Week in Review

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Week in Review

01/05/2013

For the week 12/31-1/4

The 113th Congress convened on Thursday, 55-45 Democrats in the Senate, 234-199 (with two vacancies) Republican in the House, and it would be easy to say it can’t get any worse than what we had with the 112th Congress. Then again it can. The new Congress includes fewer members from moderate or swing districts and more districts are tilted heavily to the right or left. This fact depresses the hell out of me.

I have long gotten a kick out of how I’m viewed since I started StocksandNews almost 14 years ago in terms of my political viewpoints. I consider myself a moderate, a pragmatist, above all else, but definitely conservative on the fiscal front and of course I vote Republican 99% of the time, though in many a presidential election I have yearned for a third party candidate given some of the awful choices we have had, particularly in the past 12 years.

And so on Friday, I was watching the most admired policymaker in America today, Erskine Bowles, in an interview on CNBC and I was struck by how tired he looked and sounded. Oh, he talked about his optimism that our political leaders could still come together on the main issue of the day (if you give a damn about this country), entitlement reform, but of course after what we’ve seen the past week, and with the statements emanating from the White House, “coming together” seems to be the last thing on our president’s mind.

I just see a polarized nation, with a polarizing president, a Congress dominated by the Far Left and Far Right, and an inability to deal with the truth.

At the same time we have a stock market that hit five-year highs while having its best week since December 2011. Markets around the globe rallied in kind; spurred on by the incredibly lousy short-term budget (tax) fix Congress and the White House came up with. Go figure.

There are times when I look very bad in my prognostications, like my current crash forecast, but longer term I am seldom wrong. [Think 2009, when with the market down 25% in the first nine weeks of the year, I stood by my forecast the S&P and Dow would end the year up 20% and the Nasdaq would finish up 30% and nailed it.]

The thing about the entitlement debate is I recognize that the people, and the markets, can continue to ignore the facts for long stretches of time and there are indeed some decent data points in terms of the U.S. economy these days, such as in housing and autos. I said last week I think the markets will be generally flat in 2013, even with a crash thrown in that would finally shake Congress and our president out of their stupor…because from a valuation standpoint, I agree with the bulls, the market is by my way of thinking fairly valued, but not necessarily undervalued.

But back to Congress, what happened this week? The Senate voted 89-8 and the House 257-167 to approve a tax package that, thanks to the expiration of the 2-year payroll tax holiday raises taxes on 77.1% of U.S. households, according to the nonpartisan Tax Policy Center, an average $1,635 hit, while the top 1% pays an average $73,600 more.

In the House, only 85 of 236 Republicans voted for the plan, with House Majority Leader Eric Cantor going against Speaker John Boehner in opposition, while Paul Ryan supported it. 

Income taxes are going up for the first time in almost two decades. The act increases revenue $60 billion per year over ten years but, of course, the annual deficit has been $1 trillion+ during the Obama regime so in terms of deficit-reduction, whoopty-damn-do. By some measurements the deficit will actually increase $4 trillion in the coming ten years but that is based on all the Bush-era tax cuts expiring which wasn’t a realistic proposition.

Bottom line, I said for months now Congress would pass a lousy bill and they have. I have also said phase two would suck as well and it will, whatever these clowns come up with come March and the three big deadlines…the debt-ceiling, the sequester, and the continuing resolution that would fund the government for the final six months of the fiscal year ending September 30.

In terms of the tax package details, for the record, as you all know by now income tax rates on income above $400,000…$450,000 for couples…will permanently increase to 39.6% from 35%, but then you have the elimination of some deductions above $250,000 and the ObamaCare surcharge, 3.8%, so the effective rate for what is the top 0.7% rises to about 44%...and this doesn’t include state and local taxes for some of you.

The rate on dividends and capital gains for the same 1% rises to 20% from 15%.

The alternative minimum tax has been permanently patched…as much as you can trust the word ‘permanent’ in any tax discussion.

The estate tax permanently rises to 40% from 35% on the value of estates over $5 million, though this is being indexed so that the exemption level will continue to rise.

Unemployment insurance was extended for another year.

And the ‘Doc fix’ was put in place, thus preventing up to 27% reductions in payments to Medicare providers for one year.

All in all, given the leverage the president has, and Democrats controlling the Senate, I don’t have a big problem with the above.

But that’s only because I expect spending and entitlement reform, as well as lower corporate taxes like virtually every other corporation outside the United States has, let alone reform of the entire tax code down the road.

With the deal signed, however, President Obama came out and said the following, regarding the next deadlines:

“While I negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills they’ve already racked up through the laws they have passed. Let me repeat we can’t not pay bills that we’ve already incurred.”

So, no, he won’t allow spending cuts as part of any debt ceiling debate. At least that’s where we stand today.

No doubt, the four main items listed above (income tax rates, cap gains/dividends, AMT and the estate tax issue) provide some certainty, at least, but we must now tackle the spending side of the ledger and couple it with the debt ceiling whether President Obama wants to tie the two together or not.

Economist Ian Shepherdson said, “The relief rally (that we saw in stocks) isn’t going to last long. Because we’re going to be slugging this out until February or March,” predicting a “bloody, messy, appalling spectacle” among lawmakers that will depress consumer and business sentiment.

And while I said at least the tax package provides some certainty and that can be viewed as a positive, economist Peter Morici warns that higher taxes on small businesses, coupled with increasing costs from ObamaCare, will drag down hiring significantly.

“Small businesses now have more certainty – the assurance of more burdensome regulations, healthcare costs and taxes, and this will burden growth.”

What’s depressing is that Congress and the president are incapable of acting in the best interests of the American people, but at the same time, the people won’t accept entitlement reform! And we don’t have a leader that deals with reality.  Medicare, Medicaid and Social Security will account for nearly half of all federal spending by 2022, up from 41% in 2011. And instead of 3%+ growth, which was the norm in the 1980s and 1990s, the forecast for the next 20 years is more like 2-2.5%, plus the demographics are not on our side.

Senate Minority Leader Mitch McConnell, in an opinion piece for Yahoo, said in part:

“[Now] that the president has gotten his long-sought tax hike on the ‘rich,’ we can finally turn squarely toward the real problem, which is spending.

“The first day of a new Congress always represents a fresh start. This year, it also presents a perfect opportunity to tackle the single-greatest challenge facing our nation: reining in the out-of-control federal spending that threatens to permanently alter our economy and dim the prospects and opportunities of future generations of Americans.”

McConnell said the debate on taxes “is over. Now the conversation turns to cutting spending on the government programs that are the real source of the nation’s fiscal imbalance. And the upcoming debate on the debt limit is the perfect time to have that discussion.

“The president may not want to have a fight about government spending over the next few months, but it’s the fight he is going to have.”

Republican Senator Bob Corker (Tenn.) said in an appearance on CNBC:

“I am livid…When you’re trying to save our nation, you have to use your head, not heart. The president is a spendaholic…This whole deal is like eating a you know what sandwich.

“Washington is hurting our economy…the next part is about one thing…entitlement reform…And to the business community, don’t be a lackey to the president as so many were this go around.”

