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For the week 12/24-12/28
President Obama met with the four main leaders of Congress on Friday afternoon – Senate Majority Leader Harry Reid (Dem), Senate Minority Leader Mitch McConnell (Rep), House Speaker John Boehner (Rep) and House Minority Leader Nancy Pelosi (Dem) and there was no resolution to the fiscal cliff with the Jan. 1 deadline just days away.
President Obama, as well as Senators Reid and McConnell, however, later used words such as “good” and “constructive” to describe the meetings, while Reid and McConnell were “hopeful” and “optimistic” something can be worked out, though Reid added it would be “imperfect.”
Americans shouldn’t be optimistic and hopeful in the least. As I have consistently said for months now, whatever emerges, if anything, was going to be small and weak. It would “suck,” to put it more bluntly, with little hope of true reform early next year. I have also written Wall Street would “crash” when this finally sunk in and we are close to that moment.
But should Reid and McConnell not come up with anything on Sunday that could advance through the Senate and then the House, President Obama has instructed Reid to introduce the president’s bare bones proposal that is designed to maintain the Bush tax cuts for those couples earning less than $250,000, as well as extend unemployment benefits and maybe one or two other items, including an AMT patch.
The Congressional Budget Office long ago said the United States would be thrown back into recession in the first half without a deal, though congressional leaders would argue they can still work something out in January or February and make it retroactive should they fail to advance the ball the next few days.
Regardless, what follows any stop gap measure will in no way begin to address our critical long-term entitlement issues.
Consumer and business confidence is plummeting. That is not good for earnings, let alone investment and hiring. It’s also not good for our trade partners and the global economy.
Both sides blame each other and it’s a waste of time to go over the past week’s rhetoric (limited by the holiday), except for Sen. Reid’s comment that the House of Representatives was “being operated with a dictatorship of the speaker” that was way over the top, this coming from a man whose majority hasn’t produced a budget in over three years.
But should it come to pass, what would going over the cliff mean? Among the issues is the Alternative Minimum Tax, or AMT. The IRS has said $200 billion in tax refunds normally made in the first quarter could be delayed until the second quarter. In a Dec. 19 letter to the House Committee on Ways and Means, IRS Acting Commissioner Steven T. Miller warned that “most taxpayers may not be able to file their 2012 tax returns until late in March of 2013, or even later,” with “lengthy delays of tax refunds” resulting.
Barron’s Gene Epstein noted that “Miller hiked his estimate of the number of returns not filed on time from a previous 60 million to “80 to 100 million of the 150 million total returns expected to be filed.”
“Consumer spending has been increasing by an average of $90 billion per quarter. So if $100 billion in refund checks get postponed, that alone could cause a decline in consumer spending in the first quarter,” let alone the elimination of the payroll tax holiday of two years will hit paychecks to the tune of $25 billion in the first quarter and that’s how you end up with a recession.
The New York Post, in an editorial, addressed the impact of going over the cliff for New Yorkers, who to say the least live in a high-cost-of-living city.
“The average family with an annual income of $150,000 – hardly a king’s ransom in New York City – would see its taxes go up $6,616.
“That’s $550 a month, or $130 each and every week, sucked out of the local economy and shipped off to Washington.
“And a couple earning a mere $50,000 annually will get socked, too, losing more than $2,000 a year – or $170 a month, or just a little bit less than the cost of two monthly MetroCards.” [Ed. if you aren’t from the New York area, just understand transportation costs continue to soar while wages stagnate.]
“Meanwhile, those earning million-dollar salaries – rare ducks in most of America, but common enough in New York – will be paying an additional $50,000 annually.
“And while the ‘millionaires’ presumably can afford that, it remains that across-the-board tax increases of such magnitude will extract hundreds of millions, if not billions, from New York’s economy.
“And for City Hall, it means a tighter budget, too, given that its own income-tax revenues will reflect an economy battered to the bone by the heavy federal tax bite.
“That could – and probably would – mean fewer cops, firefighters and teachers.”
On Wednesday, Treasury Secretary Geithner sent a letter to Congress that the government will hit the $16.4 trillion debt limit on Monday and “extraordinary measures” can be taken to buy about two months’ time before it defaults. We are borrowing about $100 billion a month.
S&P downgraded U.S. government debt after the debacle of last year and S&P and the other ratings firms are threatening to do the same this go around without a legitimate deficit-reduction program.
Republicans have vowed not to extend the ceiling without commensurate cuts in spending.
“If the nation goes over the fiscal cliff, two forces will work against each other. Taxes would rise and spending would be cut, requiring less U.S. borrowing and potentially delaying default. Higher unemployment and a recession would also be likely, depressing tax receipts and requiring more borrowing.”
And as if all the above isn’t bad enough, even if a “small deal” alleviates some of the pain in the short run, you had the threat of a dockworkers strike on Sunday evening covering ports along the East Coast and Gulf Coast, but the union for longshoremen agreed to extend its contract until early February, averting the strike for now as the sticky issue of royalty payments was resolved leaving lesser ones for mediation.
More than 100 business groups wrote to President Obama last week urging him to invoke his emergency powers under the Taft-Hartley Act of 1947 to bar a strike that could paralyze the flow of tens of billions of dollars of imports – and the nation’s retailers and other businesses, the situation faced the last time there was a big walkout in 1977. But now Obama won’t have to take the tough step to go against his base…the unions.
