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03/17/2012

For the week 3/12-3/16

[Posted 6:00 AM ET]

Europe, Washington and Wall Street…and China

Greece officially gets its second, 130 billion euro bailout, 174 billion when combined with part of the first bailout package that remains, as the International Monetary Fund approved 18 billion of the 130bn, or 28bn of the 174bn. I’m telling you this is kind of confusing, but let’s stick with the second package of 130 billion.

This means 18 billion coughed up by the IMF, 112 billion by the European Union. Now recall you first had the European Financial Stability Facility [EFSF] as the original firewall for Greece, Ireland and Portugal, and then the European Stability Mechanism [ESM] consists of 500 billion euro ostensibly to backstop Italy and Spain.

Portugal, at an estimated 100 billion, and Ireland, 80 billion, are funded out of the 250 billion remaining in the EFSF, along with the 112 billion for Greece. Yes, it doesn’t exactly add up but it’s hoped Portugal and Ireland won’t have to use all of theirs.

Or they might need more…Greece as well.  And even though we’ve seen the credit market situation improve markedly for Italy and Spain, they can still have all manner of issues if their economies don’t improve, and soon, and in that case you all know by now, 500 billion euro isn’t enough for these two.

Which is why the IMF is adamant Germany, in particular, back a further increase in the ESM, or at least combine the EFSF with the ESM, but Germany doesn’t want to because it believes the five nations just mentioned wouldn’t then have the incentive to implement their austerity programs.

As for the IMF, one of its directors, Paulo Nogueira Batista, who represents Brazil and eight of the governments, abstained – the traditional way of showing dissent at the board, saying, “I remain deeply uneasy about the Greece program. For the past two years, Europe has taken a Panglossian view of Greece’s likely growth while the economy has continued to contract.”

Batista told the Financial Times that the restructuring of Greek sovereign bonds held by private sector creditors was “too little, too late….They have gained some breathing space but I don’t think that the medium-term prospects for the country have fundamentally been altered for the better.”

With Greece getting the bailout package, though, it now has to accept four European Commission officials permanently stationed in Athens, along with representatives of the IMF and European Central Bank, who will be constantly looking over the shoulders of Greece’s monetary officials.

Meanwhile, in Spain, with an unemployment rate of 22.8%, 50% for young people, house prices fell 11.2% last year, with prices in Madrid down 15.7% in the fourth quarter, year-over-year.

Eurozone finance ministers, still reeling from Spain’s announcement that its deficit would be 5.8% rather than the previously agreed upon 4.4%, cut Spain some slack to 5.3% as a target for 2012, but this requires even more draconian cuts. Ollie Rehn, the EU’s most senior economic official, said the EU couldn’t do more given the fact Spain’s deficit for 2011 came in at 8.5%, 2.5 percentage points higher than it was supposed to.

Now do you see why an increased firewall for the ESM is necessary? Oh, sure. Spain and Italy have 10-year bond yields that have come down to roughly 5% for each vs. 7.50% for Italy at its recent peak and 6.67% for Spain. That is good. But to beat a dead horse, or slaughter a bull in the case of Spain, they need growth. Both are in recession.

Mohamed El-Erian / Financial Times

“Many investors wish to wave a final goodbye to the disruption the Greek debt crisis has had on market valuations. Meanwhile, European policymakers are already trying to move away from the dramas on the periphery and focus on restoring growth in Europe. Both impulses are understandable. Unfortunately, they are premature….

“What last week’s debt reduction deal really delivers is a bit more time for others to reposition for the next, more disruptive, act in this unfolding Greek drama. For European policymakers, this means even more urgent building of firewalls to protect countries such as Italy and Spain, continuing to strengthen the core through better fiscal and political integration, and forcing banks to raise capital. For investors, it is about reducing their exposure not only to another default by Greece, but also the risk of the country’s exit from the euro.

“If this were to happen, the latest agreement would end up being characterized in history books as more than just a costly failure.”

And on the ECB’s recent longer-term refinancing operations (LTROs) that stabilized the debt markets in the eurozone by injecting massive amounts of liquidity into the banking system, economist Paul De Grauwe, in an op-ed for the Financial Times:

“(It) can now be said (the LTROs) were ill-designed, making it probable that the ECB will have to discontinue them….

“(The) ECB chose not to intervene at the source of the problem – the sovereign bond markets. It delegated the power to buy government bonds to the banks, trusting they would obey. But the banks themselves were and still are in a state of fear.

“The decision to delegate to panicky bankers has had three unfortunate consequences that will become clear now the central bank has completed its second liquidity injection. First, because banks channeled only a fraction of the liquidity they obtained from the ECB into the government bond markets, the ECB had to pour much more liquidity into the system than if it had decided to intervene itself.

“Second, new waves of panic may grip the banks again, leading them to sell off government bonds. The risk that this may happen undermines the credibility of the whole operation, and can quickly lead to a new crisis in the bond markets. Will the ECB then again increase its lending to these banks in the hope that frightened bankers will resume their bond purchases?

“Third, and most importantly, the liquidity injections in the banking system create moral hazard problems that are more dangerous than those resulting from direct intervention in the sovereign bond markets.

“Banks have been given unlimited sources of funding to make easy profits. This reduces their incentives to restructure their balance sheets, which would make them more resilient in the future….

“The LTRO program has relieved the pressure in the sovereign debt markets of the eurozone. But this is only temporary. The peripheral eurozone countries are now pushed into a deep recession that will exacerbate their fiscal problems and will create renewed distrust in financial markets.

“As a result the sovereign debt crisis will explode again, forcing the ECB to make hard choices. Either it will stick to its indirect LTRO approach, giving cheap money to trembling banks with all the problems this entails. Or the ECB will become pragmatic and intervene directly with a steady hand in the government bond markets.”

Of course as Paul De Grauwe concludes, on this last point Germany will never accept direct interventions.

Bottom line, sports fans…it ain’t over ‘til it’s over.

One last item. Appearing before a rally of some 100,000 in Budapest, Hungarian Prime Minister Viktor Orban blasted the European Union for suspending funding for Hungary over its high budget deficit, with Orban saying:

“We will not be a colony. As a European nation, we demand equal treatment. We will not be second-class European citizens.”

That’s why they call it ghoulash.

Washington and Wall Street

The Federal Reserve’s Open Market Committee met to discuss the latest on interest rates and the economy and emerged with no change on the former, as expected, but a bit more enthusiasm for the pace of growth, even as it reiterated it would keep rates at zero into 2014 due to the fact housing remains depressed, Europe is still a concern, and high oil prices normally aren’t a good thing. 

The Fed also released the results of its latest stress tests. 15 of the 19 largest financial institutions passed, with the four failures being MetLife, SunTrust Bank, Ally Financial, and Citigroup. Citi was ticked, saying it would have passed were it not for its request to increase its dividend.

“The Federal Reserve advised Citi that it has no objection to our continuing the existing dividend levels on our preferred stock and our common stock, and we plan to do so,” the bank said in a statement.

The stress tests assumed an equity market plunge of 50%, further home price declines of 21% and unemployment levels of 13%, up from the current 8.3%. It also threw into the equation an asteroid striking Earth and unemployed dinosaurs from the recently canceled Fox program, “Terra Nova,” wreaking havoc.

But no doubt, the Fed deserves a lot of credit for stabilizing the banking system at the height of the financial crisis, not that it didn’t hit up taxpayers at the same time, and America’s banks are in far better shape than Europe’s, and it’s not even close. So Chairman Ben Bernanke gets a gold star for his notebook. But he gets two black marks for holding rates at zero way longer than appropriate and thus killing savers, and all pension funds for that matter.

And, in case you missed it this week, the Federal budget deficit for February came in at a cool $230 billion. One month. $231.7 billion, to be exact. Nice job, Mr. President. Or as Church Lady would say, “Now isn’t that spe-cial.”

The Wall Street Journal editorialized:

“If only someone would now test where the next ‘stress’ is most likely to occur – in the government….

“The Treasury is still rolling out $1.3 trillion deficits, three years into a recovery, and the Federal Reserve is still holding interest rates at near-zero and has tripled its own balance sheet.

“Neither institution – much less the White House or Congress – seems to have an exit strategy worth the name. The White House says a big tax increase next year will solve any fiscal woes, and Fed Chairman Ben Bernanke says, well, trust him.

“Earlier this week we described the Treasury’s financial pickle if interest rates rise even 200-300 basis points. What we don’t know, but would like to, is what would happen to the Fed’s balance sheet if interest rates rose rapidly, say, to their historic modern norm of about 5%? What really needs a stress test is the government.”

Meanwhile, a funny thing happened to President Obama’s approval ratings. They have distinctly plateaued, and, in the case of one poll in particular, plummeted. 

Surveys from Reuters/Ipsos and Pew Research Center show the president with a 50% rating, which is where all of them have settled the last six weeks or so, owing to the improving economy and falling unemployment rate, but then the Washington Post/ABC News poll had him at 46% (57% disapproval among key independents), and the shocker of them all, a 41% approval rating from the New York Times/CBS News survey, which just one month earlier had Obama at 50%.

What happened? I suspect it’s an aberration, but there is no doubt that high prices for gasoline at the pump are hurting Obama.

Here’s the deal. When the history of this year is written, in terms of the economy, weather will have played a huge role, at least for January thru March, and judging from the long-range forecast for the second quarter, April thru June as well.

You cannot discount the impact of great weather on retail sales, auto sales, and construction activity.

At the same time, while gasoline prices have soared to a national average of $3.82 as I write, 1/3rd of drivers in America are paying over $4.00.

Yes, I know. Americans have saved huge sums on heating costs (especially assuming you have natural gas), and cars are far more fuel efficient, so you aren’t filling up as much if you have a relatively new vehicle, but $4.00 irks you. And if we have to use our A/C a lot sooner than normal, and begin to burn up these humongous natural gas inventories and get back to pricing normality, the hit to the wallet from $4.00 gas will be substantial.

And to those who think we are going to catch a break on gasoline, NFW [no functional way], until the Iranian situation resolves itself.

So the president is going to get the blame on this one, whether he deserves it or not, and that’s all part of the approval rating.

Lastly, the GDP figure for the first quarter is going to be in the 2% range, if consensus is correct, though Morgan Stanley lowered it to 1% this week, and that’s a come down from Q4’s 3%, so that trend isn’t going to help the president, it would seem.

But I said in predicting what would happen this year that foreign policy would overwhelm the White House and I believe that more than ever. Suffice it to say, those who think the president has done a good job on this front are mentally challenged. Let me help you. History will show him to be a disaster.

And a word on China. I discuss the political machinations of the nation down below. On the economy, in his last major appearance as premier before the National People’s Congress and the press conference after, Wen Jiabao said there would be no short-term easing of measures on the property sector, this as foreign direct investment fell in February for a fourth consecutive month. A ministry spokesman said the outlook was “grim,” owing to “slack” external demand.

JPMorgan Chase economist Adrian Mowat, who is said to have a good track record, though I haven’t followed the lad, proclaimed that China’s economy is in the midst of a “hard landing.”

“If you look at the Chinese data [Ed. I reported on a slew of it last week, if you want to check the archives to refresh your memory], you should stop debating about a hard landing. China is in a hard landing. Car sales are down, cement production is down, steel production is down, construction stocks are down. It’s not a debate anymore, it’s a fact.”

Well, my main man, economist Stephen Roach, said the week before that talk of China having a hard landing is nothing but a bunch of “exaggerations.” The banking system will not collapse, nor will there be a true property bubble burst.

Mowat doesn’t see a pickup in property demand sopping up the inventory.

But lower growth, assuming there’s no hard landing, keeps inflation under control and in terms of keeping the masses quiet, this is what’s most important.

Jim O’Neill / Goldman Sachs…in an op-ed for the Financial Times:

“Much of China’s slowing is neither unexpected nor undesired. Premier Wen’s forecast was not news to those who follow developments in the country closely. In the 12th five-year plan released about a year ago, the leadership had already said that it expected real GDP growth of 7.5 percent. It was seen at the time as confirmation that Beijing was no longer pursuing as fast a rate of GDP growth as possible….While actual GDP growth has consistently exceeded expected growth for many years, this didn’t stop Beijing from lowering their stated and assumed target….

“But let’s get things in perspective. A real growth rate of 7.5%, if it occurs, along with 4% inflation will still see China’s GDP, in U.S. dollar terms, close to doubling in five years so long as the currency doesn’t nosedive. By early next decade China’s economy would near $15 trillion and be on track to surpass the U.S. For the rest of the world, 7.5% growth in China is effectively the same as U.S. growth of around 4%. As I have become fond of saying, China today creates the equivalent of another Greek economy every eleven and a half weeks, and one-tenth of another eurozone economy every year.”

Street Bytes

--Stocks raced higher in a broad-based rally with the Dow Jones and S&P 500 gaining 2.4%, while Nasdaq added 2.2%. Nasdaq has been down just one week in eleven thus far in 2012 and is up 17% for the year. Nasdaq also closed at 3055, while the Dow Jones is now solidly over 13000 (13232) and the S&P finished over 1400 (1404). Nice round numbers for the bulls. The positive release on the retail sales front early in the week was one of the prime catalysts, as well as the performance in a certain tech stock named Apple.

Shares in Apple hit $600 on Thursday, before backing off and finishing the week at $585, a rise of about 55% in just three months! [The stock was $378 on 12/15/11, $405 on 12/31.] The new iPad (iPad 3) went on sale Friday and the product has received rave reviews. IDC, the research firm, said that because of Apple’s latest release, worldwide tablet shipments in 2012 will rise 21%. For its part, Apple has received record pre-orders. One analyst said Apple will capture 80% of the tablet industry’s profits in selling 65 million units. Just know that of 56 analysts covering the company, Bloomberg says only one has a sell rating.

And if you want to get sick all over again, back in 2000, Apple shares traded $7 to $31.

--U.S. Treasury Yields

6-mo. 0.14% 2-yr. 0.36%   10-yr. 2.29% 30-yr. 3.41%

Yields soared, relatively speaking, and in percentage terms, on a return to equities and the misguided belief the economy continues to improve, which would force the Fed to switch gears. Everyone has an opinion, that just happens to be mine.

On the inflation front, yes, I know it’s there, as I discuss below, but the official data speaks otherwise…for now. The February figures on producer prices showed an increase of 0.4%, 0.2% ex-food and energy, while consumer prices for the month rose 0.4% as well, but 0.1% on the core. For the last 12 months, the PPI is up 3.3%, 3.0% core; and the CPI is up 2.9%, 2.2% core.

Other data points of note: February retail sales were up a solid 1.1% (see above discussion on weather), while February industrial production was unchanged, not good.

--China’s National Bureau of Statistics admitted some local officials have been falsifying economic data, especially as it pertains to industries such as coal and aluminum. This is not a surprise. I’ve written many a time over the years of the pressures local officials face in meeting certain quotas, with the political future of some at risk, but it nonetheless is a further example of the issues faced by the national government to ensure the data is accurate. There has been an ongoing crackdown. It’s at least a positive that top officials admit the problem and have been taking steps to address it, including severe prison sentences for those leaking information. One researcher with the People’s Bank of China received six years for willfully revealing state information to 15 people in the securities industry.

