Week in Review

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Week in Review

01/19/2013

For the week 1/14-1/18

Wall Street and Washington

President Obama gives his inaugural address on Monday as Congress returns from recess and retreats. The two face three deadlines: the debt ceiling hitting its limit anytime from mid-February on; the March 1 sequester date for over $100 billion in automatic spending cuts, half of which would come from defense; and the March 27 deadline to fund the government for the remaining six months of the fiscal year through September 30 (better known as the CR, the continuing resolution).

Various polls were released this week, none of which paint Republicans in a good light. Representative of the feeling was a Wall Street Journal/NBC News survey that said more people would blame the GOP if the debt ceiling standoff means the federal government can’t meet its obligations than would blame President Obama and congressional Democrats, 45% to 33%.

But when the question is ‘how should the debt ceiling issue be handled,’ 48% of Republicans in a Washington Post/ABC News poll favor spending cuts tied to an increase in the debt ceiling, while 45% say the two issues should be isolated. 

In the same survey, 58% of the general public sides with the president: spending should be a separate matter, while 36% say the two should be tied. And 49% say they have more confidence in the president to handle the issue, compared with just 35% who have more faith in the GOP.

But back to the WSJ/NBC poll, only 34% said they expected 2013 to be a “time of economic expansion” for their families; 60% said they saw the coming year as “a time to hold back and save, because harder times are ahead.”

Personally, I decided the last few weeks I wanted the Republicans to move away from taking a hard line on the debt ceiling to make their stand on the sequester and/or the CR. Many leading Republicans feel the same way now, including the influential Koch brothers; the focus should be on spending, not the long-term debt at this moment.

House Republicans on retreat in Williamsburg then decided on Friday that, yes, politically they are in no position to mess with credit ratings, financial market distress and a further withering of their poll numbers so it seems they are going to have a strategy of “No budget, no pay.”

The Republican-controlled House will demand that both the Senate and House come up with budget resolutions by April 15, so that Republicans and Democrats (who control the Senate and haven’t passed a budget in four years) are forced to put their spending plans on the table or the two won’t be paid. At first blush I like the idea. The debt ceiling, in the interim, would be extended for three months. The House would vote on this next week.

Both the White House and Senate Majority Leader Harry Reid said they were encouraged by the Republicans’ proposal.

Meanwhile, as stocks had another up week, the economic news was solid, beginning with a decent retail sales figure for December, better than expected, industrial production for the month that showed a manufacturing component up sharply, strong December housing starts that brought 2012’s pace to the best since 2008, and the lowest figure for weekly jobless claims in five years. The only downer was a poor consumer sentiment reading on Friday for January (the Univ. of Michigan survey).

Earnings have been so-so, but certainly with a few exceptions (like Intel) nothing to give the market a bout of indigestion over. Yes, General Electric was optimistic, and importantly so on China, but the better indicators on earnings come out next week with the likes of Apple, Google and IBM, let alone reports from the all-important manufacturing sector in gauging just how well, or not so well, both China/Asia and Europe are doing.

Speaking of Europe…I just have to lay some stats on you. For the month of November, Eurostats, the European Union’s data arm, said eurozone industrial production fell 0.3% from October, down 3.7% over year ago levels. It was the third straight month of declines even as some economists continue to say the worst is over. Portugal’s industrial production was down 3.4% on a monthly basis, Spain’s down 2.5%, and Italy’s down 1.0%. It was up 0.1% in Germany and up 0.5% in France.

Then there are auto sales. Demand for new cars in the EU fell to the lowest level in 17 years, down 8.2% in 2012 (after a 16% fall in December), and set to drop further in 2013. 

Now a declining population in the wealthier countries in Europe isn’t helping, plus cars are just better made these days and Europe has a relatively young fleet, 8.4 years old vs. 11 years in the U.S. (which bodes well for our auto industry).

Of course the European auto sector now has major overcapacity issues so you have the likes of Renault this week announcing further job cuts. Renault’s sales in France fell 27% in December, 20% for the year.

Ford’s sales in all of Europe fell 27% in December as well, as did GM’s. So play the number 27 in the lottery.

Bloomberg’s monthly survey of economists has GDP coming in unchanged for the first quarter, before rising…brace yourself…0.1% in the second quarter! Oh baby! But for all of 2013 these economists say the eurozone will decline 0.1%.

In the same survey Italy is projected to keep contracting the first two quarters (Silvio Berlusconi, by the way, is gaining in the polls leading up to the critical Feb. 24-25 election here), while Spain’s economy is expected to contract another 1.5% for the full year.

Speaking of Spain, as noted in a separate report by Bloomberg, the budget deficit is projected to have exceeded 9% for a fourth year in 2012, with the International Monetary Fund estimating total debt will reach 97% of GDP in 2013. As an economist with Societe Generale put it, “This is a classic example of the doom loop. They just aren’t making any progress.”

One example of the failed policies here is the following. Prime Minister Mariano Rajoy introduced tax increases – on income, savings, property, companies, sales, tobacco and fuel – that added 7 billion euros of revenue through November, but the government estimate was for 20 billion. [Ben Sills and Angeline Benoit / Bloomberg]

More broadly speaking, the World Bank released new estimates for the global economy, saying it grew just 2.3% in 2012 and that the WB sees only 2.4% growth in 2013 (then 3.1% in ’14 and 3.3% in ’15).

Developed countries like the U.S., Japan and Germany had growth of only 1.3% in 2012.

The eurozone will continue to contract in 2013, and maybe grow to 1.4% by 2015.

For its part, the German government said it would grow 0.4% in 2013 and then 1.6% in 2014, after just 0.7% growth for all of 2012 (and 3% for 2011). Final 2012 figures in Germany will be released Feb. 14. 

Lastly, yes, I have my doubts that the worst is over in Europe, and, yes, I’m expecting some serious bouts of social unrest before we truly hit bottom. So last weekend the Wall Street Journal had a story on how people in Greece are pillaging the forests for firewood to heat their homes, stripping some areas bare. That’s tragic.

It also reminds me of North Korea, where you can go to the DMZ, peer through the binoculars, and clearly see how the trees across the border, the ones still standing, are totally denuded; the people reduced to eating tree bark. At least the Greeks aren’t doing this yet.

