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02/16/2013

For the week 2/11-2/15

[Posted 12:00 AM ET]

Washington

In his State of the Union Address, President Barack Obama declared, “We have cleared away the rubble of crisis and we can say with renewed confidence that the state of our union is stronger.”

The president called restoring the country’s middle class promise “our generation’s task.” 

“We gather here knowing that there are millions of Americans whose hard work and dedication have not yet been rewarded...it is our generation’s task to reignite the true engine of America’s economic growth – a rising, thriving middle class.”

Obama argued for an active government role to tackle inequality, with a specific proposal to raise the minimum wage to $9.00 an hour over the next three years. He also spoke of myriad projects, including upgrading bridges, and a new Energy Security Trust to seek ways for American cars and trucks to run on cleaner fuels.

Susan Page / USA TODAY

“The State of the Union Address demonstrated that Obama’s muscular inaugural address signaled a change in his administration. In both speeches, he embraced a more liberal agenda and more confrontational style. He feels empowered by his reelection, and liberated from ever running for office again. He’s also applying lessons from the past few frustrating years.

“The question ahead is whether Obama’s new strategy, which relies less on persuading members of Congress than pressuring them with the force of public opinion, will succeed in passing major legislation or simply create a new recipe for gridlock.

“That could be tested almost immediately, on the looming battle over automatic spending cuts scheduled to go into effect on March 1. Obama said the ‘sudden, harsh, arbitrary cuts’ would jeopardize military readiness and slow the economic recovery. He said he would support ‘modest’ steps to save money in Medicare but also called for changes in the tax code that would hit ‘the well-off and well-connected.’”

In delivering the Republican response, Florida Sen. Marco Rubio said:

“(Obama’s) favorite attack of all is that those who don’t agree with him, that we only care about rich people....Mr. President, I don’t oppose your plans because I want to protect the rich. I oppose your plans because I want to protect my neighbors – hard-working middle-class Americans who don’t need us to come up with a plan to grow the government. They need a plan to grow the middle class.”

Editorial / Wall Street Journal

“The big question of President Obama’s second term is whether he wants to forge bipartisan compromises in the next two years, or whether he wants to spend these years campaigning against Republicans to regain Democratic control of the House in 2014 and then finish his Presidency with another liberal crescendo. Judging by his inaugural address and Tuesday night’s State of the Union, we’re guessing he’s going for Speaker Nancy Pelosi.

“Mr. Obama’s second inaugural was a clarion call to ‘collective action,’ as he put it, and Tuesday’s speech showed what he thinks that should mean in practice. ‘The American people don’t expect government to solve every problem,’ he said, while proceeding to offer a new government program to solve every problem....

“Mr. Obama has never lacked for confidence, and perhaps he is right that he can steamroll his opposition in Congress, or in the 2014 midterms. But it’s also possible that his reelection and a fawning press have made him too confident that the country wants as much new government as he seems to believe. The polls show voters think spending is a bigger problem than lack of revenues.

“And for all his bragging Tuesday night of economic progress, his policies have produced a recovery with a mere 2% growth and falling middle-class incomes. Without faster growth in the private economy, his grand liberal plans will vanish faster than he imagines.”

Oh, and our president asserted, “nothing I’m proposing tonight should increase our deficit by a single dime.”

You can stop laughing.

So now we move on to the sequester, $85 billion in automatic cuts this year ($1.2 trillion over ten years) which is mere weeks away. House Speaker John Boehner reiterated his opposition to letting it take effect, reminding members of his own caucus, “None of them have ever lived under a sequester. For that matter, neither have I. This is going to be a little bleak around here when this actually happens and people actually have to make decisions.” [AP]

But when it comes to federal budget cuts, even when the two sides agree to them, the Washington Post’s David A. Fahrenthold had a good piece on just how farcical it is.

“Late on the night of April 8, 2011, Washington’s leaders...agreed to cut the federal budget – and cut it big.

“ ‘The largest annual spending cut in our history,’ President Obama called it in a televised speech. To prevent a government shutdown, the parties had agreed to slash $37.8 billion....

“(At the time) Republicans savored a win for austerity. There would be ‘deep, but responsible, reductions in virtually all areas of government,’ House Appropriations Committee Chairman Harold Rogers (R-Ky.) promised a few days later.”

But as Fahrenthold reported:

“Nearly two years later...these landmark budget cuts have fallen far short of their promises...

“(In) fact, many of their ‘cuts’ cut nothing at all. The Transportation Department got credit for ‘cutting’ a $280 million tunnel that had been canceled six months earlier. It also ‘cut’ a $375,000 road project that had been created by a legislative typo, on a road that did not exist.

“At the Census Bureau, officials got credit for a whopping $6 billion cut, simply for obeying the calendar. They promised not to hold the expensive 2010 census again in 2011.

“Today, an examination of 12 of the largest cuts shows that, thanks in part to these gimmicks, federal agencies absorbed $23 billion in reductions without losing a single employee.”

And one more... “Congress... ‘cut’ $14.6 million from its own budget to build the Capitol Visitor Center. That changed nothing. The center was already built.”

We did have some news on the deficit front this week as January, the fourth month of the fiscal year, came in with a small surplus, meaning the deficit for F2013 thus far is $290 billion, down 17% from this time last year. Individual income tax receipts are up 16%, corporate tax receipts (much smaller) up 16.8%, while outlays are up only 3.5%.

But just last week I reiterated that the danger is we may increasingly hear talk, especially out of the White House, that the deficit is stabilizing, especially if the economy continues to improve, but this false sense of security will mask the fact the deficit is going to explode all over again if we don’t do anything on entitlements...and we aren't!  There is zero talk of entitlement reform, whether in the sequester debate and looking for alternate ways to cut, or the March 27 deadline for a continuing resolution to fund the government through the end of the fiscal year (Sept. 30). It’s depressing. That’s why talk of ‘stabilizing the deficit’ is so dangerous.

I told you last time I did two “Nightly Review” videos on Feb. 6 and 7 where I try and simplify the numbers going forward. Take a look. In a week or so I’ll cut a separate presentation as well as do a “Wall Street History” piece on the topic and will alert you to those as they are produced.