--The Obama administration, along with Japan and the European Union, filed suit against China at the World Trade Organization over Beijing’s restrictions in the rare earth metals sector, with China accounting for more than 95% of the global supply that finds its way into high-tech applications from smartphones to electric cars. China has been limiting exports, and/or output, to drive up the price, as well as encourage foreign companies to relocate to China to access the materials, after which China could steal the technology. Cough cough.

--Separately, Molycorp acquired a key processor of rare earth minerals, Neo Material Technologies, which will pave the way for Molycorp to ship minerals from its California mine to Neo’s Chinese operations. I don’t like this deal, partly because I’m not a fan of Molycorp CEO Mark Smith. Maybe someday I’ll give you other reasons.

--China had another serious issue with its high-speed railway as soft soil and shoddy construction (denied by the government but rumored) was to blame for the collapse of a 4-mile section of the line in the central part of the country. Repair work will take at least a month.   The line had not been in use yet but was set to go into service in May.

--Update: India ended its one-week ban on exports of cotton under pressure from growers, traders and China, India’s largest customer. So you might say, this was one stupid decision in the first place and whoever is responsible should be shelling peppercorn as a punishment. Farmers will now get a higher price, which will encourage more planting for next year. Funny how that works.

--India reported record car sales in February, up 13%, while industrial production for January was up 6.8%, better than expected.

--The unemployment rate in the U.K. rose to 8.4% in January. Youth unemployment is 22.5%; yet another potential lost generation of workers.

--From Bloomberg News: “When Morgan Stanley said in January it had cut its ‘net exposure’ to Italy by $3.4 billion, it didn’t tell investors that the nation paid that entire amount to the bank to exit a bet on interest rates.

“Italy…paid the money to unwind derivative contracts from the 1990s that had backfired…It was cheaper for Italy to cancel the transactions rather than to renew.”

The cost is equal to half of Italy’s sales tax increase this year. Morgan Stanley had a gain of about $600 million in the fourth quarter related to the contracts, but this was a reversal of earlier charges it took in 2011 on fear Italy wouldn’t pay the full amount it owed.

Counterparty risk among the five largest swaps dealers – Goldman Sachs, Morgan Stanley, Bank of America, Citigroup and JPMorgan Chase – amounts to $19.5 billion with Italy; with total exposure to the country of as much as $31 billion when including European banks.

--In the key California home market, DataQuick estimated sales of houses and condos rose 8.5% in February, the seventh straight month of increases, but the median home price across the Golden State fell 2% from a year ago to $239,000. Absentee buys (investors) purchased 30% of all homes sold in Southern California, where the six-county median home price fell 3.7% from Feb. 2011.

--The International Energy Agency said unscheduled crude oil supply outages from Syria to the UK had reached 750,000 barrels a day and world markets face a “bumpy ride” in the months ahead. Throw in Iran and it’s a serious issue, though Saudi Arabia is now pumping at a 3-year peak and Libyan production is recovering quickly. Overall, OPEC’s production is at its highest level since mid-2008, but this also means OPEC’s spare capacity is below 3m b/d for the first time since 2008.

--According to a report, home prices in Ireland have hit bottom, but may stay at their current levels “for ages,” as noted by Goodbody Stockbrokers. Economist Dermot O’Leary says prices have now fallen 68% from their peak in 2007.  68%! That’s greater than the official 48% from the Central Statistics Office property price index.

--UBS AG said it slashed its bonus pool in 2011 by 40% due to weaker performance; 60% among those in the investment banking division. It didn’t help a trading scandal in London cost the bank $2.3 billion.

--According to Manpower Group, new hires will outpace firings in New York City by a 3-1 margin in the second quarter. This is good!

--To give you a sense of how high oil prices can do a number on airline profits, Cathay Pacific on Wednesday said its net profit fell 61% in 2011, despite a 9.9% increase in total revenue. Jet fuel costs surged 44%. Other international carriers such as Singapore Air, Air New Zealand, and Qantas are slashing jobs.

--Janet Robinson, the New York Times Co. CEO who was pushed out last December, took the box that started with a year’s supply of Whammy Sticks and received an exit package of $23.7 million, including stock options and pension benefits. Plus, she earns $4.5 million in consulting fees for this year. It’s this last part that is the most egregious, in the eyes of your editor. 

--577 cities reported record high temperatures on Wednesday and the National Weather Service is forecasting mostly warmer and drier-than-normal weather for the next three months, outside the Northwest.   Every state east of the Mississippi River, except Wisconsin, is going to be basking in it.

And with the shocking winter that we’ve had, the third least snowfall in the U.S. in 46 years, that means little chance of spring flooding, so we catch a break on that front. 

The drought situation has also improved. Only 7% of the nation has extreme or excessive conditions.

As for the warmer air, thank the Arctic Oscillation, the northern cousin to El Nino, which keeps storms and the cold bottled up north. 

We love you, A.O.! 

--Despite the warm weather here in New Jersey, Atlantic City’s casinos continued to take it on the chin, with revenue for the month of February declining 5.9% over last year. For the first two months, the casino take is down 6.6% over the same period in 2011.

--Inflation Alert: The cost of walk-up general admission to the Kentucky Derby is rising 25%, from $40 to $50 this year. Goodness gracious!

--Inflation Alert, part deux: The New York Post’s Terry Keenan did a piece last Sunday on the American Institute of Economic Research and their Everyday Price Index (EPI), which strips away the cost of big-ticket items, like homes and cars, and looks at the cost of items such as milk, coffee, eggs, beer, and potatoes…everyday stuff. By that measure, “the Everyday Price Index shows inflation galloping ahead at an 8.1% annual rate…

“Averaging the CPI and the EPI gives us a rate of 5.6%, a number most New Yorkers, and probably most Americans, would consider on the mark.”

--Inflation Alert, part trios: Six years ago, a New York strip steak at one of the four top restaurants that are part of the Palm Restaurant Group in Gotham, was under $40. But with the rising cost of beef, an emergency conference call was held recently to raise the price to $50, or generally $49.95, when looking at outlets like Bobby Van’s. Some, such as Smith & Wollensky, are now testing single selections at $52. So if you’re a steer, thinking you’ll take the spring and summer off and just kind of lounge around, and you see some humans on horseback attempting to round you and your buddies up into metal enclosures, make a break for it. [Lisa Fickenscher / Crain’s New York Business]

--Lastly, you have the case of disgruntled, now former Goldman Sachs employee Greg Smith and his op-ed in the New York Times.

I really do try to live by the adage I’ve long put forward in this space… “Wait 24 hours.”

Guess what we’ve learned by waiting? There is no story! Period.

I can understand why the New York Times ran it. We’ve learned it was submitted unsolicited, among hundreds of other submissions the Times receives every week, and I can see how an editor thought it fit in the editorial pages.

But then to run it as the lead the next day on page one, and for all the major news organizations to lead with it, was beyond absurd.

Look, I can’t stand Goldman. I have no friends there, nor am I looking for any. I know Wall Street and I just don’t respect them.

But while I printed out all the stories pertaining to Smith’s editorial in the 24 hours after the Times ran it, I am now depositing the pile in the trash. There’s nothing newsworthy there, including all the comments that Jamie Dimon and other Wall Street leaders stupidly put out. If they had waited 24 hours, too, they would have seen the light as I did.

Foreign Affairs

Afghanistan: I wrote in this space on 4/3/10, “As Country Joe first sang over 40 years ago, ‘One, two, three, what are we fighting for?’” Back then, President Hamid Karzai was accusing the West and the United States of wanting a “puppet government” and of orchestrating a fraud in the previous year’s presidential election, though it was the other way around in the case of the latter.

Now, as the Financial Times’ Philip Stephens puts it, it’s a race to the end. 

“In Washington this week a president and a prime minister declared victory even as they admitted defeat. The U.S. and Britain are getting out of Afghanistan. The rush for the exit is becoming a race. ‘We’ve been there for 10 years and people get weary,’ Barack Obama said. ‘People want an end game,’ Britain’s David Cameron chipped in. What happens next in that benighted country is, well, a problem for the Afghans….

“If there are differences (between the two leaders), they are about precise timing and choreography. Mr. Cameron was caught unawares when the Pentagon advanced its departure schedule. The British did not want to be a single step behind the U.S. The Americans do not want Britain to run ahead….

“The alliance’s combat troops are to leave by the end of 2014. The U.S. administration, however, intends to front-load the process, handing the lead combat role to the Afghan national army by mid-2013. This would allow an accelerated drawdown of the 90,000-strong American force. Britain does not want its 9,500 troops left exposed to the inevitable Taliban resurgence in southern Afghanistan. The deal in Washington seems to be that they will both come out faster. The exit strategy, as Henry Kissinger has observed, has become all exit and no strategy….

“Unsurprisingly, voters on both sides of the Atlantic have turned against the conflict – just as with Iraq. A U.S. election looms.   Never-say-die conservatives such as Rick Santorum are questioning whether anything resembling victory is any longer possible.

“A violent Afghan reaction to the burning of copies of the Koran by U.S. troops, and a murderous attack on Afghan civilians by a serving U.S. soldier have crystallized doubts. The law of diminishing returns has set in: the presence of NATO troops has become the problem.”

It was another terrible week for the United States with the word a U.S. soldier had gone rogue, snapped, and killed 16 Afghan civilians, including children. A tragedy of immense proportions. A single act that impacts strategy.

Retired Gen. Barry McCaffrey said on NBC, “This is bad news…immense pain to everyone.” Then McCaffrey said, to compound matters, “President Karzai throws kerosene on the flames.”

Little did McCaffrey know that when he made the statement about Karzai, a few days later the hopelessly corrupt Afghan leader would demand U.S. troops return to their major bases and speed up transfer of security responsibilities to Afghan forces nationwide, though Karzai did not set a timetable of his own. A rapid withdrawal from the rural areas, however, would be devastating to the war effort and the end to any winning hearts and minds campaigns. So who knows how serious the mercurial Karzai is.

For their part, the Taliban took advantage of the awful situation involving the U.S. soldier to say they were suspending talks with the Americans.

As for the American people, in a Washington Post/ABC News poll, 55% believe that most Afghans are opposed to what the United States is trying to accomplish in that country. 54% want to see the U.S. withdraw even before it can train the Afghan army to be self-sufficient. For the first time, Republicans are now split on whether the war is worth fighting. 

Overall, 60% of Americans believe the war has not been worth the loss in life and expense. Speaking of the financial cost, we are spending $2 billion a week over there. Staggering. Imagine what Bill Gates could do with $2 billion in one of his humanitarian efforts.

But, again, it’s amazing how the acts of one rogue soldier can impact policy in such drastic fashion. The mistrust between the United States and Afghanistan is irreversible. This messy ending is also on Obama, not Bush.

Editorial / Washington Post

“As they watch (Obama’s past helter-skelter moves in the Afghan theater), Afghans, the Taliban and neighbors such as Pakistan can reasonably conclude that the United States, rather than trying to win the war, is racing to implement an exit strategy in which the interests of Afghans and their government are slighted. Americans, meanwhile, rarely hear Mr. Obama explain the mission or the stakes. In this context, it’s not surprising that Afghans show little tolerance for U.S. failures – whether it is this week’s shooting or the accidental burning of Korans. And it’s little wonder that most Americans favor withdrawing troops as quickly as possible. If it’s evident that the president won’t defend the war, and is focused on ‘winding down’ rather than winning, why should anyone else support it?”

Iran: Both President Obama and British Prime Minister Cameron are on record now as urging Israel to hold off on any attack on Iran.   Tactically, the bottom line is that it is now commonly accepted Israel, acting alone, can set back Iran’s nuclear program 1-2 years. The United States, however, could set it back up to ten years.

But appearing on 60 Minutes, former head of Mossad, Meir Dagan, said talk of attacking Iran was “the stupidest thing I have ever heard.”

Dagan argues an attack would make Israel the target of up to 50,000 missiles fired by Hizbullah and Hamas.

“It will be a devastating impact on our ability to continue with our daily life. I think that Israel will be in a very serious situation for quite a time. And wars, you know how they start. You never know how you are ending it.”

Dagan, who left Mossad last year, has been an outspoken opponent of a strike for some time now, though says if it’s necessary he would prefer the U.S. carry it out.

The problem is Israeli defense officials increasingly believe Iran is capable of producing highly enriched weapons-grade uranium in six months; after which it is assumed it would take another year or so to develop a delivery vehicle.

But if this is the case, Israel must act much sooner or, in the words of Israeli Defense Minister Ehud Barak, Iran will have moved enough of its nuclear facilities underground and out of reach of conventional airpower, thus creating a “zone of immunity.”

Israel has been planning an attack for years.  100 of its 300 planes would take part in the mission. Defense News reports that talks have been underway between the U.S. and Israel for the latest bunker-buster bombs, GBU-28s, but as an Israeli security official told the paper, best summing things up:

“The Americans want to wait until they have evidence of Iran’s decision to assemble a bomb. But we say that’s part of Iran’s strategy. We say Iran will continue to enrich uranium, harden its facilities and add redundancies that will allow it to break out or sneak out with nuclear weaponization. At that time, for us at least, it will be too late.”

The other day I said Israeli Prime Minister Benjamin Netanyahu was the smartest man in the world. What I didn’t add is that he also has a reputation for being indecisive. Netanyahu said on Wednesday:

“Israel has never left its fate in the hands of others, not even in the hands of our best friends.”

And to those who say if he could only reach agreement with the Palestinians, then the Iranian problem would go away, Netanyahu said:

“As if an agreement with Abu Mazen [PA President Mahmoud Abbas] would stop the [Iranian] centrifuges. Anyone who wants to believe that may do so, but he is burying his head in the sand.”

Netanyahu added, “Gaza is Iran’s forward position.”

“We left Lebanon, Iran came in. We left Gaza, Iran came in. There are those suggesting we do the same thing in Judea and Samaria. Iran would go in there as well. I don’t believe there is anyone who doesn’t understand that it is forbidden to repeat the same mistake a third time.”

“Sooner or later,” Netanyahu declared, “the Iranian terrorist base in Gaza will be uprooted.”

On Wednesday, appearing with Prime Minister Cameron, President Obama, as much as he doesn’t want to see an Israeli preemptive strike, did say:

“Because the international community has applied so many sanctions, because we have employed so many of the options that are available to us to persuade Iran to take a different course, the window for solving this issue diplomatically is shrinking.”

Separately, Secretary of State Hillary Clinton sent a message to Iran through her Russian counterpart, Sergei Lavrov, that negotiations were Iran’s “last chance.”

A Reuters/Ipsos poll found that 56% of Americans would support U.S. military action against Iran if there were evidence of a nuclear weapons program, while 39% were opposed.

For its part, the Washington Post reports that Iranian officials and analysts essentially say there is no way Iran ceases enriching uranium as part of any deal with the Group of Six (the U.S., Russia, China, France, Britain and Germany).