I just received my copy of the Jan. 5th-11th issue of The Economist and the cover story is titled:

“America turns European: A broken system, a lousy deal and no end in sight…”

There’s a picture of President Obama, looking very French-like, too. An accompanying editorial reads in part:

“For the past three years America’s leaders have looked on Europe’s management of the euro crisis with barely disguised contempt. In the White House and on Capitol Hill there has been incredulity that Europe’s politicians could be so incompetent at handling an economic problem; so addicted to last-minute, short-term fixes; and so incapable of agreeing on a long-term strategy for the single currency.

“Those criticisms were all valid, but now those who made them should take the planks from their own eyes. America’s economy may not be in as bad a state as Europe’s, but the failures of its politicians – epitomized by this week’s 11th-hour deal to avoid the calamity of the ‘fiscal cliff’ – suggest that Washington’s pattern of dysfunction is disturbingly similar to the eurozone’s in three depressing ways.

“The first is the inability to get beyond patching up. The euro crisis deepened because Europe’s politicians serially failed to solve the single currency’s structural weaknesses, resorting instead to a succession of temporary fixes, usually negotiated well after midnight. America’s problems are different. Rather than facing an imminent debt crisis, as many European countries do, it needs to deal with the huge long-term gap between tax revenue and spending promises, particularly on health care, while not squeezing the economy too much in the short term. But its politicians now show themselves similarly addicted to kicking the can down the road at the last minute….

“(It) did nothing to control the unsustainable path of ‘entitlement’ spending on pensions and health care (the latter is on track to double as a share of GDP over the next 25 years); nothing to rationalize America’s hideously complex and distorting tax code, which includes more than $1 trillion of deductions; and virtually nothing to close America’s big structural budget deficit….

“The third parallel is that politicians have failed to be honest with voters. Just as Chancellor Angela Merkel and President Francois Hollande have avoided coming clean to the Germans and the French about what it will take to save the single currency, so neither Mr. Obama nor the Republican leaders have been brave enough to tell Americans what it will really take to fix the fiscal mess….

“The saddest thing about this week’s deal is how unaware Messrs. Obama and Boehner seem to be of the wider damage their petty partisanship is doing to their country. National security is not just about the number of tanks or rockets you have. As it has failed to deal with the single currency, Europe’s standing has crumbled in the world.  Why should developing countries trust American leadership, when it seems incapable of solving anything at home? And while the West’s foremost democracy stays paralyzed, China is making decisions and forging ahead.

“This week Mr. Obama boasted that he had fulfilled his mandate by raising taxes on the rich. In fact, by failing once again to clear up America’s fundamental fiscal trouble, he and Republican leaders are building Brussels on the Potomac.”

“Ultimately, we should blame the American voters. The average Medicare couple pays $109,000 into the program and gets $343,000 in benefits out, according to the Urban Institute. This is $234,000 in free money. Many voters have decided they like spending a lot on themselves and pushing costs onto their children and grandchildren. They have decided they like borrowing up to $1 trillion a year for tax credits, disability payments, defense contracts and the rest.   They have found that the original Keynesian rationale for these deficits provides a perfect cover for permanent deficit-living. They have made it clear that they will destroy any politician who tries to stop them from cost-shifting in this way.

“Most members of Congress are responding efficiently to the popular will. A large number of reactionary Democrats reject any measure to touch Medicare or other entitlement programs. A large number of impotent Republicans talk about reducing the debt, but are incapable of forging a deal that balances tax increases with spending cuts.

“The events of the past few weeks demonstrate that these political pressures overwhelm the few realists looking for a more ambitious bargain. The country either doesn’t know or doesn’t care about the burdens we are placing on our children. No coalition of leaders has successfully confronted the voters, and made them heedful of the ruin they are bringing upon the nation.”

Further opinion on the looming debt ceiling, the fiscal cliff negotiations, and entitlements:

“The ‘fiscal cliff’ is a massive failure of presidential leadership. The tedious and technical negotiations are but a subplot in a larger drama. Government can no longer fulfill all the promises it has made to various constituencies. Some promises will be reduced or disavowed. Which ones? Why? Only the president can pose these questions in a way that starts a national conversation over the choices to be made, but doing so requires the president to tell people things they don’t want to hear. That’s his job: to help Americans face unavoidable, if unpleasant, realities. Barack Obama has refused to play this role.

“Instead, he has cast the long-term budget problem as a question on whether the richest 1 percent or 2 percent of the population should pay more in taxes. Not only that, but he has insisted that the higher taxes be paid by raising rates, as opposed to reducing various tax breaks (deductions, exemptions, preferential rates) enjoyed heavily by upscale Americans. The obsession with rates is bad policy (higher rates may threaten risk-taking, work effort and hiring) but qualifies as good politics: It signals Obama is macho; he’s tough on the rich, who are implicitly blamed for the nation’s budget and economic woes.

“Whatever one thinks about raising taxes at the top (and I have no objection to it as part of the comprehensive budget package), it’s not the crux of the problem. The crux of our problem – the problem being the bipartisan and untenable promises made to most Americans of both high government benefits and low taxes – arises from an aging population and high health costs, which cause rapid increases in spending on Social Security, Medicare and Medicaid. In 2012, (these three) accounted for 44 percent of non-interest federal spending. As for taxes, the richest 5 percent paid almost 40 percent of federal taxes in 2009 (and within that, the richest 1 percent paid 22 percent of taxes).

“The nonpartisan Congressional Budget Office puts it this way:

“ ‘With the population aging and health care costs per person likely to keep growing faster than the economy, the United States cannot sustain the federal spending programs that are now in place with the federal taxes (as a share of GDP) that it has been accustomed to paying.’….

“Obama’s abdication of responsibility may be in his political self-interest, but it is profoundly hostile to the national interest.”

David Brooks / New York Times…on “Meet the Press”

“Well, first, let’s say what’s happening in Washington right now is pathetic. When you think about what the revolutionary generation did, what the Civil War generation did, what the World War II generation did, we’re asking not to bankrupt our children and we’ve got a shambolic, dysfunctional process. Now I think most of the blame still has to go to the Republicans. They’ve had a brain freeze since the election. They have no strategy. They don’t know what they want. And they haven’t decided what they want. But if I had to fault President Obama, I would say that sometimes he governs like a visitor from a morally superior civilization. He comes in here and he’ll talk with Boehner, but he won’t talk with the other Republicans. He hasn’t built the trust. Boehner actually made a pretty serious concession, 800 billion dollars in tax revenues, probably willing to go up on rates. But the trust wasn’t there to get that done. And if the president wants to get stuff done over the next four years, it’s got to be a lot more than making the intellectual concessions. It’s got to get to the place where Republicans say, okay, we’ll take a risk. This guy won’t screw us.”

“Connoisseurs of democratic decadence can savor a variety of contemporary dystopias. Because familiarity breeds banality, Greece has become a boring horror. Japan, however, in its second generation of stagnation is fascinating. Once, Japan bestrode the world, jauntily buying Rockefeller Center and Pebble Beach. Now Japanese buy more adult diapers than those for infants.

