the average manufacturing job, and pension and insurance benefits are typically sub-par.

“Compare that with the projection that only about 3.5% of new jobs will be in the highly paid financial services industry, and just 0.7% in technology, and you can grasp the growing disparity.”

--Walter Hamilton / Los Angeles Times

“More than four-fifths of bankruptcy attorneys say they’ve seen a notable jump in the number of potential clients with student loan debt…

“Nearly one-quarter of attorneys say the number of potential student loan clients has risen 50% to 100%....

“The average student loan debt of 2010 college graduates topped $25,000.”

--Nokia is cutting about 4,000 jobs at smartphone manufacturing plants in Hungary, Mexico and Finland, Nokia’s home base. Nokia remains the world’s largest handset maker by unit shipments and the company said it is moving device assembly closer to suppliers in Asia.

--Walt Disney Co. reported revenue for the quarter ended Dec. 31 was up just 1% from a year earlier, though earnings per share rose 18%. ESPN’s prime-time ratings fell 15% in the quarter as viewership for “Monday Night Football” was impacted by “an underwhelming lineup,” according to one analyst. ESPN has become the key driver at Disney and the NBA player lockout didn’t help either.

Overall, Disney CEO Bob Iger said “The trends we’re seeing in advertising are good.”

Revenue at Disney parks and resorts rose 10% in another sign of an improving economy.

--A leading real estate broker in Ireland expects further home price depreciation of at least a fifth, which would mean an eventual peak to trough decline of 60% in that country.

--The cost of rebuilding the World Trade Center site has skyrocketed to $14.8 billion. The 2008 estimate was $11.5 billion. A joint report commissioned by New York Gov. Andrew Cuomo and New Jersey Gov. Chris Christie called the Port Authority of New York and New Jersey “dysfunctional.” The agency’s debt has more than doubled in the last decade to $19.5 billion from $9.1 billion in 2001.

--Foxconn, the world’s biggest tech manufacturer, was hacked with highly sensitive data leaked online, according to Asher Moses of the Sydney Morning Herald. The hacktivist group known as Swagg Security broke into Foxconn’s systems “using a vulnerability contained in an old version of Internet Explorer that had been installed on a staff member’s computer.”

Foxconn is a major contract partner of Apple, as well as IBM and Dell, and its working conditions have been under fire for years, with Apple among those struggling to do damage control.

SwaggSec wrote in an online message:

“They say you got your employees all worked up, committing suicide ’n stuff…We got somethin’ served up good…real good. Your (sic) not gonna’ know what hit you by time you finish this release. Your company gonna’ crumble, and you deserve it.”

Isn’t today’s high-tech world great?! 

--Glencore and Xstrata announced an all-share merger that would create a $90 billion giant, combining the world’s largest commodities trading house with one of the bigger miners of coal and copper. Glencore already owns a 34% stake in Xstrata but is not permitted to vote on the proposed deal, with many leading shareholders against the move.

--The House by a 417-2 vote, and the Senate, 96-3, approved legislation explicitly prohibiting members of Congress and other top officials from trading on inside information. Under the House bill, lawmakers and their aides would have to disclose new financial transactions within 30 or 45 days from when they occurred. The Senate bill requires disclosure within 30 days. The bill would also prevent members of Congress from getting access to IPOs. In 2008, Democratic leader Nancy Pelosi’s husband purchased shares in a Visa IPO while a credit-card bill was before the House. There are a few details to be worked out between the two versions.

Meanwhile, Rep. Spencer Bachus (R-Ala.) is under formal investigation by the Office of Congressional Ethics over possible insider-trading violations, first profiled a while back on “60 Minutes.” In a statement, Bachus said he welcomed the opportunity “to present the facts and set the record straight.”

--I’ve always said the global warming debate is mislabeled; that it’s about global pollution. My friend Mark R. constantly brings up the issue of airplane contrails and I saw this week where the aviation industry accounts for about 3% of global carbon emissions, but, its share is rising rapidly. The issue came up when China said its airlines would not participate in Europe’s carbon trading scheme.

--According to the Centers for Disease Control and Prevention, bread and rolls, not snack foods like potato chips, are the No. 1 source of salt in the American diet. Said CDC Director Dr. Thomas Frieden, “Potato chips, pretzels, and popcorn – which we think of as the saltiest foods in our diet – are only No. 10.”

Bread and rolls account for about 7% of the salt that the average American eats in a day. Next on the list: cold cuts and cured meats; pizza; fresh and processed poultry; soups; fast-food hamburgers and sandwiches and cheese.

Dietary guidelines recommend no more than 2,300 milligrams of sodium a day, equal to about a teaspoon of salt.

--For nine years I commuted over New York’s Tappan Zee Bridge when I worked in Stamford, Conn. It was clear then the bridge needed replacing and now, 13 years after it was last part of my daily routine, the Federal Highway Administration labels it “structurally deficient.” This is a major problem for the New York area. No one will be surprised if a span suddenly collapses, which would kill a few, no doubt, but 140,000 vehicles cross it each day and the economic impact would be substantial. But while a new bridge has been fast-tracked, it will be a decade or more before we see one.

--Only three New Yorkers made the list of 2011’s top 50 philanthropists, down from 14 in 2010, a big drop. California boasted 14 of the top 50. Said the Chronicle of Philanthropy’s editor Stacy Palmer, “We’re starting to see a shift towards the technology money in philanthropy. We’re seeing a soaring interest in philanthropy among Silicon Valley folks and I think that will continue.”

New York’s most generous donors were George Soros, who gave away $335 million last year; Mayor Michael Bloomberg, with gifts of $311 million; and telecom mogul Gustave Hauser, who gave away $40 million.