Plus, the talks aren’t even scheduled yet. The clock is ticking. Supreme Leader Ayatollah Khamenei said recently in a televised address:

“Pressures, sanctions and assassinations will bear no fruit. No obstacles can stop Iran’s nuclear work.”

But starting Saturday, Iran does face a sanction of a different sort. The inability of Iran to transfer money internationally as SWIFT (Society for Worldwide Interbank Financial Telecommunication), which facilitates most international money transfers, is cutting off Iranian banks’ access to its system; a move the U.S. and Israel have been lobbying for. This should be significant.

Lastly, I get a kick out of those who still talk about Iranian President Ahmadinejad as if he is calling the shots. I told you long ago that wasn’t the case; that if we had a choice, Ahmadinejad was a ‘moderate’ compared to Khamenei.

But Ahmadinejad is officially irrelevant. I’m not going to waste your time discussing the unprecedented interrogation he faced this week in the Iranian parliament, because it doesn’t matter. Ahmadinejad is not about to be removed before his term expires in June 2013. Khamenei calls the shots and he’ll let his one-time ally just sit there.

You see, Khamenei wants a parliamentary system with a prime minister only, thus eliminating the position of president, and that is what will happen next year. So ignore discussions concerning the president and any threats he is making to Israel. It’s Khamenei you need to focus on and the bottom line with him is…Iran is not giving up its nuclear weapons program for anything. Period.

Lastly, IAEA Director General Amano said of the Iranian military installation at Parchin, “We have information that some activity is ongoing there.”

The IAEA suspects the site is being used to test nuclear triggers. In two trips to Iran this year, the IAEA was denied access. “We have to go there,” said Amano. But Iran has signaled again it is unwilling to grant a request by the IAEA, even as Iran denies it is “cleansing” the site.

Syria: I said it was rather pitiful that the UN sent former Secretary General Kofi Annan to negotiate with Syrian President Bashar al-Assad; Annan being more appropriate for house watching duty and taking care of your plants than hard diplomacy. So Annan left after two sessions with Assad, tail between his legs. Far more effective would have been to have a real figure, like Colin Powell, go to Assad and do this:

“Mr. President, I want to show you a little video of what a cruise missile could do to your face. Now here is what it would do to your family. I suggest you leave forthwith.”

And then just walk out of the room.

Benny Avni / New York Post

“(Assad’s) troops killed more than 160 Syrians this weekend while ‘peace envoy’ Kofi Annan sipped tea at the presidential palace in Damascus.

“As the death toll in the rebellion against the Damascus tyrant inched closer to 10,000, the ever-optimistic Annan failed to convince anyone to end the fighting. Annan sought a compromise, but is that possible when Assad hopes to secure his hold on power while the rebels hope to end it?

“Annan was sent to Syria by current UN chief Ban Ki-moon and the Arab League, but he’s also the only game in town for the West. In rejecting Sen. John McCain’s call for military intervention in Syria, Obama administration officials made it clear that Washington won’t use air power, let alone ground troops, and that it won’t arm the rebels. Neither do we have any other plan.

“Cue the diplomacy-mongers.

“No one’s better at that game than Annan, who in 1998 ‘averted’ a second Gulf War during President Bill Clinton’s term. Annan declared on his return from a Baghdad meeting with Saddam that ‘I can do business with that man.’

“Annan has a history of turning a blind eye to genocidal massacres. As chief of United Nations peacekeeping, he ordered UN troops to avoid intervention in horrific bloodbaths in Rwanda in 1994 and Srebrenica, Bosnia, in 1995.”

Annan is calling for a cease-fire, then negotiations. Assad will just keep fighting until he wins, as was the case with Annan’s departure.

Amnesty International released a report on Tuesday that said the scale of torture in Syria is the worst the country has experienced in 30 years, with the human rights group documenting 276 deaths as a result of it.

But this was before 23 victims of “extreme torture” were found near the city of Idlib. The bodies were discovered blindfolded, handcuffed and shot dead, according to British-based Syrian Human Rights Watch.

Assad turned out tens of thousands of “supporters” in Damascus on Thursday. His forces are laying hundreds of landmines along the Turkish border to prevent people from escaping and to stop supplies from coming in to the rebels. 30,000 have fled to Turkey, Lebanon and Jordan. Another 200,000 are displaced in Syria.

Meanwhile, analysts are increasingly concerned over the fate of Syria’s chemicals weapons stockpile. An analysis from Foreign Policy notes:

“The country is a chemical powder keg ready to explode,” according to their experts.

Most of the stockpile is comprised of sarin and mustard blister agent that can be dispersed via artillery rounds, air-dropped bombs, rockets and missiles. There are supposedly 50 chemical arsenals and manufacturing facilities throughout the country.

Lebanon: I couldn’t help but make note of the following: “The U.S. Embassy in Lebanon sent an emergency message to Americans in Lebanon, Tuesday, warning them not to travel to the Baalbek area because of clashes between Lebanese authorities and criminal groups. The embassy message, sent in the afternoon, warned citizens to avoid the area while clashes continue and also noted recent clashes in the Bekaa and border regions. ‘The embassy advises U.S. citizens to monitor the security situation, avoid areas where clashes have occurred, and maintain low profiles in public.’” [The Daily Star] Been there, done that. Lebanon remains a powderkeg of a different sort.

Yemen: Last week I wrote, “I wouldn’t be in the least bit surprised to learn of an American airstrike or two on al-Qaeda bases in the not too distant future.” Word came about two hours after I posted that “Airstrikes carried out by U.S. warplanes killed at least 33 suspected al-Qaeda terrorists,” Yemeni officials said. [AFP]

A report in the London Times notes that al-Qaeda has launched a PR campaign in the south of the country where they are strongest, offering food aid. As a UK development minister said, “We don’t want al-Qaeda to become the Hamas of southern Yemen.”

Israel: Speaking of Hamas (really Islamic Jihad this time), which has been firing rockets and receiving Israeli retaliation, Israel’s Iron Dome rocket shield is acing its first big test. Iron Dome uses cameras and radar to pick off those incoming deemed a threat to people and property, while ignoring rockets that would fall in open areas. Israel said of 143 rockets fired between Friday and Monday (3/9-3/12), Iron Dome tried to intercept 63 and succeeded in all but nine of those attempts, as reported by the AP. No Israelis have been killed in the current fighting.

This obviously bodes well when looking at the threat posed by Hizbullah in Lebanon. Iron Dome is produced by Rafael Advanced Defense Systems, but it is a private company. I knew this but wrote Rafael anyway, asking if there was any public angle whatsoever and told them who I was. No reply. But I’m sure I gained a reader!   Hopefully a long-term one. It’s like when I finally get to Israel one of these days and in the security check they ask me, “Why have you been to Lebanon twice and Jordan?” “Because I can.” “Smart-ass.”

Iraq: So from time to time you hear of a big jewelry heist in New York’s diamond district, or some high-end joint around the country. It’s usually smash and grab. In Iraq, the heists are a little different, just a bit more violent.

“Iraqi police and health officials say robbers have killed nine people and wounded 14 others in a jewelry heist in eastern Baghdad.

“A police officer says two carloads of robbers stormed four jewelry stores Monday in a small market in the Shiite neighborhood of Ur before noon.”

Just in case you were thinking of strolling the shopping areas of this fine city.

China: By week’s end there was one story; the purging of Maoist Bo Xilai, a high-flying member of the Communist party politburo and the “princeling” son of a revolutionary hero. Bo had been embroiled in a scandal for about six weeks involving his handpicked police chief who attempted to defect to the U.S., claiming Bo was trying to kill him.

Bo was chief of Chongqing, a southwestern metropolis, but it was announced on Thursday he was being replaced and while no further details were released, it is assumed he is under house arrest, which is standard operating procedure in these cases.

Bo was known for his Maoist tendencies and “cultural revolution-style” policies in Chongqing, including a crackdown on businessmen and their gangs. Bo, however, was a direct threat to the reformers in China.

Editorial / South China Morning Post

“Reformers on the mainland have waited a long time for a positive signal from the Chinese Communist Party leadership. It came yesterday with the news that ambitious Chongqing party chief Bo Xilai had been removed from office. This followed, by less than 24 hours, Premier Wen Jiabao’s rebuke of the municipal leadership over the scandal in which the former city police chief sought refuge in a U.S. consulate. Wen’s remarks were the first comment on the incident by a state leader. He did not mention Bo by name, but with hindsight the fate of the aspirant to the top echelon of party leadership was sealed. More significantly, at Wen’s annual televised press conference [Ed. which lasted three hours], he also invoked the fear of another Cultural Revolution to argue for political reform. His remarks appeared aimed at Bo’s attempts to revive Maoist values with revolutionary campaigns and the singing of ‘red’ songs. Memories of that period still play on the emotions of everyone in China, including state leaders, who suffered hardship and tragedy during those troubled times.

“Perhaps the most important aspect of the decision to remove Bo is that a struggle between reformists and leftists over China’s future direction, hitherto waged behind closed doors, has burst into the open. With hindsight again, Wen flagged it long ago with repeated remarks, at home and abroad, that political reform was needed to safeguard China’s national economic achievements for the benefit of the people….

“Leftists believe reforms have gone too far and blame them for a widening income gap and growing social unrest. Reformists are concerned that despite China’s rise, the country faces an uncertain future unless it undertakes another round of economic and, more importantly, political reforms. Bo had emerged as the flag carrier for the leftists….His fall came only two days after he had defiantly vowed to continue with it.”

So does the sudden move endanger the planned leadership change for year end? Probably not, but it makes China’s efforts to prevent a hard landing all the more critical.

Incoming president-in-waiting, Xi Jinping, said in a speech published after Bo’s removal that the party’s authority had been weakened by a “lack of principles” among some members.

“To maintain the party’s ideological purity is to guarantee the unity of the party,” said Xi. “Today some people join the party not because they believe in Marxism and want to devote themselves to Socialism with Chinese characteristics…but because becoming a member brings them personal benefits.

“If the thoughts of members and cadres of the party are not pure, their ideas cannot be firm, and their political positions can easily change.”

Bo’s supporters will not go quietly, and the history of China is full of figures such as him who have made extraordinary comebacks, think Deng Xiaoping.

The fear is you’ll see a replay of 1989, and Tiananmen Square, only in reverse; Maoists protesting against reformers viewed as elitists in the battle over inequality.

Back to Premier Wen, during his press conference he responded to a question, saying the desire for democracy in the Middle East must be “respected and truly responded to.”

“I believe this trend towards democracy cannot be held back by any force,” he said, adding it was an “urgent task” to press ahead with reforms or risk losing the enormous gains made over the past three decades.

Items such as the wealth gap, endemic corruption and a public distrust of the government could only be addressed through reforms. While Wen has achieved no major political reforms himself in his ten years, his comments this week were viewed favorably in the blogosphere. Wen took the blame for all of China’s problems during his decade in leadership.   “Ultimately, history will have the final say,’ he said.

One other topic. President Hu Jintao, who is also Communist Party general secretary [Xi becomes general secretary first in the fall, then president early 2012], called on the People’s Liberation Army to safeguard social stability and the loyalty of the army ahead of the fall’s crucial party congress.

“The PLA and the armed police must prioritize ideological and political development and unswervingly uphold the Communist Party of China’s absolute leadership over the armed forces.”

It’s a little disconcerting Hu felt compelled to issue the statement and makes one wonder just what kind of dissent is in the military these days. Reformers vs. Maoists vs. the Army? Or just the first two, with the military being pulled from both directions? 

Lastly, China announced it was increasing its military spending to above $100 billion, $106 billion to be exact, though many believe it to be much higher.

North Korea: Uh oh…Pyongyang declared it will launch a long-range rocket carrying a “working” satellite to mark the centenary of founder Kim Il-sung’s birth next month, which would be in total violation of a 2009 Security Council resolution banning ballistic missile launches. The North had just told the U.S. it would suspend long-range missile testing as part of its recent talks. The Commies said the launch would not impact neighboring countries, but of course it is an important test of its capabilities…and how quickly it can hit the U.S. accurately! Which is why I maintain you have to sleep with one eye open, just as we do here.

The launch will take place April 12-16, according to the official news agency, so mark your calendars. Kim Il-sung’s birthday is April 15.

Then again, it’s a ploy for further food aid. And with this single statement by the North, announcing an illegal missile launch, the United States should scrap the deal that would have traded cessation of uranium enrichment at Yongbyon for stale Drake’s cakes.

It should also be noted that just this week, IAEA Director General Amano said he believes the threat posed by Iran’s atomic activities pales next to those of North Korea.

“The problem (with North Korea) is serious and its impact on the world is larger than Iran,” Amano said. The IAEA has not worked out a deal with the North for the return of inspectors, which is part of the Washington-Pyongyang deal. Amano admitted his agency doesn’t have a clue what is really going on there.

Separately, the Korea Herald reported that the South is not prepared for a smallpox attack by the North, the threat being part of Pyongyang’s biological weapons capabilities. A 2001 U.S. modeling study indicated that 3 million people could contract smallpox in no more than two months after the beginning of a pandemic. 30% would then die based on past history.

Russia: Fears of a crackdown on the protest movement emerged as a few of the leaders were given fines, but the husband of one of the organizers was sentenced to five years on unrelated fraud charges. The thing is the case is more than four years old and as the New York Times reports, “comes in spite of a ruling by the Russian Supreme Court last September that overturned (Aleksei) Kozlov’s earlier conviction in the matter….Russia has no statute against double jeopardy.”

Last weekend’s protests drew a far smaller crowd than expected and, for now, the movement is over, or so it seems.   But it will be back. It’s just the reality Vladimir Putin would have received 50% and avoided a run-off even with the fraud in the presidential vote that has hit them in the face. The protesters need to be better organized but they are split on their objectives.

Meanwhile, there are stories Putin is increasingly distrustful of his inner circle, as he should be, while there was quite a tussle on the corporate front that attracted attention.

Billionaire Viktor Vekselberg resigned as chairman of the world’s biggest aluminum producer, RusAl, saying the company is overloaded with debt and facing a “deep crisis” due to the improper actions of its management. RusAl then accused Vekselberg of failing to “perform his functions as board chairman of a public company” over the last year. Vekselberg is aligned with fellow billionaire Mikhail Prokhorov, he of the Nets and the failed presidential bid.

France: Opinion polls are now mixed concerning the April 22 presidential race. One has Socialist Francois Hollande at 29%, with President Nicolas Sarkozy at 27, and National Front candidate Marine Le Pen at 18; with Hollande then prevailing in round two by 10 points.

But a separate survey on Tuesday gave Sarkozy 28.5% to Hollande’s 27%, though Hollande still won a hypothetical run-off by 9 (54.5-45.5). Le Pen slipped to 16% in this one.

Le Pen, by the way, did finally get the required 500 signatures, beating the Friday deadline, but Sarkozy is successfully picking off her far-right supporters and there now seems little chance Le Pen can pull off an upset and finish ahead of the president in round one.

But there was this funny tidbit this week.