“America has its lowest birth rate since at least 1920 – family formation and workforce participation (which hit a 30-year low last year) have declined in tandem. But it has an energy surplus, the government-produced overhang of housing inventory is shrinking and the average age of Americans’ cars is an astonishing 10.8 years. Such promising economic indicators, however, mask the country’s democratic decadence, as explained by the Hudson Institute’s Christopher DeMuth in the Dec. 24 Weekly Standard:

“Deficit spending once was largely for investments – building infrastructure, winning wars – which benefited future generations, so government borrowing appropriately shared the burden with those generations. Now, however, continuous borrowing burdens future generations in order to finance current consumption. Today’s policy, says DeMuth, erases ‘the distinction between investing for the future and borrowing from the future.’…

“As economists Glenn Hubbard and Tim Kane explain in National Affairs quarterly, the U.S. political system ‘cannot govern the entitlement state’ that ‘exists largely to provide material benefits to individuals.’ Piling up unsustainable entitlement promises – particularly, enactment of Medicare in 1965 and the enrichment of Social Security benefits in 1972 – has been improvident for the nation but rational for the political class. The promised expenditures, far in excess of revenue, would come due ‘beyond the horizon of political consequences.’

“ ‘Our politicians,’ say Hubbard and Kane, ‘are acting rationally’ but ‘politically rational behavior is now fiscally perverse.’ Both parties are responding to powerful electoral incentives to neither raise taxes nor cut spending. Hence, ‘the clash over raising the debt limit that gripped Washington during the summer of 2011 was just the beginning, not the end, of our fiscal woes.’”

“Mr. Obama has said consistently he will not negotiate with the Republicans over the debt ceiling. But it is difficult to see how he will be able to delink his request for a debt-ceiling increase from the parallel negotiations over the sequester. Republicans are demanding a dollar in spending cuts for every dollar they approve in higher borrowing limits. Mr. Obama insists that any spending cuts must be matched equally by new taxes. Quite how, or whether, these divisions can be reconciled in time to avert a technical sovereign default is worryingly unclear.”

Kimberley A. Strassel / Wall Street Journal

“On to Round Two, which will center on the debt ceiling due to hit in February.  Republicans are convinced they can win this one. Their thinking? The president can’t use the threat of higher middle-class taxes to force the GOP to yield. Without the middle class as a hostage in the negotiations, they believe, the debt-ceiling debate will be entirely on spending and Mr. Obama’s failure to confront the nation’s $16 trillion debt.

“The White House feels this keenly, as exhibited by the ferocious threats the president leveled in the aftermath of his tax-increase victory….

“In the abstract, the debt ceiling is a powerful tool for forcing the president to give in to spending cuts. The Obama Treasury can’t pay the bills without say-so from the Republican House, so the House holds all the cards.

“In the non-abstract, failure to raise government borrowing limits means U.S. default – and with it potential credit downgrades, market panic and resulting economic distress. Is the GOP willing to inflict that on the economy? If Republican members instead run for cover, as they did with the cliff, the GOP will have been exposed as bluffers, and the administration will never again have to fear the debt ceiling. Republicans have to consider if they are willing to take that risk….

“Throughout the fiscal-cliff negotiations, the Republicans kept thinking Mr. Obama would sign on to entitlement reform, giving both parties political cover. In this vain hope, the GOP shrunk from laying out its specific demands on Medicare, Social Security and Medicaid.

“President Obama didn’t bite, and he won’t in the future. The GOP must know by now that the president’s only goal is to water down any reform proposals. So their only chance of making a dent in the debt is to begin bold….

“If they can’t face the demagoguery that Democrats will use against them for making substantive proposals on entitlements, then they have already resigned themselves to piddling spending cuts that only nibble around the entitlement edges. Is that worth an epic showdown?”

“We’re all talking about Republicans on the Hill and their manifold failures. So here are some things President Obama didn’t do during the fiscal cliff impasse and some conjecture as to why.

“He won but he did not triumph. His victory didn’t resolve or ease anything and heralds nothing but more congressional war to come.

“He did not unveil, argue for or put on the table the outlines of a grand bargain. That is, he put no force behind solutions to the actual crisis facing our country, which is the hemorrhagic spending that threatens our future. Progress there – even just a little – would have heartened almost everyone. The president won on tax hikes, but that was an emotional, symbolic and ideological victory, not a substantive one. The higher rates will do almost nothing to ease the debt or deficits.

“He didn’t try to exercise dominance over his party. This is a largely forgotten part of past presidential negotiations: You not only have to bring in the idiots on the other side, you have to corral and control your own idiots.

“He didn’t deepen any relationships or begin any potential alliances with Republicans, who still, actually, hold the House. The old animosity was aggravated. Some Republicans were mildly hopeful a second term might moderate those presidential attitudes that didn’t quite work the first time, such as holding himself aloof from the position and predicaments of those who oppose him, while betraying an air of disdain for their arguments. He is not quick to assume good faith. Some thought his election victory might liberate him, make his approach more expansive. That didn’t happen….

“Right up to the end he taunted the Republicans in Congress: They have a problem saying yes to him, normal folks try to sit down and work it out, not everyone gets everything they want….

“Serious men don’t taunt. And they don’t farm the job of negotiating out to the vice president because no one can get anything done with the president. Some Republican said, ‘He couldn’t negotiate his way out of a paper bag.’ But - isn’t this clear by now? – not negotiating is his way of negotiating. And it kind of worked. So expect more….

“This, however, is true: The great presidents are always in the end uniters, not dividers. They keep it together and keep it going. And people remember them fondly for that.

“In the short term, Mr. Obama has won. The Republicans look bad. John Boehner looks bad, though to many in Washington he’s a sympathetic figure because they know how much he wanted a historic agreement on the great issue of his time….Mr. Obama couldn’t even make a deal with a man like that, even when it would have made the president look good.”

Charles Krauthammer / Washington Post

“The rout was complete, the retreat disorderly. President Obama got his tax hikes – naked of spending cuts – passed by the ostensibly Republican House of Representatives. After which, you might expect him to pivot to his self-proclaimed ‘principle’ of fiscal ‘balance’ by taking the lead on reducing spending. ‘Why,’ asked The Post on the eve of the final fiscal-cliff agreement, ‘is the nation’s leader not embracing and then explaining the balanced reforms the nation needs?’

“Because he has no interest in them. He’s a visionary, not an accountant. Sure, he’ll pretend to care about deficits, especially while running for reelection. But now that he’s past the post, he’s free to be himself – a committed big-government social democrat.

“As he showed in his two speeches this week. After perfunctory nods to debt and spending reduction, he waxed enthusiastic about continued ‘investments’ – i.e., spending – on education, research, roads and bridges, green energy, etc.

“Having promised more government, he then promised more taxes – on ‘millionaires’ and ‘companies with a lot of lobbyists,’ of course. It was a bold affirmation of pre-Clintonian tax-and-spend liberalism….

“(Obama) has deftly leveraged his class-war-themed election victory (a) to secure a source of funding (albeit still small) for the bloated welfare state, (b) to carry out an admirably candid bit of income redistribution and (c) to fracture the one remaining institutional obstacle to the rest of his ideological agenda.

“Unfortunately, Obama has been playing a waiting game on fiscal issues ever since he became president. He didn’t formulate a plan for long-term solvency partly because he didn’t want to give up the political weapon of Social Security before the 2012 election; he didn’t fully embrace the Simpson-Bowles deficit-reduction plan for the same reason. ‘Too early,’ said his aides. He didn’t talk honestly about the deficit problem during the campaign, either. And although Obama finally offered in last month’s discussions with Boehner to revise the cost-of-living adjustment to Social Security, he retreated after the Plan B debacle….