In the meantime, Fred Barnes had the following in the Feb. 18 issue of The Weekly Standard.

“In February 1981, President Reagan was searching for ways to win support for spending cuts. He’d been president less than a month. The national debt was closing in on $1 trillion and Reagan wanted the public to grasp the danger of owing that much money – and thus the need to slash government spending.

“Reagan had come upon a tantalizing nugget of information: A stack of $1,000 bills totaling $1 trillion would be 80 miles high. But when he informed his speechwriters of this, they were skeptical. They checked with the U.S. Mint. By extrapolating from measurements of $1,000 bills, the mint determined Reagan was on to something. A $1 trillion stack, it turned out, would be 67 miles high.

“And so Reagan’s speech to Congress on February 18, 1981, included this passage near the top:

Our national debt is approaching $1 trillion. A few weeks ago I called such a figure incomprehensible, and I’ve been trying ever since to think of a way to illustrate how big a trillion really is. And the best I could come up with is that if you had a stack of $1,000 bills in your hand only four inches high, you’d be a millionaire. A trillion dollars would be a stack of $1,000 bills 67 miles high.

“That spring, Reagan’s spending cuts – most of them – were approved by a solidly Democratic House to the chagrin of Speaker Tip O’Neill. And Reagan’s knack for explaining dry economic numbers in plain and uncomplicated terms was an important contributing factor.

“I cite this example of Reagan’s gift of political persuasion for two reasons. It’s instructive, or at least should be. He did what politicians don’t do today. He defined economic terms and concepts in easily understandable language. Mitt Romney failed at this in his presidential campaign....

“Reagan didn’t assume voters understand economic jargon. Do they know why the debt-to-GDP ratio matters? Do they have a clue about the damage a ‘debt crisis’ would cause? Can they visualize what today’s national debt of $16 trillion looks like? Not likely. Reagan would have tutored them so they could....

“In early 1981, Reagan didn’t agonize about using a gimmick like that stack of $1,000 bills. He used another as a metaphor for a weak dollar. Again, his aides were dubious. But it was Reagan’s idea and he went ahead with it.

“ ‘Here is a dollar such as you earned, spent, or saved in 1960,’ he said in a televised speech to Congress. He held up a dollar bill. ‘And here is a quarter, a dime, and a penny – 36 cents.’ He held up the three coins. ‘That’s what this 1960 dollar is worth today. And if the present world inflation rate should continue three more years, that dollar will be worth a quarter.’

“It was a contrivance, for sure, but it made the case, as only Reagan could.”

Europe

This week it was all about the GDP figures for the continent. In a word, dismal.

The Euro-17 nations had fourth quarter GDP of -0.6% over the third quarter and -0.9% for all of 2012.

Even Germany’s came in -0.6%, again, quarter over quarter, though Germany managed to eke out growth of 0.4% for the year.

France’s GDP was -0.3% for both the quarter and the year.

Italy’s figures were -0.9% and -2.7%, respectively.

Spain’s -0.7% and -1.8%.

Portugal’s -1.8% and -3.8%.

Over the last year, though, I’ve written a lot about Eastern Europe, which is getting lost in the story of the pain in the periphery (Italy, Spain, Portugal and Greece...whose figures come in later).

Eastern Europe receives a lion’s share of its funding for business from German and French banks and they’ve been pulling in their horns because of their exposure to the periphery. So this means the cost of funding has gone up for the likes of Czech Republic and Hungary and the 2012 GDP hits for them were -1.7% and -2.8%.

While there is talk of recovery, and stability, on the continent these days, Europe is still very much in recession. Stability is possible in 2013. But no one is talking growth. 

Meanwhile, in just a week’s time there is a critical election in Italy, Feb. 24-25, and former Prime Minister Silvio Berlusconi had cut the leading center-left party’s Pier Luigi Bersani’s lead to 5-6 points from 14 a month earlier as Berlusconi stoked fears over Italy’s economy.

But then Pope Benedict XVI submitted his resignation and media attention turned away from the election and towards Vatican City. Berlusconi, who owns the nation’s largest private broadcaster, desperately needs a media blitz if he is to have a shot at winning, but now with a polling blackout, there is no telling where he really stands.

One thing we do know. The result is bound to be chaotic and forming a coalition, whoever emerges victorious, is likely to create tremendous uncertainty throughout the continent. There is, after all, chance of contagion in the financial markets all over again if the process of forming a new government drags out too long, or if, heaven forbid, Berlusconi is the kingmaker.

Finally, a note on Japan. It was expected to report fourth quarter growth over the third of 0.4% but instead it fell 0.1% as that nation’s recession continues.

Regarding the issue of “currency wars,” which all started with new Japanese Prime Minister Shinzo Abe wanting to stoke growth in his country’s economy, the G20, meeting in Moscow on Friday, signaled it would not interfere in Japan’s plans. Christine Lagarde, managing director of the International Monetary Fund, said:

“The talk of currency wars is overblown. Yes, the euro has appreciated and yes, the yen has depreciated but that is the result of good policies in the eurozone and looser policy in Japan.

“There is no major deviation from the fair value of major currencies. The international financial system can work if each of its members follow the right policies for their economy.” [Financial Times]

Ah, not so fast, Ms. Lagarde. This topic is far from dead.

Street Bytes

--This week ended up being the dullest five days of trading in the history of the Solar System....OK, dullest since 2007. The S&P 500, for one, while finishing up a seventh straight week, tacked on just 0.1% and had the narrowest trading range since January ’07. Not to be outdone, the Dow Jones registered its second straight fractional decline, off 0.1% to 13981. Nasdaq also lost 0.1% to 3192. So it was a great week to be on a cruise, say, Carnival’s Triumph, for example....save for sloshing sewage and onion sandwiches.

The market was headed for a slightly more significant decline, including for the S&P, when it was reported on Friday that an internal email from Wal-Mart’s vice president of finance and logistics stated, “In case you haven’t seen a sales report these days, February MTD sales are a total disaster. The worst start to a month I have seen in my ~7 years with the company.”