Sarkozy was forced to apologize to a policewoman after his 15-year-old son, by ex-wife Cecelia, threw a tomato at her. He was with friends in the presidential palace when he launched it from a window, the policewoman being in the street outside.

The kid is known as Little Sarko. Bad boy. Baaaad boy.

Random Musings

--Republican presidential primary/caucus results, going back to last weekend:

Kansas…Mitt Romney 51%, Rick Santorum 21%
Wyoming (ongoing process)…Romney 44, Santorum 27
Mississippi…Santorum 33, Newt Gingrich 31, Romney 30
Alabama…Santorum 35, Gingrich 29, Romney 29
Hawaii…Romney 45, Santorum 25

Delegates [AP]

Romney 494
Santorum 252
Gingrich 131
Ron Paul 48

Next up…Missouri (today, Saturday); Illinois, March 20

--A Chicago Tribune/WGN-TV poll of Illinois Republican voters had Romney with 35% and Santorum at 31%.

--Jennifer Rubin / Washington Post

“Mitt Romney would have dearly loved to have won either Alabama or Mississippi. It would have shut down talk of his ‘failure to close.’ And it would have increased the pressure on Rick Santorum and/or Newt Gingrich to get out of the race. The night was Santorum’s with a win in Alabama and a narrow victory in Mississippi, although he may have inadvertently moved the bar higher than he can clear….

“Santorum, though failing to gain significant ground in the delegate race, will claim underdog wins (as he did in Minnesota and Colorado) and enjoy renewed optimism that he can battle on. The wins may give him a boost going into Saturday’s contest in Missouri.

“In his victory remarks, an obviously elated Santorum spoke emotionally about ‘defying the odds,’ like America itself. But his speech lacked a clear message, as he rambled on about his travels in Mississippi, the Constitution, gas prices, oil drilling, being outspent, and his coal miner grandparents. In there, too, was a line about free markets and the ‘centrality of faith in our lives.’ He apparently feels compelled to wing these things and thereby fails to maximize his moments.

“He then uttered a line he may come to regret. He declared that he ‘will win the nomination before the convention.’ In light of the delegate gap, that strained credulity, and moreover, cast him in the role of the party-wrecker and chaos-maker. Expect the Romney team to drive home the message that Santorum isn’t gaining in the delegate race.”

Steve Peoples / AP:

“Santorum’s success and Romney’s failure exposed deep divisions within a party torn between a conservative base that’s looking for a candidate who is pure on GOP orthodoxy and the rest of the party, which is looking for a nominee able to beat President Barack Obama. Tuesday’s outcomes also virtually ensure the increasingly nasty slog toward the Republican presidential nomination will consume even more of Romney’s time, energy and money when he’d rather be focused solely on the general election, and Obama….

“Despite his losing streak, Gingrich vowed to fight on until his party’s nomination in August – and crowed about Romney’s weaknesses.

“ ‘The fact is, in both states, the conservative candidates got nearly 70 percent of the vote. And if you’re the frontrunner – if you’re the frontrunner and you keep coming in third, you’re not much of a frontrunner,' Gingrich said."

But in the Washington Post/ABC News poll this week, among likely Republican voters, 74 percent think Romney will capture the nomination.

--As for President Obama and his reelection bid, the Wall Street Journal points out that in six of 10 states identified as key to victory for both parties, six of them have an unemployment rate below the national average, such as in Colorado and Ohio, 7.8% and 7.7%, respectively. 

--In the New York Times/CBS News poll cited in the opening, despite Obama’s 41% approval rating, he still beats Romney, 47-44, and Santorum, 48-44.

--In the Washington Post/ABC News survey, 69% of Americans want to outlaw super PACs [70% of Democrats, 55% of Republicans…and 8 in 10 Independents.] 

Bloomberg News reported that 91% of the ads running in Mississippi and Alabama in the past month were paid for by super PACs, far and away the biggest being Restore Our Future, the group behind Mitt Romney.

--Daniel Henninger / Wall Street Journal

“Don’t get too distracted by the Republicans’ road-tour version of the 2012 presidential election as it hits theaters in the likes of Mississippi, Alabama, Hawaii and Illinois. The best show in town still plays daily at 1600 Pennsylvania Avenue. If maestro Barack Obama wins reelection this fall, we will have watched one of the greatest magic acts in American history.

“The new Obama magic show debuted in the State of the Union speech. Standing before Congress, Mr. Obama brought forth ‘An Economy Built to Last.’ Not the real one we have now, but the one he’s going to conjure after he’s reelected.

“The way this works is the president breaks economic history into two parts. In his right hand are the awful policy mistakes someone else made before January 2009. In his left hand is the economy he’ll bring to life after November. In between is nothing. You think you’re looking at the Obama years from 2009 to 2012 – 8% unemployment, low growth, low investment – when whoa, it’s gone! Never happened.

“The best was yet to come. The president of the United States is making the world itself and all its troubles…vanish.

“Iraq, Afghanistan, Iran, Syria, Pakistan, North Korea – one by one, Mr. Obama and his lovely assistants have methodically taken them all off the table. If he can make the world’s problems seem to go away until he gets reelected, it will constitute his presidency’s greatest illusion.”

Henninger goes on to dissect them all, as I do every week.

“It’s an amazing feat. At home and overseas, Barack Obama has just erased three years of rough spots from the hard disc of politics. It will be more remarkable still if the Republicans, amid a war-weary public, go along with the illusion. The world, alas, may not. For America’s onlooking competitors and adversaries in Tehran, Beijing, Moscow, Pyongyang and Waziristan, a U.S. president’s magic act is for them a very real opportunity.”

--Kyle Smith / New York Post

“In his latest State of the Union, Obama said of our armed forces, ‘They’re not consumed with personal ambition. They don’t obsess over their differences…They work together. Imagine what we could accomplish if we followed their example.’

“Except if we followed their example, we’d all have to salute and say, ‘Yes, sir’ to everything. That’s not democracy. Generals who say the mission failed because the troops didn’t follow orders shouldn’t be surprised when the troops start to mock them. Blame deflection isn’t leadership.

“And that’s why both (Jimmy) Carter and Obama came to seem so tired, dull, repetitive, scolding, inept and irrelevant. Carter’s poll numbers went up immediately after the malaise speech but retreated after a few days. His words gave him an anti-halo – the shadow of a whiner.

“ ‘You can’t castigate the American people,’ his vice president, Walter Mondale, told Carter, ‘or they will turn you off once and for all.’

“In his State of the Union, President Obama expressed wonderment that everything doesn’t work like the Navy SEAL raid that got bin Laden. ‘No one thought about politics. No one thought about themselves…This nation is great because we worked as a team. This nation is great because we get each other’s backs.’ Obama sounded as if he was pleading with us to get his back.

“ ‘Carter, Clinton and I all have sort of the disease of being policy wonks,’ Obama told Ron Suskind in the book ‘Confidence Men.’ He sounded as if he was pleading that he was too smart for the American people.

“ ‘For all of us to succeed, we have to have an investment in each other’s success,’ he said last month in Bellevue, Wash. It sounded as if he was pleading for us to accept the bill for his failures.

“Mondale was right: If Americans think their president is blaming them, they’ll turn him off once and for all.”

--Kathleen Parker / Washington Post

“Introducing her husband on Super Tuesday night, Ann Romney said that women this election season are interested in jobs, the economy and the debt.

“Translation: So could we shut up already about contraception?

“Republicans might wish nothing more than to stuff birth control pills back into the bottle, but Democrats aren’t about to let them. The narrative already has a title: ‘The Republican War on Women.’ Cue theme from ‘Psycho.’

“One can hardly blame Democrats for taking advantage of a perfect storm of stupefying proportions. The only thing Republicans failed to do was put a bow on this mess….

“War has been declared, and there’s hardly any way to change the impression among a growing percentage of women that the GOP is the party of knuckle-dragging Neanderthals. It’s a smart move for Democrats to keep replaying the message, but is it fair – and is it true?....

“(Republicans) are waging war on women only if you believe that the morality of abortion should never be questioned or if you believe the federal government can order people to pay for something that violates their conscience. These issues are not so simple, nor are Republicans simpletons for trying to protect the unborn or challenging what they view as government overreach.

“Unfortunately, the conservative governing principles that traditionally attracted level heads to the right side of the aisle have been incrementally subsumed by social issues – a bull’s-eye for Democrats and a black eye for Republicans. Inasmuch as women are the ones who most urgently require access to family planning, any opposition can be conflated to be anti-woman. Hence. Ann Romney’s well-placed remarks.

“She is right, of course, but the problem she was implicitly trying to address is not short-term. The GOP long ago made its bed with social conservatives, a large percentage of them Southern evangelicals, and now must sleep with them. After marriage, of course. In Laurens County, S.C., where the local GOP recently tried to create a purity tribunal to screen and monitor aspiring Republican candidates, this is more than a punch line.

“Although the state party ruled the county initiative inconsistent with state laws, the Laurens mind-set burbles just beneath the surface of the once-Grand Old Party. And that is a problem only Democrats could love.”

--Nice space program. According to NASA chief Charles Bolden, “Given current funding levels, we anticipate the need to purchase [Russian] crew transportation and rescue capabilities into 2017.” Seems our hoped for space taxis won’t be in service by early 2016 as planned. Pathetic. We can be so overrated at times.

--Investigators looking into the horrific bus crash that claimed 28 lives in Switzerland, 22 of whom were children, believe the driver of the coach may have been trying to load a DVD when he inexplicably crashed into a tunnel wall. Survivors told their parents this was the case. The children had watched “Avatar” on their outward journey. The head of the bus company denies the DVD theory.

--Bye-bye Encyclopedia Britannica, at least the print edition, after 244 years. It was first published in Edinburgh, 1786. Explorer Ernest Shackleton took a volume on his doomed expedition to Antarctica and is said to have burned it page by page to keep warm. Sales of Britannica dived from a peak of 120,000 volumes sold in 1990, to just 8,500 volumes of the 2010 edition.

Growing up at the Trumbore household, we were a World Book family, which was cheaper and thus a major reason why I didn’t do as well in school…..just kidding, Mom and Dad!

--So you know that Jason Russell character, director and narrator of “Kony 2012” who appeared on all the morning and network news shows in his 15 minutes of fame. You won’t believe what happened.

Russell was detained by police in San Diego on Thursday afternoon “after he was found having ‘kind of a meltdown,’ according to San Diego police officer Thomas Broxtermann.

“Mr. Broxtermann said police responded to multiple complaints variously describing a white male ‘running around the street in his underwear,’ ‘naked and [leaving this part out] and screaming’ and ‘banging his hands on the ground and screaming incoherently.’” [Wall Street Journal]

--OK…none of this should be a surprise but there was further confirmation on the food front concerning what is good or bad for you. To wit:

According to the journal “Archives of Internal Medicine,” data from 121,342 men and women taking part in two large U.S. health and lifestyle investigations revealed that red meat can be lethal…at least regularly eating it, especially the processed variety. As reported by John von Radowitz of the Irish Independent:

“Each additional daily serving of processed red meat, equivalent to one hot dog or two rashers of bacon, raised the chances of dying by a fifth.

“Conversely, replacing red meat with fish, poultry, or plant-based protein foods contributed to a longer life.”

Out of the data base, monitored for more than 20 years, “scientists documented 23,926 deaths including 5,910 from heart disease and 9,364 from cancer.”

“A striking association was seen between consumption of red meat and premature death. 

“Each daily serving of unprocessed red meat, equivalent to a helping of beef, lamb or pork about the size of a deck of cards, raised the risk of death by 13%, while processed meat increased it by 20%.

“Eating red meat increased the chances of heart disease by 16% and cancer by 10%. Processed red meat raised the risk of heart disease and cancer by 21% and 16%, respectively.

“Replacing one serving of red meat with an equivalent serving of fish reduced mortality risk by 7%. For poultry an even bigger risk reduction of 14% was seen. Legumes and low-fat dairy products lowered the risk by 10%, whole grains by 14% and nuts by 19%.”

So join me for Salmon Sunday...with nuts and beer for happy hour.

Meanwhile, the National Cattlemen’s Beef Association, the American Meat Institute Foundation and the National Pork Board said that red meat is a healthy part of a well-balanced diet. After all, cave men ate meat and they lived to be about 17. Oops, who’s writing their copy?

Now I must defend the Pork Board, having eaten pork on a stick at the Iowa State Fair last summer. I would gladly give up 14-16 months of my life if I could have that juicy treat every lunch time the rest of my days.

But here’s another one that will have you reaching for the good taste of beer.

A can of sugary soft drink a day increases a man’s risk of heart disease by 20%, as noted in the Hewalth Professionals Follow-Up Study, a major health and lifestyle investigation in the U.S., published in the journal “Circulation.” 

43,000 men took part and those who drank a 12-ounce of can of sugar were screwed, as opposed to the control group, consisting of moi, who drank Coors Light (or Stella Artois if the portfolio was doing well).

--No mystery that with the warm winter, bugs are going to have a field day in 2012. It’s a year the bug community will long remember, and I suspect humans will as well. Darryl Fears of the Washington Post notes:

“Awakened from hibernation underground, in rotting wood and the cracks of your house, bugs are on the rise. Ants, termites, mosquitoes, ladybugs and ticks are up early and looking for breakfast.”

Now what we need is one last cold blast that catches the suckers off guard. “Where’s your coat, Bobby?” asked Betty Aphid of her son. “Oh, Mom….” “You’ll be sorry!” Bobby Aphid died an hour later as temps dropped five degrees in 20 minutes and he forgot where he lived so he couldn’t get his coat.

Bobby was stupid, but as Greg Baumann of Orkin told the Post’s Fears, “Always bet on the bug. They’ve been around for millions of years.”

Think the aphid tale is far-fetched? Check this out. From Elizabeth Lopatto of Bloomberg:

“Male fruit flies become barflies when rejected by females, choosing alcohol-spiked food more often than their successful brothers in a study that suggest it may be due to a brain chemical also found in humans.

“The spurned flies had lower levels of a molecule in their brains called neuropeptide F than the males who were allowed to mate, according to findings published today in the journal Science.”

I’d get into the specifics of the experiment but this is a family website and, frankly, it’s quite racy.

--Finally, congratulations to players, students, fans and alum of both Norfolk State and Lehigh for their stirring upsets in the NCAA basketball tournament on Friday…the first No. 15 seeds to win in eleven years.

---

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

God bless America.
---

Gold closed at $1655
Oil, $107.06

Returns for the week 3/12-3/16

Dow Jones +2.4% [13232]
S&P 500 +2.4% [1404]
S&P MidCap +1.6%
Russell 2000 +1.6%
Nasdaq +2.2% [3055]

Returns for the period 1/1/12-3/16/12

Dow Jones +8.3%
S&P 500 +11.6%
S&P MidCap   +13.8%
Russell 2000 +12.0%
Nasdaq +17.3%

Bulls 43.6
Bears 26.6 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Happy St. Patrick’s Day!

And don’t forget the StocksandNews iPad app…pair it with your favorite red or white wine.