“It’s depressing that after four years of gridlock, a president who won what was supposed to be a decisive election is back once again to the politics of gridlock. That’s bad for Obama but worse for the country.”

“Mr. Obama…is strikingly un-conciliatory. While his aides negotiated in recent weeks, he attacked Republicans in stump speeches – well after the end of his election campaign. He dismissed their pleas for spending cuts and claimed that their chief interest was in helping the rich avoid higher taxes. With the talks at a critical stage last weekend, he staged a White House event at which he mocked Republicans for thinking he might forgo additional tax increases for millionaires and ‘companies with a lot of lobbyists’ in 2013.

“Having failed to cultivate Republican allies in Congress, Mr. Obama finds himself without any, even among GOP senators with whom he had friendly relations as a senator from 2004 to 2008. Now Republicans regard him as partisan in the extreme…

“This is a bigger problem than Mr. Obama may imagine. The most important issues – the debt ceiling, entitlement reform, tax reform, government spending, the $110 billion sequester – now must be dealt with in an atmosphere that is hardly conducive to bipartisanship and compromise.

“The essence of bipartisan deals is win-win: Both sides are satisfied, even if not elated. Mr. Obama’s approach is that he alone gets to win. The approach worked, more or less, on the fiscal-cliff deal, but it won’t produce the larger bipartisan agreements that Mr. Obama now needs. And he’ll miss the opportunities that other presidents seized, to their own benefit and the country’s.”

In her New Year’s address, German Chancellor Angela Merkel said “The crisis is far from over,” which contradicted an earlier remark by her finance minister Wolfgang Schauble who had said the worst is over (to which I replied in last week’s column… “What a stupid statement.”).

Merkel added: “I know that many people are naturally concerned going into the new year. And the economic environment will not in fact be easier but rather more difficult next year.”

Much was made this week of the purchasing managers indexes for both manufacturing and services (as well as a composite of the two). As in some were heartened by the data, but what did it really show?

A eurozone composite came in at 47.2 in December vs. 46.5 in November, the highest level since March, but still well below the 50 dividing line between growth and contraction. Yes, the services PMI rose to 47.8 from 46.7 in November for the eurozone, but on the manufacturing side, the PMI fell to 46.1 from 46.2 and here’s the skinny on some specific countries.

Germany’s manufacturing PMI fell to 46.0 for December vs. 46.8 in November.

France’s PMI fell for the 10th consecutive month to 44.1.

Spain’s fell a 20th consecutive month to 44.6.

For 2013, the European Central Bank is still projecting that GDP for the eurozone will contract 0.3%, hardly the stuff of recovery.

And back to Spain, there was a distressing piece in Friday’s Wall Street Journal on how 90% of Spain’s $85 billion national pension fund, their Social Security Reserve Fund, has been invested in Spanish debt and the government has been secretly withdrawing cash for emergency payments. Plus Spain is issuing 207 billion euro in debt in 2013, so who is going to buy it? I’ve been saying for years and years that Spain is a rat hole. And with regards to the pension plan, it’s clear their Ponzi scheme is going to end very, very badly.

Another item to watch, shorter term, is Italy’s election scheduled for Feb. 24-25, which promises to be most chaotic. Now caretaker Prime Minister Mario Monti’s search for a strong coalition isn’t going well and while Silvio Berlusconi isn’t doing much better, it certainly seems as if the results will show the four main factions (including the eventual Monti coalition) as dividing up the electorate in roughly four equal pieces. 15% to 30% each. Italy is deep in recession. It needs stability.

James Fontanella-Khan had some telling, and distressing, stats on Europe in a piece for the Financial Times. To wit:

“Between 2007 and 2011, annual investment in the 27 countries of the EU dropped by more than 350 billion euro, vastly outpacing falls in other economic indicators, according to a study published last month by McKinsey, the U.S. consultancy. The decline was 20 times the fall in private consumption, for example, and four times the decline in the overall economy.

“That lost investment means companies in Europe will not generate 543 billion euro in revenues they would otherwise have churned out between 2009 and 2020, the study estimated….

“Hewlett-Packard…has axed 8,000 positions in Europe as part of a restructuring effort. Meanwhile Kimberly-Clark has closed most of its European factories in its efforts to boost profitability.

“Overall, global companies have lost close to $2T as a result of the sovereign debt crisis that has engulfed Europe since 2009, according to data compiled by Grant Thornton, a U.S. consultancy that interviewed more than 12,000 executives in 41 countries….

“The data show that only 3 percent of U.S. executives have increased investment in the eurozone since the crisis began, while 25 percent have boosted spending in emerging markets. Just over half say they have either already started to, or are about to begin, cutting costs by shifting business to emerging markets.

“Shrinking investment in Europe raises the question of whether the continent, which some leaders claim is finally emerging from its financial and sovereign debt crisis, is entering an equally risky economic crisis. So far the bulk of economic suffering has been focused on ‘peripheral’ countries such as Greece and Spain, which have been forced into severe austerity programs.

“But a broader scaling back in foreign investment in Europe could deepen the double-dip recession that appears under way. Foreign direct investment has shrunk at a rate of 10 percent a year since 2008, according to European Central Bank data.”

And in Greece, the Wall Street Journal reported that a scandal in the national tourism agency threatens to bring down the government. Political appointees to the two main parties in the current, fragile coalition government are connected to improper transactions totaling $15.8 million, according to senior officials.

Thomas Veremis, a professor of political history at the University of Athens, told the Journal:

“If this proves to be a big scandal, all hell will break loose. I have no doubt this may even cause the fall of the government. Public opinion is looking for blood and rightly so. So the government cannot afford not to do something. It had better do so, otherwise it could fall.”

Street Bytes

--I have loads of return information for 2012 on my “Wall Street History” link, but for these purposes here are a few data points.

Dow Jones +7.3%
S&P 500 +13.4%
Nasdaq +15.9%

Japan (Nikkei) +22.9% (much of it the last few weeks)
U.K. (FTSE) +5.8%
Germany (DAX) +29.1%

As for the chaotic, hectic, holiday-shortened week, what a stretch it was as the S&P 500 finished up 4.6% for its best week since Dec. 2011, as was also the case for the Dow Jones, up 3.8%, and Nasdaq, up 4.8%. The S&P hit a 5-year high as well, at 1466 the best level since 12/31/07, or before the financial crisis.

There was some economic news this week and what helped on Friday, despite a prior day’s warning from the Fed that I’ll discuss in a bit, was an OK employment report for December, with 155,000 jobs being created, essentially as expected, though the jobless rate ticked up to 7.8%.

In other economic news, the December ISM manufacturing figure for December was 50.7, slightly better than expected, while the services number came in at 56.1, also better than forecast. November construction spending was down 0.3%, worse than expected, as was the figure for November factory orders, unchanged.

Preliminary figures for the holiday shopping season (November/December) are rolling in with ShopperTrak saying they were up 2.5%, while 20 major retailers reported same-store sales for December came in up 4.5% on average. ComScore said online sales rose 14%.