As reported by Bloomberg News’ Renee Dudley, this followed another exec’s email commenting on January: “Have you ever had one of those weeks where your best-prepared plans weren’t good enough to accomplish everything you set out to do? Well, we just had one of those weeks here at Walmart U.S. Where are all the customers? And where’s their money?”

Yes, it could be about the payroll tax hike, especially for Wal-Mart’s clientele. The company’s shares fell $1.50 on the Bloomberg scoop.

--U.S. Treasury Yields

6-mo. 0.13% 2-yr. 0.27% 10-yr. 2.00% 30-yr. 3.18%

Retail sales for January were up 0.1%, as expected (but not good), and industrial production for the month fell 0.1% when a gain was forecast.

I just have to repeat that when it comes to the bond market, I won’t waste your time with blarney on rising yields until the 10-year gets to 2.25%. I’m in the bond bubble camp, in terms of an inevitable debacle, with investors at some point being shell-shocked when they look at their statements, but I do not believe that occurs this year because I see a soft global economy (let alone what the Federal Reserve has already telegraphed).

--Warren Buffett’s Berkshire Hathaway and Brazilian private equity giant 3G are acquiring Heinz for $28 billion. Heinz, aside from ketchup, owns brands such as Ore-Ida potatoes and Lea & Perrins Worcestershire sauce. I’ve never been a fan of ketchup. Instead I prefer the goodness of horseradish sauce...which detoxifies the liver.

The deal offers shareholders $72.50 a share, a 20% premium on the company’s all-time high share price. Heinz, which has been operating out of Pittsburgh since its founding, maintains it is committed to the Steel City, which is really no longer about steel but rather healthcare, with the largest employer being the University of Pittsburgh Medical Center.

But of immediate concern for Pittsburghers is whether or not the Pirates can finally break their North American professional sports record 20-season losing streak this year.

--US Airways Group Inc. finalized its merger with AMR Corp.’s American Airlines in an $11 billion all-stock deal that creates the world’s largest carrier. US Air CEO Doug Parker will run the new airline, which will retain American’s name, while AMR CEO Tom Horton becomes chairman. Parker said of the combined operation:

“One of the really nice things is how complementary the route networks are. Of over 900 routes, only 12 have any overlap, which is phenomenal.” [Bloomberg]

--Comcast is paying $16.7 billion to buy out General Electric’s remaining 49% stake in NBCUniversal. This comes just two years after Comcast acquired a 51% stake in NBCU. Comcast kicked in another $1.4 billion for NBCU’s floors at 30 Rockefeller Plaza, as well as CNBC’s headquarters in Englewood Cliffs, N.J.

GE sold the naming rights to 30 Rock but is retaining space in the building.

--Anheuser-Busch InBev NV offered to cede full control of Corona distribution in the U.S. to Constellation Brands Inc. for $2.9 billion in order to secure its purchase of Grupo Modelo after U.S. regulators sought to block the deal, which would have resulted in AB InBev and Grupo Modelo controlling 46% of the beer market in the U.S.

The Justice Department said it would give the new proposal “serious consideration.” I suspect DoJ will eventually drop its suit.

--In the Euro horsemeat scandal, on Thursday, French authorities named a French meat wholesaler as the main culprit, declaring that officials at Spanghero knowingly passed off cheap horsemeat as ground beef for frozen food sold throughout the continent. 

In Paris, the country’s consumer affairs minister said it appeared fraudulent meat sales had been going on for several months, reaching across 13 countries and 28 companies. Spanghero denied wrongdoing.

Horsemeat was found in lasagna and spaghetti dishes in the UK, Germany, Norway and Austria, at last report, while we learned the horsemeat originated with two Romanian slaughterhouses who maintain they clearly labeled their meat. [In fact, in hindsight, Romania’s prime minister, Victor Ponta, appears to have been right in expressing outrage his nation was unfairly singled out initially.] The meat was then bought by a Cyprus-registered trader and sent to a warehouse in the Netherlands.

Of course this whole story points to deficiencies in the food safety chain throughout the European Union.

--General Motors announced its third-straight profitable year after bankruptcy, with fourth-quarter earnings coming in at $1.19 billion, even as it lost $699 million in Europe for the quarter and $1.8 billion for the full year, compared with a loss of $747 million a year earlier. In January, Ford Motor Co. posted a $1.75 billion loss in Europe for 2012 and is projecting losses there of $2 billion in 2013.

On the positive side, GM earned $6.95 billion in 2012 from its North American operations, though this was down from $7.19 billion a year earlier. GM workers will receive profit-sharing bonuses of about $6,750 for 2012 vs. $7,000 the prior year.

One other item of note, GM’s sales in China rose 11% last year to 2.84 million vehicles.

--The EU and the United States vowed to complete talks on a new trade agreement within two years, touted by President Obama in his State of the Union. This has been talked about for decades but now the pressure is on to revive growth and create jobs. Any agreement would have to be approved by the EU’s 27 member states, the European parliament and the U.S. Congress.

Frankly, tariffs are already low and the two sides have long vowed to eliminate those that still exist so I don’t see what the big deal is. As individual issues arise, there should be a more concerted effort to resolve them quickly but I’m not so sure we need a big sweeping deal.

Actually, just keep the horsemeat out of my burgers and I’m a happy camper.

--China surpassed the U.S. to become the world’s biggest trading nation last year as China’s customs administration reported that the country’s total trade in goods in 2012 amounted to $3.87 trillion. U.S. exports and imports totaled $3.82 trillion. Economic growth averaged 9.9 percent a year in China from 1978 through 2012. [Bloomberg]

--Thomson Reuters is cutting 2,500 jobs, or about 4% of its work force. The cuts are coming out of the “Financial and Risk” division, which rents out trading terminals to the financial industry.

--Dutch banking and insurance group ING announced a further 2,400 job cuts, with 1,400 coming from the Netherlands and 1,000 coming out of ING Belgium. The total job cuts at ING are now 7,500 in the past 15 months.

--Barclays announced it is cutting 3,700 jobs, with about half coming from the investment banking division and the rest from the retail and business banking unit.