In China, the eagerly awaited report on fourth-quarter GDP was released and it came in at 7.9%, year on year, while for 2012, GDP was up 7.8%, the weakest pace since 1999. This is after a rate of 9.3% in 2011 and years of double-digit growth before then.

But as China’s leadership officially changes over in March, at least in the short-term talk of a hard landing is off the table, with the government likely to target a 7.5% growth rate again for this year, matching their forecast for 2012. [The World Bank projects China will grow 8.4% this year.]

At the same time, China released December figures on industrial production, up 10.3%, retail sales, up 15.2%, and fixed-asset investment, up 20.6%, all slightly above the prior month’s pace or in line with expectations.

This week, however, the likes of UBS and Goldman Sachs questioned some of the Chinese data, specifically trade figures released on Jan. 10, saying that the reported 14% rise in exports just didn’t match their work. As you would imagine the government’s statistics folks defended their work.

But then I just saw that Friday night, Caterpillar Inc. announced it had uncovered a long-running accounting scheme at a Chinese mining equipment company it purchased last year that will result in CAT taking a $580 million charge for the fourth quarter.

Finally, I’ll be watching Monday’s inaugural address to see what President Obama says about American foreign policy, or will he just wait for the State of the Union. Last Monday Obama held another pathetic press conference, with White House reporters not helping matters in failing to bring up the rapidly collapsing situation from Pakistan, literally straight across to Mali. Pakistan, Afghanistan, Iran, Iraq, Syria, Lebanon, Jordan, Gaza, Egypt, Libya, and Mali are either in a state of war, riven with terrorist attacks, have refugee crises threatening the stability of governments, or are actively seeking nuclear weapons, yet our president never has to answer questions on these topics. I guess he’s just going to let John Kerry and Chuck Hagel do his dirty work for him when they go up for their confirmation hearings.

Street Bytes

--Stocks rallied for a third week with the Dow Jones and S&P 500 hitting their highest levels since December 2007, while the small-cap Russell 2000 hit an all-time high. Overall, the Dow rose 1.2% to 13649, while the S&P gained 0.9% and Nasdaq picked up 0.3% to 3134, the latter being hurt by Apple’s $20 decline.

I have some earnings details below but this was the week for financials and Goldman Sachs, JPMorgan Chase and Morgan Stanley came in better than expected, while Citigroup and Bank of America disappointed.

Lastly, a note on the bull/bear sentiment readings I’ve listed at the bottom since I started writing “Week in Review” 14 years ago (and for which I have data going back 23 years). The spread of over 30 between bulls (53.2) and bears (22.3) is traditionally a danger signal. This is a contrarian indicator, just one of many arrows in the quiver, but one that shouldn’t be simply dismissed. Yes, it can stay ‘right’ for a long time but I just point it out.

For example, back on Oct. 9, 2007, both the Dow Jones and S&P 500 hit their all-time highs of 14164 and 1565, respectively. The bull/bear readings for the two weeks surrounding that date were 60.2 / 21.5 and 62.0 / 19.6. You then know what happened from there all the way to March 2009. Yes, these are different times and we’re hardly talking about a housing bubble these days, but you never know what’s lurking around the corner. Certainly another few al-Qaeda type attacks on Middle East oil and gas facilities wouldn’t be helpful for the global economy if it led to a big spike in energy prices. [Plus don’t forget Iran…Israel isn’t…]

--U.S. Treasury Yields

6-mo. 0.10% 2-yr. 0.26% 10-yr. 1.87% 30-yr. 3.03%

December inflation data was released. The producer price index was down 0.2%; ex-food and energy, up 0.1%. For 2012 the PPI was up 1.3% (the lowest since 2008) and the core was up 2.0%. For consumer prices, the CPI was unchanged last month, up 0.1% ex-food and energy, while for 2012 it was up 1.7%, 1.9% on core.

--Foreign net buying of long-term U.S. stocks, bonds and other financial assets totaled $52.3 billion during the month of November, twice as much as forecast after net sales of just $1 billion in October, the Treasury Department announced.

--Boeing’s safety crisis deepened as the Federal Aviation Administration grounded all 787 Dreamliners and regulators worldwide followed suit, the Japanese acting before the FAA move.

The FAA’s action followed a second apparent fire in a battery on an All Nippon Airways 787 that had to make an emergency landing early Wednesday in western Japan.

The FAA said: “The battery failures resulted in release of flammable electrolytes, heat damage, and smoke on two Model 787 aeroplanes. The root cause of these failures is currently under investigation. These conditions, if not corrected, could result in damage to critical systems and structures, and the potential for fire in the electrical compartment.”

At the very worst, Boeing has a flaw in the aircraft’s electrical system that will require a wholesale redesign. At best, it’s a flaw in the manufacturing of the two batteries involved and by Thursday, Boeing seemed convinced it was indeed a manufacturing flaw in the batteries, specifically with a Japanese manufacturer.

--The Tokyo Nikkei index is up a stupendous ten weeks in a row, 24.6%. It all started when it became clear Shinzo Abe would win the recent snap election and that Abe was going to pursue an aggressive monetary policy, pressuring the Bank of Japan in the process, as well as advancing a $100 billion+ stimulus program focusing on infrastructure that, combined, would jumpstart the Japanese economy and hopefully rid Japan of the debilitating effects of decades-long deflation.

Well, it’s worked thus far, at least in terms of stocks. The yen has weakened considerably, thus boosting Japanese exporters, but now the world is beginning to push back. In the U.S., Ford, General Motors and Chrysler are pressuring the Obama administration to do something. The automakers say the undervalued yen is distorting trade and stunting job growth for American manufacturers. Europe also has a huge issue now with the rising euro, to the highest level in 11 months, which is hurting their exports at the worst possible time. 

This is just the beginning of this topic…currency wars. I’ve been careful not to use the term until the appropriate time. That time is now.

--The above noted World Bank update has India growth at 6.1% in 2013 (cut from an earlier forecast of 6.9%), Brazil 3.4% and Mexico 3.3%.

--Back to housing, the December housing starts figure of 954,000 on an annualized basis compares with the peak of the boom, 2.07 million in 2005, and the average 1.74 million from 2000 to 2004.