But now earnings season starts as we catch a break with Congress, seeing as they aren’t likely to do anything on the three looming issues until February. Fourth-quarter earnings on the S&P 500 are projected to increase 1.2%.

1/4/13

6-mo. 0.11% 2-yr. 0.26% 10-yr. 1.90% 30-yr. 3.09%

The Federal Reserve issued its minutes from the Open Market Committee’s Dec. 11-12 meeting Thursday afternoon and it was a mini-bombshell in terms of the long end of the yield curve.

“A few members expressed the view that ongoing asset purchases would likely be warranted until about the end of 2013,” some gave no time frame, but, “Several others thought it would probably be appropriate to slow or stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet.”

Policy makers in December announced they were expanding their latest round of bond-buying, so-called quantitative easing, with the Fed saying it would be purchasing $45 billion a month of Treasuries in addition to $40 billion a month of mortgage-debt purchases (begun in September), which would expand the Fed’s balance sheet by $1 trillion a year.

Well, the balance sheet stands at $3 trillion today and clearly talk of $4 trillion+ is a bit disconcerting to some at the Fed and if the jobs outlook improves much this year, you can be sure the Fed will cut back or outright stop purchases. So that impacts the long end of the yield curve, the support to housing and low mortgage rates, and you saw the reaction in the bond market as the 10-year rose from 1.76% on Wednesday to 1.96% before backing off by the close on Friday to 1.90%. [Up 20 basis points on the week. The 30-yr. was up 22 bps.]

As for Fed policy and interest rates, Ben Bernanke and his band of merry pranksters also said in December they will keep them at zero “at least as long” as unemployment remains above 6.5% and inflation is projected to be no more than 2.5%. Previously it had said it would continue to screw savers until at least the middle of 2015.

--Treasury Secretary Timothy Geithner has vowed to leave end of the month, before the debt ceiling issue is resolved, and the rumor is Jack Lew is replacing him. Should President Obama tab the guy, it’s an awful choice.

--Chief Justice John Roberts Jr., as part of his yearend report on the federal judiciary, said:

“Our country faces new challenges, including the much-publicized ‘fiscal cliff’ and the longer-term problem of a truly extravagant and burgeoning national debt. No one seriously doubts that the country’s fiscal ledger has gone awry. The public properly looks to its elected officials to craft a solution.”

--China…HSBC’s Dec. PMI for manufacturing came in at 51.5, while the government’s number was 50.6. The former is weighted to the private sector, the latter government, but both were decent and continue a positive trend. The government’s reading on the service economy for December, 56.1, was the best in four months. [HSBC’s reading on the service sector was 51.7.]

HSBC expects fourth quarter GDP to come in at 8.0% after 7.4% in Q3. GDP is reported on Jan. 18 and will be big.

Sales of Ferraris in Italy fell 56% last year, while those at Maserati slumped 72%. Both are owned by Fiat. Around the world, however, Ferrari sales appear to be up with final figures not yet released for 2012. 

[Italy’s car registrations are back to 1979 levels. Good lord!]

Portugal is enacting massive tax hikes this year as part of their austerity efforts amid rising protests as the country will suffer through a third year of recession. Income taxes are going up  30%, plus an extraordinary tax of 3.5% is being levied on all receiving more than the minimum wage, this as total tax revenue has fallen considerably below target.

Healthcare premiums for many in Ireland are going to rise as much as 50% this year. The Government is initiating plans to charge insurance companies for anyone with health coverage who uses a public hospital as the Department of Health attempts to cut its budget. [It’s complicated, don’t ask.]

French President Francois Hollande vowed to continue squeezing the rich, and maintain his favored 75% top tax rate, even though the constitutional court scrapped the plan. The constitutional watchdog didn’t necessarily reject the rate, but rather the way it would have been applied (75% on annual incomes of more than 1 million euro…$1.3 million) on individuals rather than households, the traditional basis for France’s income-tax code. Hollande vowed to reintroduce the rate as part of its next budget in 2013 in order to conform to the court’s ruling.

While the tax would raise only 210 million euro in an annual budget of about 300 billion, Hollande was calculating the people would be more receptive to unpopular spending cuts once the higher tax rate had been introduced.

Unemployment in Germany rose to 6.7% from 6.5% in December, but this is still historically low.

Unemployment in France was 10.7% in November.

Spain’s largest bank, Santander, is cutting 3,000 jobs.

The UK’s PMI for the service sector came in at 48.9, far worse than expected and the lowest since April 2009, which doesn’t augur well for fourth quarter GDP here.

--Canada’s unemployment rate unexpectedly fell to a four-year low in December, 7.1%. You rock, Canada! And you have better beer than we do!

That’s Canada, where domestic is really premium.

--U.S. auto sales in December were strong, up 9% over last year’s pace. Chrysler’s rose 10%, GM’s 4.9%, Ford’s 1.6%, Toyota’s 9%, and Honda’s 26%, though Nissan’s slipped 1.6%.

For 2013, analysts see a level of 15-15.3 million car and light trucks vs. the 2009 low of 10.4 million, which was a 27-year low at the time. 2012 sales will come in around 14.5 million.

--China is set to produce more cars in 2013, 19.6 million, than Europe, an estimate of 18.3 million, which would be the first time China out-produced Europe, according to the projections of various forecasting groups, as monitored by the Financial Times. The estimate for 2012 is Europe producing 18.9 million to China’s 17.8 million.

Just ten years ago, China was 3.5% of global auto manufacturing. In 2013 it is projected to be  23.8%.

--My favorite China economic indicator, Macau casino revenues, showed they increased a very solid 20% in December to a record $3.5 billion. The estimate was for a 17.5% rise. Middle-class Chinese tourists are helping fuel the growth, which is a good sign. 60% of visitors to Macau come from the mainland.

--HSBC’s reading on manufacturing for some Asian nations, the PMI:

South Korea 50.1 (best since May)
Taiwan 50.6 (up)
India 54.7 (up)

--South Korea’s birth rate was just 1.2 children per woman in 2010, as released this week, and even China, with its long-established one-child policy, had a rate of 1.6 (2.1 being the replacement rate).

Coupled with Japan’s announcement this week that its population declined by a record 212,000 last year, the demographics and future pension liabilities for some nations in the region are headed towards a cataclysmic collision. Granted, some of us will be long gone, but as the Organization for Economic Cooperation and Development noted, the ratio of workers to elderly people in South Korea is slated to fall from 4.5 to 1.2 by 2050.

--Singapore’s GDP grew by an annualized 1.8% in the fourth quarter from the third, this after a 6.3% contraction in the third quarter. Growth for 2012 was 1.2%, down from 4.9% in 2011.

--Australia’s December manufacturing PMI was unchanged at 44.3, not very good, my Aussie friends. In a statement accompanying the survey’s release, the industry group’s CEO said, “Forward orders continue to track weakly suggesting demand has not yet turned the corner.”

--The best performer in the Dow Jones in 2012 was Bank of America, up 108.6%. The two worst were Intel, down 14.9%, and McDonald’s, off 12.1%.

--The Federal Trade Commission ruled that Google, after a nearly two-year investigation, had not violated antitrust statutes in the way it arranges its Web search results; a major victory for Google which still attracts about 70% of all search queries in the U.S. European officials, though, continue to look at the company for anticompetitive practices.