--A Bloomberg survey of its data reveals that financial firms around the world have announced over 114,000 layoffs the last year, or 1.6% of their combined workforces.

--Before the crash, 190,000 New Yorkers worked in the securities industry. This year the total is expected to drop to 167,000, according to Gotham’s Budget Office.

--Equity trading revenues at the 10 largest investment banks are down 40% from 2008. [Crain’s New York Business]

--Speaking of ‘crash,’ the last fatal commercial airline crash in the United States was four years ago, Feb. 12, 2009; the Colgan Air Flight near Buffalo that claimed 50 lives and was totally due to pilot error. This is the longest such stretch since the move to the jet age.

One reason for the tremendous safety record are the lengths the aviation industry goes to to examine each accident. 

--The Apple-David Einhorn tussle bores the hell out of me and thus I see nothing of value or import to pass on.

--On the other hand, the Dell / Silver Lake buyout is interesting from the standpoint that there is growing opposition to the $13.65 per share being offered, with T. Rowe Price (4.4% of Dell shares) and Southeastern Asset Management (8.4%) among those rejecting the figure. 

Dell says, hey, it’s a 37% premium on the average share price the previous three months, while those in opposition say, but the share price was $18 a year ago!

--Google CEO Eric Schmidt plans to sell $2.5 billion in stock over the next year as he cuts his stake by more than 40%. The announcement had zero impact on Google’s share price. I’ve offered to be Schmidt’s lawn jockey in exchange for a cot in his garage and free beer.

--Syndicated columnist George Will has joined the chorus of those calling for a breakup of the big banks. I totally concur. Writing in his Washington Post column, Will opined:

“In 2011, the four biggest U.S. banks (JPMorgan Chase, Bank of America, Citigroup and Wells Fargo) had 40 percent of all federal insured deposits. Today, the 5,500 community banks have 12 percent of the banking industry’s assets. The 12 banks with $250 billion to $2.3 trillion in assets total 69 percent. The 20 largest banks’ assets total 84.5 percent of the nation’s gross domestic product.

“Such banks have become bigger, relative to the economy, since the financial crisis began, and they are not the only economic entities to do so. Last year, the Economist reported that in the past 15 years the combined assets of the 50 largest U.S. companies had risen from around 70 percent of GDP to around 130 percent. And banks are not the only entities designated TBTF [too big to fail] because they are ‘systemically important.’ General Motors supposedly required a bailout because a chain of parts suppliers might have failed with it.

“But this just means that the pernicious practice of socializing losses while keeping profits private is not quarantined in the financial sector....

“By breaking up the biggest banks, conservatives will not be putting asunder what the free market has joined together. Government nurtured these behemoths by weaving an improvident safety net and by practicing crony capitalism. Dismantling them would be a blow against government that has become too big not to fail. Aux barricades!

--It is reported George Soros made almost $1 billion from bets that the yen would tumble, plus he had a bullish bet on Japanese stocks, which have rallied strongly as the yen has declined at the behest of Prime Minister Shinzo Abe. Back in 1992, Soros became a legend when he netted $1 billion on a bet the Bank of England would be forced to devalue the pound.

--It was revealed billionaire investor Carl Icahn has taken a 12.98 percent stake in controversial Herbalife, as Bill Ackman takes the other side of the trade, calling the nutritional supplements company a “pyramid scheme.” Ackman’s price is $50. The company has called his claim “bogus.” HLF shares finished the week at $38.75.

--Owing to a bad flu season, sales of orange juice in the U.S. rose 5.5% in volume terms in the month of January, the first such rise in two years.

--The Carnival Cruise Lines / Triumph debacle ended after five days with the disabled ship being towed into Mobile, Ala. Ten years ago I spent 25 days on the QE2, traveling from Los Angeles to Australia. I was bored to tears (and lived for the days in port). 

So with that experience, I got a kick out of some of the comments from passengers on Triumph. It all depended where you were on the ship. CNBC interviewed one guy about ten hours before the ship came into Mobile and he was all happy and such when finally he was asked where his cabin was located. ‘Oh, we have an outside room with a balcony so we have fresh air...’

Well, gee whiz, that makes all the difference in the world! If you had an inside cabin, with no natural light during the day (during a power failure), what a living hell that would be, forgetting the sanitation situation.

And note to those who haven’t taken a cruise but plan to in the future. Yes, inside cabins are far less expensive, but trust me, it’s worth paying up for an outside one. 

I also was pleased to hear the generally universal praise for the crew. These guys and girls are terrific. That was the best part of my cruise experience.

But will I ever take another one? Not likely.

--A National Hurricane Center report concluded Hurricane Sandy was the deadliest to hit the northeastern United States in more than 40 years and, by best estimate (admittedly tough to calculate), the second costliest storm next to Hurricane Katrina.

72 died from Virginia to New Hampshire – 48 in New York, 12 in New Jersey – directly because of the storm with falling trees killing 20.

But another 87 died with indirect ties to Sandy and about 50 of these were caused by extended power outages in frigid temperatures. Falls in the dark by senior citizens was sadly the cause of many of the after-storm fatalities as well.

--“For the first time in almost four years, investors deposited more money into American Funds than they pulled out in a single month.” [Jason Kephart / Investment News]

Ah yes, when I was in the fund business, American Funds was the 800-pound gorilla. Then they got their comeuppance...but over the long haul most of their funds have performed well.

--According to a survey conducted for the Allstate insurance company, more than four in 10 Americans are living paycheck to paycheck and nearly one in 10 doesn’t earn enough to pay for essentials. At least 52% say they’re better off than when they were growing up. [Walter Hamilton / Los Angeles Times]

Foreign Affairs

North Korea: Pyongyang, as expected, conducted its third nuclear test, the first two being in 2006 and 2009, with an official statement saying in part: “The test was conducted in a safe and perfect way on a high level, with the use of a smaller and light A-bomb, unlike the previous ones, yet with great explosive power.”

The statement added the test was aimed at coping with “the ferocious hostile act of the U.S.,” referring, it seems, to Washington’s attempts to block its recent satellite launch, after which the U.N. levied more sanctions.