Brian Trumbore



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-03/17/2012-      
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Week in Review

03/17/2012

For the week 3/12-3/16

[Posted 6:00 AM ET]

Europe, Washington and Wall Street…and China

Greece officially gets its second, 130 billion euro bailout, 174 billion when combined with part of the first bailout package that remains, as the International Monetary Fund approved 18 billion of the 130bn, or 28bn of the 174bn. I’m telling you this is kind of confusing, but let’s stick with the second package of 130 billion.

This means 18 billion coughed up by the IMF, 112 billion by the European Union. Now recall you first had the European Financial Stability Facility [EFSF] as the original firewall for Greece, Ireland and Portugal, and then the European Stability Mechanism [ESM] consists of 500 billion euro ostensibly to backstop Italy and Spain.

Portugal, at an estimated 100 billion, and Ireland, 80 billion, are funded out of the 250 billion remaining in the EFSF, along with the 112 billion for Greece. Yes, it doesn’t exactly add up but it’s hoped Portugal and Ireland won’t have to use all of theirs.

Or they might need more…Greece as well.  And even though we’ve seen the credit market situation improve markedly for Italy and Spain, they can still have all manner of issues if their economies don’t improve, and soon, and in that case you all know by now, 500 billion euro isn’t enough for these two.

Which is why the IMF is adamant Germany, in particular, back a further increase in the ESM, or at least combine the EFSF with the ESM, but Germany doesn’t want to because it believes the five nations just mentioned wouldn’t then have the incentive to implement their austerity programs.

As for the IMF, one of its directors, Paulo Nogueira Batista, who represents Brazil and eight of the governments, abstained – the traditional way of showing dissent at the board, saying, “I remain deeply uneasy about the Greece program. For the past two years, Europe has taken a Panglossian view of Greece’s likely growth while the economy has continued to contract.”

Batista told the Financial Times that the restructuring of Greek sovereign bonds held by private sector creditors was “too little, too late….They have gained some breathing space but I don’t think that the medium-term prospects for the country have fundamentally been altered for the better.”

With Greece getting the bailout package, though, it now has to accept four European Commission officials permanently stationed in Athens, along with representatives of the IMF and European Central Bank, who will be constantly looking over the shoulders of Greece’s monetary officials.

Meanwhile, in Spain, with an unemployment rate of 22.8%, 50% for young people, house prices fell 11.2% last year, with prices in Madrid down 15.7% in the fourth quarter, year-over-year.

Eurozone finance ministers, still reeling from Spain’s announcement that its deficit would be 5.8% rather than the previously agreed upon 4.4%, cut Spain some slack to 5.3% as a target for 2012, but this requires even more draconian cuts. Ollie Rehn, the EU’s most senior economic official, said the EU couldn’t do more given the fact Spain’s deficit for 2011 came in at 8.5%, 2.5 percentage points higher than it was supposed to.

Now do you see why an increased firewall for the ESM is necessary? Oh, sure. Spain and Italy have 10-year bond yields that have come down to roughly 5% for each vs. 7.50% for Italy at its recent peak and 6.67% for Spain. That is good. But to beat a dead horse, or slaughter a bull in the case of Spain, they need growth. Both are in recession.

Mohamed El-Erian / Financial Times

“Many investors wish to wave a final goodbye to the disruption the Greek debt crisis has had on market valuations. Meanwhile, European policymakers are already trying to move away from the dramas on the periphery and focus on restoring growth in Europe. Both impulses are understandable. Unfortunately, they are premature….

“What last week’s debt reduction deal really delivers is a bit more time for others to reposition for the next, more disruptive, act in this unfolding Greek drama. For European policymakers, this means even more urgent building of firewalls to protect countries such as Italy and Spain, continuing to strengthen the core through better fiscal and political integration, and forcing banks to raise capital. For investors, it is about reducing their exposure not only to another default by Greece, but also the risk of the country’s exit from the euro.

“If this were to happen, the latest agreement would end up being characterized in history books as more than just a costly failure.”

And on the ECB’s recent longer-term refinancing operations (LTROs) that stabilized the debt markets in the eurozone by injecting massive amounts of liquidity into the banking system, economist Paul De Grauwe, in an op-ed for the Financial Times:

“(It) can now be said (the LTROs) were ill-designed, making it probable that the ECB will have to discontinue them….

“(The) ECB chose not to intervene at the source of the problem – the sovereign bond markets. It delegated the power to buy government bonds to the banks, trusting they would obey. But the banks themselves were and still are in a state of fear.

“The decision to delegate to panicky bankers has had three unfortunate consequences that will become clear now the central bank has completed its second liquidity injection. First, because banks channeled only a fraction of the liquidity they obtained from the ECB into the government bond markets, the ECB had to pour much more liquidity into the system than if it had decided to intervene itself.

“Second, new waves of panic may grip the banks again, leading them to sell off government bonds. The risk that this may happen undermines the credibility of the whole operation, and can quickly lead to a new crisis in the bond markets. Will the ECB then again increase its lending to these banks in the hope that frightened bankers will resume their bond purchases?

“Third, and most importantly, the liquidity injections in the banking system create moral hazard problems that are more dangerous than those resulting from direct intervention in the sovereign bond markets.

“Banks have been given unlimited sources of funding to make easy profits. This reduces their incentives to restructure their balance sheets, which would make them more resilient in the future….

“The LTRO program has relieved the pressure in the sovereign debt markets of the eurozone. But this is only temporary. The peripheral eurozone countries are now pushed into a deep recession that will exacerbate their fiscal problems and will create renewed distrust in financial markets.

“As a result the sovereign debt crisis will explode again, forcing the ECB to make hard choices. Either it will stick to its indirect LTRO approach, giving cheap money to trembling banks with all the problems this entails. Or the ECB will become pragmatic and intervene directly with a steady hand in the government bond markets.”

Of course as Paul De Grauwe concludes, on this last point Germany will never accept direct interventions.

Bottom line, sports fans…it ain’t over ‘til it’s over.

One last item. Appearing before a rally of some 100,000 in Budapest, Hungarian Prime Minister Viktor Orban blasted the European Union for suspending funding for Hungary over its high budget deficit, with Orban saying:

“We will not be a colony. As a European nation, we demand equal treatment. We will not be second-class European citizens.”

That’s why they call it ghoulash.

Washington and Wall Street

The Federal Reserve’s Open Market Committee met to discuss the latest on interest rates and the economy and emerged with no change on the former, as expected, but a bit more enthusiasm for the pace of growth, even as it reiterated it would keep rates at zero into 2014 due to the fact housing remains depressed, Europe is still a concern, and high oil prices normally aren’t a good thing. 

The Fed also released the results of its latest stress tests. 15 of the 19 largest financial institutions passed, with the four failures being MetLife, SunTrust Bank, Ally Financial, and Citigroup. Citi was ticked, saying it would have passed were it not for its request to increase its dividend.

“The Federal Reserve advised Citi that it has no objection to our continuing the existing dividend levels on our preferred stock and our common stock, and we plan to do so,” the bank said in a statement.

The stress tests assumed an equity market plunge of 50%, further home price declines of 21% and unemployment levels of 13%, up from the current 8.3%. It also threw into the equation an asteroid striking Earth and unemployed dinosaurs from the recently canceled Fox program, “Terra Nova,” wreaking havoc.

But no doubt, the Fed deserves a lot of credit for stabilizing the banking system at the height of the financial crisis, not that it didn’t hit up taxpayers at the same time, and America’s banks are in far better shape than Europe’s, and it’s not even close. So Chairman Ben Bernanke gets a gold star for his notebook. But he gets two black marks for holding rates at zero way longer than appropriate and thus killing savers, and all pension funds for that matter.

And, in case you missed it this week, the Federal budget deficit for February came in at a cool $230 billion. One month. $231.7 billion, to be exact. Nice job, Mr. President. Or as Church Lady would say, “Now isn’t that spe-cial.”

The Wall Street Journal editorialized:

“If only someone would now test where the next ‘stress’ is most likely to occur – in the government….

“The Treasury is still rolling out $1.3 trillion deficits, three years into a recovery, and the Federal Reserve is still holding interest rates at near-zero and has tripled its own balance sheet.

“Neither institution – much less the White House or Congress – seems to have an exit strategy worth the name. The White House says a big tax increase next year will solve any fiscal woes, and Fed Chairman Ben Bernanke says, well, trust him.

“Earlier this week we described the Treasury’s financial pickle if interest rates rise even 200-300 basis points. What we don’t know, but would like to, is what would happen to the Fed’s balance sheet if interest rates rose rapidly, say, to their historic modern norm of about 5%? What really needs a stress test is the government.”

Meanwhile, a funny thing happened to President Obama’s approval ratings. They have distinctly plateaued, and, in the case of one poll in particular, plummeted. 

Surveys from Reuters/Ipsos and Pew Research Center show the president with a 50% rating, which is where all of them have settled the last six weeks or so, owing to the improving economy and falling unemployment rate, but then the Washington Post/ABC News poll had him at 46% (57% disapproval among key independents), and the shocker of them all, a 41% approval rating from the New York Times/CBS News survey, which just one month earlier had Obama at 50%.

What happened? I suspect it’s an aberration, but there is no doubt that high prices for gasoline at the pump are hurting Obama.

Here’s the deal. When the history of this year is written, in terms of the economy, weather will have played a huge role, at least for January thru March, and judging from the long-range forecast for the second quarter, April thru June as well.

You cannot discount the impact of great weather on retail sales, auto sales, and construction activity.

At the same time, while gasoline prices have soared to a national average of $3.82 as I write, 1/3rd of drivers in America are paying over $4.00.

Yes, I know. Americans have saved huge sums on heating costs (especially assuming you have natural gas), and cars are far more fuel efficient, so you aren’t filling up as much if you have a relatively new vehicle, but $4.00 irks you. And if we have to use our A/C a lot sooner than normal, and begin to burn up these humongous natural gas inventories and get back to pricing normality, the hit to the wallet from $4.00 gas will be substantial.

And to those who think we are going to catch a break on gasoline, NFW [no functional way], until the Iranian situation resolves itself.

So the president is going to get the blame on this one, whether he deserves it or not, and that’s all part of the approval rating.

Lastly, the GDP figure for the first quarter is going to be in the 2% range, if consensus is correct, though Morgan Stanley lowered it to 1% this week, and that’s a come down from Q4’s 3%, so that trend isn’t going to help the president, it would seem.

But I said in predicting what would happen this year that foreign policy would overwhelm the White House and I believe that more than ever. Suffice it to say, those who think the president has done a good job on this front are mentally challenged. Let me help you. History will show him to be a disaster.

And a word on China. I discuss the political machinations of the nation down below. On the economy, in his last major appearance as premier before the National People’s Congress and the press conference after, Wen Jiabao said there would be no short-term easing of measures on the property sector, this as foreign direct investment fell in February for a fourth consecutive month. A ministry spokesman said the outlook was “grim,” owing to “slack” external demand.

JPMorgan Chase economist Adrian Mowat, who is said to have a good track record, though I haven’t followed the lad, proclaimed that China’s economy is in the midst of a “hard landing.”

“If you look at the Chinese data [Ed. I reported on a slew of it last week, if you want to check the archives to refresh your memory], you should stop debating about a hard landing. China is in a hard landing. Car sales are down, cement production is down, steel production is down, construction stocks are down. It’s not a debate anymore, it’s a fact.”

Well, my main man, economist Stephen Roach, said the week before that talk of China having a hard landing is nothing but a bunch of “exaggerations.” The banking system will not collapse, nor will there be a true property bubble burst.

Mowat doesn’t see a pickup in property demand sopping up the inventory.

But lower growth, assuming there’s no hard landing, keeps inflation under control and in terms of keeping the masses quiet, this is what’s most important.

Jim O’Neill / Goldman Sachs…in an op-ed for the Financial Times:

“Much of China’s slowing is neither unexpected nor undesired. Premier Wen’s forecast was not news to those who follow developments in the country closely. In the 12th five-year plan released about a year ago, the leadership had already said that it expected real GDP growth of 7.5 percent. It was seen at the time as confirmation that Beijing was no longer pursuing as fast a rate of GDP growth as possible….While actual GDP growth has consistently exceeded expected growth for many years, this didn’t stop Beijing from lowering their stated and assumed target….

“But let’s get things in perspective. A real growth rate of 7.5%, if it occurs, along with 4% inflation will still see China’s GDP, in U.S. dollar terms, close to doubling in five years so long as the currency doesn’t nosedive. By early next decade China’s economy would near $15 trillion and be on track to surpass the U.S. For the rest of the world, 7.5% growth in China is effectively the same as U.S. growth of around 4%. As I have become fond of saying, China today creates the equivalent of another Greek economy every eleven and a half weeks, and one-tenth of another eurozone economy every year.”

Street Bytes

--Stocks raced higher in a broad-based rally with the Dow Jones and S&P 500 gaining 2.4%, while Nasdaq added 2.2%. Nasdaq has been down just one week in eleven thus far in 2012 and is up 17% for the year. Nasdaq also closed at 3055, while the Dow Jones is now solidly over 13000 (13232) and the S&P finished over 1400 (1404). Nice round numbers for the bulls. The positive release on the retail sales front early in the week was one of the prime catalysts, as well as the performance in a certain tech stock named Apple.

Shares in Apple hit $600 on Thursday, before backing off and finishing the week at $585, a rise of about 55% in just three months! [The stock was $378 on 12/15/11, $405 on 12/31.] The new iPad (iPad 3) went on sale Friday and the product has received rave reviews. IDC, the research firm, said that because of Apple’s latest release, worldwide tablet shipments in 2012 will rise 21%. For its part, Apple has received record pre-orders. One analyst said Apple will capture 80% of the tablet industry’s profits in selling 65 million units. Just know that of 56 analysts covering the company, Bloomberg says only one has a sell rating.

And if you want to get sick all over again, back in 2000, Apple shares traded $7 to $31.

--U.S. Treasury Yields

6-mo. 0.14% 2-yr. 0.36%   10-yr. 2.29% 30-yr. 3.41%

Yields soared, relatively speaking, and in percentage terms, on a return to equities and the misguided belief the economy continues to improve, which would force the Fed to switch gears. Everyone has an opinion, that just happens to be mine.

On the inflation front, yes, I know it’s there, as I discuss below, but the official data speaks otherwise…for now. The February figures on producer prices showed an increase of 0.4%, 0.2% ex-food and energy, while consumer prices for the month rose 0.4% as well, but 0.1% on the core. For the last 12 months, the PPI is up 3.3%, 3.0% core; and the CPI is up 2.9%, 2.2% core.

Other data points of note: February retail sales were up a solid 1.1% (see above discussion on weather), while February industrial production was unchanged, not good.

--China’s National Bureau of Statistics admitted some local officials have been falsifying economic data, especially as it pertains to industries such as coal and aluminum. This is not a surprise. I’ve written many a time over the years of the pressures local officials face in meeting certain quotas, with the political future of some at risk, but it nonetheless is a further example of the issues faced by the national government to ensure the data is accurate. There has been an ongoing crackdown. It’s at least a positive that top officials admit the problem and have been taking steps to address it, including severe prison sentences for those leaking information. One researcher with the People’s Bank of China received six years for willfully revealing state information to 15 people in the securities industry.