--The Oglala Sioux Tribe is suing the world’s biggest beer companies for $500 million over severe alcohol-related issues in the community. I write about this one because I know quite a bit about the tribe, which hails from the Pine Ridge Indian Reservation in South Dakota. I’ve been to Pine Ridge numerous times over the years, including to perhaps the scariest place in America, at least after noon, Whiteclay, which is on the South Dakota/Nebraska border. I’ve described Whiteclay as like a scene out of “Night of the Living Dead” and a BBC story notes that it “has four beer shops that sold nearly five million cans of beer in 2010 despite having only about a dozen residents.” That’s true.

Alcohol is outlawed on the reservation so Whiteclay is where tribal members drive to get their beer.

So the key to going through Whiteclay is to do it early enough in the day before the drunks have woken up. I was once followed for miles after passing through the town and it was clearly with an intent to scare the hell out of me.

--Heck of a weather stretch in Europe. The heaviest snowfall in Rome in 27 years. Parts of Serbia received six feet in 24 hours! At least 300 have died across the continent.

--Qatar bought Paul Cezanne’s painting The Card Players for more than $250 million, by far the highest price yet paid for a work of art, according to the Sydney Morning Herald. Previously a Jackson Pollock held the record at $140 million back in 2006. There are actually five Card Players paintings, part of a series Cezanne painted in the 1890s. The other four are all housed in world-class museums like the Musee d’Orsay in Paris and the Metropolitan in New York. All parties involved in the sale declined to comment.

And now you almost know…the rest of the story.

---

Foreign Affairs

Iran: According to the London Times, “Saudi Arabia could acquire nuclear warheads within weeks of Iran developing atomic weapons as the threat from Tehran triggers an arms race across the Middle East.

“In the event of a successful Iranian nuclear test, Riyadh would immediately launch a twin-track nuclear weapons program, The Times has learnt.

“Warheads would be purchased off the shelf from abroad, with work on a new ballistic missile platform getting under way to build an immediate deterrent, according to Saudi sources.”

That’s the nightmare scenario in the aftermath of Iran testing its first device. Pakistan would be the vendor of choice for warheads, the Saudis having fronted the cost of Pakistan’s nuclear program.

In a bizarre twist to the story concerning the assassination of Iranian nuclear scientists, NBC News reported Thursday that the hits have been carried out by an Iranian opposition group, MEK, with logistical and financial support from the Mossad. The report was based on an interview with one of Supreme Leader Ayatollah Khamenei’s senior advisers, who detailed the relationship between the opposition group and Israel, which “two senior U.S. officials” confirmed as accurate.

What’s bizarre is the disturbing source of the story; leaks out of the White House. MEK is a designated terrorist organization by the United States.

So imagine the debate in Israel these days. Prime Minister Benjamin Netanyahu is receiving advice and information from all sides and in the end it’s his call. As Chuck Freilich of the Los Angeles Times simply sums it up, “Neither side can afford to be wrong. Netanyahu, by all indications of the existentialist mind-set, certainly cannot.”

Israel is also faced with hundreds of Iranian Shahab missiles capable of striking Israel, plus Hizbullah’s arsenal of 50,000 rockets, a far greater force than Israel faced in the 2006 Lebanon war when Hizbullah fired 4,000 rockets at Israel out of 13,000 available.

For his part, President Obama said in an interview on Super Bowl Sunday that the aim was to resolve the crisis diplomatically, but no option was off the table. He added Washington was working “in lockstep” with Israel, which was right to be very concerned about Iran’s activities.

Bret Stephens / Wall Street Journal

“Can Israel attack Iran? If it can, will it? If it will, when? If when, how?

“And what happens after that?

“On Sunday…President Obama said ‘I don’t think that Israel has made a decision on what they need to do.’ That didn’t square with the view of Defense Secretary Leon Panetta, who’s been reported as saying he expects an Israeli attack this spring. Nor does it square with public warnings from Israeli Defense Minister Ehud Barak that the Iranians would soon enter a ‘zone of immunity’ from foreign military attack if nothing is done to stop them.

“Yes, these war drums have been beaten before. But this time it’s different.

“Diplomacy has run its course: Even UN diplomats now say Iran uses negotiations as a tactic to buy time. The sanctions are too late: Israel can’t afford to wait a year or two to see if Europe’s embargo on Iranian oil or the administration’s squeeze on Iran’s financial institutions will alter Tehran’s nuclear calculations….

“Two additional points. Washington and Jerusalem are at last operating from a common timetable – Iran is within a year of getting to the point when it will be able to assemble a bomb essentially at will. And speaking of timetables, Jerusalem knows that Mr. Obama will be hard-pressed to oppose an Israeli strike – the way Dwight Eisenhower did during the Suez crisis – before Election Day. A re-elected President Obama is a different story.”

Meanwhile, reports this week have Iran bolstering its uranium refinement efforts at its subterranean Qom complex. 

Speaking of uranium efforts, the International Atomic Energy Agency’s recent three-day mission to Iran failed to address the concerns of U.S. and European officials. So fill in that box on your “Bomb Iran” checklist.

Syria: Last Saturday, Russia and China exercised their Security Council vetoes and squelched a Western- and Arab-backed resolution at the United Nations that would have condemned Syrian President Bashar Assad and his regime’s crackdown while calling on him to relinquish some of his powers to his deputy. It was a heavily watered-down version at that. 

Turkish Prime Minister Erdogan called the Security Council veto a “fiasco” and said his country wouldn’t remain silent. U.S. Ambassador to the UN, Susan Rice, condemned the vetoes as “shameful.” She said it showed how Russia and China aimed to “sell out the Syrian people and shield a craven tyrant. Any further bloodshed that flows will be on their hands.”