North Korea is estimated to have enough weaponized plutonium for 4-8 bombs, according to American nuclear scientist Siegfried Hecker, who was the first outsider shown North Korea’s previously hidden uranium-enrichment facilities, and the huge concern on the part of the U.S. and its allies is whether Pyongyang not only exploded a uranium-based device for the first time, but are they rapidly gaining the know-how to miniaturize a warhead so it can fit on a long-range missile that can reach the U.S.

As of today, it’s not known if the device was plutonium or highly enriched uranium, but understand uranium centrifuges, unlike a plutonium-based program, can be hidden from satellites and drones. North Korea did offer a clue in using the word “diversified” in discussing their nuclear deterrence.

Meanwhile, Beijing expressed its “staunch opposition” but called for “all parties concerned to respond calmly.”

Nonetheless, it will be interesting to see how new leader Xi Jinping handles the relationship with his neighbor. If Xi isn’t tough on the North, Japan and South Korea are likely to pursue their own nuclear programs, which they may do so anyway. The United States will step up its missile defense efforts in the region, too.

Nuclear weapons expert Graham T. Allison Jr. / New York Times

“The most dangerous message North Korea sent Tuesday with its third nuclear weapon test is: nukes are for sale.

“The significance of this test is not the defiance by the North Korean leader, Kim Jong-un, of demands from the international community. In the circles of power in Pyongyang, red lines drawn by others make the provocation of violating them only more attractive.

“The real significance is that this test was, in the estimation of American officials, most likely fueled by highly enriched uranium, not the plutonium that served as the core of North Korea’s earlier tests. Testing a uranium-based bomb would announce to the world – including potential buyers – that North Korea is now operating a new, undiscovered production line for weapons-usable material....

“As the former secretary of defense Robert M. Gates put it, history shows that the North Koreans will ‘sell anything they have to anybody who has the cash to buy it.’ In intelligence circles, North Korea is known as ‘Missiles ‘R’ Us,’ having sold and delivered missiles to Iran, Syria and Pakistan, among others.

“Who could be interested in buying a weapon for several hundred millions of dollars? Iran is currently investing billions of dollars annually in its nuclear quest. While al-Qaeda’s core is greatly diminished and its resources depleted, the man who succeeded Osama bin Laden, Ayman al-Zawahiri, has been seeking nuclear weapons for more than a decade. And then there are Israel’s enemies, including wealthy individuals in some Arab countries, who might buy a bomb for the militant groups Hizbullah or Hamas.

“President Obama has rightly identified nuclear terrorism as ‘the single biggest threat to U.S. security.’ If terrorists explode a single nuclear bomb in an American city in the near future, there is a serious possibility that the core of the weapon will have come from North Korea.”

China / Japan: A senior Japanese diplomat will visit Beijing next week for talks on the nuclear test carried out by North Korea, this as tensions between Beijing and Tokyo are still running high over the territorial dispute in the East China Sea. Tokyo alleged last week that the People’s Liberation Army Navy frigates had locked fire-control radar on a Japanese military helicopter and destroyer in separate incidents. Japanese Prime Minister Shinzo Abe demanded an apology and none was forthcoming.

Iran: As Iran prepares to meet in Kazakhstan later this month with representatives of the United States, Britain, France, Russia, China and Germany (the P5+1), there were all manner of signs that Iran is plowing ahead with its nuclear program at worrisome speed.

The Washington Post reported that Iran attempted to buy 100,000 ring-shaped magnets, prohibited by UN sanctions because they can be modified for use with centrifuges to enrich uranium. As reported by Joby Warrick, this was “a sign that the country may be planning a major expansion of its nuclear program that could shorten the path to an atomic weapons capability.”

Iran also announced it was installing 3,000 new centrifuges at Natanz, which experts say can speed up the enrichment process by up to 50%.

And the International Atomic Energy Agency said talks with Iran on gaining access to a site suspected of being used to test bomb triggers failed. IAEA Director General Yukiya Amano said “The outlook is not bright.”

So everything points to a stepped up effort, making coming talks flat-out stupid.

Even U.N. Secretary General Ban Ki-moon (who is turning out to be pretty good) said in an interview with the Post that “We should not give much more time to the Iranians, and we should not waste time. We have seen what happened with the DPRK. [North Korea] 

“It ended up that they [were] secretly, quietly, without any obligations, without any pressure, making progress,” Ban said.

The Washington Post also reported that Iran is building a network of militias in Syria to work alongside Hizbullah should ally Assad fall. Iran is seeking a force of 50,000 militiamen in the country to protect its interests. This week, Iran announced a top Revolutionary Guard Corps general had been assassinated in Syria.

Separately, the Obama administration is finally putting pressure on Tehran to release Iran’s two top opposition leaders, Mir Hossein Mousavi and Mehdi Karroubi, who have been under house arrest for two years after charging the government with rigging the 2009 presidential election. The White House heretofore has said little on the topic. Mousavi and Karroubi’s families also continue to get harassed.

Syria: There was a suicide bombing at a border crossing with Turkey, with 12 killed. 3,000 refugees a day are now crossing into Lebanon, whose refugee population will expand to 500,000 by May...this in a country of just four million; a disaster waiting to happen. Having hundreds of thousands of Sunni Muslim Syrians can only inflame sectarian tensions.

5,000 overall are leaving Syria every day, with a total of one million having fled, both registered refugees and unregistered, while two million others are displaced in the country. The U.N. Human Rights Commission now puts the death toll at 70,000.

And as a story in the New York Times on Friday by J. Malcolm Garcia put it, the Islamists are winning over the hearts and minds vs. the rebels. The Islamists have a vision, and the experience at dolling out social services, while the rebels flounder in terms of direction. As one man told the Times, “I had a shop, but when the revolution came to Aleppo I couldn’t stock it, so I sold everything. Islamic youth organizations now give us flour. We need bread, at least, just to live. We support the Free Syrian Army, but the Islamists let us eat.”

The people are just looking for normalcy at this point and will accept anyone who can give that to them.