--The Obama administration, along with Japan and the European Union, filed suit against China at the World Trade Organization over Beijing’s restrictions in the rare earth metals sector, with China accounting for more than 95% of the global supply that finds its way into high-tech applications from smartphones to electric cars. China has been limiting exports, and/or output, to drive up the price, as well as encourage foreign companies to relocate to China to access the materials, after which China could steal the technology. Cough cough.

--Separately, Molycorp acquired a key processor of rare earth minerals, Neo Material Technologies, which will pave the way for Molycorp to ship minerals from its California mine to Neo’s Chinese operations. I don’t like this deal, partly because I’m not a fan of Molycorp CEO Mark Smith. Maybe someday I’ll give you other reasons.

--China had another serious issue with its high-speed railway as soft soil and shoddy construction (denied by the government but rumored) was to blame for the collapse of a 4-mile section of the line in the central part of the country. Repair work will take at least a month.   The line had not been in use yet but was set to go into service in May.

--Update: India ended its one-week ban on exports of cotton under pressure from growers, traders and China, India’s largest customer. So you might say, this was one stupid decision in the first place and whoever is responsible should be shelling peppercorn as a punishment. Farmers will now get a higher price, which will encourage more planting for next year. Funny how that works.

--India reported record car sales in February, up 13%, while industrial production for January was up 6.8%, better than expected.

--The unemployment rate in the U.K. rose to 8.4% in January. Youth unemployment is 22.5%; yet another potential lost generation of workers.

--From Bloomberg News: “When Morgan Stanley said in January it had cut its ‘net exposure’ to Italy by $3.4 billion, it didn’t tell investors that the nation paid that entire amount to the bank to exit a bet on interest rates.

“Italy…paid the money to unwind derivative contracts from the 1990s that had backfired…It was cheaper for Italy to cancel the transactions rather than to renew.”

The cost is equal to half of Italy’s sales tax increase this year. Morgan Stanley had a gain of about $600 million in the fourth quarter related to the contracts, but this was a reversal of earlier charges it took in 2011 on fear Italy wouldn’t pay the full amount it owed.

Counterparty risk among the five largest swaps dealers – Goldman Sachs, Morgan Stanley, Bank of America, Citigroup and JPMorgan Chase – amounts to $19.5 billion with Italy; with total exposure to the country of as much as $31 billion when including European banks.

--In the key California home market, DataQuick estimated sales of houses and condos rose 8.5% in February, the seventh straight month of increases, but the median home price across the Golden State fell 2% from a year ago to $239,000. Absentee buys (investors) purchased 30% of all homes sold in Southern California, where the six-county median home price fell 3.7% from Feb. 2011.

--The International Energy Agency said unscheduled crude oil supply outages from Syria to the UK had reached 750,000 barrels a day and world markets face a “bumpy ride” in the months ahead. Throw in Iran and it’s a serious issue, though Saudi Arabia is now pumping at a 3-year peak and Libyan production is recovering quickly. Overall, OPEC’s production is at its highest level since mid-2008, but this also means OPEC’s spare capacity is below 3m b/d for the first time since 2008.

--According to a report, home prices in Ireland have hit bottom, but may stay at their current levels “for ages,” as noted by Goodbody Stockbrokers. Economist Dermot O’Leary says prices have now fallen 68% from their peak in 2007.  68%! That’s greater than the official 48% from the Central Statistics Office property price index.

--UBS AG said it slashed its bonus pool in 2011 by 40% due to weaker performance; 60% among those in the investment banking division. It didn’t help a trading scandal in London cost the bank $2.3 billion.

--According to Manpower Group, new hires will outpace firings in New York City by a 3-1 margin in the second quarter. This is good!

--To give you a sense of how high oil prices can do a number on airline profits, Cathay Pacific on Wednesday said its net profit fell 61% in 2011, despite a 9.9% increase in total revenue. Jet fuel costs surged 44%. Other international carriers such as Singapore Air, Air New Zealand, and Qantas are slashing jobs.

--Janet Robinson, the New York Times Co. CEO who was pushed out last December, took the box that started with a year’s supply of Whammy Sticks and received an exit package of $23.7 million, including stock options and pension benefits. Plus, she earns $4.5 million in consulting fees for this year. It’s this last part that is the most egregious, in the eyes of your editor. 

--577 cities reported record high temperatures on Wednesday and the National Weather Service is forecasting mostly warmer and drier-than-normal weather for the next three months, outside the Northwest.   Every state east of the Mississippi River, except Wisconsin, is going to be basking in it.

And with the shocking winter that we’ve had, the third least snowfall in the U.S. in 46 years, that means little chance of spring flooding, so we catch a break on that front. 

The drought situation has also improved. Only 7% of the nation has extreme or excessive conditions.

As for the warmer air, thank the Arctic Oscillation, the northern cousin to El Nino, which keeps storms and the cold bottled up north. 

We love you, A.O.! 

--Despite the warm weather here in New Jersey, Atlantic City’s casinos continued to take it on the chin, with revenue for the month of February declining 5.9% over last year. For the first two months, the casino take is down 6.6% over the same period in 2011.

--Inflation Alert: The cost of walk-up general admission to the Kentucky Derby is rising 25%, from $40 to $50 this year. Goodness gracious!

--Inflation Alert, part deux: The New York Post’s Terry Keenan did a piece last Sunday on the American Institute of Economic Research and their Everyday Price Index (EPI), which strips away the cost of big-ticket items, like homes and cars, and looks at the cost of items such as milk, coffee, eggs, beer, and potatoes…everyday stuff. By that measure, “the Everyday Price Index shows inflation galloping ahead at an 8.1% annual rate…

“Averaging the CPI and the EPI gives us a rate of 5.6%, a number most New Yorkers, and probably most Americans, would consider on the mark.”

--Inflation Alert, part trios: Six years ago, a New York strip steak at one of the four top restaurants that are part of the Palm Restaurant Group in Gotham, was under $40. But with the rising cost of beef, an emergency conference call was held recently to raise the price to $50, or generally $49.95, when looking at outlets like Bobby Van’s. Some, such as Smith & Wollensky, are now testing single selections at $52. So if you’re a steer, thinking you’ll take the spring and summer off and just kind of lounge around, and you see some humans on horseback attempting to round you and your buddies up into metal enclosures, make a break for it. [Lisa Fickenscher / Crain’s New York Business]

--Lastly, you have the case of disgruntled, now former Goldman Sachs employee Greg Smith and his op-ed in the New York Times.

I really do try to live by the adage I’ve long put forward in this space… “Wait 24 hours.”

Guess what we’ve learned by waiting? There is no story! Period.

I can understand why the New York Times ran it. We’ve learned it was submitted unsolicited, among hundreds of other submissions the Times receives every week, and I can see how an editor thought it fit in the editorial pages.

But then to run it as the lead the next day on page one, and for all the major news organizations to lead with it, was beyond absurd.

Look, I can’t stand Goldman. I have no friends there, nor am I looking for any. I know Wall Street and I just don’t respect them.

But while I printed out all the stories pertaining to Smith’s editorial in the 24 hours after the Times ran it, I am now depositing the pile in the trash. There’s nothing newsworthy there, including all the comments that Jamie Dimon and other Wall Street leaders stupidly put out. If they had waited 24 hours, too, they would have seen the light as I did.

Foreign Affairs

Afghanistan: I wrote in this space on 4/3/10, “As Country Joe first sang over 40 years ago, ‘One, two, three, what are we fighting for?’” Back then, President Hamid Karzai was accusing the West and the United States of wanting a “puppet government” and of orchestrating a fraud in the previous year’s presidential election, though it was the other way around in the case of the latter.

Now, as the Financial Times’ Philip Stephens puts it, it’s a race to the end. 

“In Washington this week a president and a prime minister declared victory even as they admitted defeat. The U.S. and Britain are getting out of Afghanistan. The rush for the exit is becoming a race. ‘We’ve been there for 10 years and people get weary,’ Barack Obama said. ‘People want an end game,’ Britain’s David Cameron chipped in. What happens next in that benighted country is, well, a problem for the Afghans….

“If there are differences (between the two leaders), they are about precise timing and choreography. Mr. Cameron was caught unawares when the Pentagon advanced its departure schedule. The British did not want to be a single step behind the U.S. The Americans do not want Britain to run ahead….

“The alliance’s combat troops are to leave by the end of 2014. The U.S. administration, however, intends to front-load the process, handing the lead combat role to the Afghan national army by mid-2013. This would allow an accelerated drawdown of the 90,000-strong American force. Britain does not want its 9,500 troops left exposed to the inevitable Taliban resurgence in southern Afghanistan. The deal in Washington seems to be that they will both come out faster. The exit strategy, as Henry Kissinger has observed, has become all exit and no strategy….

“Unsurprisingly, voters on both sides of the Atlantic have turned against the conflict – just as with Iraq. A U.S. election looms.   Never-say-die conservatives such as Rick Santorum are questioning whether anything resembling victory is any longer possible.

“A violent Afghan reaction to the burning of copies of the Koran by U.S. troops, and a murderous attack on Afghan civilians by a serving U.S. soldier have crystallized doubts. The law of diminishing returns has set in: the presence of NATO troops has become the problem.”

It was another terrible week for the United States with the word a U.S. soldier had gone rogue, snapped, and killed 16 Afghan civilians, including children. A tragedy of immense proportions. A single act that impacts strategy.

Retired Gen. Barry McCaffrey said on NBC, “This is bad news…immense pain to everyone.” Then McCaffrey said, to compound matters, “President Karzai throws kerosene on the flames.”

Little did McCaffrey know that when he made the statement about Karzai, a few days later the hopelessly corrupt Afghan leader would demand U.S. troops return to their major bases and speed up transfer of security responsibilities to Afghan forces nationwide, though Karzai did not set a timetable of his own. A rapid withdrawal from the rural areas, however, would be devastating to the war effort and the end to any winning hearts and minds campaigns. So who knows how serious the mercurial Karzai is.

For their part, the Taliban took advantage of the awful situation involving the U.S. soldier to say they were suspending talks with the Americans.

As for the American people, in a Washington Post/ABC News poll, 55% believe that most Afghans are opposed to what the United States is trying to accomplish in that country. 54% want to see the U.S. withdraw even before it can train the Afghan army to be self-sufficient. For the first time, Republicans are now split on whether the war is worth fighting. 

Overall, 60% of Americans believe the war has not been worth the loss in life and expense. Speaking of the financial cost, we are spending $2 billion a week over there. Staggering. Imagine what Bill Gates could do with $2 billion in one of his humanitarian efforts.

But, again, it’s amazing how the acts of one rogue soldier can impact policy in such drastic fashion. The mistrust between the United States and Afghanistan is irreversible. This messy ending is also on Obama, not Bush.

Editorial / Washington Post

“As they watch (Obama’s past helter-skelter moves in the Afghan theater), Afghans, the Taliban and neighbors such as Pakistan can reasonably conclude that the United States, rather than trying to win the war, is racing to implement an exit strategy in which the interests of Afghans and their government are slighted. Americans, meanwhile, rarely hear Mr. Obama explain the mission or the stakes. In this context, it’s not surprising that Afghans show little tolerance for U.S. failures – whether it is this week’s shooting or the accidental burning of Korans. And it’s little wonder that most Americans favor withdrawing troops as quickly as possible. If it’s evident that the president won’t defend the war, and is focused on ‘winding down’ rather than winning, why should anyone else support it?”

Iran: Both President Obama and British Prime Minister Cameron are on record now as urging Israel to hold off on any attack on Iran.   Tactically, the bottom line is that it is now commonly accepted Israel, acting alone, can set back Iran’s nuclear program 1-2 years. The United States, however, could set it back up to ten years.

But appearing on 60 Minutes, former head of Mossad, Meir Dagan, said talk of attacking Iran was “the stupidest thing I have ever heard.”

Dagan argues an attack would make Israel the target of up to 50,000 missiles fired by Hizbullah and Hamas.

“It will be a devastating impact on our ability to continue with our daily life. I think that Israel will be in a very serious situation for quite a time. And wars, you know how they start. You never know how you are ending it.”

Dagan, who left Mossad last year, has been an outspoken opponent of a strike for some time now, though says if it’s necessary he would prefer the U.S. carry it out.

The problem is Israeli defense officials increasingly believe Iran is capable of producing highly enriched weapons-grade uranium in six months; after which it is assumed it would take another year or so to develop a delivery vehicle.

But if this is the case, Israel must act much sooner or, in the words of Israeli Defense Minister Ehud Barak, Iran will have moved enough of its nuclear facilities underground and out of reach of conventional airpower, thus creating a “zone of immunity.”

Israel has been planning an attack for years.  100 of its 300 planes would take part in the mission. Defense News reports that talks have been underway between the U.S. and Israel for the latest bunker-buster bombs, GBU-28s, but as an Israeli security official told the paper, best summing things up:

“The Americans want to wait until they have evidence of Iran’s decision to assemble a bomb. But we say that’s part of Iran’s strategy. We say Iran will continue to enrich uranium, harden its facilities and add redundancies that will allow it to break out or sneak out with nuclear weaponization. At that time, for us at least, it will be too late.”

The other day I said Israeli Prime Minister Benjamin Netanyahu was the smartest man in the world. What I didn’t add is that he also has a reputation for being indecisive. Netanyahu said on Wednesday:

“Israel has never left its fate in the hands of others, not even in the hands of our best friends.”

And to those who say if he could only reach agreement with the Palestinians, then the Iranian problem would go away, Netanyahu said:

“As if an agreement with Abu Mazen [PA President Mahmoud Abbas] would stop the [Iranian] centrifuges. Anyone who wants to believe that may do so, but he is burying his head in the sand.”

Netanyahu added, “Gaza is Iran’s forward position.”

“We left Lebanon, Iran came in. We left Gaza, Iran came in. There are those suggesting we do the same thing in Judea and Samaria. Iran would go in there as well. I don’t believe there is anyone who doesn’t understand that it is forbidden to repeat the same mistake a third time.”

“Sooner or later,” Netanyahu declared, “the Iranian terrorist base in Gaza will be uprooted.”

On Wednesday, appearing with Prime Minister Cameron, President Obama, as much as he doesn’t want to see an Israeli preemptive strike, did say:

“Because the international community has applied so many sanctions, because we have employed so many of the options that are available to us to persuade Iran to take a different course, the window for solving this issue diplomatically is shrinking.”

Separately, Secretary of State Hillary Clinton sent a message to Iran through her Russian counterpart, Sergei Lavrov, that negotiations were Iran’s “last chance.”

A Reuters/Ipsos poll found that 56% of Americans would support U.S. military action against Iran if there were evidence of a nuclear weapons program, while 39% were opposed.

For its part, the Washington Post reports that Iranian officials and analysts essentially say there is no way Iran ceases enriching uranium as part of any deal with the Group of Six (the U.S., Russia, China, France, Britain and Germany).