U.S. Secretary of State Hillary Clinton said, “To block this resolution is to bear the responsibility for the horrors on the ground in Syria.”

French Ambassador Gerard Araud said: “It is a sad day for this council, a sad day for all Syrians, and a sad day for democracy.”

Russian Ambassador Vitaly Churkin insisted the draft resolution lacked balance.

“Some influential members of the international community unfortunately…have been undermining the opportunity for political settlement, calling for regime change, pushing the oppositionists to power.”

Russian Foreign Minister Sergei Lavrov then went to Damascus and received a hero’s welcome. He urged Assad to negotiate with the opposition and adopt some reforms. As soon as he left, Assad stepped up the violence.

Editorial / Wall Street Journal

“Moscow had been signaling for weeks that it would protect its client in Damascus even as Mr. Assad added to his death toll, now at more than 5,000. [Ed. Well over 6,000] Foreign Minister Sergei Lavrov has defended Russian arms sales to Syria and ruled out any new UN moves….

“This is what happens when a U.S. administration sees the world as it would like it to be, not the way it is. The White House apparently believed its own spin that last year’s Libyan operation signaled a brave new multilateral era. But Russia abstained on that UN resolution, and strongman Vladimir Putin raged that he had been duped when NATO used the resolution to claim the authority to oust Moammar Gaddafi. The Libyan mission succeeded after much needless delay only because the U.S. military provided most of the firepower behind a NATO and Arab façade....

“Moscow has played this game at the UN with special relish in the post-Cold War era. Russia has little other leverage in global affairs, and by any economic, political or military standard deserves even less of a say….

“Most of the world – nearly all the Arab states, neighboring Turkey, the U.S. and Europe – say the killings must stop. The dictator’s ‘veto’ at the Security Council need not veto action. On their own, all these countries can arm and fund the opposition, and further tighten the noose of sanctions around Mr. Assad and his cronies. A ‘no fly zone’ above Syria can’t be ruled out either.

“The U.S. (a.k.a. the sole superpower) would in most circumstances be best placed to corral them together. By throwing its ‘killing machine,’ to use President Obama’s phrase, into a higher gear in recent weeks, the Syrian regime must figure that this White House lacks the stomach to lead a ‘coalition of the willing’…After all, the administration has made the Security Council the final say in matters of ‘collective security,’ and it said no.

“Americans are preoccupied by domestic issues, but Syria is a good test of President Obama’s foreign policy. He has put the credibility of his office on the line by declaring that Syria’s tyrant must leave. With each week of Mr. Assad’s brutality, the cost in lives and the odds of civil war will continue to rise unless Mr. Obama does more than bow before the false moral authority of the UN.”

Egypt: The Muslim Brotherhood demanded the military council cede control of the government, calling for a new coalition government formed by Parliament. Previously the Brotherhood had said it was willing to let the generals remain in charge until June and a presidential election. I have to admit this might ruin my theory the two will reach a power-sharing agreement, with the military being given the foreign policy/military portfolio, but now the ruling council has been beset by all manner of issues, including the soccer riot and the probable loss of aid from the United States.   [In the aftermath of the soccer riot, at least another 15 have been killed in the violence.]

But liberals in opposition don’t want the Brotherhood to assume immediate control, which would place them in charge of drafting the new constitution.

And then you have the military rulers trumping up charges for crimes-against-the-state against 19 Americans representing nongovernmental organizations (NGOs), most of whom have fled the country but six are holed up for protection in the U.S. embassy. Egypt is threatening show trials…pure idiocy if the rulers want to keep the $1.5 billion in annual aid Washington supplies it.

Editorial / Wall Street Journal

“The sad irony is that these groups (NGOs) are the good guys – people trying to encourage a free press, freedom to worship and political tolerance. Yet the military government can’t seem to understand its own interest in allowing the development of political voices other than the Muslim Brotherhood and Salafists.

“The government is trying to court public support by trumping up a case against ‘foreign influence,’ especially Americans. This is the oldest ruse in authoritarian politics. If it stays on this path, the military leadership will lose U.S. money and support and find itself weaker against the rise of political Islam.”

Israel: No one seems to know what the Doha agreement between the Palestinian Authority (Fatah) and Hamas actually means, but one thing is clear. Israel does not want the international community accepting a coalition government that contains an unreformed Hamas. The Quartet (UN, U.S., EU and Russia) established three criteria for engaging with Hamas: that it give up terrorism, recognize Israel and accept previous Israeli-Palestinian agreements. But the agreement signed in Doha on Monday calls for the establishment of an interim unity government.

Until the picture becomes clearer, Israel is withholding any further aid to the Palestinians. Prime Minister Netanyahu has said the PA has to choose: peace with Israel or peace with Hamas. Hamas head Khaled Mashaal, after all, said the PA-Hamas deal would create greater unity “in order to be free for confronting the enemy.”

As for the United States, since it designates Hamas a terrorist organization, it’s not known yet just what the State Department will do in terms of the military assistance currently being granted Palestinian security forces. The aid has been critical in improving security in the Palestinian territories, as Israel itself admits.

[I just saw Hamas leader Mashaal is in Iran this weekend.]

Libya: So you know how I’ve said for months that one thing that keeps me up at night is all the missing shoulder-fired missiles from Libya? This week, in the Feb. 6 issue of Defense News, we have the headline:

“U.S. Still Hunting for Missing Libyan Missiles”
As reported by Kate Brannen:

“The U.S. State Department believes the majority of anti-aircraft missiles that went missing when Moammar Gaddafi’s regime was defeated are still in Libya.

“However, while there is no definitive evidence that any of the weapons left the country, the U.S. government is not ruling out that possibility, according to Andrew Shapiro, assistant secretary of state for political-military affairs.”