Israel: Prime Minister Benjamin Netanyahu has until approximately mid-March to form a new coalition after the Jan. 22 elections or President Shimon Peres can tab someone else to give it a go (though I see no signs of this being a possibility, as yet). That said, Netanyahu is not finding success as second-place finisher Yesh Atid is coordinating its moves with Bayit Yehudi. The two are led by charismatic leaders, Yair Lapid for Yesh and Naftali Bennett for Bayit, and aside from having large egos, they have somewhat different agendas on some issues. Ergo, Netanyahu is scrambling

At the same time, the prime minister has to focus on Iran and the chemical weapons threat coming from Syria. The installation of the faster centrifuges in Iran, for example, caused Netanyahu to state this week that Tehran is closer to crossing his red line, as outlined in a speech at the U.N. in September; “what they are doing is shortening the time it will take them to cross that line.”

Afghanistan: U.S. casualties are declining as Afghans now lead over 80% of combat operations. In his farewell speech last week, Marine Gen. John Allen said “this is what winning looks like.”

But as Daoud Sultanzoy, a political analyst in Kabul told the Los Angeles Times, “The U.S. political climate is such that the administration has to show some sort of good news to justify [the troop exit], and that is dictating what is being shown in terms of progress, even if there isn’t any.”

There remains little sign that the Afghan army and security forces are competent enough to hold the country once the U.S. fully leaves end of 2014.

Iraq: Not for nothing but sectarian tensions are soaring as Sunnis call for Prime Minister Nouri al-Maliki to resign. There have been huge turnouts at protests, largely peaceful thus far, but as the head of Fallujah’s local council told the Washington Post’s Liz Sly, “we don’t know for how long they (the masses) will be patient.”

Kimberly Kagan and Frederick W. Kagan / Washington Post

“Iraq teeters on the brink of renewed insurgency and, potentially, civil war.

“This crisis matters for America. U.S. vital interests that have been undermined over the past year include preventing Iraq from becoming a haven for al-Qaeda and destabilizing the region by becoming a security vacuum or a dictatorship that inflames sectarian civil war; containing Iranian influence in the region; and ensuring the free flow of oil to the global market.”

Maliki has been targeting Sunni officeholders and/or their bodyguards, including the recent arrest of Vice President Tariq al-Hashimi’s security detail. Hashimi then fled to Turkey and is unlikely to return, having been sentenced to death in absentia for murder and financing terrorism.

“Al-Qaeda in Iraq has already taken advantage of this situation through its front group, the Islamic State of Iraq, which deployed combat teams in Fallujah last month that targeted Iraqi army positions and killed several soldiers....The group is back in the havens it held in 2006. If Maliki does not allow proper Sunni representation in government, al-Qaeda will gain greater popular tolerance and foreign support. [Ed. see above comments on Syria and how the Islamists are winning the hearts and minds.]

“Over the past year, the situation in Iraq has become explosive while sectarian sentiment and armed violence in neighboring nations have escalated dramatically. Americans have become accustomed to watching Iraq approach the precipice and draw back. But circumstances have changed with the withdrawal of all U.S. forces and Maliki’s year-long efforts to intimidate his opponents through political, judicial and military maneuvers. If Maliki does not accept many of the protesters’ reasonable demands and allow meaningful Sunni participation in government, prospects for stopping Iraq’s descent into sectarian conflict are grim.”

Mali: Little news, which is good. Islamists attempted to retake the northern city of Gao after French troops left but when they returned to help the Malian forces, the terrorists fled again. Ghana’s president warned France not to make a hasty withdrawal from Mali before African forces are fully able to takeover peacekeeping duties and I hope the French understand that as well.

Russia: As I go to post, the number injured in the meteor crashing into Russia’s Ural mountains is 1,100, as the shockwave blew out windows and rocked buildings. Most suffered cuts from flying glass but at least 46 remained in hospital. The meteor’s dramatic entry was even witnessed in Kazakhstan.

It is said the explosion that resulted was at a level of an atomic bomb.

Suffice it to say, there was panic in some parts. It was a UFO that crashed to earth, many surmised. Ultranationalist political leader Vladimir Zhirinovsky said the event was a U.S. weapons test.

When you see the videos that have been emerging, I’m struck by those taken in schools, with the meteor striking at 9:20 a.m. local time. I just can’t imagine how frightening it must have been.

One Chelyabinsk resident told BBC News, “I was in the office when suddenly I saw a really bright flash in the window in front of me. Then I smelt fumes. I looked out the window and saw a huge line of smoke, like you get from a plane but many times bigger. A few minutes later the window suddenly came open and there was a huge explosion, followed by lots of little explosions.”

While the meteor broke into a number of pieces, the largest piece landed in a lake 1km outside a city of 46,000. A Russian army spokesman said a crater 20-feet wide had been found on the shore of the lake.

The Russian Academy of Sciences estimates the meteor weighed about 10 tons and entered the Earth’s atmosphere at a speed of 33,000 mph.

Venezuela: President Hugo Chavez hasn’t been seen in public since December 11 when he went to Havana for his fourth operation in 18 months, but on Friday, the government released photos it says were taken Thursday night, Chavez smiling as he lies in bed reading a newspaper, with his two daughters at his side. The Information Minister said that as Chavez was breathing through a tracheal tube, it was difficult for him to speak, but that he was writing down orders. The vice president, Nicolas Maduro, did admit on Wednesday that Chavez’ cancer treatments have been “extremely complex and tough.”

Random Musings

--Daniel Henninger / Wall Street Journal

“Here’s what has to be understood. It’s all about him.

“A State of the Union speech normally is about relating a president’s public policies to conditions in the country. An Obama State of the Union speech is about one thing: the Obama project.

“It would be unfair to say that everything and everyone else in a complex world are irrelevant. But let’s be clear about the priorities: Congress, the Cabinet of courtiers, the press, the people and indeed the national problems described in that State of the Union speech – it’s all brick and mortar in the future Obama monument.