--China reported foreign direct investment declined in December, 4.5% from a year earlier, the 13th decline in 14 months. But for the full year, inflows were still $111.7 billion.

The thing is China is gradually losing its advantages as a manufacturing destination with labor costs rising.

--China’s Securities Regulatory Commission announced the quota for foreign investments in the mainland’s financial markets could rise by up to 10 times.

--Owing to renewed growth in China, the International Energy Agency boosted its oil demand forecast in 2013 to 90.8 million barrels per day, a 240,000 barrel increase over its previous estimate.

--According to the American Petroleum Institute, daily crude output in the U.S. rose a record 779,000 barrels a day in 2012 from 2011, a 15-year high, as the daily average was 6.4 million bpd. The U.S. Energy Information Agency predicts 2013 will see production rise another 900,000 barrels.

--Goldman Sachs Group saw net income surge 185% from a year earlier to $2.83 billion, with revenue up 53%. Goldman shares surged on the news to the highest level since the second quarter of 2011.

--JPMorgan Chase & Co. CEO Jamie Dimon had his pay cut in half from $23 million to $11.5 million after the board concluded: “Mr. Dimon bears ultimate responsibility for the failures that led to the losses in CIO and has accepted responsibility” for the $6.2 billion loss in the first nine months of 2012 on bets by the London Whale. Dimon has admitted there were “egregious mistakes” in the chief investment office.

--Shares in Morgan Stanley surged on better than expected earnings results but the investment bank garnered a lot of press for its new bonus plan whereby for those due a bonus of over $50,000, payment is deferred over three years.

--Bank of America saw profits fall to $732 million from $2 billion a year earlier after it had to take another hit on its bad mortgage debt, though CEO Brian Moynihan said the bank entered the year “strong and well positioned for further growth.” Whatever.

--Intel announced net income fell 27% to $2.47 billion, though this beat expectations. Revenue fell 3% to $13.5 billion. The chipmaker continues to suffer with the fall in sales of PCs. Intel shares fell on the news. Guidance for the current quarter was weaker than expected.

--According to DataQuick, the median home price in Southern California was up 19.6% in December from a year earlier to $323,000.

--A recruitment firm specializing in the energy sector has said that between 40,000 and 50,000 new jobs could be created just this year in the latest North Sea oil boom. With what happened in Algeria this week, the North Sea becomes even more important.

Incidentally, the firm, Oilandgaspeople.com, said there is a serious skill shortage.

--Despite the above-reported awful car sales in Europe, Volkswagen says its sales hit a record high, 9.07 million, up 11% from 2011. Sales in North America and Asia-Pacific rose 26.2% and 23.3%, respectively, helping to offset a 6.5% drop in Western Europe, ex-Germany where they were up 1.9%.

--Nevada is no longer alone with the nation’s highest unemployment rate. The rate there dropped from 10.8% to 10.2% in December, tied with Rhode Island. North Dakota continues to have the lowest at 3.2%. California was unchanged at 9.8%. And for all the positive talk about Gov. Chris Christie in my state of New Jersey, our unemployment rate is 9.6%.

--AT&T warned it will take a fourth-quarter charge of about $10 billion due to larger than expected pension obligations. Earlier, Verizon warned it will take a fourth-quarter charge of $7 billion related to its pension liabilities.

--Nokia announced it is cutting more jobs in Finland, over 800, as it outsources some of its operations to India. Last year, Nokia announced it would cut 10,000 jobs in its mobile division by the end of this year.

--EBay’s revenues rose 18% in the latest quarter, with its PayPal division seeing a 24% jump in revenue. 

--The day before hedge fund king Bill Ackman announced he was shorting shares in Herbalife in a big way, Dec. 18, calling it a massive Ponzi scheme, the stock closed at $42.50. Shares in Herbalife then proceeded to collapse 40% to $26 on Christmas Eve. It is estimated Ackman’s average price is $50.

But fellow hedge fund operator Dan Loeb placed a bullish bet on Herbalife, with an estimated average price of $32. The shares closed Friday at $43.40.

--China’s population of internet users rose 10% last year to 564 million.

--The 10 biggest U.S. ports handled 2.4% more cargo container traffic in 2012 than in 2011. Los Angeles and Long Beach, the largest, handle 41% of the volume and results for these two were basically unchanged year over year.

--There have been a lot of stories locally on how investment bank Cantor Fitzgerald, which lost 658 of its workers on 9/11, pledged $10 million to the National September 11 Memorial & Museum yet has delivered less than 10% to date. This came to light after Cantor pledged $10 million to New Yorkers who live in neighborhoods decimated by Hurricane Sandy. A spokesman for the company said it fully intends to make good on its promises.

--Australia is burning up, literally. Friday in Sydney was the hottest day on record, 46C, 114! What’s scary to me is that the original forecast called for 102, and then it just kept rising.

--An Australian amateur prospector in the state of Victoria was using a handheld metal detector when he found a gold nugget weighing 177 ounces. Its value has been estimated at $300,000+.

--Speaking of gold, between now and 2020, Germany’s central bank plans to move 54,000 gold bars worth $35 billion from Paris and New York to its base in Frankfurt. The Bundesbank declined to say how it would transport the bullion, or exactly when. It would be interesting to know about the shipments from Paris to Frankfurt, though, which will most likely be by truck. I’d just love to see the security behind the operation. No mysterious reason why Germany is making the move. It just makes sense to keep a large portion of its reserves at home, though the Bundesbank insists it will keep a significant amount in New York.

--Trader George passed along the news that silver eagle coin sales continue to surge, with the U.S. Mint announcing it had sold over 5 million ounces worth in six days. For the month of January, the Mint expects to sell 15 million silver eagles, which would be a record…as in this was the annual sales total as recently as 2007.

Foreign Affairs

Mali: The UN was preparing a military mission in Mali, bordered by Algeria to the north, to confront the Islamist terrorists in the northern part of Mali, who moved in following a power vacuum associated with an April coup in Mali.

But planning for the UN mission was taking forever and it was said an African force wouldn’t be cobbled together until autumn.

So French President Francois Hollande acted Friday, Jan. 11, after the Islamists attacked a town, Konna, with the weak Malian army fleeing. The terrorists, said to number 3,000-4,000, were now in control of an area larger than France.