It’s believed Gaddafi had about 20,000 of the man-portable air defense systems, or MANPADS, which Shapiro admits pose a “major proliferation challenge.” He says 5,000 MANPADS have been identified, recovered and secured.

USA TODAY also had a story on the topic.

Republican Senator Susan Collins of Maine, the ranking Republican on the Homeland Security Committee, said she is concerned that the White House was late in trying to get an accounting of the missiles.

Reminder…a coordinated attack on two commercial aircraft, anywhere in the Western world, would send the global economy spiraling into Depression. [One sends us back into recession.]

Separately, the New York Times had a story that the militias are sowing chaos, not that you didn’t already know that from reading this space.

Anthony Shadid:

“The country that witnessed the Arab world’s most sweeping revolution is foundering. So is its capital, where a semblance of normality has returned after the chaotic days of the fall of Tripoli last August. But no one would consider a city ordinary where militiamen tortured to death an urbane former diplomat two weeks ago, where hundreds of refugees deemed loyal to Col. Gaddafi waited hopelessly in a camp and where a government official acknowledged that ‘freedom is a problem.’”

Afghanistan: Recall how President Obama said just the other day that we were winning in Afghanistan (and it was mission accomplished in Iraq). Well a UN report revealed that the number of civilians killed and injured in the Afghan war has risen for the fifth year in a row. 3,021 civilian deaths in 2011 compared with 2,790 in 2010 and 2,412 in 2009.

And from Army Times’ Lance M. Bacon:

“An Army officer is fed up with ‘rosy official statements’ that paint Afghanistan as a picture of progress, and he is demanding military leaders come clean about the ‘absence of success on virtually every level.’

“ ‘How many more men must die in support of a mission that is not succeeding and behind an array of more than seven years of optimistic statements by U.S. senior leaders in Afghanistan?’ Lt. Col. Daniel Davis asked in a four-page essay titled ‘Truth, Lies & Afghanistan: How military leaders have let us down.’

“ ‘No one expects our leaders to always have a successful plan. But we do expect – and the men who do the living, fighting and dying deserve – to have our leaders tell us the truth about what’s going on,’ Davis wrote.”

[Davis’ essay is part of an 82-page report he wrote for the January/February issue of Armed Forces Journal, though it’s a complicated situation as the Army’s Public Affairs bureau ordered the journal to hold publication.]

Davis covered 9,000 miles during a year-long tour and said he conducted interviews with more than 250 soldiers.

“ ‘What I saw bore no resemblance to rosy official statements by U.S. military leaders about conditions on the ground,’ Davis wrote in the essay. He goes on to say conditions are not improving, local governments and military are not progressing toward self-sufficiency, insurgents control virtually every piece of land beyond eyesight of allied bases and local governments are unable to provide basic needs.”

And get this, as reported by Lance Bacon, “Six percent of overall NATO deaths in Afghanistan have been attributed to attacks by Afghan security forces, according to a confidential alliance report leaked to the media last month….

“In his report, Davis said that ‘to a man, the U.S. officers in that unit told me they had nothing but contempt for the Afghan troops in their area.”

Lt. Col. Davis’ career could be over because of these comments.

Pakistan: The Supreme Court rejected Prime Minister Gilani’s appeal against a contempt charge, which will no doubt plunge the country into further political turmoil when the case begins, shortly. Recall, Gilani is refusing to reopen corruption proceedings against President Zardari, with Gilani arguing that Zardari has immunity from prosecution while in office.

And as far as I know, former President Musharraf is still slated to return to Pakistan this month, where he faces arrest. His return is not a welcome development in terms of the nation’s stability.

Christians Under Attack:  Ayaan Hirsi Ali had a piece in Newsweek on Christians being murdered for their faith from one end of the Muslim world to the other. In part:

“(A) fair-minded assessment of recent events and trends leads to the conclusion that the scale and severity of Islamophobia pales in comparison with the bloody Christophobia currently coursing through Muslim-majority nations from one end of the globe to the other. The conspiracy of silence surrounding this violent expression of religious intolerance has to stop. Nothing less than the fate of Christianity – and ultimately of all religious minorities – in the Islamic world is at stake.

“From blasphemy laws to brutal murders to bombings to mutilations and the burning of holy sites, Christians in so many nations live in fear. In Nigeria many have suffered all of these forms of persecution. The nation has the largest Christian minority (40%) in proportion to its population (160 million) of any majority-Muslim country. For years, Muslims and Christians in Nigeria have lived on the edge of civil war. Islamist radicals provoke much if not most of the tension. The newest such organization is an outfit that calls itself Boko Haram, which means ‘Western education is sacrilege.’ Its aim is to establish Sharia in Nigeria. To this end it has stated that it will kill all Christians in the country.”

The same Ayaan Hirsi Ali in an op-ed this week for the Financial Times:

“A year ago many western commentators were celebrating an Arab spring. [Ed. not yours truly.] The internet generation personified by Wael Ghonim, the Google marketing executive, would take over power from military dictators and absolute monarchs in democratic elections. Those of us who warned that political Islam would be the principal beneficiary of elections in North Africa and the Middle East were dismissed as scaremongers…

“To compare Islamists of today with the Christian democrats of postwar Europe is absurd. To take them at their word that they will govern like the Islamists of Turkey is not much better. Europe’s Christian democrats may claim to be inspired by the Bible but they would not dream of proposing legislation straight from the book of Leviticus. By contrast, the Islamists of North Africa and the Middle East have for decades promoted the agenda that legislation should come from the suras of the Koran and other Islamic scripture.

“The leaders of the political parties of the Brotherhood movement in Egypt, Morocco and Tunisia have insisted they are no different from Turkey’s ruling Justice and Development Party (AKP). They say they will adopt the same economic policies as the AKP. Surveys by Pew and others show that, all over North Africa, the government in Ankara is seen as a role model.