In an interview for a German daily, German finance minister Wolfgang Schaeuble said the following in speaking of the eurozone debt crisis.
“I believe the worst is past…(For example), the government in Athens knows that it cannot financially overburden other eurozone countries. They are thus pushing forward with the reforms.”
At the same time this interview was being published, Spanish Prime Minister Mariano Rajoy was telling his people on Friday that 2013 will be “very tough” and he refused to exclude seeking a bailout for the euro area’s fourth-largest economy.
Unemployment is at 26%, the youth rate well over 50%. Spain will not come remotely close to hitting its debt target either. And November retail sales plunged 7.8% over year ago levels.
Plus Spain has this awful situation regarding Bankia, which at the urging of the Spanish government was first listed on the Madrid Stock Exchange in July 2011 as part of the bank consolidation effort. 350,000 Spaniards bought preferred shares in Bankia which were marketed as a savings product.
Today those shares are virtually worthless as the government announced this week Bankia has a negative value of 4.15 billion euro while Madrid prepares to recapitalize Bankia and its parent company, BFA, with 18 billion euro in rescue funds. With the resulting dilution, the 350,000 investors have been wiped out in 18 months. An incredible tragedy for which the people should never forgive their government.
Or perhaps even as he praised Greece he didn’t understand that the EU and IMF said this week that Greece’s drive to crack down on tax evaders, such as doctors and lawyers, must be reinvigorated. Specifically, the EU/IMF said “The mission expresses concern that authorities are falling idle.”
The issue is a big one with the public and the popularity of the pro-bailout ruling coalition continues to wane. According to the report, individuals and companies have racked up 53 billion euro of tax debts to the government, or about a quarter of the country’s GDP.
So, again, no, the worst isn’t over. What European Central Bank president Mario Draghi did do last July was help the continent avoid contagion with his statement, “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”
One other note, Italian Prime Minister Mario Monti, technically caretaker prime minister until a February 24-25 snap election, met with centrist parties on Thursday to explore the idea of heading up a coalition party, which would inject a fourth element into a battle between the center-left Democrats (currently leading in the polls), Silvio Berlusconi’s center-right People of Liberty and the anti-establishment Five Star Movement headed by a former comedian. Monti has to make his decision shortly but he appears to be leaning towards a run.
On 12/31/11, I wrote the following:
For 2012, I see the three major U.S. stock indices falling 10%, and it is going to be one wild year…Stocks could be up big, like 15% to 20%, and then crash.
I draw your attention to something I wrote on 3/5/11, which I’m quoting at length because I still believe every word of it.
“Speaking of the U.S. and its deficit dilemma, Congress avoided a government shutdown for two weeks with yet another short-term funding deal but this can’t go on forever. Eventually it has to face up to its obligations, including a decision on raising the debt ceiling.
“For all the talk of who is to blame for our current mess, though, there is only one man who stands above the rest in terms of responsibility and that is Barack Obama. He is the one who has to now lead. He is the one who has to give an address or two from the Oval Office and give Americans the facts on our looming entitlement calamity. Obama is the one who has to tell Americans it’s time to sacrifice.
“But the president and his advisers are convinced they can play their game of chicken until after the 2012 election and I’m here to tell you that unless the financial markets, including those overseas, believe the United States has come to grips with its deficits, Jan. 2013 will be too late. We will meet our Waterloo at some point in 2012.
“The president had his chance to begin to lay out the facts to the American people with his State of the Union address and instead he virtually cemented his legacy as one of the worst presidents in our history. Obama can still turn things around, but there is little reason to believe he will do so and, no, growth in the economy will not bail us out of a looming debt-to-GDP ratio of 100% with exploding spending to come in the mighty triad: Social Security, Medicare and Medicaid – the latter two powered by Obamacare in the out years. Until the American people hear the truth, you will continue to get absurd poll #s like we had this week with the latest NBC News/Wall Street Journal survey wherein when asked if cuts to Medicare were necessary to ‘significantly reduce’ the deficit, 18% said yes, while 54% said no.
“Warren Buffett was on CNBC this week and said you ‘can’t stop this country.’
“Wrong, Warren. Debt can stop this country, just like debt stopped many an individual and corporation during the financial crisis and has stopped Greece and Ireland.”
So, again, I wrote the above on March 5, 2011 (as part of the 12/31/11 review), almost 22 months ago. It’s still spot on.
No, we did not see a crash and I missed my return projections for the year in a big way. We still can…and will…knowing what we know today about the failure to come up with a comprehensive deficit-reduction plan.
It’s also unfathomable, though at the same time not surprising, that President Obama has not used the bully pulpit to address the American people on the entitlement situation in the way Erskine Bowles and Alan Simpson have, among others.
And it’s kind of ironic that I wrote my March 2011 missive as the Syrian conflict was about to get going and 44,000 deaths later there, our president hasn’t said anything about that place either.
But we re-elected the man to four more years, due in no small part to Republicans nominating Mitt Romney, a pathetic candidate as I wrote in this space from day one…not that the alternatives were even remotely better.