Plus, the talks aren’t even scheduled yet. The clock is ticking. Supreme Leader Ayatollah Khamenei said recently in a televised address:

“Pressures, sanctions and assassinations will bear no fruit. No obstacles can stop Iran’s nuclear work.”

But starting Saturday, Iran does face a sanction of a different sort. The inability of Iran to transfer money internationally as SWIFT (Society for Worldwide Interbank Financial Telecommunication), which facilitates most international money transfers, is cutting off Iranian banks’ access to its system; a move the U.S. and Israel have been lobbying for. This should be significant.

Lastly, I get a kick out of those who still talk about Iranian President Ahmadinejad as if he is calling the shots. I told you long ago that wasn’t the case; that if we had a choice, Ahmadinejad was a ‘moderate’ compared to Khamenei.

But Ahmadinejad is officially irrelevant. I’m not going to waste your time discussing the unprecedented interrogation he faced this week in the Iranian parliament, because it doesn’t matter. Ahmadinejad is not about to be removed before his term expires in June 2013. Khamenei calls the shots and he’ll let his one-time ally just sit there.

You see, Khamenei wants a parliamentary system with a prime minister only, thus eliminating the position of president, and that is what will happen next year. So ignore discussions concerning the president and any threats he is making to Israel. It’s Khamenei you need to focus on and the bottom line with him is…Iran is not giving up its nuclear weapons program for anything. Period.

Lastly, IAEA Director General Amano said of the Iranian military installation at Parchin, “We have information that some activity is ongoing there.”

The IAEA suspects the site is being used to test nuclear triggers. In two trips to Iran this year, the IAEA was denied access. “We have to go there,” said Amano. But Iran has signaled again it is unwilling to grant a request by the IAEA, even as Iran denies it is “cleansing” the site.

Syria: I said it was rather pitiful that the UN sent former Secretary General Kofi Annan to negotiate with Syrian President Bashar al-Assad; Annan being more appropriate for house watching duty and taking care of your plants than hard diplomacy. So Annan left after two sessions with Assad, tail between his legs. Far more effective would have been to have a real figure, like Colin Powell, go to Assad and do this:

“Mr. President, I want to show you a little video of what a cruise missile could do to your face. Now here is what it would do to your family. I suggest you leave forthwith.”

And then just walk out of the room.

Benny Avni / New York Post

“(Assad’s) troops killed more than 160 Syrians this weekend while ‘peace envoy’ Kofi Annan sipped tea at the presidential palace in Damascus.

“As the death toll in the rebellion against the Damascus tyrant inched closer to 10,000, the ever-optimistic Annan failed to convince anyone to end the fighting. Annan sought a compromise, but is that possible when Assad hopes to secure his hold on power while the rebels hope to end it?

“Annan was sent to Syria by current UN chief Ban Ki-moon and the Arab League, but he’s also the only game in town for the West. In rejecting Sen. John McCain’s call for military intervention in Syria, Obama administration officials made it clear that Washington won’t use air power, let alone ground troops, and that it won’t arm the rebels. Neither do we have any other plan.

“Cue the diplomacy-mongers.

“No one’s better at that game than Annan, who in 1998 ‘averted’ a second Gulf War during President Bill Clinton’s term. Annan declared on his return from a Baghdad meeting with Saddam that ‘I can do business with that man.’

“Annan has a history of turning a blind eye to genocidal massacres. As chief of United Nations peacekeeping, he ordered UN troops to avoid intervention in horrific bloodbaths in Rwanda in 1994 and Srebrenica, Bosnia, in 1995.”

Annan is calling for a cease-fire, then negotiations. Assad will just keep fighting until he wins, as was the case with Annan’s departure.

Amnesty International released a report on Tuesday that said the scale of torture in Syria is the worst the country has experienced in 30 years, with the human rights group documenting 276 deaths as a result of it.

But this was before 23 victims of “extreme torture” were found near the city of Idlib. The bodies were discovered blindfolded, handcuffed and shot dead, according to British-based Syrian Human Rights Watch.

Assad turned out tens of thousands of “supporters” in Damascus on Thursday. His forces are laying hundreds of landmines along the Turkish border to prevent people from escaping and to stop supplies from coming in to the rebels. 30,000 have fled to Turkey, Lebanon and Jordan. Another 200,000 are displaced in Syria.

Meanwhile, analysts are increasingly concerned over the fate of Syria’s chemicals weapons stockpile. An analysis from Foreign Policy notes:

“The country is a chemical powder keg ready to explode,” according to their experts.

Most of the stockpile is comprised of sarin and mustard blister agent that can be dispersed via artillery rounds, air-dropped bombs, rockets and missiles. There are supposedly 50 chemical arsenals and manufacturing facilities throughout the country.

Lebanon: I couldn’t help but make note of the following: “The U.S. Embassy in Lebanon sent an emergency message to Americans in Lebanon, Tuesday, warning them not to travel to the Baalbek area because of clashes between Lebanese authorities and criminal groups. The embassy message, sent in the afternoon, warned citizens to avoid the area while clashes continue and also noted recent clashes in the Bekaa and border regions. ‘The embassy advises U.S. citizens to monitor the security situation, avoid areas where clashes have occurred, and maintain low profiles in public.’” [The Daily Star] Been there, done that. Lebanon remains a powderkeg of a different sort.

Yemen: Last week I wrote, “I wouldn’t be in the least bit surprised to learn of an American airstrike or two on al-Qaeda bases in the not too distant future.” Word came about two hours after I posted that “Airstrikes carried out by U.S. warplanes killed at least 33 suspected al-Qaeda terrorists,” Yemeni officials said. [AFP]

A report in the London Times notes that al-Qaeda has launched a PR campaign in the south of the country where they are strongest, offering food aid. As a UK development minister said, “We don’t want al-Qaeda to become the Hamas of southern Yemen.”

Israel: Speaking of Hamas (really Islamic Jihad this time), which has been firing rockets and receiving Israeli retaliation, Israel’s Iron Dome rocket shield is acing its first big test. Iron Dome uses cameras and radar to pick off those incoming deemed a threat to people and property, while ignoring rockets that would fall in open areas. Israel said of 143 rockets fired between Friday and Monday (3/9-3/12), Iron Dome tried to intercept 63 and succeeded in all but nine of those attempts, as reported by the AP. No Israelis have been killed in the current fighting.

This obviously bodes well when looking at the threat posed by Hizbullah in Lebanon. Iron Dome is produced by Rafael Advanced Defense Systems, but it is a private company. I knew this but wrote Rafael anyway, asking if there was any public angle whatsoever and told them who I was. No reply. But I’m sure I gained a reader!   Hopefully a long-term one. It’s like when I finally get to Israel one of these days and in the security check they ask me, “Why have you been to Lebanon twice and Jordan?” “Because I can.” “Smart-ass.”

Iraq: So from time to time you hear of a big jewelry heist in New York’s diamond district, or some high-end joint around the country. It’s usually smash and grab. In Iraq, the heists are a little different, just a bit more violent.

“Iraqi police and health officials say robbers have killed nine people and wounded 14 others in a jewelry heist in eastern Baghdad.

“A police officer says two carloads of robbers stormed four jewelry stores Monday in a small market in the Shiite neighborhood of Ur before noon.”

Just in case you were thinking of strolling the shopping areas of this fine city.

China: By week’s end there was one story; the purging of Maoist Bo Xilai, a high-flying member of the Communist party politburo and the “princeling” son of a revolutionary hero. Bo had been embroiled in a scandal for about six weeks involving his handpicked police chief who attempted to defect to the U.S., claiming Bo was trying to kill him.

Bo was chief of Chongqing, a southwestern metropolis, but it was announced on Thursday he was being replaced and while no further details were released, it is assumed he is under house arrest, which is standard operating procedure in these cases.

Bo was known for his Maoist tendencies and “cultural revolution-style” policies in Chongqing, including a crackdown on businessmen and their gangs. Bo, however, was a direct threat to the reformers in China.

Editorial / South China Morning Post

“Reformers on the mainland have waited a long time for a positive signal from the Chinese Communist Party leadership. It came yesterday with the news that ambitious Chongqing party chief Bo Xilai had been removed from office. This followed, by less than 24 hours, Premier Wen Jiabao’s rebuke of the municipal leadership over the scandal in which the former city police chief sought refuge in a U.S. consulate. Wen’s remarks were the first comment on the incident by a state leader. He did not mention Bo by name, but with hindsight the fate of the aspirant to the top echelon of party leadership was sealed. More significantly, at Wen’s annual televised press conference [Ed. which lasted three hours], he also invoked the fear of another Cultural Revolution to argue for political reform. His remarks appeared aimed at Bo’s attempts to revive Maoist values with revolutionary campaigns and the singing of ‘red’ songs. Memories of that period still play on the emotions of everyone in China, including state leaders, who suffered hardship and tragedy during those troubled times.

“Perhaps the most important aspect of the decision to remove Bo is that a struggle between reformists and leftists over China’s future direction, hitherto waged behind closed doors, has burst into the open. With hindsight again, Wen flagged it long ago with repeated remarks, at home and abroad, that political reform was needed to safeguard China’s national economic achievements for the benefit of the people….

“Leftists believe reforms have gone too far and blame them for a widening income gap and growing social unrest. Reformists are concerned that despite China’s rise, the country faces an uncertain future unless it undertakes another round of economic and, more importantly, political reforms. Bo had emerged as the flag carrier for the leftists….His fall came only two days after he had defiantly vowed to continue with it.”

So does the sudden move endanger the planned leadership change for year end? Probably not, but it makes China’s efforts to prevent a hard landing all the more critical.

Incoming president-in-waiting, Xi Jinping, said in a speech published after Bo’s removal that the party’s authority had been weakened by a “lack of principles” among some members.

“To maintain the party’s ideological purity is to guarantee the unity of the party,” said Xi. “Today some people join the party not because they believe in Marxism and want to devote themselves to Socialism with Chinese characteristics…but because becoming a member brings them personal benefits.

“If the thoughts of members and cadres of the party are not pure, their ideas cannot be firm, and their political positions can easily change.”

Bo’s supporters will not go quietly, and the history of China is full of figures such as him who have made extraordinary comebacks, think Deng Xiaoping.

The fear is you’ll see a replay of 1989, and Tiananmen Square, only in reverse; Maoists protesting against reformers viewed as elitists in the battle over inequality.

Back to Premier Wen, during his press conference he responded to a question, saying the desire for democracy in the Middle East must be “respected and truly responded to.”

“I believe this trend towards democracy cannot be held back by any force,” he said, adding it was an “urgent task” to press ahead with reforms or risk losing the enormous gains made over the past three decades.

Items such as the wealth gap, endemic corruption and a public distrust of the government could only be addressed through reforms. While Wen has achieved no major political reforms himself in his ten years, his comments this week were viewed favorably in the blogosphere. Wen took the blame for all of China’s problems during his decade in leadership.   “Ultimately, history will have the final say,’ he said.

One other topic. President Hu Jintao, who is also Communist Party general secretary [Xi becomes general secretary first in the fall, then president early 2012], called on the People’s Liberation Army to safeguard social stability and the loyalty of the army ahead of the fall’s crucial party congress.

“The PLA and the armed police must prioritize ideological and political development and unswervingly uphold the Communist Party of China’s absolute leadership over the armed forces.”

It’s a little disconcerting Hu felt compelled to issue the statement and makes one wonder just what kind of dissent is in the military these days. Reformers vs. Maoists vs. the Army? Or just the first two, with the military being pulled from both directions? 

Lastly, China announced it was increasing its military spending to above $100 billion, $106 billion to be exact, though many believe it to be much higher.

North Korea: Uh oh…Pyongyang declared it will launch a long-range rocket carrying a “working” satellite to mark the centenary of founder Kim Il-sung’s birth next month, which would be in total violation of a 2009 Security Council resolution banning ballistic missile launches. The North had just told the U.S. it would suspend long-range missile testing as part of its recent talks. The Commies said the launch would not impact neighboring countries, but of course it is an important test of its capabilities…and how quickly it can hit the U.S. accurately! Which is why I maintain you have to sleep with one eye open, just as we do here.

The launch will take place April 12-16, according to the official news agency, so mark your calendars. Kim Il-sung’s birthday is April 15.

Then again, it’s a ploy for further food aid. And with this single statement by the North, announcing an illegal missile launch, the United States should scrap the deal that would have traded cessation of uranium enrichment at Yongbyon for stale Drake’s cakes.

It should also be noted that just this week, IAEA Director General Amano said he believes the threat posed by Iran’s atomic activities pales next to those of North Korea.

“The problem (with North Korea) is serious and its impact on the world is larger than Iran,” Amano said. The IAEA has not worked out a deal with the North for the return of inspectors, which is part of the Washington-Pyongyang deal. Amano admitted his agency doesn’t have a clue what is really going on there.

Separately, the Korea Herald reported that the South is not prepared for a smallpox attack by the North, the threat being part of Pyongyang’s biological weapons capabilities. A 2001 U.S. modeling study indicated that 3 million people could contract smallpox in no more than two months after the beginning of a pandemic. 30% would then die based on past history.

Russia: Fears of a crackdown on the protest movement emerged as a few of the leaders were given fines, but the husband of one of the organizers was sentenced to five years on unrelated fraud charges. The thing is the case is more than four years old and as the New York Times reports, “comes in spite of a ruling by the Russian Supreme Court last September that overturned (Aleksei) Kozlov’s earlier conviction in the matter….Russia has no statute against double jeopardy.”

Last weekend’s protests drew a far smaller crowd than expected and, for now, the movement is over, or so it seems.   But it will be back. It’s just the reality Vladimir Putin would have received 50% and avoided a run-off even with the fraud in the presidential vote that has hit them in the face. The protesters need to be better organized but they are split on their objectives.

Meanwhile, there are stories Putin is increasingly distrustful of his inner circle, as he should be, while there was quite a tussle on the corporate front that attracted attention.

Billionaire Viktor Vekselberg resigned as chairman of the world’s biggest aluminum producer, RusAl, saying the company is overloaded with debt and facing a “deep crisis” due to the improper actions of its management. RusAl then accused Vekselberg of failing to “perform his functions as board chairman of a public company” over the last year. Vekselberg is aligned with fellow billionaire Mikhail Prokhorov, he of the Nets and the failed presidential bid.

France: Opinion polls are now mixed concerning the April 22 presidential race. One has Socialist Francois Hollande at 29%, with President Nicolas Sarkozy at 27, and National Front candidate Marine Le Pen at 18; with Hollande then prevailing in round two by 10 points.

But a separate survey on Tuesday gave Sarkozy 28.5% to Hollande’s 27%, though Hollande still won a hypothetical run-off by 9 (54.5-45.5). Le Pen slipped to 16% in this one.

Le Pen, by the way, did finally get the required 500 signatures, beating the Friday deadline, but Sarkozy is successfully picking off her far-right supporters and there now seems little chance Le Pen can pull off an upset and finish ahead of the president in round one.

But there was this funny tidbit this week.

Sarkozy was forced to apologize to a policewoman after his 15-year-old son, by ex-wife Cecelia, threw a tomato at her. He was with friends in the presidential palace when he launched it from a window, the policewoman being in the street outside.

The kid is known as Little Sarko. Bad boy. Baaaad boy.

Random Musings

--Republican presidential primary/caucus results, going back to last weekend:

Kansas…Mitt Romney 51%, Rick Santorum 21%
Wyoming (ongoing process)…Romney 44, Santorum 27
Mississippi…Santorum 33, Newt Gingrich 31, Romney 30
Alabama…Santorum 35, Gingrich 29, Romney 29
Hawaii…Romney 45, Santorum 25

Delegates [AP]

Romney 494
Santorum 252
Gingrich 131
Ron Paul 48

Next up…Missouri (today, Saturday); Illinois, March 20

--A Chicago Tribune/WGN-TV poll of Illinois Republican voters had Romney with 35% and Santorum at 31%.

--Jennifer Rubin / Washington Post

“Mitt Romney would have dearly loved to have won either Alabama or Mississippi. It would have shut down talk of his ‘failure to close.’ And it would have increased the pressure on Rick Santorum and/or Newt Gingrich to get out of the race. The night was Santorum’s with a win in Alabama and a narrow victory in Mississippi, although he may have inadvertently moved the bar higher than he can clear….

“Santorum, though failing to gain significant ground in the delegate race, will claim underdog wins (as he did in Minnesota and Colorado) and enjoy renewed optimism that he can battle on. The wins may give him a boost going into Saturday’s contest in Missouri.

“In his victory remarks, an obviously elated Santorum spoke emotionally about ‘defying the odds,’ like America itself. But his speech lacked a clear message, as he rambled on about his travels in Mississippi, the Constitution, gas prices, oil drilling, being outspent, and his coal miner grandparents. In there, too, was a line about free markets and the ‘centrality of faith in our lives.’ He apparently feels compelled to wing these things and thereby fails to maximize his moments.

“He then uttered a line he may come to regret. He declared that he ‘will win the nomination before the convention.’ In light of the delegate gap, that strained credulity, and moreover, cast him in the role of the party-wrecker and chaos-maker. Expect the Romney team to drive home the message that Santorum isn’t gaining in the delegate race.”

Steve Peoples / AP:

“Santorum’s success and Romney’s failure exposed deep divisions within a party torn between a conservative base that’s looking for a candidate who is pure on GOP orthodoxy and the rest of the party, which is looking for a nominee able to beat President Barack Obama. Tuesday’s outcomes also virtually ensure the increasingly nasty slog toward the Republican presidential nomination will consume even more of Romney’s time, energy and money when he’d rather be focused solely on the general election, and Obama….

“Despite his losing streak, Gingrich vowed to fight on until his party’s nomination in August – and crowed about Romney’s weaknesses.

“ ‘The fact is, in both states, the conservative candidates got nearly 70 percent of the vote. And if you’re the frontrunner – if you’re the frontrunner and you keep coming in third, you’re not much of a frontrunner,' Gingrich said."

But in the Washington Post/ABC News poll this week, among likely Republican voters, 74 percent think Romney will capture the nomination.

--As for President Obama and his reelection bid, the Wall Street Journal points out that in six of 10 states identified as key to victory for both parties, six of them have an unemployment rate below the national average, such as in Colorado and Ohio, 7.8% and 7.7%, respectively. 

--In the New York Times/CBS News poll cited in the opening, despite Obama’s 41% approval rating, he still beats Romney, 47-44, and Santorum, 48-44.

--In the Washington Post/ABC News survey, 69% of Americans want to outlaw super PACs [70% of Democrats, 55% of Republicans…and 8 in 10 Independents.] 

Bloomberg News reported that 91% of the ads running in Mississippi and Alabama in the past month were paid for by super PACs, far and away the biggest being Restore Our Future, the group behind Mitt Romney.

--Daniel Henninger / Wall Street Journal

“Don’t get too distracted by the Republicans’ road-tour version of the 2012 presidential election as it hits theaters in the likes of Mississippi, Alabama, Hawaii and Illinois. The best show in town still plays daily at 1600 Pennsylvania Avenue. If maestro Barack Obama wins reelection this fall, we will have watched one of the greatest magic acts in American history.

“The new Obama magic show debuted in the State of the Union speech. Standing before Congress, Mr. Obama brought forth ‘An Economy Built to Last.’ Not the real one we have now, but the one he’s going to conjure after he’s reelected.

“The way this works is the president breaks economic history into two parts. In his right hand are the awful policy mistakes someone else made before January 2009. In his left hand is the economy he’ll bring to life after November. In between is nothing. You think you’re looking at the Obama years from 2009 to 2012 – 8% unemployment, low growth, low investment – when whoa, it’s gone! Never happened.

“The best was yet to come. The president of the United States is making the world itself and all its troubles…vanish.

“Iraq, Afghanistan, Iran, Syria, Pakistan, North Korea – one by one, Mr. Obama and his lovely assistants have methodically taken them all off the table. If he can make the world’s problems seem to go away until he gets reelected, it will constitute his presidency’s greatest illusion.”

Henninger goes on to dissect them all, as I do every week.

“It’s an amazing feat. At home and overseas, Barack Obama has just erased three years of rough spots from the hard disc of politics. It will be more remarkable still if the Republicans, amid a war-weary public, go along with the illusion. The world, alas, may not. For America’s onlooking competitors and adversaries in Tehran, Beijing, Moscow, Pyongyang and Waziristan, a U.S. president’s magic act is for them a very real opportunity.”

--Kyle Smith / New York Post

“In his latest State of the Union, Obama said of our armed forces, ‘They’re not consumed with personal ambition. They don’t obsess over their differences…They work together. Imagine what we could accomplish if we followed their example.’

“Except if we followed their example, we’d all have to salute and say, ‘Yes, sir’ to everything. That’s not democracy. Generals who say the mission failed because the troops didn’t follow orders shouldn’t be surprised when the troops start to mock them. Blame deflection isn’t leadership.

“And that’s why both (Jimmy) Carter and Obama came to seem so tired, dull, repetitive, scolding, inept and irrelevant. Carter’s poll numbers went up immediately after the malaise speech but retreated after a few days. His words gave him an anti-halo – the shadow of a whiner.

“ ‘You can’t castigate the American people,’ his vice president, Walter Mondale, told Carter, ‘or they will turn you off once and for all.’

“In his State of the Union, President Obama expressed wonderment that everything doesn’t work like the Navy SEAL raid that got bin Laden. ‘No one thought about politics. No one thought about themselves…This nation is great because we worked as a team. This nation is great because we get each other’s backs.’ Obama sounded as if he was pleading with us to get his back.

“ ‘Carter, Clinton and I all have sort of the disease of being policy wonks,’ Obama told Ron Suskind in the book ‘Confidence Men.’ He sounded as if he was pleading that he was too smart for the American people.

“ ‘For all of us to succeed, we have to have an investment in each other’s success,’ he said last month in Bellevue, Wash. It sounded as if he was pleading for us to accept the bill for his failures.

“Mondale was right: If Americans think their president is blaming them, they’ll turn him off once and for all.”

--Kathleen Parker / Washington Post

“Introducing her husband on Super Tuesday night, Ann Romney said that women this election season are interested in jobs, the economy and the debt.

“Translation: So could we shut up already about contraception?

“Republicans might wish nothing more than to stuff birth control pills back into the bottle, but Democrats aren’t about to let them. The narrative already has a title: ‘The Republican War on Women.’ Cue theme from ‘Psycho.’

“One can hardly blame Democrats for taking advantage of a perfect storm of stupefying proportions. The only thing Republicans failed to do was put a bow on this mess….

“War has been declared, and there’s hardly any way to change the impression among a growing percentage of women that the GOP is the party of knuckle-dragging Neanderthals. It’s a smart move for Democrats to keep replaying the message, but is it fair – and is it true?....

“(Republicans) are waging war on women only if you believe that the morality of abortion should never be questioned or if you believe the federal government can order people to pay for something that violates their conscience. These issues are not so simple, nor are Republicans simpletons for trying to protect the unborn or challenging what they view as government overreach.

“Unfortunately, the conservative governing principles that traditionally attracted level heads to the right side of the aisle have been incrementally subsumed by social issues – a bull’s-eye for Democrats and a black eye for Republicans. Inasmuch as women are the ones who most urgently require access to family planning, any opposition can be conflated to be anti-woman. Hence. Ann Romney’s well-placed remarks.

“She is right, of course, but the problem she was implicitly trying to address is not short-term. The GOP long ago made its bed with social conservatives, a large percentage of them Southern evangelicals, and now must sleep with them. After marriage, of course. In Laurens County, S.C., where the local GOP recently tried to create a purity tribunal to screen and monitor aspiring Republican candidates, this is more than a punch line.

“Although the state party ruled the county initiative inconsistent with state laws, the Laurens mind-set burbles just beneath the surface of the once-Grand Old Party. And that is a problem only Democrats could love.”

--Nice space program. According to NASA chief Charles Bolden, “Given current funding levels, we anticipate the need to purchase [Russian] crew transportation and rescue capabilities into 2017.” Seems our hoped for space taxis won’t be in service by early 2016 as planned. Pathetic. We can be so overrated at times.

--Investigators looking into the horrific bus crash that claimed 28 lives in Switzerland, 22 of whom were children, believe the driver of the coach may have been trying to load a DVD when he inexplicably crashed into a tunnel wall. Survivors told their parents this was the case. The children had watched “Avatar” on their outward journey. The head of the bus company denies the DVD theory.

--Bye-bye Encyclopedia Britannica, at least the print edition, after 244 years. It was first published in Edinburgh, 1786. Explorer Ernest Shackleton took a volume on his doomed expedition to Antarctica and is said to have burned it page by page to keep warm. Sales of Britannica dived from a peak of 120,000 volumes sold in 1990, to just 8,500 volumes of the 2010 edition.

Growing up at the Trumbore household, we were a World Book family, which was cheaper and thus a major reason why I didn’t do as well in school…..just kidding, Mom and Dad!

--So you know that Jason Russell character, director and narrator of “Kony 2012” who appeared on all the morning and network news shows in his 15 minutes of fame. You won’t believe what happened.

Russell was detained by police in San Diego on Thursday afternoon “after he was found having ‘kind of a meltdown,’ according to San Diego police officer Thomas Broxtermann.

“Mr. Broxtermann said police responded to multiple complaints variously describing a white male ‘running around the street in his underwear,’ ‘naked and [leaving this part out] and screaming’ and ‘banging his hands on the ground and screaming incoherently.’” [Wall Street Journal]

--OK…none of this should be a surprise but there was further confirmation on the food front concerning what is good or bad for you. To wit:

According to the journal “Archives of Internal Medicine,” data from 121,342 men and women taking part in two large U.S. health and lifestyle investigations revealed that red meat can be lethal…at least regularly eating it, especially the processed variety. As reported by John von Radowitz of the Irish Independent:

“Each additional daily serving of processed red meat, equivalent to one hot dog or two rashers of bacon, raised the chances of dying by a fifth.

“Conversely, replacing red meat with fish, poultry, or plant-based protein foods contributed to a longer life.”

Out of the data base, monitored for more than 20 years, “scientists documented 23,926 deaths including 5,910 from heart disease and 9,364 from cancer.”

“A striking association was seen between consumption of red meat and premature death. 

“Each daily serving of unprocessed red meat, equivalent to a helping of beef, lamb or pork about the size of a deck of cards, raised the risk of death by 13%, while processed meat increased it by 20%.

“Eating red meat increased the chances of heart disease by 16% and cancer by 10%. Processed red meat raised the risk of heart disease and cancer by 21% and 16%, respectively.

“Replacing one serving of red meat with an equivalent serving of fish reduced mortality risk by 7%. For poultry an even bigger risk reduction of 14% was seen. Legumes and low-fat dairy products lowered the risk by 10%, whole grains by 14% and nuts by 19%.”

So join me for Salmon Sunday...with nuts and beer for happy hour.

Meanwhile, the National Cattlemen’s Beef Association, the American Meat Institute Foundation and the National Pork Board said that red meat is a healthy part of a well-balanced diet. After all, cave men ate meat and they lived to be about 17. Oops, who’s writing their copy?

Now I must defend the Pork Board, having eaten pork on a stick at the Iowa State Fair last summer. I would gladly give up 14-16 months of my life if I could have that juicy treat every lunch time the rest of my days.

But here’s another one that will have you reaching for the good taste of beer.

A can of sugary soft drink a day increases a man’s risk of heart disease by 20%, as noted in the Hewalth Professionals Follow-Up Study, a major health and lifestyle investigation in the U.S., published in the journal “Circulation.” 

43,000 men took part and those who drank a 12-ounce of can of sugar were screwed, as opposed to the control group, consisting of moi, who drank Coors Light (or Stella Artois if the portfolio was doing well).

--No mystery that with the warm winter, bugs are going to have a field day in 2012. It’s a year the bug community will long remember, and I suspect humans will as well. Darryl Fears of the Washington Post notes:

“Awakened from hibernation underground, in rotting wood and the cracks of your house, bugs are on the rise. Ants, termites, mosquitoes, ladybugs and ticks are up early and looking for breakfast.”

Now what we need is one last cold blast that catches the suckers off guard. “Where’s your coat, Bobby?” asked Betty Aphid of her son. “Oh, Mom….” “You’ll be sorry!” Bobby Aphid died an hour later as temps dropped five degrees in 20 minutes and he forgot where he lived so he couldn’t get his coat.

Bobby was stupid, but as Greg Baumann of Orkin told the Post’s Fears, “Always bet on the bug. They’ve been around for millions of years.”

Think the aphid tale is far-fetched? Check this out. From Elizabeth Lopatto of Bloomberg:

“Male fruit flies become barflies when rejected by females, choosing alcohol-spiked food more often than their successful brothers in a study that suggest it may be due to a brain chemical also found in humans.

“The spurned flies had lower levels of a molecule in their brains called neuropeptide F than the males who were allowed to mate, according to findings published today in the journal Science.”

I’d get into the specifics of the experiment but this is a family website and, frankly, it’s quite racy.

--Finally, congratulations to players, students, fans and alum of both Norfolk State and Lehigh for their stirring upsets in the NCAA basketball tournament on Friday…the first No. 15 seeds to win in eleven years.

---

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

God bless America.
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Gold closed at $1655
Oil, $107.06

Returns for the week 3/12-3/16

Dow Jones +2.4% [13232]
S&P 500 +2.4% [1404]
S&P MidCap +1.6%
Russell 2000 +1.6%
Nasdaq +2.2% [3055]

Returns for the period 1/1/12-3/16/12

Dow Jones +8.3%
S&P 500 +11.6%
S&P MidCap   +13.8%
Russell 2000 +12.0%
Nasdaq +17.3%

Bulls 43.6
Bears 26.6 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Happy St. Patrick’s Day!

And don’t forget the StocksandNews iPad app…pair it with your favorite red or white wine.


Brian Trumbore