“Yet the circumstances of Turkey are radically different from these North African states. In the 1920s, under Kemal Ataturk, Turkey embarked on a sustained policy of westernization. Ataturk’s reforms, more than anything the AKP has done, help explain why the Turkish economy is among the most dynamic in the Muslim world. The AKP’s Islamist zeal is checked by the military, judiciary and press – though for how much longer remains to be seen.

“These checks and balances are largely absent in the Arab world, as are the basic institutions conducive to economic prosperity. What is the likelihood then that Islamist parties will discard the project to impose Sharia law that they have been promoting for decades?  I think it is very low. My expectation is that Islamist parties will sweet-talk their voters and the west until their power is well established and then govern like Iran’s regime or Hamas in Gaza.

“The transition from closed to open societies will be slow and painful for the Arab-Muslim world. Given that, it would be better for the west to invest in the future by offering more support to the secular groups that brought about this revolution. Cairo is not Ankara post-Ataturk, much less Bonn post-Adenauer. It is time to abandon the overconfident assumption that there is a moderate mainstream in the Arab world.”

Russia: Despite temperatures below zero, tens of thousands (estimates ranged from 50,000 to 120,000) braved the elements in Moscow last Saturday to demand fair elections next month, March 4, as demonstrators carried anti-Vladimir Putin banners. Putin, in turn, has accused the United States of inciting mass protests. He also wrote an op-ed in the Washington Post this week that was such a bunch of garbage, I didn’t find one line worth citing in this column.

Gideon Rachman / Financial Times

“No one is yet talking of a ‘Moscow spring.’…But there is definitely a Moscow thaw. After a long period of close political control in Russia, the ice is cracking. The intoxicating sense that taboos are being broken is reminiscent of the outbreak of glasnost under Mikhail Gorbachev, which signaled the beginning of the end of the Soviet era….

“One possibility is that Mr. Putin heeds the calls for a rerun of the parliamentary elections of last December. Genuinely free elections would lead to a Duma with a real opposition that would be able to challenge the Kremlin rather than simply acting as its echo chamber.

“Another possibility is to repeat the procedure that ended the presidency of Boris Yeltsin at the end of 1999. Mr. Yeltsin was persuaded to step down, in favor of Mr. Putin, in return for guarantees that he, his family and his business cronies would not be pursued for corrupt practices. Many of the people who made fortunes in the Putin era will be worrying about what the future might hold for them. They might be amenable to some kind of amnesty deal – if the offer were made.

“These scenarios may sound far-fetched. [Ed. yours truly has been predicting a similar one.] But in Moscow at the moment, the most far-fetched idea of all is the notion that President Putin will still be running Russia in 2024. The Moscow River was frozen over last week but listen carefully and you could hear the sound of the ice cracking beneath the surface.”

Thomas L. Friedman / New York Times

“Putin’s Russia is at a crossroads. It has become a ‘sort-of-but-not-really-country.’ Russia today is sort of a democracy, but not really. It’s sort of a free market, but not really. It’s sort of got the rule of law to protect businesses, but not really. It’s sort of a European country, but not really. It has sort of a free press, but not really. It’s cold war with America is sort of over, but not really. It’s sort of trying to become something more than a petro-state, but not really….

“Real reform will require a huge re-set on Putin’s part. Could it happen? Does he get it? On the evidence available now, I’d say: sort of, but not really.”

China: Vice President (soon to be president) Xi Jinping arrives in Washington this week in what will be a clear attempt to deal with the existing “trust deficit” between our two nations. There are certainly some big issues for Xi to discuss with President Obama and Vice President Biden, whether its trade disputes, North Korea, territorial issues in the South China Sea, or China’s veto, along with Russia’s, of a UN Resolution condemning Syria’s Assad.

France: I’m on record as saying National Front candidate Marine Le Pen will finish second ahead of President Sarkozy in the first round of voting in the French presidential election April 22. Some analysts there say she’s near 25% and that might do it. Of course she’d then get her butt kicked by the Socialist candidate, Francois Hollande. But one poll published Feb. 6 had Hollande at 34% and Sarkozy at 26%, with Le Pen just at 16%, after which Hollande would defeat Sarkozy in round two, 58-42.

[I also just saw where Le Pen has yet to formally qualify for the presidential ballot due to France’s crazy qualification requirement – gaining the signature of 500 parliamentarians or council leaders. Boy, that would suck.]

Mexico: Working with the Mexican government, the U.S. State Department has issued an updated travel warning for tourists visiting the country, adding more specificity, which Mexican tourism officials agree with. The number of U.S. citizens reported to the Department of State as murdered in Mexico jumped from 35 in 2007 to 120 in 2011. If you’re traveling there, go to the State Department web site.

Random Musings

--Last Saturday, Mitt Romney cleaned up in the Nevada caucuses with 50% to Newt Gingrich’s 21% and Ron Paul’s 19%; this while Rick Santorum was focusing on the next three contests a few days later. Santorum spent his time wisely because he then romped in all three, thus shaking up the Republican race once again.

Colorado…Santorum 40  Romney 35
Minnesota…Santorum 45  Paul 27
Missouri…Santorum 55  Romney 25

“I don’t claim to be the conservative alternative to Mitt Romney,” Santorum said Tuesday night in his victory speech. “I stand here to be the conservative alternative to Barack Obama.”