So we’re stuck with a president who will go down in history as hurtling us over the debt cliff.
Alas, when it comes to predictions on the foreign policy front, I was way off all 2012, especially in believing the White House would act against Iran last spring because of the election and Obama’s need to have time to clean up the collateral damage before November.
I thought Israel and Hizbullah would go to war. I thought Pakistan would see a military coup, called it a “layup.”
I thought Britain would have problems with the London Games and instead they did a terrific job in staging the event.
The only thing I got remotely right was in writing “China’s transition to a new leader, Xi, will go relatively smoothly,” but spoke of massive unrest forcing the government “to play the nationalism card and create an issue in the South China Sea.” Well that last part wasn’t too far off. Certainly Japan was hit on the export front when Beijing encouraged anti-Japanese protests as a result of a dispute in the East China Sea.
Through it all, “the eurozone crisis will continue unabated,” which was the case until July or so.
Recognizing New Year’s Eve could yet hold some rather hectic trading depending on what happens over the weekend on the fiscal cliff front, I’ll say the Dow Jones and S&P 500 finish next year flat with Nasdaq up 5%.
China and Japan will not come to blows in the East China Sea as both new leaders focus on their respective economies.
The European debt crisis will re-emerge in a big way, starting with Spain and Greece, with major social unrest finally taking root. Greece’s governing coalition will be toppled. Golden Dawn, with the police as a major ally, will create mayhem from time to time and scores could be killed.
Otherwise, it’s all about Chancellor Merkel’s re-election in Germany next September.
Here’s a shocker…Syria will remain a hellhole! OK, that’s not a shocker, but does not bode well for the entire region as the civil war, which will remain even if Assad finally exits the scene, leeches into its neighbors. This is going to be a brutal winter for the 700,000+ refugees.
Iran? They have a presidential election to replace Ahmadinejad and Supreme Leader Ayatollah Khamenei will attempt to buy more time through another round of fake negotiations over the nuclear program. But a report will emerge that Iran is perfecting a nuclear trigger (weaponization), putting immense pressure on Benjamin Netanyahu to act. He won’t get any help from Washington. And as discussed below, Hamas will take over the West Bank in a move that will rock Israel to its core.
Egypt’s upcoming parliamentary elections will be chaotic as the Muslim Brotherhood and the Salafists become even more entrenched. Morsi, in over his head, will make one mistake after another. The military, though, will stand back and try not to get involved beyond riot control.
Vladimir Putin will be the victim of a terror attack…possibly a car bombing a la Rafik Hariri in Beirut, 2005.
But while Barack Obama tries like heck to avoid dealing with Iran, he won’t be able to avoid dealing with North Korea, as their chubby leader test fires more long-range ballistic missiles capable of hitting the United States. One launch will fail. Another, though, will succeed spectacularly well. The United States will deliver an ultimatum to Kim Jong Un…cut the crap. Kim will fire a short-range missile at South Korea in response, though at a relatively sparsely populated area with minimal casualties. Seoul will not retaliate…immediately…but the U.S. will be under pressure to take out the Yongbyon nuclear facility, though fears over the spread of nuclear fallout will preclude this…for now.
--With one more trading day to go in the year, stocks are riding a five-day losing streak into the close of 2012 over fiscal cliff uncertainty, with the Dow Jones tumbling 158 points to 12938 on Friday, down 1.9% on the week. The S&P 500 also lost 1.9% and Nasdaq 2.0% to 2960.
There was some economic news and MasterCard Advisors Spending Pulse said holiday sales for November and December were up only 0.7%, with online sales advancing just 8.4%, which is far less than expected. The National Retail Federation, however, is sticking with its original projection that Christmas sales will have risen about 4%.
MasterCard said various factors are in play, from Hurricane Sandy, to the fiscal cliff talk, to the impact of the Newtown Massacre. I’d add the recent storms in the Midwest have not been helpful.
Separately, the Conference Board’s latest reading on consumer confidence was abysmal, 65.1 and far worse than expected.
On the housing front, though, new home sales for November were up 15.3% from year ago levels and are at the strongest annual pace since April 2010. The S&P/Case-Shiller index of property values in 20 cities increased 4.3% in October from October 2011 levels. The Phoenix market is up 21.7% over the same period.
--U.S. Treasury Yields
6-mo. 0.10% 2-yr. 0.25% 10-yr. 1.70% 30-yr. 2.87%
Yields fell a bit on a flight to safety. I’ll review the year in bonds next time after we complete action on Monday.
--Japan’s factory output fell more than expected in November, with industrial production down 1.7% from the previous month owing to a drop in demand for Japanese exports. But, manufacturers are looking for a strong December and January for this metric.
On the inflation front, consumer prices fell 0.1% for the month from a year earlier, continuing the deflationary trend that remains entrenched; exactly what new Prime Minister Shinzo Abe is attempting to tackle when he calls on the Bank of Japan to raise its inflation target to 2%, double its current target, as part of a plan to stimulate the economy and get assets prices moving higher again.
In one respect it is already working wonders as the Tokyo Nikkei hit a 21-month high on Friday, up over 18% during a 7-week winning streak that began when Abe’s victory in the snap election was deemed a certainty. The index was also up 23% for the year (the market here being closed on Monday), its best performance since 2005.