In the ruling the FTC said it had found that Google’s practices improved its search results for the benefit of users and that “any negative impact on actual or perceived competitors was incidental to that purpose.”

--Transocean, the owner of the oil rig implicated in the Deepwater Horizon Gulf oil spill, will plead guilty to violating the Clean Water Act and pay a $1.4 billion fine, the Justice Department announced. Shares of Transocean jumped on the news as the issue is finally resolved and the company can move on.  For the government’s part, the settlement reflects its contention that BP is ultimately responsible for the April 20, 2010 disaster that killed 11 rig workers and resulted in the largest oil spill in U.S. history.

--Not that I am in the least bit surprised, but tourism in Lebanon is plummeting due to the turmoil in Syria. Tourism normally accounts for 22% of GDP. There are simply no foreign tourists in Beirut these days. The only ones shopping are Lebanese and Syrians (who have fled their homeland).

--A central bank survey in Brazil revealed economists are only projecting 1.0% growth for 2012, though the same folks are projecting a rebound to 3.3% this year owing to a ton of stimulus measures recently enacted by the government.

--The CRB index, a broad basket of commodities, fell 7.7% in 2012. 

--In 2009, 140 banks failed in America. In 2010, the total was 157. In 2011, 92. In 2012, the number fell to 51. But as noted by the AP, “In a strong economy, an average of only four or five banks close annually.” Nonetheless, the trend is favorable.

--In the immediate aftermath of Hurricane Sandy, I said that those who lost their boats wouldn’t be so quick to buy another one if they didn’t know where the heck they’d dock it because so many of the docks had been destroyed.

Well, the New York Boat show began this week and Ali Elkin of Crain’s New York Business wrote:

“Boating industry leaders are expecting a higher turnout this year and a boost in regional boat sales following the destruction brought on by the storm….

“ ‘People whose boats were destroyed and got insurance checks will be there looking to buy a new boat,’ said Thom Dammrich, president of the National Marine Manufacturers Association.”

However, Mr. Dammrich admitted it’s too soon to say how sales will actually pan out. Nothing in the article talked about my issue…a lot of these marinas won’t just rebuild. Many of these are family businesses and they could easily walk away.

But if I’m very wrong on this one, I’ll certainly admit it. Let’s see where we are in May and June.

--New York City set a record in 2012 with 52 million tourists, eclipsing the 50.9 million record from 2011.

--Former Vice President Al Gore sold his sickly Current TV to Al Jazeera for $500 million, making a reported $100 million himself. Whatever…never even thought about Current TV and while Al Jazeera has done some good work on the Middle East crisis, I doubt many cable outlets will include it in their lineups, as Time Warner has apparently already decided not to.

--Inflation Alert: A Bluefin tuna has sold for a record $1.76 million at a Tokyo auction, nearly three times the previous high set last year. Actually, I saw a photo of the magnificent monster and it’s kind of sad. We’ve overfished the hell out of this species, which is why a whopper fetches such a huge price. Then again, you should have learned by now that when you order sushi, it’s not tuna…it’s Morningstar Farms fake fishmeal.

Foreign Affairs

Syria: A new report from the UN’s High Commission for Human Rights has upped the death toll in the 22-month civil war to over 60,000. High Commissioner Navi Pillay said, “The failure of the international community, in particular the Security Council, to take concrete actions to stop the blood-letting, shames us all. Collectively, we have fiddled at the edges while Syria burns.”

Last Saturday alone, 400+ were killed, with reports saying 200 were executed in a town outside Homs by Syrian army forces. On Wednesday, a regime airstrike on a gas station in a Damascus suburb, with hundreds lined up for fuel, killed dozens. The UN says 5,000 a month are now dying in the war and it estimates that as the intensity of the fighting picks up even further, 100,000 may be killed here in 2013.

Jamie M. Fly of the Foreign Policy Initiative wrote in a Journal op-ed, with respect to Syria’s chemical weapons:

“The Obama administration, failing to learn the lessons of Libya, is reportedly planning for a light-footprint approach in Syria should the Assad regime fall. Options include relying on small teams of Special Operations Forces, thousands of Jordanian soldiers, or contractor-trained rebel forces to secure the chemical-weapons sites.

“Large-scale transportation of Syria’s stockpile will be difficult and on-site destruction will take time, likely years. Relying on a ragtag, outsourced force for security over a long period of time would be the height of wishful thinking.

“If Mr. Obama is serious about ensuring that terrorists don’t get their hands on weapons that could be used against American interests or personnel in the region or even on the U.S. homeland, the only solution is early and sustained planning to stabilize a post-Assad Syria.

“Veiled threats against the Assad regime – after nearly two years of benign neglect toward the chaos in Syria – won’t be enough to protect Americans and our allies. And they certainly won’t help Syrians rid themselves of Bashar Assad.”

John McCain, Joseph I. Lieberman and Lindsey O. Graham / Washington Post

“The United States must rally our allies to channel assistance to the newly established Syrian opposition council for distribution in the rebel-held areas. We must provide weapons and other lethal assistance to the opposition military command. And we must impose a no-fly zone in some areas of Syria, to include using the U.S. Patriot missile batteries en route to Turkey, to protect people in northern Syria from Assad’s aerial attacks.

“If we remain on the current course, future historians are likely to record the slaughter of innocent Syrians, and the resulting harm done to America’s national interests and moral standing, as a shameful failure of U.S. leadership and one of the darker chapters in our history. That should unsettle us all as we pray for peace and goodwill this holiday season.”

Alas, sometimes I think you can count on one hand the number of folks in America who truly understand the importance of this conflict.

Israel: When Israeli Prime Minister Netanyahu called for an early election, at the time he was expecting clear sailing, but suddenly his Likud/Yisrael Beytenu coalition that in October was projected to win 47 seats out of 120 (with other parties then joining to form the government), would only take 32 seats for the Netanyahu/Avigdor Lieberman joint list, according to a new Jerusalem Post poll. Labor is set to win 17 seats on January 22nd, down from an October projection of 22.

The party that is surging is Bayit Yehudi (the Jewish Home Party), led by Naftali Bennet, now forecast for 16 seats vs. 9 in October. Bennet has made headlines by saying that as a reserve soldier in the Israeli army, he would refuse an order to evacuate a Jewish settlement. Bennet’s image as a “clean outsider” and straight talker is winning over many young voters who view him as the alternative to the old guard.

So Netanyahu has responded to the challenge by hardening his support for the settler movement. The prime minister does not want to bring Bennet into his coalition but he may be forced to.

Lebanon: Addressing a group in Baalbek, Hizbullah leader Sheikh Nasrallah called on the Lebanese government to do more to find a political solution in Syria.

“Lebanon must exert pressure for a political solution and a political dialogue in Syria. If military operations continue in Syria, it will be a long and bloody battle….

“We should deal with the Syrian refugees with purely humanitarian responsibility, without politicization of the issue.”

Of course Nasrallah has fighters who have crossed the border to aid the Bashar Assad regime.

From a piece in the Daily Star by Mirella Hodeib:

“In 2013, Lebanon will, more than ever before, be affected by the crisis raging next door, as the prolongation of the battles or, conversely, a deal to end the conflict will have a direct impact on the country, analysts said this week.