“That we are all just riding in Barack Obama’s sidecar should have been obvious from day one. His 2008 Denver acceptance speech enveloped nearly everything. The vast, sweeping goals he then laid out in January 2009 are virtually the same ones he described Tuesday night – the climate cleansed, education for all, social justice achieved and the drowning middle-class saved....

“Commentary from right to left after the speech noted the mismatch between its goals and money available in any conceivable federal budget. So why is he doing this? More to the point, what have we gotten ourselves into with this president?

“Well, it’s big. Mr. Obama by his own statements has made clear that he’s at the center of something larger than the mere here and now.

“In a 2011 CBS interview he said, ‘I would put out legislative and foreign policy accomplishments in our first two years against any president – with the possible exceptions of Johnson, FDR and Lincoln, just in terms of what we’ve gotten done in modern history.’....

“It’s about him and history. Everything is a function of mobilizing the base on behalf of the Obama project. The now-famous Obama campaign media operation in place the past four years has now reincarnated as Organizing for Action, essentially a mega-flack machine for selling the project.

“And that’s a danger. Barack Obama is indeed in sync with the public will, so much so that he has largely dismissed and devalued the rest of the system, specifically Congress and the courts. In the next four years, that could prove to be a problem.”

--Editorial / Washington Post

“Three major U.S. newspapers – The Washington Post, the New York Times and the Wall Street Journal – reported recently that Chinese intruders hacked into their computer networks, snooping for passwords and information about coverage of China....

“China denies carrying out cyber-espionage, theft and disruption. But there is a growing amount of evidence that it is behind one of history’s great heists of intellectual property, a vast and multi-tentacled collection drive aimed at corporations, the U.S. government, universities, stock exchanges and think tanks, among others....

“China’s motivation in economic espionage is to steal technology that will help leapfrog generations of development; going after the military and newspapers is more like classic spying. The U.S. government spies on China, too, although U.S. intelligence agencies do not steal technology for the private sector.

“All of this raises a question: How should the United States respond? In the absence of action by Congress, President Obama has just issued an executive order intended to help the private sector defend against cyberattacks by China and others. But discussions with China itself have gone nowhere. The time is ripe for something stronger....

“China is no longer the poor and isolated nation of Mao’s day. In cyberspace, it must behave like a global economic superpower and not like a petty pickpocket.”

--New Jersey Democratic Senator Frank Lautenberg, 89, announced he will not run for reelection to a sixth term next year, thus clearing the way for Newark Mayor Cory Booker. Thank god. I’m on record as having no problem with Booker, but was astounded Lautenberg was even considering running again.

Granted, Booker doesn’t have a clear path. There should be quite a primary fight, but I don’t see a Republican who can defeat him. It will also be interesting to see how Chris Christie acts. The governor, who had a private fundraiser thrown for him in Palo Alto by Facebook founder Mark Zuckerberg this week, will cruise to reelection this year and then position himself for a presidential run in 2016. He likes Booker and they get along fine, but he can’t exactly endorse the guy.

--In recommending Amity Shlaes’ new biography of Calvin Coolidge, George Will notes in his Washington Post op-ed:

“During the 67 months of his presidency, the national debt, the national government, the federal budget, unemployment (3.6 percent) and even consumer prices shrank. The GDP expanded 13.4 percent.”

Will adds:

“He met his wife, the vivacious Grace, after hearing her laughter when she saw through a window him shaving while wearing a hat. Shlaes’ biography would be even more engaging had she included this oft-repeated anecdote:

“When President and Mrs. Coolidge were being given simultaneous but separate tours of a chicken farm, Grace asked her guide whether the rooster copulated more than once a day. ‘Dozens of times,’ she was told. ‘Tell that to the president,’ she said. When told, Coolidge asked, ‘Same hen every time?’ When the guide said, ‘A different one each time,’ the president said: ‘Tell that to Mrs. Coolidge.’”

--I like Utah Republican Congressman Jason Chaffetz and got a kick out of this blurb in U.S. News & World Report Weekly by Kira Zalan:

“The Republican Party may be searching for the most electable candidate, but it has undoubtedly found its comedic headliner. ‘Republicans are trying to turn over a new leaf, bring diversity to the party. So they sent me, a white, male, conservative, Mormon from Utah to speak to you tonight,’ said Rep. Jason Chaffetz at the Washington Press Club Foundation’s 69th annual Congressional Dinner this week. ‘Reality is, I am the only demographic Republicans have left.’...

“ ‘I do have to give President Obama credit for one thing. Just when we’ve all pretty much decided that the president is the most arrogant man in Washington, he manages to remind us about John Kerry. And just when we’ve decided that John Kerry is the most arrogant guy in town, the president then brings back Chuck Hagel.’”

--Speaking of Hagel, his confirmation has been put on hold by Senate Republicans until they return from their recess Feb. 26 as some seek more information on his post-Senate career.

--Talk about a dirtball...we learned on Friday that former Illinois Congressman Jesse Jackson Jr. misused $750,000 in campaign funds for purchases including a Michael Jackson hat, an Eddie Van Halen guitar and a $40,000 Rolex watch. Jackson was charged in federal court in Washington with conspiracy, part of his plea deal. His wife was charged in a separate case with filing false tax returns.

In an emailed statement, Jackson said in part: “Over the course of my life I have come to realize that none of us are immune from our share of shortcomings and human frailties.”

I’m biting my tongue.

--I have nothing to say about the whole Christopher Dorner case, except to note what many of us are now thinking, courtesy of the Los Angeles Times:

“It is unclear how long Dorner...was hunkered down in the cabin...in the snowy mountains near Big Bear. But the cabin was so close to the manhunt command post and to an adjacent press area that countless police and reporters would have fallen in his line of vision.”

One word....incompetence.

--Finally, I think an editorial in the New York Post best summed up my own opinion, as a Catholic, on the resignation of Pope Benedict XVI.

“(We) find ourselves struck by the great courage and selflessness of his decision of his decision to step down from the chair of St. Peter.

“We suspect many of the faithful may find a papal abdication more unsettling than a papal death. Over the centuries, Catholics have known popes who have been martyred, popes who have been kidnapped, popes who have endured all manner of suffering. The last time a pope voluntarily resigned his office was way back in 1294.