--Sony said its business in China has “more or less” returned to pre-crisis levels following the initial protests against Japan’s actions in the East China Sea over the disputed islands.
--Toyota Motor agreed to pay about $1.1 billion to settle a class-action lawsuit related to the 2010 case of sudden acceleration in some of its vehicles. Toyota has recalled more than eight million cars in the United States for problems related to floor mats that get tangled up in the accelerator pedal.
But despite this and other recent vehicle issues, Toyota’s sales in the U.S. have increased 28% this year.
--China commenced the longest high-speed train line this week, a line between Guangzhou and Beijing that cuts the travel time from about 24 hours to eight. The first train, though, was delayed an hour by snow in Henan.
What was funny was that with the press along for the first ride, about 1,000 passengers in total, there was only one dining car with 38 seats and four attendants. The journalists for the South China Morning Post, for example, waited 2 ½ hours to get lunch, but that was good as they were spotted by workers. Others waited as much as four hours…for a box lunch. Talk about a nightmare.
--Industrial production in South Korea rose for a third consecutive month in November, a far stronger than expected 2.3% from a month earlier.
But earlier, the finance ministry revised the growth forecast for the year to 2.1%, down from a prior projection of 3.3%, and it slashed the 2013 forecast to 3% from a September estimate of 4%.
--France’s economy grew less than initially estimated in the third quarter, with GDP rising just 0.1%. Jobless claims also rose for a 19th straight month in November, the highest since January 1998. President Francois Hollande had made reducing unemployment a major issue in his campaign last spring and his approval rating has fallen to 37%, the lowest for any French president this soon after an election.
--Amazon’s reputation took a big hit on Christmas Eve when its servers in Northern Virginia went down, impacting companies that use Amazon’s Web Services unit, AWS. Netflix, for one, was a victim as millions of its customers from Canada to Brazil were unable to stream video.
I had forgotten just how big AWS was for Amazon. While the company doesn’t break out revenues for the unit, Baird Equity Research estimates AWS will account for $1.5 billion in revenue this year and will reach $3 billion within two years.
--OPEC will earn a record $1.05 trillion in net oil export revenues in 2012, according to the U.S. Energy Department. When it comes to Saudi Arabia and Iraq, though, there is an interesting dynamic. The Saudis seek to keep prices at around existing levels to fund the country’s $600 billion social spending program, while Iraq seeks to increase production to 3.7 million barrels a day next year, which would be an increase of 1.0 million barrels in just two years. With global demand potentially falling, depending on the economic picture, Iraq’s surge in production wouldn’t be good for prices, nor the Saudis. [Not that any of us will be crying in our champagne over this prospect.]
But at least U.S. oil production is set to reach a 20-year high next year. The average price for a gallon of gasoline in 2012 will be $3.63, the highest ever, besting last year’s record $3.53.
--IPOs raised $112 billion worldwide this year, the least since 2008, according to data compiled by Bloomberg. U.S. offerings raised $41 billion, little changed from last year, as Facebook’s disastrous IPO hurt demand.
--Good news…union workers at General Motors and Ford Motor Co. are expected to received big profit-sharing payouts for the year. Officials have told GM workers that they can expect checks of as much as $7,000, while at Ford, the payouts could top $8,000.
This is as it should be! The company does well, so should the average worker.
--Regarding the longshoremen mentioned above, they earn $124,000 in wages and benefits, but automation has led to a big drop in jobs. In New York and New Jersey, for example, the ports had 35,000 longshoremen in the 1960s and that level is down to 3,500 today.
--I haven’t mentioned my large China holding (which due to a collapse in its market value is technically no longer a “large” holding) because there has been absolutely no news to report. The company went dark. It’s also been an easy issue to sell for tax reasons here at yearend so I’m mildly curious to see what will happen in the first month or so of 2013. I just have little hope for it.
That said, I will do a few things on this front around mid-January and let you know what the results of my actions are if appropriate.
It is my understanding the company itself is still very much in business. The recent moves by the SEC against Chinese accounting partnerships with the Big Four, however, are not helping matters for any U.S. holder of a Chinese company listed in the States.
“Telemarketers kept on average 61.5 cents of every dollar they raised in New York last year, leaving 38.5 cents for the charities themselves, the New York Attorney General’s Charities Bureau said Friday.”
--The local utility for my area, JCP&L, a FirstEnergy company, reported its losses from Hurricane Sandy will total $900 million, up from a previous estimate of $500 million. That’s just one utility.
This week’s coastal storm, by the way, flooded many of the same Jersey Shore communities that were devastated by Sandy; not a good sign in terms of rebuilding. I mean this wasn’t a superstorm by any stretch but the dunes were gone as a result of Sandy and any temporary ones didn’t withstand the new storm. Another monster northeaster this winter would set back rebuilding plans for a long time. As a friend of mine who has a home still standing in a beautiful shore town (otherwise devastated) said last week, no one should have built on the barrier island in the first place. A few more hits and officials will be under immense pressure to drastically scale back future plans.
[A big problem is, as some experts say, the bay side of many of these places filled with ocean sand when the ocean poured over…thus the water level in the bay has risen substantially.]