Now Missouri was a ‘beauty’ contest in that delegates are to be selected later, and many say Minnesota also was more of a beauty contest though delegates were divvied up (at least in this first round of an extended process), but the fact is Rick Santorum, coupled with his win in Iowa, can claim he came out in front in four states thus far, while Mitt Romney has three wins (New Hampshire, Florida and Nevada). And when it comes to delegates, the AP and USA TODAY have it:

Romney 112
Santorum 72
Gingrich 32
Paul 9

1,144 are needed for the nomination so, yes, this thing is far from over and there is zero reason for anyone, including Newt Gingrich, to concede anything to Mitt Romney until perhaps Super Tuesday (March 6), in the case of the former speaker. Next up (aside from the results from Maine’s weeklong caucuses…where Romney is said to be in trouble) are primaries in Arizona and Michigan on Feb. 28.

For Santorum’s shoestring campaign, the three wins translated into $1 million in donations the day after, which isn’t bad, but he’s obviously scrambling to build organizations in the upcoming states. At year’s end, Santorum had a 10-member campaign payroll at a quarterly cost of $49,000, while Romney reported a 92-member staff and a quarterly payroll of $1.3 million. [Barack Obama reported a 430-person campaign staff, which cost $4.7 million for the final three months of 2011.]

So is there any chance this race goes all the way to the convention? Us political junkies would love that, but let’s wait to see where we are after March 6. Some of us are praying for chaos to allow for a Jeb Bush or Mitch Daniels to emerge as a consensus pick. [Not sure on Christie these days.]

--During his first week in office, President Obama pledged to close Guantanamo, but he has yet to do so. No problem for him, however. 70% of Americans approve of the decision to keep it open, according to a new Washington Post/ABC News poll.

--Albert R. Hunt / Bloomberg

“President Barack Obama is headed for political turbulence.

“That prediction isn’t based on any private polling data or inside information. It’s just common sense: National political campaigns are cyclical, and after an especially good cycle, the Democratic president is due for some downtime.

“On re-election prospects, the Obamaites are confident when they look at the state of the race, especially the Republicans. They’re showing signs of cockiness.

“Like many politicians, Obama courts trouble when he’s riding high. Following his victory in the Iowa caucuses four years ago he was a favorite to end Hillary Clinton’s campaign with a blowout victory in New Hampshire. In a debate there, he showed veiled disdain for his opponent, saying that she was ‘likeable enough.’ He then lost that primary.

“Today, the administration’s chest-thumping over the State of the Union address is illustrative. It was a good political pitch, putting Republicans on the defensive on the fairness issue. It also was devoid of governing substance, something political handlers and White House spin doctors have tried to deny.

“The president didn’t mention the Bowles-Simpson deficit commission. He appointed that panel two years ago. Then, when it issued a bipartisan report on how to fix the government’s books in December 2010, the president went silent. Privately, the White House’s explanation was that they kept quiet because they wanted to smoke out the budget proposal of the House Republicans, which was being drafted by Representative Paul Ryan of Wisconsin. That was unveiled a year ago, and the Democrats got lots of political mileage out of it….

“Over the last couple of months, Obama hasn’t been held to the same standard as the Republicans. That’s not because of any bias or media love affair with the president; it’s because his foes have provided so much ammunition about each other. That’s also part of the cycle, not likely to last.

“Another illustration of presidential hubris involved the Bush family. The White House put out a picture of a private meeting in the Oval Office on Jan. 27 that included former President George H.W. Bush and his son, Jeb, the former governor of Florida.

“The Bushes were in town for the annual black tie dinner the next night at the Alfalfa club, a gathering of business and political elites. The two featured speakers, both intended to be brief and humorous, were Obama and Jeb Bush. The president spoke to good reviews. He left before Bush spoke.

“Obama hates such dinners. Some of his aides, in particular his political adviser David Plouffe, urged him not to spend an evening mingling with the 1 percent. Yet he chose to go, and attendees said it was the first time they could recall a speaker leaving before the other side had its fun. In addition, Obama’s 87-year-old predecessor was present.

“Imagine the criticism five years ago if President George W. Bush had walked out on a dinner before Hillary Clinton spoke, with Bill Clinton in the audience.

“In 2004, Democrats expressed outrage that Karl Rove served simultaneously as both the top White House adviser and as the head of George W. Bush’s re-election campaign. That, they said, was a blatant conflict of interest. Yet today, Plouffe is performing those two functions for Obama; the only difference is that Plouffe is a little better on politics and Rove had a better grasp of policy.

“The most dangerous sign of arrogance is Team Obama’s insularity. It’s an exclusive club, with no room for outsiders. Inside the White House, that dynamic is personified by Valerie Jarrett, the president and first lady’s longtime confidante, who conducts the loyalty litmus test….

“The same generally applies to the political team. Conversations last week with five of the smartest and most experienced Democratic political strategists – none associated with the Obama campaign – yielded the same bottom line: They’re only consulted occasionally and the outreach is pro forma. If it’s a runaway election, that approach will work out fine for the White House; if it gets tight, Obama may need some other counsel.”

The above is at least the third piece I’ve cited on Obama’s aloofness and insularity over the past few months. Again, I can’t help but repeat that when I see a poll showing how much Americans like Obama, even if they don’t approve of his policies, it cracks me up. He doesn’t like you. 

--Obama told NBC’s Matt Lauer in a pre-Super Bowl interview, “I deserve a second term.”

It was three years ago, and only 10 days into his presidency, that Obama told Lauer that with regards to the state of the economy, “If I don’t have this done in three years, then it’s going to be a one-term proposition.”

--The foreign policy of the Republican presidential candidates is a mess. George Will comments in his Washington Post column…much of which should sound very familiar to readers of “Week in Review.”

“The U.S. defense budget is about 43 percent of the world’s total military spending – more than the combined defense spending of the next 17 nations, many of which are U.S. allies. Are Republicans really going to warn voters that America will be imperiled if the defense budget is cut 8 percent from projections over the next decade? In 2017, defense spending would still be more than that of the next 10 countries combined.