“Also, a series of tough challenges including, but not limited to, legislative elections, the rising tide of fundamentalism, slow economy, and Hizbullah’s tug of war with Israel are likely to shake the fragile truce the country enjoyed in the past year.

“ ‘2013 is the year of all dangers for Lebanon. It is an old cliché to say that Lebanon is ‘dancing on a volcano’ but this cliché has never been so true,’ says Karim Bitar, a senior fellow at the Paris think tank Institute for International and Strategic Relations. ‘The country will face several simultaneous challenges and one taken alone has the potential to destabilize the country.’”

The biggest immediate flashpoint is Tripoli, where Sunni-Alawite tensions have boiled over the past year, leading to major gun battles, but which could grow far more.

Legislative elections are currently slated for June as well.

Egypt: President Mohamed Morsi warned that the nation’s entire efforts need to be focused on “production, work, seriousness and effort” now that a new constitution has been adopted.

But then the central bank said foreign currency reserves are at a “critical” level. This place is an unmitigated disaster.

Yemen: The Times of London reported that Saudi Arabia has been providing fighter jets to the war against al-Qaeda in Yemen, teaming up with the United States. “Covert airstrikes against Yemeni targets outnumbered those in Pakistan for the first time last year.”

The Times “has learnt that up to 228 people were killed last year by covert attacks in Yemen, including Saudi air strikes. ‘Some of the so-called drone missions are actually Saudi Air Force missions,’ a U.S. intelligence official said.”

Additionally, “Legal issues arising from the arrest of enemy combatants intended for trial in the U.S., detention at Guantanamo Bay or local prosecution have become so onerous that the Pentagon has recast its orders. ‘There is no kill or capture anymore. It’s kill or kill,’ a U.S. official said.”

Venezuela: It’s a tension convention here these days with the countdown to the January 10 presidential inauguration for Hugo Chavez’s fourth term. By all accounts, he will not make it in person (heck, he could be dead by then), as he suffers complications from his fourth cancer surgery in 18 months in Cuba.

If Chavez cannot attend and does not step down, you have a constitutional crisis. If the national assembly president rules that the absence is permanent, elections must be held within 30 days. But some officials say Chavez can take his oath before the Supreme Court at an undesignated time, and that the location is flexible.

The national assembly president, Diosdado Cabello, is the main rival to Vice President Nicolas Maduro, but Cabello, who stands for election in the assembly today, Jan. 5, becomes temporary head of state until elections are held. 

Chavez was last seen in public in Cuba on December 10.

Pakistan: The Taliban continue to pick off aid workers, killing seven, as part of their campaign against vaccination programs. And the Taliban executed 21 tribal policemen in the troubled northwest.

Afghanistan: U.S. troop deaths declined in 2012 to 295 from 404 in 2011. A total of 394 foreign troops, including Americans, were killed last year, down from 543 in 2011. The British lost 43.

Deaths from so-called insider attacks hit 61 last year, compared with 35 in 2011.

North Korea: Kim Jong Un, in a New Year’s address, called for warmer relations with South Korea, which was immediately met with skepticism since it hardly seems as if Kim will shut down the missile and nuclear arms programs.

Kim delivered the first television address on New Year’s in more than two decades, as Kim Jong-il used to just release a statement through the official news agency. Kim Jong Un did not mention the United States by name.

Japan: New Prime Minister Shinzo Abe is threatening to retract an apology made by Japan in 1995 for the suffering caused by World War II, which would only inflame anti-Japanese sentiment in China and Korea. For instance Abe has denied the “comfort women” who serviced Japanese troops during the war were forced into sexual servitude, a topic that infuriates South Koreans, who now, ironically, have their first woman president, thus setting up an interesting dynamic; cooperation needed between Japan and South Korea in combating China’s growing influence.

Haiti: A new State Department travel warning for this hellhole reads as follows:

“U.S. citizens have been victims of violent crime, including murder and kidnapping, predominantly in the Port-au-Prince area. No one is safe from kidnapping, regardless of occupation, nationality, race, gender or age.”

Last year at least two U.S. citizens were shot and killed in robbery attempts and kidnapping incidents.

Next time a hurricane blows through, see how many aid workers show up…try close to zero.

I wrote in this site after the 2010 earthquake there that I would never give one cent to any charity supporting Haiti. One of the few smart decisions I’ve made the last few years, wrote the editor mischievously. 

--The official presidential election totals are in. Obama took 51.1% to Mitt Romney’s 47.2%, according to data compiled by Bloomberg. The president won the popular vote in 26 states and the District of Columbia, Romney won in 24 states. Obama’s national vote total fell by about 3.6 million from 2008, when he won with 52.9%. Turnout last November was 2.2 million less than four years earlier.

Obama’s vote percentage rose in New York to 63.3%, and New Jersey, to 58.3%.

“In just four states – Florida, North Carolina, Ohio and Virginia – was the winning candidate’s margin of victory less than 5 percentage points, the smallest number of states since 1984, when three states were within 5 points amid Reagan’s 18-point victory.”

--Why we hate Congress…the “fiscal cliff” bill was filled with goodies…like $78 million for NASCAR tracks, $62 million for companies operating in American Samoa, $222 million for a rum tax rebate, $222 million in accelerated depreciation for businesses located on Indian reservations, and the extension of a provision allowing Hollywood to expense the first $15 million of production costs “($20 million if the costs are incurred in economically depressed areas in the United States).” [Wall Street Journal]

--John Podhoretz / New York Post…on the grief faced by John Boehner and Mitch McConnell:

“(You’d think) from the conduct and rhetoric of many conservatives in the House and outside the House and Senate, that Boehner and McConnell had ‘caved’ willingly.

“No, they caved because they had no choice.

“What they did was what leaders do – or rather, what leaders of those who are in a losing position do. The best they could.

“The problem is that conservatives seem to think there were other choices, other ways, other possibilities – when all those choices, ways and possibilities had been exhausted.

“And so many of them are literally embracing chaos. Though they oppose raising taxes, by voting against the tax bill on Tuesday night they effectively voted to raise taxes on 98 percent of Americans….

“Then came talk that Boehner should be fired as speaker of the House when the time came to vote in the new speaker yesterday afternoon. Yet none of the insurgents was brave enough to stand against him; instead, a bunch of them cast nonsense votes for someone else or refused to vote at all.

“In so doing, they came close to handing Boehner a humiliating and entirely destructive defeat – forcing a second ballot and leaving their own party leader critically injured. They seemed to crave disorder.

“This is how people who are more comfortable on the margins than in the middle of things behave. This is cannibalism, not political combat. This is unreason, not reason. This is temper, not temperament.

“This is anarchism, not conservatism.”

--Hillary Clinton is returning to work next week after her medical scare. She said she plans to keep her earlier pledge to testify to House and Senate committees about the attack on the Benghazi compound and I will take her at her word on this.

I do have to say that the one person who has hurt Clinton the most, in my mind, is State Department spokeswoman Victoria Nuland, who whether or not she was parroting Clinton’s requests, gave terrible answers when questioned these past few weeks on the secretary’s medical condition.