Syria: Russian Foreign Minister Sergei Lavrov told Syria’s Deputy Foreign Minister Makdad in Moscow that the crisis must be resolved by dialogue rather than force and warned time was running out. Russia itself would have to be a central player in any talks, given its relationship with Bashar Assad, but all past peace efforts have collapsed.
And so the civil war grinds on with the latest death toll at 44,000+ since the conflict began in March 2011. There were totally unconfirmed reports that the Assad regime used chemical weapons in an attack on Homs on Christmas Eve, while the chief of Syria’s military police defected.
Then you had an attack on a bakery in a rebel-held town that killed over 100, an incredibly sickening act by the Assad regime who has been targeting the hungry in a misguided attempt to get them to turn against the rebels.
Egypt: President Mohammed Morsi signed into law the new Islamist-drafted constitution after results of the two-week referendum showed the document was approved by 64% of the people, though turnout was just 33%, which calls into question the legitimacy of the vote on such an important issue. Morsi says the constitution protects all parties, including minorities, and will lead to stability. The opposition argues the reverse.
Meanwhile, the economy is in shambles and a $4.8 billion loan from the IMF is in limbo until Morsi can get support from the opposition for austerity measures demanded by the IMF before the money is disbursed. At the same time, capital is fleeing the country and the government was forced to announce a ban on traveling in or out of the country with more than $10,000 in foreign currency.
“The bloody confrontations and thin victory margin for the constitution cost Mr. Morsi much of the legitimacy he claimed in June’s presidential elections. During the Mubarak era, the Muslim Brotherhood was the only tolerated opposition and was the sole organized political group to emerge after the revolution. Yet the Brotherhood can count on a core of no more than a quarter of Egypt’s voters.
“Unless he resorts to repression, Mr. Morsi needs to build coalitions to govern.”
Separately, on Thursday, Egypt’s chief prosecutor ordered an investigation into allegations that opposition leaders, including Mohammed ElBaradei and two others who ran for president in the last election, committed treason by inciting supporters to overthrow President Morsi. The move, by a prosecutor appointed by Morsi, smacks of the worst of the Mubarak regime. No charges have been filed as yet.
Iran: There continues to be talk of a new round of discussions between Iran and the P5+1 early next year (P5 being the permanent members of the UN Security Council, plus Germany), while Israel has said it might have to take action against Iran’s nuclear program by the end of the second quarter.
There are also questions as to the impact sanctions are having on the regime in terms of whether Ayatollah Khamenei is prepared to pull back.
But as Israeli Professor Ze’ev Maghen of Bar-Ilan University notes in the Jerusalem Post:
“All supposed indicators of an increased willingness on the part of the Iranian leadership to palaver with the West regarding the Islamic Republic’s nuclear program must be taken with a Dead Sea’s worth of salt.
“It takes only about a quarter of a decade of historical perspective to understand that the Iranians always play this game: They intransigently thumb their noses at America and at the international sanctions and provoke the Western powers to the very brink of action, and then in the 11th hour, when the hammer is about to fall, they make a small, barely visible gesture towards accommodation…and the West goes wild with optimism and hope, and ratchets down the threat.
“Then the Iranians enter into a short-lived ‘dialogue’ which (as planned) never leads anywhere. This happens again and again, and the Western penchant for naïve enthusiasm seemingly never wanes. And all the while the Iranian centrifuges are spinning.”
Israel: A new poll shows Prime Minister Benjamin Netanyahu is losing support ahead of the Jan. 22 elections. Netanyahu’s Likud party would garner 35 of 120 seats in the Knesset, down from 39, with the centrist Labor Party polling second with 17 seats. But the Jewish Home Party, whose leader said he’d resist evacuating settlements if ordered to do so as a reserves soldier, is at 13 seats, an increase from a previous survey. Netanyahu isn’t in danger in terms of being able to form a ruling coalition but it might not be as easy as once thought.
A report by the prime minister’s intelligence services concludes that Hamas could seize power in the West Bank as they did in Gaza five years ago. Relations between Hamas and Fatah are deteriorating again, after a brief thaw, and Hamas sleeper cells in the West Bank have supposedly been told by Khaled Mashal, Hamas’ political leader, to prepare to take control. Hamas is being encouraged by Iran to make the move. What this does is give Iran a third proxy army, on top of Hamas in Gaza and Hizbullah in Lebanon, in case Israel attacks Iran’s nuclear program.
Japan: Shinzo Abe was sworn in as Japan’s seventh prime minister in six years, with Abe himself having been prime minister in 2006-07 before resigning due to health issues he says no longer exist.
Abe told a news conference: “With the strength of my entire cabinet, I will implement bold monetary policy, flexible fiscal policy and a growth strategy that encourages private investment, and with these three policy pillars, achieve results.”
In tackling deflation (as noted above), he has warned the Bank of Japan that it risks losing its independence – through legislative changes – if it does not introduce a 2% inflation target.
But in forcing the BoJ to print money to fund a planned program of infrastructure spending, Abe is risking the long-term faith in the solvency of a country that has a debt of more than 200 percent of GDP.
Abe also pledged to take a tough line on China when it comes to territorial disputes such as the current East China Sea row over a bunch of rocks.