The capture of Konna unleashed panic, Mali’s president asked France to help and within hours Hollande sent fighter planes, helicopter gunships and hundreds of troops. The advance was stopped.

At the same time, Hollande, recognizing there would be reprisals against seven French being held hostage in various locations across the region, launched a rescue operation to attempt to free a French intelligence officer who had been held in Somalia since 2009. For 3 ½ years the terrorists refused to negotiate. In the ensuing fight with 50 French commandoes, it was reported the hostage was killed, at least one French soldier died (another was reportedly missing) and 17 terrorists were killed.

It was a risk. Some of the headlines screamed it was a “botched” mission, but the French deserve better. The French soldiers were heroes. 

“On the same day President Obama announced he would speed the U.S. exit from Afghanistan starting this spring and turn all combat against the Taliban over to the Afghans, French President Francois Hollande dispatched troops to Mali to help its beleaguered army push Islamic terrorists out of the country’s north.

“ ‘Terrorists’ was Mr. Hollande’s word. As to the commitment, he said, ‘The operation will last as long as needed.’…

“It should be noted that in October 2011 President Obama sent 100 U.S. special forces to help the Central African Republic fend off Joseph Kony’s homicidal Lord’s Resistance Army. But on New Year’s Eve, Mr. Obama ordered the evacuation of Embassy staff from the CAR capital of Bangui because of what he described in a letter to Congress as a ‘deteriorating security situation.’ On Friday, CAR’s president, Francois Bozize, agreed to form a coalition government with the rebel group Seleka, which seized a large section of the country in December.

“It is too soon to know the outcome in Mali. But full credit to the French for intervening on its own and decisively, rather than let a nation besieged by al Qaeda and its affiliates wait for the talking heads at the UN to do more than talk.”

For their part, as the week then wore on the French gradually built their forces in Mali in preparation for combat, while thousands of African soldiers were supposedly on the way to augment a French force that was to build to 2,500 to 3,000. The Islamists issued statements such as, “There are consequences, not only for French hostages, but also for all French citizens wherever they find themselves in the Muslim world. We are going to continue resisting and defend ourselves. We are ready to die fighting.” Another said, France had opened the “gates of hell.”

With a large Muslim population in France, and a significant Malian one, France has indeed put itself at great risk of reprisal attacks. The country is on guard. And by Wednesday, the Islamists launched a counteroffensive after five days of French air strikes.

Early in the week, the United States balked over its support for the French because the rebels don’t pose a direct threat. The White House doesn’t want to be pulled into a new conflict.

Yet the French thought they had our support. Defense Secretary Panetta called French action critical to the war against al-Qaeda, but there was no word on U.S. commitment. One senior White House official told the Journal, “A little time to make the right decisions is warranted. People need to take a breath.”

Take a breath?! If the French hadn’t acted, the Islamists may have overrun the capital by now. And al-Qaeda in the Islamic Magreb (AQIM) would have its safe haven from which to launch attacks elsewhere.

“Administration officials are offering various lousy not-for-attribution excuses. U.S. law bars direct assistance to a government formed by a military coup, as in Mali, but that shouldn’t preclude helping a fellow NATO member. Others say the U.S. shouldn’t get involved because these Islamists aren’t targeting the U.S., but that’s also what everyone said in the 1990s about Afghanistan….

“Despite White House spin that al-Qaeda is defeated, the reality is that it is an evolving threat that reconstitutes itself when and where it can. As al-Qaeda was pushed out of South Asia and Iraq, it found new havens in Yemen and most recently in northern Africa.

“French President Francois Hollande deserves credit for acting against this threat, and the U.S. should give the French whatever support they need to win this fight as quickly as possible.”

Finally, after four days the White House announced it would supply military transport planes to help move French troops and equipment to Mali, though it hasn’t decided on surveillance aircraft. The EU signed off on a 15-month training mission for Malian troops.

Critics inside France say it has opened a new front in the war on terror that it is ill-equipped to face on its own.

Alain Juppe, the former Foreign Minister said: “I fear that we have got ourselves into a spiral that we are going to have a lot of difficulty in mastering. We are facing an extremely high risk and we are alone.”

Former French President Valery Giscard d’Estaing warned Hollande against letting the French intervention evolve into a “neocolonialist” type of action. “France should limit itself strictly to its logistical support to African forces.”

Algeria: “What is happening in Algeria justifies all the more the decision I made in the name of France to intervene in Mali in line with the UN charter.” -- French President Hollande.

From the beginning. Al-Qaeda linked terrorists (the “Masked Brigade”), possibly 20 of them, said to be under the control of Mokhtar Belmokhtar, an Algerian with a long record of kidnappings and murders who reportedly has had a falling out with al-Qaeda proper but nonetheless claims he’s al-Qaeda, attacked a joint BP/Statoil/Algerian state energy company massive gas facility in Amenas, a remote desert location 800 miles from Algiers.

The facility has many foreign workers as well as at least 600 local Algerian ones. The Islamists took a reported 40 or so foreign workers hostage, after an initial attack wherein a British citizen and an Algerian one  were killed. The hostages were said to be from the U.S., Ireland, Britain, Norway, Japan, Austria, Romania, Malaysia, the Philippines and France.

The Algerian army quickly surrounded the site and the Islamists had no escape route. In Rome, Defense Secretary Leon Panetta called it a “terrorist attack.” The Algerians, who have a history of dealing harshly with Islamists, said they would not negotiate with the group. The Masked Brigade said the attack was retribution for France’s actions in Mali.

Some of the hostages got through to various news outlets and said they were being made to wear belts of explosives as a deterrent to a rescue attempt.

Nations such as Britain and France, who have special forces trained for hostage operations in that region, asked the Algerian government if they needed help and the military-led regime said it would handle the situation itself.

Then the Algerian army suddenly acted. From the first reports it appears Algerian helicopter gunships fired at vehicles on the move and hostages were undoubtedly in some of them.

Algeria didn’t tell leaders such as Britain’s David Cameron of the operation beforehand. Japan was among those urging the Algerians to stop.

*As I go to post, Friday evening, the Algerians are saying 12 Algerian and foreign workers were killed, along with 18 militants. But scores more workers were unaccounted for and there are reports one American was among the victims.