“Do Republicans think it is premature to withdraw as many as 7,000 troops from Europe two decades after the Soviet Union’s death? About 73,000 will remain, most of them in prosperous, pacific, largely unarmed and utterly unthreatened Germany. Why do so many remain?

“Since 2001, the United States has waged war in three nations, and some Republicans appear ready to bring the total to five, adding Iran and Syria…GOP critics say that Obama’s proposed defense cuts will limit America’s ability to engage in troop-intensive nation-building. Most Americans probably say: Good.

“Critics say that defense cuts will limit America’s ability to intervene abroad as it has recently done. Well. Even leaving aside Iraq and Afghanistan, do Americans want defense spending to enable a rump of NATO – principally, Britain and France – to indulge moral ambitions and imperial nostalgia in Libya, and perhaps elsewhere, using U.S. materiel and competence?

“Defense Secretary Leon Panetta says that the Army should contract from 570,000 soldiers to 490,000 in a decade. Romney says that the military should have 100,000 more troops than it does. (The Army is 88,000 larger than it was before Afghanistan and Iraq.) Romney may be right, but he should connect that judgment to specific assessments of threats and ambitions.

“Romney says: ‘It is unacceptable for Iran to have a nuclear weapon,’ that if he is elected, Iran will not get such a weapon, and if Obama is reelected, it will. He also says that Obama ‘has made it very clear that he’s not willing to do those things necessary to get Iran to be dissuaded from its nuclear ambitions.’ Romney may, however, be premature in assuming the futility of new sanctions the Obama administration is orchestrating, and Panetta says Iran acquiring nuclear weapons is ‘unacceptable’ and ‘a red line for us’ and if ‘we get intelligence that they are proceeding with developing a nuclear weapon, then we will take whatever steps necessary to stop it.’ What then is the difference between Romney and Obama regarding Iran?

“Osama bin Laden and many other ‘high-value targets’ are dead, the drone war is being waged more vigorously than ever, and Guantanamo is still open, so Republicans can hardly say that Obama has implemented dramatic and dangerous discontinuities regarding counterterrorism. Obama says that, even with his proposed cuts, the defense budget would increase at about the rate of inflation through the next decade. Republicans who think America is being endangered by ‘appeasement’ and military parsimony have worked that pedal on their organ quite enough.”

I agree with Mr. Will on the numbers. On the actual policy front, however, I believe Obama’s been for the most part a disaster. As 2012 develops, this will become increasingly clear, only Republicans are incredibly weak themselves on the issue. The world isn’t black and white, which is why I spend so much time each week on the topic.

--Editorial / Wall Street Journal

“The Senate last passed a budget 1,106 days ago – that would be almost three years – and now the White House is telling Democrats not to bother this year either. Harry Reid will be pleased, because last week the Majority Leader said he had no plans to do so.

“Asked yesterday about the lack of a Senate budget, spokesman Jay Carney said that ‘Well, I don’t have an opinion to express on how the Senate does its business with regards to this issue.’ ABC’s Jake Tapper pressed, incredulously, ‘The White House has no opinion about whether or not the Senate should pass a budget?’

“Mr. Carney reiterated that President Obama has ‘no option,’ only that he ‘looks forward to the Senate acting on the policy initiatives contained within his budget.’ But Mr. Carney refused to say the Senate should act by even proposing a budget, let alone, you know, actually passing one.”

The Congressional Budget Act of 1974, created by Democrats, mandates that both the House and Senate submit formal budget blueprints. House Republicans continue to submit theirs.

--According to the latest Gallup Poll, only 10% of Americans approve of the job Congress is doing, another record low. 86% disapprove. In October 2001, Congress registered a record-high approval rating of 84% in the wake of 9/11.

--Last week I said you’d begin to see polls showing President Obama with a 50% approval rating and the latest Washington Post/ABC News survey does indeed have Obama at 50. Among the key independent bloc, 47% approve and 50% disapprove of the way he is handling his job. His positive rating among independents had dipped to as low as 34% in the fall.

In a general election matchup, Obama leads Romney 51-45 among registered voters.

--A few weeks ago I pointed out the issue of President Obama signing off on a Health and Human Services ruling that under Obamacare, Catholic institutions – including hospitals – would be required for the first time ever to provide and pay for insurance coverage that includes contraception. Failure to do so results in huge fines. New York Archbishop Timothy Dolan blasted the president.

Peggy Noonan / Wall Street News

“President Obama just may have lost the election….

“In other words, the Catholic Church was told that its institutions can’t be Catholic anymore.

“I invite you to imagine the moment we are living in without the church’s charities, hospitals and schools. And if you know anything about those organizations, you know it is a fantasy that they can afford millions in fines.

“There was no reason to make this ruling – none. Except ideology.

“The conscience clause, which keeps the church itself from having to bow to such decisions, has always been assumed to cover the church’s institutions.”

So the church has been fighting back.

“If they stay strong…they will win. This is in fact a potentially unifying moment for American Catholics, long split left, right and center. Catholic conservatives will immediately and fully oppose the administration’s decision. But Catholic liberals, who feel embarrassed and undercut, have also come out in opposition.

“The church is split on many things. But do Catholics in the pews want the government telling their church to contravene its beliefs?....

“In 2008…Mr. Obama carried the Catholic vote, 54% to 45%. They helped him win.

“They won’t this year. And guess where a lot of Catholics live? In the battleground states.

“There was no reason to pick this fight. It reflects political incompetence on a scale so great as to make Mitt Romney’s gaffes a little bitty thing.

“There was nothing for the president to gain, except, perhaps, the pleasure of making a great church bow to him.