Regarding Abe’s efforts to drive down the Japanese yen to support exports, Bank of England Gov. Mervyn King observed that “2013 could be a challenging year in which we will, in fact, see a number of countries trying to push down their exchange rates. That does lead to concerns….The policies pursued by countries for domestic purposes are leading to tension collectively.” [Wall Street Journal]
China: The government announced it is tightening the rules on internet access to enforce a previous requirement that users fully identify themselves to service providers. Beijing claims it will protect personal information. Critics say the government is limiting free speech. Clearly, Beijing views the internet as a threat as in recent months, the popular micro-blogging sites have exposed corruption among government officials and orchestrated mass protests. But in the future such acts will be far more difficult as service providers are to save the records “before reporting to supervisory authorities” those being spotted disseminating “illegal information,” which is a rather broad term.
Russia: I brought this up a few weeks ago, but Russian President Vladimir Putin’s formal decision on Thursday to endorse a ban on the adoption of Russian children by American citizens is outrageous. To contrast a new American law aimed at punishing human rights abuses in Russia (the “Magnitsky Act”) with the adoption ban is simply cruel.
In 2011, about 1,000 Russian children were adopted by Americans, more than any other foreign country.
“There are probably many places in the world where living standards are better than ours,” said Putin. “So what? Shall we send all children there, or move there ourselves?”
The problem is the United States still needs Russia’s cooperation on issues such as supply routes into Afghanistan, and it is seeking Russia’s help on Iran and its nuclear program. So how much will the White House fight the adoption ban?
Picture the American families, of which there are many, that thought they had already adopted a child and are slated to pick them up following a required 30-day waiting period. It’s despicable and tragic and not only reveals Putin’s true colors, but also that of the Russian parliament, where the ban originated.
Afghanistan: Max Boot / Washington Post
“The Obama administration appears determined to vacate Afghanistan as fast as possible. If the latest leaks are to be believed, officials are willing to leave as few as 6,000 U.S. troops behind after 2014, concentrated at the Bagram air base and a few other installations around Kabul. The mind boggles at what this would mean in military terms.
“Consider one simple fact: Kandahar, the city where the Taliban movement started, is 310 miles southwest of Kabul. Imagine that intelligence analysts have identified a ‘high-value target’ – say, a terrorist facilitator with links to both al-Qaeda and the Taliban – in Kandahar. How would the U.S. military capture or kill him without a secure base in Kandahar?
“This scenario is, on some level, fanciful, because the lack of a U.S. presence on the ground around Kandahar would make it very difficult to generate useful intelligence. How would the CIA or the Defense Intelligence Agency run agents or even operate drones? Even assuming that the intelligence could be garnered, it would be exceedingly hard to act on the information….
“It is hard to imagine how anyone in the Obama administration could conclude that a force of just 6,000 personnel would be sufficient after 2014 when, even with 68,000 troops today, the United States cannot prevent the Taliban and Haqqanis from operating openly an hour’s drive from Kabul. Such a precipitous drawdown vastly increases the risk of a Taliban takeover.”
India: The nation has been convulsed in protests over a sexual assault on a woman in Delhi who then died of her wounds in a Singapore hospital today, the victim having been transported there for treatment. One journalist was killed by security forces in New Delhi as thousands protested the treatment of sex crimes in general.
National crime records in India show that of the total 256,000 violent crimes last year, 228,000 were against women. Delhi has been identified as the rape capital of India with 660 last year, up 17%.
Venezuela: Vice President Nicolas Maduro announced that President Hugo Chavez was up and walking two weeks after cancer surgery. Maduro said, “He was in a good mood. He was walking, he was exercising.” Outside doctors, though, say they doubt Chavez is in as good a condition as the vice president wants his countrymen to believe. But will Chavez make the Jan. 10 inauguration?
--House Speaker John Boehner needs 217 votes to be re-elected Speaker on Jan. 3. There are 234 Republicans in the new Congress. Once re-elected he would have more power in his dealings with the White House.
--In a Gallup poll released Wednesday, 54% of Americans responding said they approved of the way Obama had handled the fiscal cliff negotiations and 45% said they approved of Democratic leaders in Congress. By contrast, 26% said they approved of Boehner and the Republican congressional leadership.
“Barbara and I mourn the loss of a true American patriot and one of the great military leaders of his generation. A distinguished member of that ‘Long Gray Line’ hailing from West Point, Gen. Norm Schwarzkopf, to me, epitomized the ‘duty, service, country’ creed that has defended our freedom and seen this great nation through our most trying international crises. More than that, he was a good and decent man – and a dear friend.” –former President George H.W. Bush.
Schwarzkopf presided over the resounding 1991 assault on Iraq following its invasion of Kuwait, which aside from transforming the Middle East, re-instilled pride in America’s military which was still suffering from the outcome of the Vietnam War.
I have been harshly critical of America’s generals the past decade or so. When it comes to Gen. Norman Schwarzkopf, though, there has never been any doubt in my mind, nor in the minds of all Americans, that this was one of the best this nation has ever produced.
“More than four years after the 2008 panic, the U.S. economy still hasn’t rebounded to its normal potential growth trend. So the legacy of one of the main culprits – Lisa Jackson of the Environmental Protection Agency, who announced Thursday she is resigning – must include the millions of Americans who can’t find a job or haven’t seen their incomes rise.