“The hostage drama in an Algerian gas field is a brutal reminder of the perils of western intervention. A French military operation in Mali, a country whose difficulties were largely unknown to broader public opinion until a few days ago, seems to have tipped the world back towards a dangerous confrontation with radical Islam.

“The lessons are many but the first is that whereas 60,000 civilian deaths in Syria’s civil war still leaves the international community divided and hesitant to intervene militarily, the harsh Islamic rebel order that has been imposed in northern Mali prompted no such hesitancy, although there has been no comparable toll in lives. Even if this is the first much of the world has heard about it, diplomats and defense officials in Paris, Washington and at the UN in New York have been talking intervention for months. Indeed, the French action has provided a substitute for a much more leisurely Security Council – approved UN deployment of neighboring African peacekeeping troops. The rebels seemed to be about to advance on the Malian capital, Bamako: Mali’s beleaguered Government and the French felt an immediate intervention had become necessary.

“So the first lesson is a rueful reminder for many of us that national security interests still trump humanitarian need when it comes to intervention. While the world dithers, and the Russians veto when it comes to the complex horrors of current Syria, the Security Council approval and international community support quickly falls into place when an al-Qaeda-linked movement threatens the stability of states….

“The French have given refreshingly firm leadership to a needed intervention but as the stand-off around the Algerian gas field shows it is already starting to get harder.”

Syria: The bloodletting continued unabated. According to Lebanon’s Daily Star, “Around 100 people were shot, stabbed or possibly burned to death by government forces in the Syrian city of Homs…as fierce fighting raged across the country.

“The Britain-based Syrian Observatory for Human Rights said women and children were among 106 people killed by forces loyal to President Bashar Assad…

“The massacre in the central city came the same day twin explosions killed 87 people at Aleppo University in the north.”

At the same time, the Times of London is reporting that there is a mass migration of Alawites to the coastal strip that is the Assad clan’s stronghold. Top military officers have been moving their families to Latakia and Tartus for safety; Tartus, site of Russia’s naval base, offering a last-ditch escape route. Russia reiterated that Assad’s exit cannot be a precondition for a deal to end the conflict.

On the refugee front, Jordan announced it would not accept thousands more new ones if the Assad government collapses. Jordan’s prime minister said, “We will stop them and keep them in their country.” Instead, Jordan would deploy special forces to create “secure safe havens” inside Syrian territory.

Jordan is clearly being destabilized by the 200,000 refugees currently inside the country, living in squalor. At the same time extremists continue to march in and out of Jordan as they operate in Syria.

Israel: The election that is being held here next Tuesday is getting rather contentious. Back when Prime Minister Benjamin Netanyahu called for the early vote it was thought he and his coalition partners would romp, thus consolidating power further for the coming seemingly inevitable confrontation with Iran.

But the latest poll from Channel 10 has the Netanyahu-Avigdor Lieberman ticket (Likud Beytenu parties) at just 32 of the 120 seats in the Knesset. Currently, the two parties have 45 seats. [A late poll in the Jerusalem Post has the combination at 34.]

Netanyahu will still win and in Israel you have 90 days to form a government so he’ll cobble together a ruling coalition from among other disparate parties, but this isn’t what he expected last fall.

Complicating matters for the prime minister is his awful relationship with Barack Obama and Obama recently used journalist Jeffrey Goldberg, who writes for both Bloomberg and The Atlantic Monthly, to get out some quotes, or statements, from the president that were designed to hurt Netanyahu in the election; what some see as a clear case of political payback by Obama for Netanyahu’s open support of Mitt Romney.

Goldberg wrote in a Monday column for Bloomberg that in the weeks after the United Nations General Assembly voted to upgrade the status of Palestine:

“Obama said privately and repeatedly, ‘Israel doesn’t know what its own best interests are.’ With each new settlement announcement, in Obama’s view, Netanyahu is moving his country down a path toward near-total isolation.”

When questioned Wednesday about the preceding, Netanyahu said, “I think everyone understands that only Israeli citizens will be the ones who determine who faithfully represents the vital interests of Israel.”

[The International Atomic Energy Agency got nowhere in its latest talks with Iran this week, by the way. Once again, Tehran refused to grant the IAEA access to the disputed site of Parchin, where the IAEA believes Iran may have been testing trigger devices (“neutron initiators”) for activating atomic blasts.]

Egypt: Facing withering criticism for a Sept. 2010 interview with a Lebanese news outlet, the video of which is only now getting wide play, President Mohamed Morsi, through a spokesman, denied that inflammatory comments he made about Jews before taking office had been intended as criticism of Israeli policies toward the Palestinians and were taken out of context. The Morsi spokesman said that the comments were meant as criticism of the ‘racist’ policies of the Israeli government, not as insults to Jews.

What Morsi says, specifically, is: “Either [you accept] the Zionists and everything they want, or else it is war. This is what these occupiers of the land of Palestine know – these blood suckers, who attack the Palestinians, these warmongers, the descendants of apes and pigs.”

A White House spokesman said: “President Morsi should make clear that he respects people of all faiths and that this type of rhetoric is not acceptable or productive in a democratic Egypt.”

“(The) depressing reality is that apologizing wouldn’t bring him back into the mainstream but might in fact alienate the mainstream. Slurs and stereotypes about Jews aren’t confined to a political fringe in Egypt and other Arab societies. They are also found in newspaper columns, in political cartoons, in children’s textbooks and in the discourse of many educated elites. Bizarrely, given the fact that Jews and Arabs are both Semites, the tropes of European anti-Semitism have been recycled in denunciations of Israel and its occupation of Palestinian territories.

“Abhorrent in itself, such bigotry also makes it easier for defenders of wrongheaded Israeli policies such as the expansion of Jewish settlements in the West Bank to equate opposition to those policies with anti-Semitism. Defaming Jews does nothing to further the Palestinian cause….

“(Even) if Morsi is more circumspect as president than he was as a spokesman for the Muslim Brotherhood, his words captured on videotape are a reminder that old and ugly animosities are alive in the new Egypt.”

Pakistan: The Supreme Court issued an arrest warrant for the prime minister as tens of thousands demanded the dissolution of parliament, spurred on by firebrand cleric Tahi-ul Qadri, who is seeking the removal of the Government.

As reported by the Times of London, “it emerged that the Supreme Court included Raja Pervez Ashraf, the Prime Minister, in a list of 16 it wants arrested for alleged corruption relating to a 2010 power-plant leasing deal….

“Fawad Chaudhry, an aide to the Prime Minister, said that there was ‘no doubt’ that there was collusion with the Supreme Court and the military to undermine the elected government and delay elections.”

For his part, Qadri has praised the military and the judiciary:

“[The Government] has wasted and brought a bad end to our armed forces, those armed forces who are highly sincere, highly competent and highly capable and highly professional.”

The coup I thought was a sure thing in 2012 could be coming early this year instead.

China: A high-level Chinese official called for talks with Japan over the disputed islands in the East China Sea, in an apparent attempt to cool tensions. But Japan has steadfastly refused to discuss the Senkakus (Diaoyu islands to the Chinese), arguing it holds sovereignty over the rocks and thus there is nothing to negotiate.

But the biggest story in China this week was the smog that blanketed much of the northeast, including Beijing, where for days 20 million were dealing with apocalyptic type conditions. Several monitoring devices, including those at the U.S. Embassy, showed readings of one toxin, PM2.5, that were off the charts. PM2.5 (fine particulate) is considered the most harmful element to the health and the embassy reading reached 886 micrograms per cubic meter when anything over 300 is classified as “hazardous” and 25 is deemed safe according to the World Health Organization.

In 2012, high exposure to PM2.5 combined to cause over 8,500 premature deaths in Beijing, Shanghai and Guangzhou, according to estimates compiled by Greenpeace and Peking University’s School of Public Health.

The burning of coal is the main culprit, 19%, while vehicle emissions account for 6% of air pollution in China.

[A University of Hong Kong study released this week said high air pollution there caused more than 3,000 premature deaths and a monetary loss of some $5 billion annually.]

North Korea: According to Agence France-Presse, a senior North Korean official in Beijing told the Chinese the North was going to conduct a nuclear test between Jan. 13-20. Previous tests were conducted in 2006 and 2009.

Venezuela: Surprisingly, zero news this week. The inauguration date had passed, Hugo Chavez still hasn’t been heard from, and the vice president is apparently in charge.

Britain: Prime Minister David Cameron was to make a big speech on the UK’s future in the European Union but this was delayed by the Algerian situation.

Cameron will argue, though, that Britain is “better off” being part of the EU but would “never” join the euro. Cameron is looking to regain some sovereign powers now residing in Brussels. 

“There is a gap between the EU and its citizens which has grown dramatically in recent years and which represents a lack of democratic accountability and consent that is, yes, felt particularly acutely in Britain,” he will say. “The danger is that Europe will fail and the British people will drift towards the exit.”

To say this is a touchy issue would be an understatement, and it will play out over the next five years. Cameron is under pressure from members of the Conservative Party.

The latest poll reveals 42% of the electorate would vote in a referendum to leave the EU compared with 36% who said they would favor staying in.

Burma: Nobel Laureate Aung San Suu Kyi is under increasing fire for raising political funds from some of the crony businessmen in the country, including from some very shady characters, as she gears up for a 2015 election in which her new party could win a majority. Some of her supporters have also been frustrated by Suu Kyi’s refusal to speak out in support of the Muslim Rohingya, a stateless people facing violent persecution.

Russia: The top crime boss was assassinated in the center of Moscow this week, while the artistic director of the Bolshoi was sprayed with acid that threatens his eyesight. Just another week in Moscow, sports fans.

Random Musings

--In the latest Wall Street Journal/NBC survey, President Obama has a 52% job approval rating, higher than through most of his first term, though only 43% said they were optimistic about the next four years. Congress has an approval rating of 14%. 

Interestingly, only 12% gave Obama high marks for his ability to deal with Congress, which is exactly as it should be. I’m just surprised how on this issue the public is paying attention to how disconnected Obama can be…the arrogance factor.

Republicans are viewed negatively by 49%, compared with 26% who saw the party in a positive light. House Speaker John Boehner is viewed positively by just 18% and negatively by 37%. Positive views of the Tea Party dropped to 23%.

Democrats were viewed more positively than negatively, 44% to 38%.

“President Obama likes to talk about civility in politics, but then he has a particular personal talent for attributing to his political opponents only base motives and beliefs they don’t come close to holding. Consult his Monday press conference for a classic of the genre.

“Mr. Obama was asked an anodyne question at one point about reducing the deficit and the long-term accumulation of debt, and perhaps you’ve noticed that the deficit is $1 trillion a year and the debt is building rapidly toward 90% of GDP. Mr. Obama acted as if solving this problem would be a pleasant stroll through a dewy meadow, claiming that ‘if we’re trying to reduce the deficit, then we can shape a bipartisan plan to reduce the deficit…There’s a recipe for getting that done.’”

But when it comes to Republicans, “(It) seems as if what’s motivating and propelling at this point some of the House Republicans is more than simply deficit reduction.”

Then, as the Journal notes, Obama says: “They have a particular vision about what government should and should not do. So they are suspicious about government’s commitments, for example, to make sure that seniors have decent health care as they get older. They have suspicions about Social Security. They have suspicions about whether government should make sure that kids in poverty are getting enough to eat, or whether we should be spending money on medical research. So they’ve got a particular view of what government should do and should be.”

WSJ: “The next time Mr. Obama holds a press conference, somebody should ask him to identify by name those who want to repeal Social Security, steal food from orphans and cancel science funding. We’d like to meet these Visigoths. Otherwise, if the fiscal negotiations are going nowhere, perhaps it is because the President simply won’t make an honest argument.”

“What was remarkable about the president’s news conference Monday is that he didn’t seem to think he had to mask his partisan rancor or be large-spirited. He bristled with unashamed hostility for Republicans on the Hill. They are holding the economy ‘ransom,’ they are using the threat of ‘crashing the American economy’ as ‘leverage,’ some are ‘absolutist’ while others are ‘consumed with partisan brinksmanship.’ They are holding ‘a gun at the head of the American people.’ And what is ‘motivating and propelling’ them is not a desire for debt reduction, as they claim. They are ‘suspicious about government’s commitment…to make sure that seniors have decent health care as they get older. [Ed. see above Journal comments.]…

“And yet, ‘when I’m over here at the congressional picnic and folks are coming up and taking pictures with their family, I promise you, Michelle and I are very nice to them.’

“You’re nice to them? To people who’d take food from the mouths of babes?

“Then, grimly: ‘But it doesn’t prevent them from going onto the floor of the House and blasting me for being a big-spending socialist.’ Conservative media outlets ‘demonize’ the president, he complained, and so Republican legislators fear standing near him.

“If Richard Nixon talked like that, they’d have called him paranoid and self-pitying. Oh wait…

“Throughout the press conference the president demanded – they’d ‘better choose quickly’ – that Republicans extend the debt ceiling. Pressed by reporters on whether he would negotiate with them to win this outcome he made it clear he would not. He would have ‘a conversation.’ Bloomberg’s Julianna Goldman asked: ‘So you technically will negotiate?’

“ ‘No, Julianna,’ he answered. ‘Either Congress pays its bills or it doesn’t.’

“There was a logical inconsistency to his argument. A government shutdown would be so disastrous to the economy that he won’t negotiate with Republicans if that’s what it takes to avert it…..

“Why talk to Republicans when the stakes are so high? They must be the kind of people who like to see planes crash and bombs go off.

“Two days later, unveiling his gun-control plan at a White House event, it wasn’t only Republicans in Congress who lie: ‘There will be pundits and politicians and special-interest lobbyists publicly warning of a tyrannical all-out assault on liberty, not because that’s true but because they want to gin up fear or higher ratings or revenue for themselves. And behind the scenes, they’ll do everything they can to block any common-sense reform and make sure nothing changes whatsoever.’

“When the U.S. president, Barack Obama, appointed John Kerry and Chuck Hagel to his new administration, what did he intend? By naming them, Obama sent a message about his policy preferences. And what he also said was that he favored those who had irritated the neoconservatives, thus helping Obama sharpen his own image.

“That was always Obama’s main problem. He has spent too much time affirming what he isn’t, fighting against the legacy of George W. Bush, while failing to underline what he really stands for himself, especially in foreign policy. The president hopes that once Kerry and Hagel are approved, he can tell us more about himself. But how likely is that? Is there really any sharpness to the eternally shifting Obama?....

“Obama has been a revolutionary president in deciding that the empire had to greatly slash its ambitions, or else it would go bankrupt. He may be right, but the implications are dramatic. Does he see the U.S. as British officials did Britain in 1947, a country incapable of sustaining its overseas presence due to national insolvency? In a way yes, but can the United States really afford to retreat into its shell?

“The questions Obama raises are worthy ones. They have to be discussed by Americans, who must ask whether the empire is ending. Meanwhile, Chuck Hagel and John Kerry will be the face of America’s reach. Their actions will elucidate whether the empire is no more.”

Editorial / Defense News…on the nomination of Chuck Hagel

“It’s not new for members to raise objections to a nominee in order to extort future concessions, but the sophisticated and well-orchestrated smear campaign against Hagel, including TV and newspaper ads opposing him, has made this once private process even uglier in public.

“Hagel should and will survive to succeed Leon Panetta as defense secretary. He’s smart, well-versed in national security issues, knows the players at home and abroad, can be blunt or smooth and diplomatic, as necessary, and above all, is seen as a good and focused leader.

“Those are a particularly strong set of characteristics to take to the Pentagon at a time when it faces its deepest defense cuts in two decades.

“His opponents, however, say he’s weak on Iran because he believes military action should be a last resort in stopping Tehran’s nuclear program; he’s anti-Israel because he disagrees with the current Israeli government in backing a two-state peace deal; and that he won’t advocate for defense because he believes defense spending is bloated. The last among these neoconservative talking points is that he’s an isolationist who wants America to retreat from the world stage.

“Hagel’s reluctance to use force isn’t weakness, but wisdom. As someone who bears the scars and carries to this day shrapnel from his service in Vietnam, he wants to be absolutely certain there’s a need for war before committing American troops. That stance, in the wake of poorly planned wars in Iraq and Afghanistan, should be welcome.

“Next, while Israel is a special ally, it can’t dictate policies that force Washington to alienate others in the region. Indeed, Washington does Israel a disservice by blindly backing short-sighted policies that, over the long term, put the Jewish state at greater risk.

“As for spending, defense cuts are coming, with or without Hagel in the Pentagon. The truth is, DoD is bloated, and its waste saps resources from more important priorities. Hagel knows cuts and reforms are vital to field a leaner yet still capable force….

“With so much work bearing down on the Pentagon, the sooner Hagel is confirmed and gets on the job, the better.”

--Former New Orleans Mayor Ray Nagin was indicted on 21 federal corruption charges including wire fraud, bribery and money laundering. I’m shocked!

“It turns out that being American is bad for your health, relatively speaking.

“Anyone interested in health care ought to digest the findings of a massive new report from the National Research Council and the Institute of Medicine, which compared Americans’ health with that of people in other advanced countries. After spending 18 months examining statistics and studies, the panel reached a damning conclusion: The United States ranks below most advanced countries.

“Consider. Life expectancy at birth is 78.2 years in the United States, lower than the 79.5-year average for the wealthy countries belonging to the Organization for Economic Cooperation and Development (OECD); Japan’s life expectancy is 83. Among 17 advanced countries, the United States has the highest level of diabetes. For 21 diseases, U.S. death rates were higher in 15 (including heart and lung diseases) than the average for these same countries….

“The report’s most important contribution is to show that much of the U.S. ‘health disadvantage’ doesn’t reflect an inadequate health-care system but lifestyle choices, personal behaviors and social pathologies. The gap in life expectancy is concentrated in Americans under 50. Among men, nearly 60 percent of the gap results from more homicides (often gun-related) car accidents (often alcohol-related) and other accidents (often drug-related) than in comparable nations….

“The reports’ authors searched in vain for an overarching explanation for the peculiar determinants of Americans’ health. But it missed the most obvious possibility; This is America. The late sociologist Seymour Martin Lipset argued that American ‘exceptionalism is a double-edged sword.’ Values we admire also inspire behaviors we deplore. The emphasis on individual autonomy and achievement may aid a dynamic economy – and also feed crime and drug use….

“Ever optimistic, Americans deny conflicts and choices. We excel at self-delusion. Asked by pollsters to rate their own health, Americans say – despite much contrary evidence – that they’re in better shape than almost anyone. We think we’re No. 1 even if we aren’t.”

[As I proofed the above I was watching Oprah/Lance Part II and the Lipset comment is rather appropriate.]

“Lance Armstrong doesn’t do anything halfway. Cycling, cancer-fighting, cheating, lying – he attacks all the same way, with a single-minded focus that obliterates obstacles, ignores rules and trounces opposition. All, ultimately, for the greater good of Lance….

“Armstrong didn’t just lie. He is a world-class liar. He carried on a decade-long deception that made him a seven-time Tour de France champion with a worldwide brand.

“He didn’t just cheat. His team ‘ran the most sophisticated, professional and successful doping program’ that cycling had ever seen, according to the U.S. Anti-Doping Agency.

“He didn’t just refute his critics. He remorselessly smeared them. He vilified anyone, whether friend or underling, who refused to continue lying for him. When a young woman who had been his team’s aide and masseuse came clean to the author of a damning book on doping, Armstrong sued her….

“Whatever the sport, the principles are the same: Using performance-enhancing drugs is cheating. ‘Everybody does it’ is no more an excuse for professional athletes than it is for teenagers. No honest athlete should be put in the position of having to cheat to compete….

“Whatever (he told Winfrey), no one should mistake it for anything other than self-serving truth, admitted only after lies no longer worked.”

“After all those years of cheating and lying and making millions based on a fraud, Lance Armstrong looked Oprah Winfrey in the eye Thursday night and said, basically. ‘Never mind.’

“All the protestations, all the testimony, all the assertions of a lifetime that he had never cheated?

“Armstrong simply, easily, blithely went ahead and said the opposite of just about everything he has said his entire life prior to Thursday night.

“If we didn’t know it before, we know it now: Armstrong is one ruthless fellow. You almost wonder if he’s human. He sued so many people that he admitted that he didn’t remember who he had sued. One wonders if he has any clue what the difference is from right and wrong, even now. Was he just going through the motions, just because?...

“One comment seemed to say it all: Asked about how he tried to ruin the image of his former masseuse, Emma O’Reilly, Armstrong said that she ‘got run over.’

“The way he said it, it was as if somebody else did it.

“Clearly, the words, ‘I ran her over’ were not in Armstrong’s vocabulary. He comes to a mea culpa sit-down with Oprah, and he can’t even say that right?

“He also said he sued so many people, he didn’t even remember suing her. It was a truly telling admission.

“ ‘It’s a major flaw,’ he admitted matter-of-factly, ‘and it’s a guy who expected to get whatever he wanted and control every outcome, and it’s inexcusable.’

“Finally, a few words from Armstrong that made sense.”

“Lance Armstrong is a bigger and better worldwide lie…

“Once Lance Armstrong, whose legend became so much bigger than the facts, was willing to say anything, hurt anybody, call people bitter or call them whores, who got in his way. Now he is willing to say anything to still make himself the hero of his own drama, the mythology he created and others helped create for him. That doesn’t make you a saint or an icon or a hero. It makes you a cornered rat.”

--President Obama unveiled his sweeping gun-control plan, banning certain types of weapons and high-capacity magazines. “We can respect the Second Amendment while keeping an irresponsible law-breaking few from inflicting harm on a massive level,” he said.

According to a recent Pew Research Center for the People and the Press survey, about 85% of Americans favor making private gun sales and sales at gun shows subject to background checks. But just 55% support a ban on assault-style weapons (though with much stronger support from Democrats).

[A new Associated Press-GfK poll has 84% of adults wanting to see the establishment of a federal standard for background checks for people buying guns at gun shows.]

--So NBC reported that New Jersey Democratic Senator Frank Lautenberg wasn’t going to run in 2014, Lautenberg turning 89 on Jan. 23, and Newark Mayor Cory Booker filed the same week. I believed the NBC report and noted it last time.

--237 U.S. troops were killed in action in Afghanistan last year. 349 active-duty troops killed themselves in 2012, up more than 15% from 2011.

--I found the following as disturbing as anything I’ve ever read in this internet age. 

“Sick conspiracy theorists who say the Sandy Hook school massacre never took place are harassing one of that dark day’s heroes.

“Gene Rosen, the retired Newtown, Conn. psychologist who comforted six scared first-graders following the shooting, has been flooded with hateful emails and ridiculed on online bulletin boards over the last month….

“The messages have been vicious, and have come from people who apparently don’t believe that Adam Lanza killed 20 young children and six adults at the elementary school before taking his own life.

“ ‘How are all those little students doing? You know, the ones that showed up at your house after the ‘shooting,’’ one email read. ‘What is the going rate for getting involved in a gov’t sponsored hoax anyway?’

“On the day of last month’s shooting, Rosen found two boys and four girls in his driveway 15 minutes after hearing what sounded like gunfire. ‘We can’t go back to school,’ one boy told Rosen. ‘Our teacher is dead. Mrs. Soto; we don’t have a teacher.’ Victoria Soto, 27, was one of the victims of the massacre.

“Rosen comforted the shaken students until their parents arrived….

“His good deed became public knowledge and even landed him on the ‘Today’ show.

“Rosen was hailed as a hero, but he soon became a target as well. He started getting the nasty emails, and a white supremacist message board called him that ‘emotional Jewish guy,’ according to Salon.com.

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

Gold closed at $1684
Oil, $95.56…highest since mid-Sept.

Returns for the week 1/14-1/18

Dow Jones +1.2% [13649]
S&P 500 +0.9% [1485]
S&P MidCap +1.5%
Russell 2000 +1.4%
Nasdaq +0.3% [3134]

Returns for the period 1/1/13-1/18/13

Dow Jones +4.2%
S&P 500 +4.2%
S&P MidCap +5.2%
Russell 2000 +5.1%
Nasdaq +3.8%

Bulls 53.2
Bears 22.3 [Source: Investors Intelligence]

Nightly Review video schedule: Tuesday through Thursday, posted by 5:30 p.m. Taking MLK Day off. Accessible through home page…or youtube.com/stocksandnews.

Have a great week. I appreciate your support.

Brian Trumbore

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