“The sentiment that Clinton might not wish to testify on the matter is not without reason. It is hard to imagine the agony of knowing that one’s lack of vigilance may have contributed to four deaths. But the attacks on Clinton during her illness, essentially attacks on her character, have been cruel and unfair. What must the world think of us?

“Clinton, who fainted as a result of dehydration after a bout of flu, hit her head and suffered a concussion, after which a blood clot was discovered. She had to be hospitalized while blood-thinning medications were administered and monitored.

“Although her critics backed off once the clot was reported, initial responses ranged from ‘She’s faking’ to demands for proof of her concussion….

“Clinton may well prefer to miss her day before the firing squad, but it is unlikely that doctors or a hospital would assist a secretary of state – or anyone – in concocting a fake affliction….

“The rush to character assassination seems to be our only bipartisan imperative and is a blight on our political system. In this brooding age of superstition and portent, every misspoken word is a lie, every human error a hanging offense.”

“Head injuries are no joke, but the backlash against those who initially questioned whether Hillary Clinton’s concussion was for real seems like an overreaction, too; you don’t have to be hateful to have wondered if she really had the flu and fell down right before she was supposed to testify about the security situation at our consulate that was really just a house in Benghazi, Libya, where four Americans were killed by terrorists in September.

“After all, public officials are routinely less than forthcoming about their health, even if we do know more now than we did when Edith Wilson was secretly running the country after her husband Woodrow’s stroke, or when the public was protected from the sight of FDR’s wheelchair. Or when John F. Kennedy’s presidential campaign flatly denied perfectly accurate, LBJ-inspired reports that JFK suffered from Addison’s disease….

“I also can’t get too outraged by the early skepticism that Hillary had a blood clot in her brain yet was also doing just great because those two reports don’t seem to mesh. The latter certainly didn’t match the expression of worry on her daughter Chelsea’s face as she left the New York hospital where her mother was admitted on Sunday.

“And finally, it isn’t as though Clinton has never shaded a fact in her 65 years; she’s been rightly hailed for a remarkable tenure as secretary of state, winning over many critics and probably even avoiding more of the blame for Benghazi than she should have. At this point, it’s the Clinton fatigue that many felt at the end of her husband’s presidency that’s fatiguing to recall, and I hope the most admired woman in the world in 2012 does run for president again in 2016.

“But without dragging the ancient White House travel office scandal or the Rose Law Firm into this century, she’s still the same person who repeatedly described being under sniper fire on a runway in Bosnia. During her ’08 campaign, she was eventually forced to apologize for saying, ‘I remember landing under sniper fire,’ in Tuzla back in 1996. ‘There was supposed to be some kind of a greeting ceremony at the airport, but instead we just ran with our heads down to get into the vehicles to get to our base.’ Turns out, that never happened, though the greeting ceremony did….

“Our public officials have trained us to take everything they say with a healthy dose of skepticism, and on a matter as sensitive as a head injury followed by denials of any neurological symptoms, I’m not sure why we would or should unquestioningly accept the word of any politician. After all she’s been accused of – and will be again if she runs next time – this is nothing.”

As to the issue of Benghazi itself, The Senate Homeland Security and Government Affairs Committee’s bipartisan findings ripped the State Department for brushing off repeated requests for more security from U.S. staff in Libya and “flashing red” alerts to the growing terrorist threat there.

Senator Joe Lieberman (now in retirement as of Thursday) said:

“The tragedy is that the reaction to the flashing red indicators was woefully inadequate to the dangers that the flashing light was indicating. And, as a result, this tragedy occurred.”

--Speaking of Joe Lieberman, I always liked the man. He would have been the perfect third party presidential candidate, too. As the New York Post editorialized:

“National politics will certainly be diminished by his absence.

“Because Lieberman embodied a rapidly vanishing breed on Capitol Hill: someone who insisted on putting his beliefs and strongly held positions ahead of political self-interest….

“Lieberman advocated policies – once embodied by the likes of John F. Kennedy, Hubert Humphrey and Henry ‘Scoop’ Jackson – that have all but vanished from the Democratic Party: domestic liberalism coupled with a strong military and an assertive, bipartisan foreign policy.”

--I totally understand why John Boehner held off on the $60 billion in Hurricane Sandy aid because of the optics against a background of the tax-package and the failure to enact spending cuts as part of it. But Boehner, and his staff, obviously did a very poor job of explaining beforehand that he needed to hold off a bit, which would have prevented the New York/New Jersey delegation, let alone Gov. Chris Christie, from going off on both him and the Republican majority.

Everyone, like Congressman Peter King (R-Long Island), to cite just one obvious example, had to get in their shots but it didn’t have to be this way. It was Politics 101, which Republicans do a lousy job of these days.

As for the original $60 billion aid package, now being broken up into three pieces, it is loaded with pork…which is equally pathetic…though that is supposedly being taken out to ensure passage.

That said, the rest of the country, outside my region, really doesn’t have a clue just how much so many people are still suffering ten weeks after the disaster. Many towns are still largely off-limits. 

--Former U.S. Ambassador Ryan Crocker, as respected as they come, issued a ringing endorsement for Chuck Hagel for secretary of defense in a Wall Street Journal op-ed.

“The discussion of former Sen. Chuck Hagel’s possible nomination…continues to swirl. I recently joined with eight other senior former Foreign Service colleagues in an open letter expressing our unqualified support for the idea and for Mr. Hagel as a person of integrity, courage and wisdom….

“It is true that he opposed the Iraq war. My Foreign Service colleagues and I noted with admiration his comment that in a democracy ‘to not question your government is unpatriotic.’ President Obama, on Sunday’s ‘Meet the Press,’ called Mr. Hagel ‘a patriot,’ and I agree.

“With two Purple Hearts from Vietnam, another unpopular war, Mr. Hagel also understands service….

“Mr. Hagel would run the Defense Department; it would not run him. And as America’s wars abroad wind down, it is clear from his record of service to veterans – and his own experience as one of them – that they would receive the support they deserve after they have put their lives on the line for the country.

“The U.S. secretary of defense today is a high-stakes actor in international diplomacy. America is well-served when the Pentagon and State Department work together, as they have since Robert Gates took over the Pentagon in 2006. With Mr. Hagel at Defense and John Kerry at State, America would again benefit from that cooperation. Chuck Hagel would be a great secretary of defense.”

It appears as of this writing that Hagel will be tabbed by President Obama. If so, I agree with the selection.

Gold closed at $1648…$1674 [12/31]
Oil, $93.09…$91.80 [12/31]

Dow Jones +3.8% [13435]
S&P 500 +4.6% [1466]
S&P MidCap +5.1%
Russell 2000 +5.6%
Nasdaq +4.8% [3101]

Dow Jones +2.5%
S&P 500 +2.8%
S&P MidCap +3.5%
Russell 2000 +3.5%
Nasdaq +2.7%

Bulls 47.8
Bears 24.5 [Source: Investors Intelligence]

Check out my “Wall Street History” link for all the 2012 market returns.

“Nightly Review” schedule next week: Monday thru Thursday. Click on link on the home page, or subscribe thru YouTube. Posted by 5:45 PM ET each evening.

Have a great week. Don’t forget the StocksandNews iPad app, perfect for Valentine’s Day.

Brian Trumbore

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