“The EPA chief is among President Obama’s most abusive and reckless regulators – his repressed green id. Over her four years, Ms. Jackson inflicted an unprecedented surge of new rules on private business, including the most expensive ever in the history of government by several orders of magnitude. A ‘major’ regulation used to be defined as imposing costs of $100 million or more. The EPA now routinely issues multibillion-dollar rules with little more than a press release.”
“In case you haven’t heard, President Obama is considering appointing Chuck Hagel, a former United States senator from Nebraska and a Purple Heart winner, as the next secretary of defense – and this has triggered a mini-firefight among Hagel critics and supporters. I am a Hagel supporter. I think he would make a fine secretary of defense – precisely because some of his views are not ‘mainstream.’ I find the opposition to him falling into two baskets: the disgusting and the philosophical. It is vital to look at both to appreciate why Hagel would be a good fit for Defense at this time.
“The disgusting is the fact that Hagel once described the Israel lobby as the ‘Jewish lobby’ (it also contains some Christians). And because he has rather bluntly stated that his job as a U.S. senator was not to take orders from the Israel lobby but to advance U.S. interests, he is smeared as an Israel-hater at best and an anti-Semite at worst. If ever Israel needed a U.S. defense secretary who was committed to Israel’s survival, as Hagel has repeatedly stated, but who was convinced that ensuring that survival didn’t mean having America go along with Israel’s self-destructive drift into settling the West Bank and obviating a two-state solution – it is now….
“So, yes, Hagel is out of the mainstream. That is exactly why his voice would be valuable (today). President Obama will still make all the final calls, but let him do so after having heard all the alternatives.”
“Many Americans were incensed last week when four mid-level State Department officials appeared to take the full fall for the Sept. 11-anniversary terrorist strike in Benghazi and were forced to resign.
“It’s not that senior officials have finally ‘fessed up and taken their punishment.
“Rather, it turns out that no one has truly been punished at all – and certainly no one’s been fired.
“As The Post’s Josh Margolin reported yesterday, ‘The four officials supposedly out of jobs because of their blunders in the run-up to the deadly Benghazi terror attack remain on the State Department payroll – and will all be back to work soon.’”
“(None) of this is truly surprising, given how duplicitous the State Department has been during every moment of the Benghazi affair….
“And it means that the only State Department official who lost his job due to Benghazi was Ambassador Stevens.”
Let alone the questions remaining for Hillary Clinton. As John Bolton noted in a Post op-ed, Republican Sen. Bob Corker has “asserted that no new secretary of state be confirmed until Clinton testifies.”
“I truly appreciate President Obama’s intentions to ‘push without delay’ a set of recommendations to address the kind of madness we witnessed in Newtown. However, an administration-led approach, without significant input from the entertainment, gun and mental health communities, will not meet the crucial test of credibility. It excludes too many of the voices that must be heard if we’re going to get this right after so many decades of bitter stalemate.
“If the administration fails this credibility test, and if it takes a guns-first approach without addressing the other factors at play, we will be no closer to resolving this problem than we were in the days before the horror in Newtown….
“Because, if you think the problem of mass violence in our country is about just guns, you’re wrong. If you think it’s about just an entertainment industry that markets violence to kids, you’re wrong. If you think it’s about just insufficient security at our schools, you’re wrong. If you think it’s about just the lack of mental health services for troubled young people and adults, you’re wrong. We need to address all of them. I, for one, simply cannot support any proposal that doesn’t address all aspects of this problem.
“So, I propose an alternative path: a national commission on mass violence. Such a commission could lead the national conversation that is desperately needed in the wake of Newtown. It could hold public hearings, after which it would issue a report and recommendations based on facts, not emotions or preconceived notions of what it takes to end mass violence in America.”
“(By) refusing to contemplate even small changes in existing laws, the NRA lost its chance to get back into the debate on terms other than as the villain in a morality play about the murder of innocents.
“In a way, that is to be expected since the NRA’s attitude toward any form of gun control is similar to the response of pro-abortion groups to parental-consent laws or prohibition of procedures that smack of infanticide. Both see any infringement of an absolute right as the thin edge of the wedge toward abolition.
“But (Wayne) LaPierre needs to know that there are times to give your usual stump speech, and times when it’s smarter to keep your mouth shut….
“The NRA didn’t have to concede its core beliefs in order to avoid looking just like the caricature of the heartless gun lobby that its foes talk about. LaPierre could have devoted more time to memorializing the victims, or simply said it’s not the time to rehearse old arguments.
“Yet he couldn’t resist letting loose with a familiar litany about how more guns, rather than fewer, make the country safer. He blamed the creators of gun-free zones for the murders. And, though he opposes registering guns, he wants the mentally ill listed under a national register.
“In another bizarre twist, he spoke as if the killings were the fault of old video games and the entertainment industry – showing he’s ready to throw the First Amendment under the bus to preserve the Second.
“After Newtown, it was time for the NRA to take it down a notch. It may pay a heavy price for this misjudgment.”