“Enjoy it while you can. You have awakened a sleeping giant.”

*On Friday, President Obama announced a birth control compromise he said would protect religious liberties and ensure that the nation’s women have access to free contraception. Obama will allow workers at institutions where contraception is not currently available because it runs counter to their beliefs, to get it directly from health insurance companies.

“Religious liberty will be protected, and a law that requires free preventive care will not discriminate against women. I understand some folks in Washington want to treat this as another political wedge issue. But it shouldn’t be. I certainly never saw it that way,” Obama said. “This is an issue where people of good will on both sides of the debate have been sorting through some very complicated questions.”

Cardinal-designate Dolan said the changes were a “first step in the right direction” but that there were too few details to comment further. [Ben Fuller / AP]

It’s too late for the president. Many Catholics who once supported him won’t forget what he was trying to do. They won’t forget the arrogance.

--Editorial / New York Post

“After years of preaching the evils of ‘super PACs,’ President Obama has decided to dance with the devil – aligning himself with Priorities USA Action, a fund-raising committee that can take nearly unlimited campaign donations.

“Sure, he said last year that super PACs pose ‘a threat to our democracy’ because they’ll produce ‘a flood of attack ads run by shadowy groups with harmless-sounding names. We don’t know who’s behind these ads…who’s paying for them.’

“Never mind, he said yesterday.

“Now the White House will dispatch Cabinet officials and top advisers to work with Priorities – and Obama wants his top donors to start shelling out big-time.

“ ‘We’re not going to fight this fight with one hand tied behind our back,’ said campaign manager Jim Messina.

“To which we say: Hahahahahahahaha.”

--New Jersey Republican Gov. Chris Christie has a 55% approval rating among registered voters in a Monmouth University/NJ Press Media Poll, which is sizable for a Republican in my state, but nearly half say he is more concerned with his political future than with running New Jersey. I went to see the governor at a town hall meeting in Westfield the other day and my friend and I were bored to tears and left after four dumb questions (for this kind of forum), this after Christie spent too long going into his first two years and all his achievements. Yet he turned out 600 people for a Tuesday morning.

I forgot to tell you that a few weeks earlier, I saw former New Jersey Gov. Christie Whitman, who is on the board of the new Internet-based group Americans Elect, which is looking to promote a bipartisan presidential ticket later this spring and summer. Americans Elect is supposed to gain access to the ballot in all 50 states. I’d love a viable third party candidate this go ‘round but I don’t see how they’ll attract a top-shelf ticket, and one that can get into the debates.

--As if Greece didn’t already have enough problems, as Bloomberg reported, the nation’s doctors are fighting a pneumonia-causing superbug that is resistant to most antibiotics. “The culprit is spreading through health centers already weighed down by a shortage of nurses.  The hospital-acquired germ killed as many as half of people with blood cancers infected at Laiko General Hospital, a 500-bed facility in central Athens.” The K. pneumonia bacteria (KPC as it is being dubbed) has a mutation that allows them to evade powerful drugs. Partly because of the lowest nurse-to-patient ratio in Europe, Greece has one of the highest rates of antibiotic use – and abuse – on the continent.

--Just when the cruise industry needs some good PR, there’s a wave of norovirus incidents.

--Prince Harry qualified as an Apache helicopter pilot after 18 months of training in the U.K. and the U.S. So Harry now has limited “combat-ready status,” which is very cool. Eight weeks of the training was in California and Arizona, carrying out exercises designed to prepare pilots for action in Afghanistan, though there is little chance Harry is going back after he served 10 weeks there in 2007-8, only to have his deployment become public.

--Feb. 6 marked 60 years on the throne for Queen Elizabeth II, now 85. Queen Victoria reigned for more than 63 years.

--Feb. 7 was the bicentennial of the birth of Charles Dickens. The Times (of London…which is why I call it the London Times for convenience), was around back then and in 1867, Dickens wrote a letter to the paper seeking “to refute a rumor that he was in poor health. ‘Will you allow me to state in your columns,’ he asked, ‘that the statement is wholly destitute of foundation, and that I never was better in my life?’

“Much the same might be said of Dickens’ posthumous reputation. The author enjoyed extraordinary acclaim in his lifetime. Yet, if anything, the characters that he depicted pervade public life and popular consciousness still more vividly now.

“They do so because their creator, born 200 years ago, was more than a great writer. Dickens is a central figure in the nation’s history. He illuminated an age in which England became an industrial power and a modern state, amid immense deprivation. He transformed the art of the novel from picaresque accounts of personal quests to panoramas of whole societies. In his use of social and psychological realism, he was an artistic pioneer. But beyond all these achievements, he created characters that live.

“From The Pickwick Papers and David Copperfield to his last and greatest finished work, Our Mutual Friend, Dickens portrays the consequences of discovering one’s identity. If modern readers fault him for sentimentality, they miss his insights into the nature of benevolence and evil, and the complexities of the human condition. The damaged characters of Miss Havisham in Great Expectations or Miss Wade in Little Dorrit, say, are unique in literature while being instantly recognizable in life. There lies the cause for celebration. More than almost any other English writer, Dickens holds the mirror up to nature, and shows the very age and body of the time.” [The Times]

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

God bless America.
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Gold closed at $1725
Oil, $98.67

Returns for the week 2/6-2/10

Dow Jones -0.5% [12801]
S&P 500 -0.2% [1342]
S&P MidCap -0.7%
Russell 2000 -2.1%
Nasdaq -0.1% [2903]

Returns for the period 1/1/12-2/10/12

Dow Jones +4.8%
S&P 500 +6.8%
S&P MidCap +9.7%
Russell 2000 +9.8%
Nasdaq +11.5%

Bulls 52.1
Bears 28.7 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore