Week in Review

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Week in Review

11/05/2011

For the week 10/31-11/4

Europe, Washington and Wall Street

First a little about me before we get to the mess in Europe. I finished my column last time saying I was headed to Charleston, S.C., weather permitting, and it just so happened my brother and I got one of the last flights out of Newark Liberty before the freak snowstorm closed the airport. About an hour after we left they started diverting flights already in the air that were headed to Newark, including the JetBlue disaster you heard about where the passengers were forced to sit on the tarmac at Hartford’s Bradley International for 7 ½ hours as the storm hit there as well.

But we landed on time in Charleston, a beautiful spot I hadn’t spent any real time in outside of a few business trips, and my brother and I had a fun four days indulging in great food and drink and a lot of American history. Go to Fort Sumter if you haven’t before, especially if you’re a Civil War buff, and do a tour of some of the old homes in Charleston, where you’ll understand more fully why they kept having yellow fever outbreaks there; putting the privies next to the well water didn’t help matters. Plus the Charleston and Confederate museums were terrific, as was the Citadel and the aquarium (outstanding), and the best fried shrimp in the world can be found at Alouette’s. 

All the time we were in Charleston, though, we knew about the incredible destruction the snowstorm wreaked on my hometown and the surrounding area but I was still startled to see the damage upon returning on Wednesday. Never in the area’s recorded history has there ever been a storm so destructive. [One 29-year-old father from my town was killed when he went out for diapers and a tree crashed onto his car.] The foot of heavy wet snow on leaf-laden trees was a bad combination and this was far worse than Hurricane Irene just two months earlier.

Schools were closed the entire week, so imagine how ticked kids, and perhaps a few parents, are that their snow days were used before the second week in November.

The situation in my building, which is why I’m boring you with this, is that when I returned on Wednesday, the elevator was out, there was no heat, phone, TV, or Internet in my home, the food was of course spoiled (‘No, not the Stouffer’s fish filet meals I bought on sale!’) but I have electricity in one room and water. How can that be? I learned my building, a combination of condo apartments and retail, is on two transformers. One is working, the other is out. The one working gives me electricity to power up a laptop and I have a wireless card so it’s like when I’m traveling, only that these last few days were crucial for me not to have television and get the best coverage of the Greek/Euro debacle.

Thus I’m doing the best I can under sub-par conditions. Thankfully the no heat issue isn’t a big problem. But we were supposed to have everything fixed by now, thank you JCP&L (the world’s worst utility), and I’d like to watch LSU-Alabama, Saturday night, from the comfort of my own home.

And so it was just last week that I wrote not to get too excited about the deal the euro-17 and EU hammered out to recapitalize the banks, reduce Greece’s debt, and create a firewall around Italy and Spain, because the devil was in the details, of which there were none. But I think all of us at least thought we’d be able to catch our breath for a week or two and this proved not to be the case.

As the G20 leaders prepared to fly to Cannes, France for their annual summit (a showcase for Nicolas Sarkozy and his reelection efforts, he hoped), which was to basically rubber stamp the eurozone’s Greek Bailout II efforts, including the bank recapitalization plan and increased firepower for the European Financial Stability Facility that was the key to stopping the crisis at the doorstep of the PIIGS, a funny thing happened on the way to the land of make believe.

Greek Prime Minister Papandreou said, ‘You know what, guys. I’m really glad you settled on a plan to bail us out, but I’m thinking we should first have a referendum in December where the Greek people could vote on the bailout. After all, it’s going to contain another wrenching round of austerity measures, and they need to understand what this really entails and…’

To which German Chancellor Angela Merkel and French President Nicolas Sarkozy stopped Papandreou’s discourse cold and said, ‘Are you freakin’ nuts?! What the [heck] are you doing?!’

Papandreou dropped his bombshell after the European Central Bank, International Monetary Fund and European Commission (the troika) had all agreed to fund the next 8bn euro installment of Greek Bailout I; cash the Greeks need desperately, soon, to meet payroll and pension costs. Without the 8bn ($11 billion), they’d immediately default and the euro meltdown would be on.

But while the Greek people have been revolting over the austerity measures, and further pain would have inspired even more violence, the fact is polls show 70 to 75 percent of the people still want to remain in the eurozone so Papandreou was banking on the people approving the referendum, which would have been a simple ‘yes’ or ‘no’ on the just agreed upon Greek Bailout II (130 billion euro in aid on top of the 110bn of Greek Bailout I), which assuming approval would have given Papandreou his vote of confidence to proceed until the next election in 2013.

Merkel and Sarkozy listened to this logic and after a meeting with the prime minister, Merkel said, “The referendum will revolve around nothing less than the question does Greece want to stay in the euro, yes or no?” Sarkozy said Papandreou’s government won’t get a single cent of assistance if voters reject the plan and, further, both Merkel and Sarkozy agreed that Greece obviously wasn’t getting the 8bn installment in mid-November until the political situation was cleared up.

Needless to say, this whole episode roiled global stock markets, with the S&P 500 dropping 5.2 percent on Monday and Tuesday alone.

But then Papandreou, who is clearly cracking under the pressure, said he’d hold a no-confidence vote on Friday, looking to set up a transitional government that would secure the aid. He said the opposition agreed to this scenario. A referendum would not be called, after all.

Meanwhile, new European Central Bank President Mario Draghi surprised the markets on Wednesday when he cut the ECB’s prime lending rate from 1.50 to 1.25 percent. Stocks rallied smartly on the news, even though Draghi said the reason for doing so was that Europe was heading into a “mild recession.” Draghi strongly hinted the rate move wasn’t his last as he added he was sanguine on the inflation outlook given the non-existent growth. He also said, disconcertingly, that the ECB’s bond purchase program was only temporary, and given the widening spreads between German, French, Spanish and Italian bonds, for example, there is little reason for private investors to feel confident buying anything but German paper. [The Greek two-year bond, by the way, traded at a yield of over 100% at one point this week.]

The eurozone unemployment rate hit 10.2% in October, the highest since June 2010, and highest since the introduction of the currency in 1999. Unemployment in Spain climbed to 22.6%; in Greece it’s 17.6%. 

The U.K. reported GDP advanced 0.5% in the third quarter (after a gain of just 0.1% in Q2) but manufacturing in October shrank at its fastest rate in two years, with a PMI of just 47.4.

The Organization of Economic Cooperation and Development (OECD) lowered its euro area GDP forecast for 2012 to 0.3%.

George Soros on Greece: “There’s a real danger of a disorderly default.” Without support for Greek lenders, “you’re liable to have a run on the banks in other countries as well. That’s the danger of a meltdown.”

“Leaders of the Group of 20 big industrial and developing countries first convened almost three years ago to address the financial crisis. As now, there were deep doubts about the financial fundamentals of a major economy. As now, authorities were struggling to bring Main Street the financial stability it needed, without going too far beyond what it wanted. As now, the immediate task was to contain financial panic and the deeper challenge was to lay a foundation for renewed and inclusive prosperity.

“The depression that looked possible then has been avoided but the outlook is hardly satisfactory. What can be learnt from the past three years as the G20 gathers in Cannes? The world’s leaders, especially the Europeans, will ignore the following at their peril.

“First, program announcements that are vague and try to purchase stability on the cheap are more likely to exacerbate problems than to resolve them….

“Second, dubious assertions by policymakers end up undermining confidence. Like the 13th chime of a clock, policymakers who deny the obvious or claim to know the unknowable call into question all that they say….

“Third, containing systemic financial risk is not enough to restore growth. U.S. credit markets had largely returned to normal by the end of 2009, but because of weak demand, growth has not been sufficient to reduce unemployment. Even if Europe restores its finances, it is hard to see what will drive growth in countries pursuing austerity programs that will cut incomes and demand….

“Fourth, the greatest risk of sovereign credit crises comes not from profligacy but slow growth and deflation. Four years ago Spain and Ireland were seen as models of fiscal rectitude. Their problems come from a collapsing economy and financial system. For very indebted countries, a prolonged period when the rate of interest on debt far exceeds the nominal growth rate makes reducing debt to GDP ratios all but impossible….

“Fifth, the doctrine of expansionary fiscal contraction is an oxymoron in the current context. It is often said that determined efforts to cut deficits will boost growth. This is sometimes true… (But) as Britain is now demonstrating, fiscal contraction leads to economic contraction. This situation is made worse if, as in Europe at present, the central bank does not act to offset the adverse impact of austerity on demand….

“(Alas) only if policymakers feel the alarm appropriate to dangers as great as any the world economy has faced over the past 30 years will they take the necessary action.”

On Thursday, the Financial Times had an editorial with the title:

A separate article in the paper then had the poll numbers of four key figures at the summit.

George Papandreou…23%
Silvio Berlusconi…22%
Nicolas Sarkozy…35%
Angela Merkel…31%

The G20 proved to be an unmitigated disaster as the major players were obsessed with the euro crisis and the developing world was ignored. Once again, not exactly dealing from a position of strength, i.e., fiscal rectitude, President Obama attempted to lead from behind. Host Sarkozy scolded Obama for not being on board with the former’s financial transaction tax plan.

And so we advanced to Friday night, early Saturday morning in Greece, and Papandreou survived his no-confidence vote, 153-145, but in attempting to form a new government that would then act quickly on Greek Bailout II and secure the 8bn euro in aid, the prime minister is likely a victim. As my principal in such matters is always ‘wait 24 hours,’ I’ll be damned if I could comment further anyway. No one knows what the heck is next for Greece.

One final important note.   Some are already saying Greece is but a sideshow, which couldn’t be further from the truth. A ‘hard’ default in Greece would be catastrophic for the eurozone. It needs to be planned and thought out, and should have been the summer of 2010.

But, yes, the story today is also about Italy and it’s tottering Prime Minister Berlusconi, who is barely holding onto power while trying to convince the eurozone members he is serious about enacting real fiscal reforms when it comes to his nation’s massive entitlement obligations and $1.9 trillion in sovereign debt, $400 billion of which needs to be rolled over in 2012. [With current interest rates on the key 10-year at over 6.30%, or 450 basis points over German bunds, see Larry Summers above on what happens when the bond rate is far above the nominal growth rate; it doesn’t work.]

By the end of Friday, Berlusconi refused any aid from the IMF, saying it would be surrendering Italy’s sovereignty (one of my main points last week), but he did agree to an IMF monitor to watch over the implementation of his government’s austerity program. To be continued…

Washington and Wall Street

Meanwhile, across the pond, Federal Reserve Chairman Ben Bernanke gave one of his pressers following the Fed’s Open Market Committee meeting wherein they kept monetary policy as is; having previously announced the key funds rate would remain at zero until at least mid-2013. So any suspense is in Bernanke updating us on the Fed’s view of the economy.

The chairman said economic improvement was “frustratingly slow” and the Fed now doesn’t see the unemployment rate dropping to 8% for two years.

In a statement, the FOMC added “significant downside risks” remain, including “concerns about European fiscal and banking issues.” The Fed expects the inflation outlook to remain “subdued.”

The Fed also lowered its GDP outlook for 2012 to 2.5% to 2.9% from a June estimate of 3.3% to 3.7%. The jobless rate is expected to be 8.5% to 8.7%, which won’t help President Obama much in his reelection effort.

To stimulate the economy, Bernanke said buying mortgage bonds was still a “viable option,” ergo, QE3 remains on the table.

As if to illustrate what a frustratingly slow economic recovery looks like, Friday saw the release of the October jobs report. The unemployment rate ticked down to 9.0% from 9.1%, as the economy added 80,000 new jobs, below expectations, but the figures for August and September were revised up by 102,000, a decent thing, even as the underemployed figure is still 16.2%, including those who stopped looking. Republicans will make hay with the fact the unemployment rate has been 9.0% or higher for 28 straight months.

On the manufacturing front, the October readings for the Chicago PMI and ISM were 58.4 and 50.8, respectively, both below expectations. But September factory orders rose when a slight decline was forecast.

Chain store sales figures for October were up 3.4% over year ago levels, also less than expected. The figure was 5.1% in September. More on this below.

The OECD forecast U.S. GDP will grow only 1.8% in 2012. Its forecast back in May was for 3.1% growth.

And on the supercommittee front, the 12-member bipartisan congressional group that is supposed to come up with at least $1.2 trillion in budget cuts by Nov. 23 that would then be voted on by the full Congress by Dec. 23, it doesn’t appear to be making any progress at all. House Speaker John Boehner said Republicans will entertain revenue enhancers only if the Democrats are serious about entitlement reform. Democratic leaders keep introducing surcharges on the rich in their proposals.

The problem is we need far more than the $1.2 trillion to make any real progress in the deficit, as I’ve been harping on ad nauseum. Or as an editorial in USA TODAY put it:

“(The $1.2 trillion is) less than a third of the minimum recommended by two bipartisan deficit commissions. If the committee…could somehow find a combination of spending cuts and revenue increases totaling at least $4 trillion, everybody would go into the campaign with an achievement to brag about.

“If that ‘grand bargain’ doesn’t materialize, however, the next 12 months are shaping up as an unproductive blame game for America’s declining economic fortunes. And at the end of this year-long process, neither party would have the will or the way, even with control of both chambers of Congress and the White House, to force through a plan without significant participation from the other.

“Someday, Americans might be able to get on with their lives again without having to worry about the dysfunction in Washington. That would be nice. In the meantime, Nov. 4, 2012, is shaping up like an episode of Fear Factor meets Last Man Standing.”

Lastly on China…the official barometer of manufacturing activity, the PMI for October, came in at 50.4 after HSBC had previously projected 51.0 [50 being the dividing line between contraction and expansion.] The 50.4 is down from 51.2 in September and the lowest since February 2009.  The non-manufacturing PMI was 57.7, down from 59.3. 

Importantly, the inflation report for October is to be released this week and is expected to show further declines in consumer prices, thus potentially freeing the government to ease monetary policy. In looking at money market rates there, the easing has already started.

The IMF is still projecting GDP growth of 9.0% in China for 2012, 8% being the generally accepted level needed to maintain social stability.

Finally, my own personal barometer, casino revenues on Macau, revealed another whopping advance for October over year ago levels, up 42.3% and a new record for any month. In October alone, Macau surpassed Vegas’ first six months this year. For the first ten months of 2011, Macau’s revenues are up 45.4% vs. the same period in 2010. I’ve been saying I wanted to see October and November’s figures for any signs of a significant slowdown. One down, one to go.

Street Bytes

--Stocks finally broke their winning streak owing to the Euro turmoil with the Dow Jones declining 2.0% to 11983, while the S&P 500 lost 2.5% and Nasdaq 1.9%. As October ended on Monday, the final Dow advance of 9.5% for the month was the best since October 2002, while the point gain, 1043, was the biggest ever; this after the Dow had lost 16% the prior five months. The S&P’s gain of 11% was its best performance since December 1991.

--U.S. Treasury Yields

6-mo. 0.03% 2-yr. 0.22% 10-yr. 2.04% 30-yr. 3.10%

Bonds rallied on the euro mess and a flight back into the greenback and also out of stocks.

--Freddie Mac requested an additional $6 billion in aid after a wider loss in the third quarter. Freddie and sibling Fannie Mae have cost taxpayers a combined $175 billion thus far, with another $140 billion probably needed. Memo to Occupy Wall Street…the banks repaid their bailout funds. These guys never will. Go down to Washington and Occupy Congress and Fannie and Freddie’s offices instead. [Not that individual Wall Streeters still need to be hung with care.]

--Disgraced former Goldman Sachs CEO, New Jersey senator and governor, and as of Friday, former MF Global CEO Jon Corzine, 64, is going to be leaving behind a legacy of wealth and household destruction in his last three positions, particularly, as he took over MF Global, a futures brokerage firm, right after being defeated by Chris Christie in Corzine’s reelection bid as New Jersey governor, and then promptly drove MF into the ground with an oversized $6.3 billion, 35:1 leveraged bet on European sovereign debt at what proved to be the worst possible time. This week’s Chapter 11 filing, and his subsequent resignation, represented the eighth-largest bankruptcy filing in U.S. history.

Compounding matters, the FBI is investigating whether client funds are missing, up to $630 million worth, at last count (knowledge of which ended a potential bid for MF by Interactive Brokers Group that might have saved 2,800 employees). Understand that keeping customer assets segregated from a brokerage firm’s own assets is “sacrosanct,” as Sharon Brown-Hruska, a former acting chairman of the Commodity Futures Trading Commission (CFTC) put it. BlackRock was hired last Friday as an adviser to help wind down MF’s balance sheet, but people close to the situation told the New York Times, MF’s books “were a mess.” [Friday afternoon, it was reported the missing client funds had been found among accounts at JPMorgan, but it’s too soon to say this is fact.]

It’s no secret I’ve never liked Jon Corzine. I just think he is a bad guy, on so many levels, yet everyone insists on saying he was likeable. I never met him, even though for years we lived in the same town. I just see a guy with major issues on the family front, who also tried to buy his way up the political ladder, including stuffing the pockets of black ministers in my state. Some say his behavior wasn’t necessarily illegal. I say at a minimum it was grossly unethical and my state, for one, is far better off by his absence from its politics.

“Mr. Corzine had bought the governorship with his Goldman Sachs fortune, as he’d previously bought a U.S. Senate seat. But the big-bucks opportunism and manipulation he used to co-opt the New Jersey machine was never matched or vindicated by any subsequent boldness in challenging that machine for the sake of the future….

“It seems fitting, then, that Mr. Corzine’s contribution to MF Global’s failure was a big leveraged bet on politics as usual in Europe, via the bonds of heavily indebted euro-zone governments, whose pension and union problems are deeply analogous to New Jersey’s.

“These bets may well pay off, since they only need to ride until late 2012, when they mature and presumably will be settled at face value. But MF’s brokerage customers didn’t care to see their own accounts in the hands of a company betting its existence on European debt politics. Regulators and rating agencies soon piled on, and weren’t wrong judging from the shocking claim yesterday that MF Global had gone so far as to misuse client funds in its effort to stay alive.”

“The Chapter 11 filing by MF Global was in part reassuring news that failure is still allowed on Wall Street. With $41 billion in assets, MF is much smaller than Lehman Brothers but still among the largest bankruptcies of the last decade.

“Yesterday also offered a chance for market participants and taxpayers to reflect on their good luck that MF Global Chairman and CEO Jon Corzine was not running a bigger firm – or the U.S. Treasury. While the collapse of his company was big enough to cause major headaches in the futures market where MF provided clearing services for a long client list, almost nobody considered it too big to fail…

“There are also lessons in Mr. Corzine’s particular trading strategy. The Journal reports that he brushed aside at least one warning from a subordinate and bet big on European sovereign debt, particularly bonds issued by Italy and Spain.

“ ‘Europe wouldn’t let those countries go down,’ Mr. Corzine told an MF executive, according to the Journal. That sounds like someone who’s been reading the Financial Times too often. So perhaps Mr. Corzine is in part an ironic victim in this sad drama, if he believed in the necessity and inevitability of bailing out Europe’s welfare states.

“To prevent future bailouts on this side of the Atlantic, the key is to understand that big-bank CEOs can also be tempted to pull a Corzine. To protect taxpayers from the consequences, the solution is very high capital standards for the biggest firms. This will create a larger cushion so they are less likely to fail, and it may be an incentive for many firms to avoid getting too big in the first place, or to get smaller if they are already too big. Then they can do a Corzine for as long as their shareholders let them.”

--As noted above, U.S. chain store sales for October were disappointing. Macy’s were up 2.2% when a 3.6% increase was expected. J.C. Penny’s fell 2.6% when a 1% gain had been projected. Kohl’s beat expectations slightly, up 3.9%. But Nordstrom’s, up 5.4%, and Saks’, up 1.8%, both fell short.

The National Retail Federation expects U.S. retail spending for November and December to rise 2.8% vs. the 5.2% pace of last Christmas season.

--As a piece in the Wall Street Journal points out, President Obama has a big decision to make regarding the Keystone XL natural gas pipeline from Canada to Texas. Does he risk alienating environmentalists, a core constituency for 2012, or does he hand Republicans a major issue as the pipeline will create jobs and boost U.S. energy independence? The EPA in coming weeks is expected to complicate the matter when it disputes some of the State Department’s findings, the latter having originally had jurisdiction in the matter since it is a U.S.-Canada issue, first and foremost.

--Social media struck again with Bank of America dropping plans for a debit card fee, as rivals Wells Fargo, JPMorgan Chase, SunTrust and Regionals Financial were among those saying they too would roll back the fees, though the banks will undoubtedly seek other ways to gain back the lost revenue after the “Durbin amendment” limited the amount banks could charge for debit card transactions.

--October’s U.S. auto sales came in an annual rate of 13.3 million, the best level since the 13.4 million pace of last February. GM’s advanced 1.8%, Ford’s 6.2%, Chrysler’s 27%, Nissan’s 18%, Hyundai’s 22.8%, and VW’s 35.6% over year earlier levels. But Toyota’s fell 7.9% and Honda’s 0.5% on the back of supply disruptions. Toyota, for example, is conceding it will lose its long-held status as the top-selling luxury car in the U.S. as BMW overtakes Toyota’s Lexus brand. Natural disasters in Japan and Thailand have hurt both Toyota and Honda big time, as well as a stronger yen vs. the dollar.

[Re Chrysler’s surge, it was due in large part to its Jeep brand having its best month in five years.]

--Alcatel-Lucent, France’s largest telecom equipment maker, reported third quarter revenues were down 6.8% and guided lower, with the CEO saying Europe is “a hesitant market, and the uncertainties are bigger than we anticipated before.” European sales were off 12%, Asia’s off 19%. I’m expecting Alcatel to cut back on Lucent’s lawn care at its Murray Hill, N.J. headquarters, half the once great-looking property being used now for godawful solar panels.

--Daily deals pioneer Groupon raised $700 million in its IPO, which was priced at $20 a share, above early estimates. The stock immediately ran to $31 on its first day, Friday, before closing at $26. I wouldn’t touch this one. But then I think I advised the same with Linked In’s IPO and I just saw it was up 94% from its initial offering before sliding a bit on news it was floating a secondary. My goal is to be off all social networking sites by 2013. In fact I’m kind of liking that my phone is down right now as part of my power issues, and that among the smarter things I’ve ever done is not give out my cellphone # except to a selected handful, and that I don’t have a message board for this site, and that…sorry, getting cranky without television.

--Speaking of which, Sony continues to struggle, especially because of a decline in its core TV business, and will report a loss of around $1.2 billion this fiscal year, the fourth straight in the red for the Japanese giant. The company has lost money on TVs seven straight years. Rival Panasonic earlier reported similar issues with its television division, with its president saying TV sets were “very quickly becoming commoditized.” Yikes, he’s just learning this?! Panasonic will report a loss of $5.3 billion in 2011, including massive restructuring charges in the TV space, this after earlier forecasting a profit for the year.

--China is up to its old tricks in coming up with new rules requiring foreign workers to pay contributions to the country’s social insurance system. While for large multinationals the expense is limited, smaller companies could be hit hard. The confusion is in the central government leaving it up to municipalities to determine fee levels and payment methods and the cities aren’t ready to collect, even though the law took effect Oct. 15.

--India’s PMI was 52.0 in October vs. 50.4 in September, a good sign.

--Before you invest in defense stocks, just remember that in the case of Europe (and the U.S.), most governments are under the gun to slash defense spending as part of their austerity programs. For example, Defense News reports that procurement in Italy is set to drop 28 percent in 2012.

--The average debt of college seniors who graduated in 2010 with student loans rose 5% from a year earlier to $25,250, according to a report funded by the Bill and Melinda Gates Foundation, in case you wondered what they did all day, because in fighting malaria there’s only so much you can see from a petri dish. This doesn’t include data from for-profit colleges, like the University of Phoenix, whose graduates typically carry levels of debt that are even larger.

--Advanced Micro Devices, truly one of the more pathetic companies in the history of the U.S. that hasn’t gone under, is cutting 10% of its workforce, or 1,400 jobs, as the chip maker struggles with manufacturing glitches, and a failure to penetrate the mobile-device market.

--Starbucks reported U.S. same-store sales rose 10% in its fiscal quarter ended Oct. 2. I’m not a Starbucks fan, being a Dunkin’ Donuts kind of guy, but I love to report on successes (and turnarounds) like Starbucks’ rather than AMD’s perennial “Suckathon.”

--Fodder for Occupy Wall Street types: Nabors Industries, a leading oil-driller, is handing chairman Eugene Isenberg, 81, $100 million as part of a severance-style deal. Isenberg, long one of the best paid executives in the nation, has been chairman and CEO since 1987, but a clause in his contract was triggered entitling him to the extra $100 million “as a result of a change in responsibility” as he stepped down from his CEO title, though he’ll remain chairman.

The thing is it was the board that removed Isenberg from the CEO slot, but, according to an outside director, they couldn’t do anything about the $100 million because it was a contractual matter.

It has long been known that Isenberg’s packages were outrageous, especially when you consider that in this volatile business there are often big swings in employment. He deserves scorn, particularly as shareholders have hardly prospered. [I’ve traded it successfully a number of times, however, but haven’t been in the name in probably about 7 years.]

--Credit Suisse is axing a further 1,500 jobs after announcing 2,000 job cuts in July, while Nomura Holdings, Japan’s largest investment bank, is slashing an estimated 700 positions, mostly in Europe, on top of an earlier announced 400 cuts.

--The New York City Marathon is being run on Sunday. The economic impact on the Big Apple from the 47,000 runners is $350 million and $10 million in New York City tax revenue.

--Speaking of New York, discount clothing retailer Syms, a fixture in the area since 1959 when the late Sy Syms founded the company and became ubiquitous with his famous slogan, “An educated consumer is our best customer,” filed for bankruptcy. It was in 2009 that daughter Marcy Syms, upon Sy’s death that year, combined Syms with 102-year-old Filene’s Basement, a combination that never worked. Both declared Chapter 11 on Thursday.

--If you have a Gustav Klimt lying around, you may want to take it to Sotheby’s. They just sold one of the Austrian artist’s works for $40.4 million at an auction of Impressionist and modern art in New York that took in nearly $200 million. A Picasso went for $23 million. A group of eight works by my man Claude Monet sold for a collective $21.6 million. The Claudester can still bring it after all these years.

--Researchers trawling the waters of Long Island Sound say they have never seen so few lobsters, even as they appear to be thriving in Maine. From south of Cape Cod to North Carolina, however, scientists are baffled over the decline, though overfishing could be a cause. Warmer water could also be drawing Larry and Larisa to deeper, cooler spots. Before a devastating lobster die-off in 1999, for example, there were 300 lobstermen in Connecticut. Today there are 30.

--And we note the passing of Allen Bernstein, 65, who led a 1989 purchase of the original Chicago-area Morton’s and built it into a 77-restaurant empire with outlets as distant as Singapore. For those on an unlimited expense account, Morton’s was always a solid choice to entertain a top client.

Foreign Affairs

Iran: This coming week is critical in the realm of international affairs as the U.N.’s International Atomic Energy Agency (IAEA) is slated to release its most detailed report yet on Iran’s nuclear program. While it may not spell out specifically that Iran is intent on building nuclear weapons, and that its nuclear program is not for peaceful, civilian purposes, evidently all the clues will be there, making it readily apparent just what Iran is up to.

Thus, this gives the United States the pretext to ask the U.N. and the likes of Russia and China to not only strengthen the existing sanctions regimes, but to apply more direct pressure on Tehran to give it up.

Israel is pushing for a strike, though it prefers Washington take the lead, and I’ve been writing the White House will, perhaps sometime in the spring should Iran not change its behavior beforehand. I’ll have a lot more on this once the report is out.

Meanwhile, President Ahmadinejad’s finance minister survived a vote in parliament to remove him over the country’s banking scandal, which would have been a huge blow to the president. The bank fraud is a record $2.6 billion. Parliament is still trying to call Ahmadinejad to answer questions, which would be the first time since the 1979 revolution that a president was summoned for questioning by parliament.

Iraq: To give you a sense of how happy Iran is that the U.S. is leaving Iraq, Iran’s Supreme Leader Ayatollah Khamanei praised Iraq’s “unified resistance” in forcing the U.S. military out.

The New York Times reports, however, that the Obama administration is looking to reposition many of the departing Iraqi forces elsewhere in the region, such as in Kuwait to be able to respond to a collapse of security in Iraq or a confrontation with Iran.

“Friday afternoon is a traditional time to bury bad news, so at 12:49 p.m. on Oct. 21 President Obama strode into the White House briefing room to ‘report that, as promised, the rest of our troops in Iraq will come home by the end of the year – after nearly nine years, America’s war in Iraq will be over.’ He acted as though this represented a triumph, but it was really a defeat. The U.S. had hoped to extend the presence of our troops past Dec. 31. Why did we fail?

“The popular explanation is that the Iraqis refused to provide legal immunity for U.S. troops if they are accused of breaking Iraq’s laws. Prime Minister Nouri al-Maliki himself said: ‘When the Americans asked for immunity, the Iraqi side answered that it was not possible. The discussions over the number of trainers and the place of training stopped. Now that the issue of immunity was decided and that no immunity is to be given, the withdrawal has started.’

“But Mr. Maliki and other Iraqi political figures expressed exactly the same reservations about immunity in 2008 during the negotiation of the last Status of Forces Agreement. Indeed those concerns were more acute at the time because there were so many more U.S. personnel in Iraq – nearly 150,000, compared with fewer than 50,000 today. So why was it possible for the Bush administration to reach a deal with the Iraqis but not for the Obama administration?

“Quite simply it was a matter of will: President Bush really wanted to get a deal done, whereas Mr. Obama did not. Mr. Bush spoke weekly with Mr. Maliki by video teleconference. Mr. Obama had not spoken with Mr. Maliki for months before calling him in late October to announce the end of negotiations. Mr. Obama and his senior aides did not even bother to meet with Iraqi officials at the United Nations General Assembly in September….

“Iraq will increasingly find itself on its own, even though its air forces still lack the capability to defend its own airspace and its ground forces cannot carry out large-scale combined arms operations. Multiple terrorist groups also remain active, and almost as many civilians died in Iraq last year as in Afghanistan.

“So the end of the U.S. military mission in Iraq is a tragedy, not a triumph – and a self-inflicted one at that.”

By the way, Army Times’ Michelle Tan points out that by year end, the U.S. will be redeploying 700,000 pieces of equipment out of Iraq, or 300 to 500 convoys each week.

Afghanistan: Speaking of pullouts, the White House appears to want to speed up the withdrawal from Afghanistan, moving it up to next year rather than 2014 in assuming an early advisory role, which Obama would like to announce during the campaign. The White House and U.S. military will make the claim that Afghan security forces have made great strides. 

Otherwise, it was a terrible week as the Taliban launched the largest single suicide attack on Kabul of the war, attacking an armored shuttle bus that killed four U.S. soldiers, eight American contractors, a Canadian soldier and four Afghans. In Kandahar, a separate Taliban attack on a U.N. refugee agency killed three U.N. employees.

Syria: President Bashar Assad was said to have accepted an Arab League proposal calling for an end to attacks against protesters and the withdrawal of forces from cities, as well as to release detainees and allow foreign media into the country. That was on Wednesday. On Thursday, 20 were reportedly killed in Homs as violence resumed, with tanks in the streets on Friday as well. The death toll is now said to be 4,000 in eight months of unrest.

The bottom line is Assad will entertain reform as long as he stays in power.

So now, as the Wall Street Journal editorialized, President Obama gets to lead from behind again since Turkey’s Prime Minister Erdogan is the one applying the most pressure on Syria. Turkey is looking to impose further sanctions on Damascus, as well as provide for a possible buffer zone to protect Syrian civilians as tensions rise between the two former strategic partners. I wrote just a few weeks ago that we should encourage Erdogan to invade Syria…give it to Turkey. I say that just half tongue in cheek.

And remember, ousting Assad would be a huge blow to Hizbullah…and that is good!

Speaking of Lebanon, Syria is accused of orchestrating the kidnapping of Syrian dissidents in Lebanon. I have no problem repeating that Assad should be assassinated.

Israel: UNESCO, the United Nations’ cultural agency, accepted Palestine as a member* on Monday, infuriating Israel which is now withholding $100 million in monthly tax payments it holds and then transfers to the Palestinian Authority. Also in response, no doubt, Israel said it would accelerate the construction of 2,000 housing units in contested areas of East Jerusalem and the West Bank. The Palestinians have been demanding a complete halt to construction before they’ll resume negotiations. A spokesman for Palestinian President Mahmoud Abbas said the Israeli government’s decision would “accelerate the destruction of the peace process.”

“We are building in Jerusalem because it is our right and our duty to this generation and future generations, not as punishment but as the basic right of our people to build in its eternal city. Jerusalem will never return to the state it was in on the eve of the (1967) Six-Day War, that I promise you.”

So you combine Israel’s move with that of the U.N. and you have zero cause for optimism, not that you should have ever had cause for such in the first place.

Along these lines, I was reading a piece by Barbara Opall-Rome in Defense News and two recently published reports from respected think tanks in Washington and Tel Aviv come to the same conclusion. “Lack of progress toward Israeli-Palestinian peace will intensify Israel’s international isolation, strain ties with Washington, ignite hostility from new governments taking shape in the region and restrict Israel’s ability to use its military might, even for legitimate purposes of self-defense.”

*The U.S. and Canada cut off funding for UNESCO due to its admittance of Palestine, a move both say is not in the best interests of Middle East peace. Canada contributes $10 million, the U.S. $60 million, critical funding for the organization.

Egypt: Ironically, liberals and Islamists are now united against the Supreme Council of the Armed Forces, which is seeking to give the generals a veto over legislation dealing with military affairs, as well as curtail the influence of Islamist lawmakers in writing a new constitution down the road, with the generals being granted veto power over drafts.  Plus the generals seek to keep the military budget secret, while wanting to place their financial interests beyond civilian scrutiny even after handing over power.

Egypt’s parliamentary elections begin Nov. 28 and last six weeks, after which a 100-member constituent assembly will be nominated which will write the new constitution. The presidential vote will be much later in 2012.

Lastly, if you stupidly thought now must be a good time to discover Egypt, a Financial Times piece this week echoed everything I’ve read and written of before on the crime problem. There is no police presence anymore, and what were once simple commutes for workers have now become a living hell as armed gangs with automatic weapons rob businessmen on the highways and take their cars. One business had 100 tons of copper taken by a gang that tied up security guards.

More importantly for the future of Egypt, what foreign business would want to operate there?

Libya: The inability of the interim government to control the 25 or so militias is a major concern. Militias are fighting in the streets of Tripoli, including, as reported by the Financial Times, in the corridors of the main hospital. The militias all say they won’t give up their weapons until they know who they are giving them up to. Innocents are terrified. Gangs just drive around the capital with heavy weapons mounted on their trucks, firing in the air (those bullets are indeed killing people on the way down, it was also reported this week, something the National Transition Council is trying to tackle). These people are idiots.

Additionally, smuggling of arms into Egypt is rampant, including shoulder-fired anti-aircraft missiles. The new government is unable to secure arms depots

Pakistan: In what could be a significant positive, Pakistan’s cabinet agreed to normalize trade relations with India. Both countries said they want to more than double trade between them. Consumers in Pakistan will benefit from more and cheaper Indian goods. Consumers in India? Give me five minutes…not sure how they benefit just yet. 

China: A report out of the U.S. intelligence community says cyberattacks by Chinese and Russian intel services have stolen large amounts of American high-tech research and development data, not that anyone didn’t already know this. It’s easier to steal the information through cyberattacks than laborious human intelligence, after all. What makes the report different is in its targeting of Russia and China directly, though it offers no specifics, including what percentage of the attacks are government directed. Actually, in typing this up it’s really about some U.S. high-level types trying to cover their ass. 

Meanwhile, dissident artist Ai Weiwei vowed to fight Chinese authorities “to the death” over the government’s claim a company linked to him (owned by his wife) owes $2.4 million in taxes.

Russia: The Kremlin has reached a deal with Georgia on a bilateral agreement that opens the door for Russia’s admittance into the World Trade Organization. Yeesh. It only took 18 years! But instead of the U.S. and Europe being the final stumbling block, it came down to Georgia, with whom Russia fought a brief war in 2008. Actually, the Swiss brokered the deal, a compromise to monitor trade flow between the disputed regions in the Caucasus Mountains.

And in the investigation of the Yak-42 jet crash that claimed the lives of virtually the entire Lokomotiv hockey team back on Sept. 7, authorities have determined the cause to be pilot error, as in the pilots were so ill-trained they evidently continued takeoff even as they inadvertently applied the brakes, according to the investigation. It was discovered the Russian charter operator falsified training records and had lax discipline and safety procedures, while the co-pilot had a medical condition that should have prevented him from ever being in the cockpit. 

The report is pathetic. The pilot was literally slamming on the brakes as he tried to gain speed and lift, not knowing he was stepping on the brakes because he was used to the pedal configuration in another plane he had flown.

North Korea: Kim Jong-il isn’t allowing 200 North Koreans working in Libya to return home because he doesn’t want their takes on the Arab Spring reaching his isolated regime. “Man” falls another few notches on the All-Species List.

Japan: It’s alive!!! Reactor No. 2 at Fukushina, that is. Radioactive elements were detected this week as the plant’s owner admitted fuel deep inside three stricken reactors is probably still experiencing bursts of fission. As the New York Times described, these are like flare-ups after a major fire. While this hardly means there could be a large-scale nuclear reaction, it certainly complicates clean-up efforts.

Kyrgyzstan: The only reason why you should care that this country elected a new president this week, Almazbek Atambayev (Herman Cain isn’t expected to know this guy’s name), is because he said he would seek to close a large American military base there when its lease runs out in 2014. The base has been a critical supply hub for the war in Afghanistan since 2001 and is the only one of its kind in the region. Atambayev actually has a good point.

“We know that the United States is often engaged in military conflicts,” he said. “There was Iraq and Afghanistan, and now there are tensions with Iran. I would not want any of these countries to launch a retaliatory strike on the military base one day.” [Michael Schmidt / New York Times]

I have a little interest in Kyrgyzstan as a rare earth mineral play I’m in has a major facility here. The company has large Russian roots and Russia is anxious to bring Kyrgyzstan more formally back into its orbit, which I would welcome! [Because at the end of the day, it’s all about me.]

Somalia: I’ve written in the past about the Somali-Americans in Minneapolis, who go to Somalia for terrorist training and one day will come back home to terrorize us, so U.S. officials have identified the third such individual to become a suicide bomber for al Shabab, an al Qaeda offshoot.  The FBI says 30 such Americans have joined Shabab.

Thailand: The severe flooding poses a growing health threat. Picture how vast parts of the country are nothing more than lakes of sewage, garbage and animal carcasses.

Britain: I was reading an article on the upcoming 2012 London Olympics and how word has gone out that the security needs have doubled, including a call for 6,000 more soldiers on top of the cops and private security forces being amassed. But the Financial Times story doesn’t mention the Occupy Wall Street (Occupy London) types that will provide a threat of their own.

Random Musings

--New Hampshire formally designated Jan. 10 for the first in the nation primary. So it’s set.

Iowa…Jan. 3
New Hampshire…Jan. 10
South Carolina…Jan. 21
Florida…Jan. 31
Nevada…Feb. 4

“Now Herman Cain knows how Icarus felt at the top. We won’t go so far as to push the analogy to conclude that the Cain campaign is crashing into the sea. But make no mistake: Herman Cain’s got a sea of trouble.

“It’s clear by now that the voluble former restaurant executive had no expectation that his Presidential candidacy would fly as high as it has. If he did, he’d long ago have had in place the kind of campaign staff able at least to guide a candidate through the inevitable turbulence of modern politics.

“The last few days witnessed the spectacle of Mr. Cain’s campaign first blaming the liberal media for reporting years-old claims of sexual harassment, then denying the claims as ‘baseless,’ then acknowledging that he might have known something about the settlements reached by the National Restaurant Association where he was in charge.

“The story reached fiasco status on Wednesday when Mr. Cain’s chief of staff, Mark Block, accused the Rick Perry campaign of leaking the early sexual harassment stories. Yesterday Mr. Block half-retracted the accusation. One may reasonably wonder whether Mr. Cain approved this stillborn damage-control strategy. Either answer would be unflattering….

“Mr. Cain has proven there is a hunger in the public for roiling the political status quo. If he has disappointed his supporters, which remains to be seen, it is because he hasn’t displayed sufficient self-awareness of the requirements of being a top-tier presidential candidate….

“If in one’s past exist two sexual harassment suits formally settled by one’s employer, that is going to become public. It is a certainty. Allowing oneself to drift through a campaign until the day the buried bombs go off is amateur hour. Republicans have a right to ask Mr. Cain what he would have said if he won the nomination and the news had broken after Labor Day next year. The Cain campaign would have been smarter to leak the story pre-emptively.”

We still don’t have all the details and I refuse to comment beyond echoing the Journal’s main point, that I can’t believe the man wasn’t better prepared to handle the allegations.

--In the latest Des Moines Register Iowa Poll of likely caucusgoers (prior to the Cain mess):

Herman Cain 23%
Mitt Romney 22%
Ron Paul 12%
Michele Bachmann 8%
Newt Gingrich 7%
Rick Perry 7%
Rick Santorum 5%

Curiously, from Aug. 13 to Oct. 29, Romney and Cain had each held just 3 events in Iowa, while Bachmann and Santorum had held 29 and 28, respectively, thus debunking the myth that to do well here, you need to basically live in the state.

“The Republican presidential dynamic – various candidates rise and recede; Mitt Romney remains at about 25 percent support – is peculiar because conservatives correctly believe it is important to defeat Barack Obama but unimportant that Romney be president. This is not cognitive dissonance.

“Obama, a floundering naïf who thinks ATMs aggravate unemployment, is bewildered by a national tragedy of shattered dreams, decaying workforce skills and forgone wealth creation. Romney cannot enunciate a defensible, or even decipherable, ethanol policy.

“Life poses difficult choices, but not about ethanol. Government subsidizes ethanol production, imposes tariffs to protect its manufacturers, mandates the use of it – and it injures the nation’s and the world’s economic, environmental and social (it raises food prices) well-being.

“In May, in corn-growing Iowa, Romney said, ‘I support’ – present tense – ‘the subsidy of ethanol.’ And: ‘I believe ethanol is an important part of our energy solution for this country.’ But in October he told Iowans he is ‘a business guy’ so as president he would review this bipartisan – the last Republican president was an ethanol enthusiast – folly. Romney said he once favored (past tense) subsidies to get the ethanol industry ‘on its feet.’ But Romney added, ‘I’ve indicated I didn’t think the subsidy had to go on forever.’ Ethanol subsidies expire in December but ‘I might have looked at more of a decline over time’ because of ‘the importance of ethanol as a domestic fuel.’ Besides, ‘ethanol is part of national security.' However, ‘I don’t want to say’ I will propose new subsidies. Still, ethanol has ‘become an important source of amplifying our energy capacity.’ Anyway, ethanol should ‘continue to have prospects of growing its share of’ transportation fuels. Got it?

“Every day, 10,000 Baby Boomers become eligible for Social Security and Medicare, from which they will receive, on average, $1 million of benefits. Who expects difficult reforms from Romney, whose twists on ethanol make a policy pretzel?”

--In a USA TODAY/Gallup survey of 12 likely key swing states in the 2012 election, President Obama has an approval rating of just 40% in them, below the 45% he garners in other states. In a nationwide matchup for the same poll, Obama and Romney both receive 47%.

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

--New York Gov. Andrew Cuomo’s Campaign 2016 train picked up another victory as the state’s second-largest employees’ union approved a 4-year deal freezing wages the first three years in return for preventing 3,500 layoffs. Healthcare premiums are also going up, though there are ways for workers to avoid the increase in return for giving up vacation days and such. All in all, the governor didn’t cave and when he threatened the layoffs, the union gave in instead so it’s a good arrow in his quiver when he goes after independent voters in 2016.

“Political dysfunction is often blamed for Congress’ inability to curb the U.S. budget deficit. An even bigger obstacle may be the American public.

“A record 49 percent of Americans live in a household where someone receives at least one type of government benefit, according to the Census Bureau.

“And 63 percent of all federal spending this year will consist of checks written to individuals for which the government receives currently no services, the White House budget office estimates. That’s up from 46 percent in 1975, and 18 percent in 1940.”

--Editorial / New York Post…on the Occupy Wall Street crowd in lower Manhattan’s Zucotti Park:

“Time’s up: The Zucotti Park vagabonds have had their say – and trashed lower Manhattan – for long enough.

“Be it voluntarily – by packing their tents and heading off in an orderly fashion.

“Whether the protesters go peacefully is entirely up to them.

“But go they must: Their lease on Zucotti Park has expired. And it’s their own fault.

“What began as a credible protest against bank bailouts, crony capitalism and the like has, in large measure, been hijacked by crazies and criminals.

“Beyond that, too many protesters demonstrate by their actions a level of contempt for residents, businesses and workers in the area that long ago crossed the line.

“No one should have to put up with the incessant noise, filth and downright dangerous conditions the protesters have foisted upon lower Manhattan.

“If they choose not to leave – which they probably won’t – then (Mayor) Bloomberg needs to instruct the NYPD to clean the mess up.”

You could say the exact same thing about the protesters in Oakland who turned violent again this week. Imagine being a shop owner near these encampments. They have rights too. And I’ve noted the protests going on in London, which are tearing apart the congregation of St. Paul’s Cathedral. Sweep ‘em into the Thames.

--Famed Russian arms dealer, Viktor Bout, first captured in a sting operation in Thailand in March 2008 by U.S. DEA agents posing as members of the Colombian rebel group, FARC, was convicted Wednesday of conspiring to sell surface-to-air missiles, machine guns and other weapons. He faces life in prison.

Viktor Bout is one bad guy. A 2001 United Nations report said he “supplied military equipment and other necessities to all conflict areas in Africa.” A Manhattan jury found him guilty of conspiring to kill U.S. citizens and conspiracy to acquire and use antiaircraft missiles as well as provide such weapons to a terrorist group.

[Note: I just saw that FARC’s leader was killed by elite Colombian forces. This is good.]

--When my flight from Charleston, S.C., arrived in Newark on Wednesday afternoon, I couldn’t help but think the mood at the airport may have been rather grim were it not for the heroics of the crew of the LOT Polish Airlines plane from Newark Liberty that landed on its belly the previous day in Warsaw after a landing gear malfunction. Passengers said the crew came through the plane an hour before, noting they would need to make an emergency landing but that they wouldn’t be landing in a lake or field. Then witnesses say 30 seconds before the pilot told them to brace, but they felt nothing as the pilot brought it down incredibly smoothly and no one was hurt. Imagine the prayer taking place on that plane. I have a little ritual I do before every flight. I would have gone through it 100 times if I had an hour to think about it.

Then again, I should go through the same ritual just crossing the street in my hometown with all the idiots running red lights while on their phones or texting.

[As the light turns green and I step off the curb… “Our Father, who art in Heaven….”]

--The National Highway Traffic Safety Administration notes there are about 1 million car accidents with deer each year that kill 200 Americans, cause more than 10,000 personal injuries and result in $1 billion in vehicle damage. By comparison, over the last ten years, sharks and bears have killed a combined 38 in the U.S. 

It’s deer mating season now. Beware, especially if you live in West Virginia, which tops the list of states where a driver is most likely to run into a deer.

--Researchers at the Mayo Clinic believe that they have discovered a drug that can manipulate the body’s cells in such a manner as to slow the aging process. Sign me up for any trials, Mayo scientists! 

--A study in the journal Proceedings of the National Academy of Sciences found that those who reported feeling happiest had a 35% reduced risk of dying compared with those who reported feeling least happy. A study of “Week in Review” readers has found that only 2% are happy and the balance have an 84% increased risk of dying. It’s not known if this is a reversible condition should you choose to leave the site. 

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

Gold closed at $1756
Oil, $94.26

Returns for the week 10/31-11/4

Dow Jones -2.0% [11983]
S&P 500 -2.5% [1253]
S&P MidCap -1.2%
Russell 2000 -1.9%
Nasdaq -1.9% [2686]

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

Dow Jones +3.5%
S&P 500 -0.3%
S&P MidCap -0.9%
Russell 2000 -4.7%
Nasdaq +1.2%

Bulls 43.2
Bears 36.8 [Source: Chartcraft / Investors Intelligence]

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