--Despite another gruesome murder on New York’s subways, as a woman pushed a stranger onto the tracks with a train pulling in, Gotham is on track for a record low number of murders in 2012 since the city started keeping track of the figures in 1963.
--It’s always all about the weather. After not having a winter in much of the U.S. last year, it’s been non-stop action virtually nationwide the past ten days or so. The very good news is parts of the Midwest are getting much needed moisture (which is kind of getting lost in the stories of mayhem), so perhaps the spring planting season will be good. And no one should be talking of water shortages in California, at least for a while, with the Sierras getting abundant snow that works its way down into the valleys come spring and summer.
And in Russia, a cold wave killed over 120. How cold was it? The high in Moscow didn’t go above 10 degrees F. for ten days, while in Eastern Siberia, it hit minus-76F! “Described by local media as the coldest in 70 years.” [Sydney Morning Herald]
--For you Civil War buffs, I was reading a review in The Weekly Standard by Mackubin Thomas Owens on a new book by Allen C. Guelzo, “Fateful Lighting: A New History of the Civil War and Reconstruction,” and Prof. Owens of the Naval War College observes:
“ ‘Fateful Lightning’ will inevitably be compared with James McPherson’s ‘Battle Cry of Freedom.’ I once called the latter the best single volume on the Civil War, but ‘Fateful Lightning’ is every bit its equal.”
High praise, that’s for sure. And while McPherson’s begins with the Mexican War and ends with the termination of Civil War military operations, Guelzo’s begins with the Founding and carries the story through Reconstruction.
I have had zero time for books of any kind the last ten years or so given the demands of StocksandNews, but I had vowed to re-read McPherson’s book next year. Maybe I can read his and Guelzo’s.
--And now my selection for “Week in Review Person of the Year.” For my purposes it must go to a political figure; the consequences of governance, or lack thereof, being central to what we explore in this column. As you can see below, if there is no obvious choice, I’m not naming one. I also stretched the definition a little in naming Gen. Petraeus and Bernanke, but the latter’s position was as political as they come. I also readily admit, in hindsight, that some of these selections may have peaked the year chosen.
2001 – George W. Bush
2002 – no one…citing “unfinished business in Iraq”
2003 – George W. Bush, Tony Blair, John Howard
2004 – Hamid Karzai
2005 – Ariel Sharon
2006 – no one
2007 – Gen. David Petraeus and Defense Sec. Robert Gates
2008 – Gen. Petraeus and Sec. Gates
2009 – Ben Bernanke
2010 – David Cameron
2011 – no one
2012 – no one
“I stare at a big world map on the wall across from my desk all day and spent some good time scouring it for ideas this year. All of the above were deemed to have made positive contributions. For the life of me, I can’t find one national figure who fits the bill for 2011. If I wanted, I could be cute and name Andrew Cuomo and Chris Christie as two governors who got things done in 2011, thus proving leadership matters, but their spheres of influence are too small.
“So, sorry…I know this is wimpy…but I’ve been decrying the lack of leadership in the world for years. 2011 proves it.”
Funny, I could really pick Christie (and perhaps Cuomo) for their leadership following Hurricane Sandy this time, but it’s still not a broad enough scale for my purposes.
The Financial Times wasn’t all bad in selecting Mario Draghi as its “Person of the Year,” but I still think much of the solution to date to prevent contagion in the eurozone is merely smoke and mirrors…and the biggest Ponzi scheme in the history of mankind.
TIME magazine’s selection of Barack Obama? Sorry, not even close in my estimation unless you’re selecting someone just because they won a campaign by defeating a loser.
As for “Dirtball of the Year,” this is given to the person(s) who has most negatively impacted the lives of millions. This category, unfortunately for mankind, has been easy for yours truly.
2000 – Robert Mugabe
2001 – Osama bin Laden
2002 – Mugabe
2003 – Saddam Hussein and bin Laden
2004 – Abu Musab al-Zarqawi
2005 – Zarqawi
2006 – Mahmoud Ahmadinejad
2007 – Mugabe
2008 – Mugabe
2009 – Ahmadinejad
2010 – Kim Jong Il
2011 – Muammar Gaddafi and Bashar al-Assad
2012 – Bashar al-Assad
“On the evening of February 15th (2013) an asteroid called 2012 DA14 will pass so close to the Earth that, although it is only the length of an Olympic swimming pool, it will be visible through good binoculars. Never has the orbit of a rock that big been calculated to pass so near: 2012 DA14 will be flying lower than the satellites which beam down television programs. Were it on a trajectory that actually hit the Earth, its speed of nearly 8 miles a second would generate a detonation…that could flatten an area the size of Greater London.”
Here’s to a prosperous 2013. [At least good health, you understand.]
Gold closed at $1655…another positive year assured
Dow Jones -1.9% 
S&P 500 -1.9% 
S&P MidCap -1.8%
Russell 2000 -1.9%
Nasdaq -2.0% 
Returns for the period 1/1/12-12/28/12
Dow Jones +5.9%
S&P 500 +11.5%
S&P MidCap +14.2%
Russell 2000 +12.3%
*Full 2012 return figures next time….and on my “Wall Street History” link on Jan. 2nd.
Bears 24.5 [Source: Investors Intelligence]
Happy Birthday to our own Dr. Bortrum!