“That’s what you would expect from an office that calls to mind the challenge Jesus put to his Apostles: Can you drink from the cup of my suffering?

“So in Pope Benedict’s resignation we see heroism. He explained his decision simply: ‘After having repeatedly examined my conscience before God, I have come to the certainty that my strengths, due to an advanced age, are no longer suited to an adequate exercise of the Petrine ministry.’

“It strikes us that in these words are a recognition of today’s new realities. Modernity has brought a longer human lifespan – but it has also meant increased demands on the papacy. Pope Benedict no doubt believes that the cost to the faithful of an incapacitated pope is unacceptably high; having reached that conclusion, he is now following through in the way we have come to expect: with no regard for ego.

“This is the cross given Joseph Ratzinger, and he has shown his love for his church by embracing it. On this sad day, we salute the humble priest from Bavaria who became pope – and the great gift of his witness for all men and women of goodwill.”

Of course there were countless other editorials on Benedict XVI’s eight years as pope, many not so favorable as he fiercely resisted change.

For 14 years in writing this column, I have steered clear of discussions on religion, with few exceptions. I’m not about to start now. I will just state, as I have in the past, that since the scandals in my church first broke, I have not been a regular church goer but I remain a person of faith, which is why I can in good conscience continue to close each week in the manner that I do.

---

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

God bless America.
---

Gold closed $1608...lowest weekly close since 8/3/12
Oil, $95.96

Returns for the week 2/11-2/15

Dow Jones -0.1% [13981]
S&P 500 +0.1% [1519]
S&P MidCap +0.6%
Russell 2000 +1.0%
Nasdaq -0.1% [3192]

Returns for the period 1/1/13-2/15/13

Dow Jones +6.7%
S&P 500 +6.6%
S&P MidCap +9.3%
Russell 2000 +8.7%
Nasdaq +5.7%

Bulls 52.6
Bears 21.1 [Source: Investors Intelligence]

Nightly Review video schedule this week...Tues. thru Thurs. [Market closed on Monday]

Enjoy the holiday. I appreciate your support.

Brian Trumbore



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Week in Review

02/16/2013

For the week 2/11-2/15

[Posted 12:00 AM ET]

Washington

In his State of the Union Address, President Barack Obama declared, “We have cleared away the rubble of crisis and we can say with renewed confidence that the state of our union is stronger.”

The president called restoring the country’s middle class promise “our generation’s task.” 

“We gather here knowing that there are millions of Americans whose hard work and dedication have not yet been rewarded...it is our generation’s task to reignite the true engine of America’s economic growth – a rising, thriving middle class.”

Obama argued for an active government role to tackle inequality, with a specific proposal to raise the minimum wage to $9.00 an hour over the next three years. He also spoke of myriad projects, including upgrading bridges, and a new Energy Security Trust to seek ways for American cars and trucks to run on cleaner fuels.

Susan Page / USA TODAY

“The State of the Union Address demonstrated that Obama’s muscular inaugural address signaled a change in his administration. In both speeches, he embraced a more liberal agenda and more confrontational style. He feels empowered by his reelection, and liberated from ever running for office again. He’s also applying lessons from the past few frustrating years.

“The question ahead is whether Obama’s new strategy, which relies less on persuading members of Congress than pressuring them with the force of public opinion, will succeed in passing major legislation or simply create a new recipe for gridlock.

“That could be tested almost immediately, on the looming battle over automatic spending cuts scheduled to go into effect on March 1. Obama said the ‘sudden, harsh, arbitrary cuts’ would jeopardize military readiness and slow the economic recovery. He said he would support ‘modest’ steps to save money in Medicare but also called for changes in the tax code that would hit ‘the well-off and well-connected.’”

In delivering the Republican response, Florida Sen. Marco Rubio said:

“(Obama’s) favorite attack of all is that those who don’t agree with him, that we only care about rich people....Mr. President, I don’t oppose your plans because I want to protect the rich. I oppose your plans because I want to protect my neighbors – hard-working middle-class Americans who don’t need us to come up with a plan to grow the government. They need a plan to grow the middle class.”

Editorial / Wall Street Journal

“The big question of President Obama’s second term is whether he wants to forge bipartisan compromises in the next two years, or whether he wants to spend these years campaigning against Republicans to regain Democratic control of the House in 2014 and then finish his Presidency with another liberal crescendo. Judging by his inaugural address and Tuesday night’s State of the Union, we’re guessing he’s going for Speaker Nancy Pelosi.

“Mr. Obama’s second inaugural was a clarion call to ‘collective action,’ as he put it, and Tuesday’s speech showed what he thinks that should mean in practice. ‘The American people don’t expect government to solve every problem,’ he said, while proceeding to offer a new government program to solve every problem....

“Mr. Obama has never lacked for confidence, and perhaps he is right that he can steamroll his opposition in Congress, or in the 2014 midterms. But it’s also possible that his reelection and a fawning press have made him too confident that the country wants as much new government as he seems to believe. The polls show voters think spending is a bigger problem than lack of revenues.

“And for all his bragging Tuesday night of economic progress, his policies have produced a recovery with a mere 2% growth and falling middle-class incomes. Without faster growth in the private economy, his grand liberal plans will vanish faster than he imagines.”

Oh, and our president asserted, “nothing I’m proposing tonight should increase our deficit by a single dime.”

You can stop laughing.

So now we move on to the sequester, $85 billion in automatic cuts this year ($1.2 trillion over ten years) which is mere weeks away. House Speaker John Boehner reiterated his opposition to letting it take effect, reminding members of his own caucus, “None of them have ever lived under a sequester. For that matter, neither have I. This is going to be a little bleak around here when this actually happens and people actually have to make decisions.” [AP]

But when it comes to federal budget cuts, even when the two sides agree to them, the Washington Post’s David A. Fahrenthold had a good piece on just how farcical it is.

“Late on the night of April 8, 2011, Washington’s leaders...agreed to cut the federal budget – and cut it big.

“ ‘The largest annual spending cut in our history,’ President Obama called it in a televised speech. To prevent a government shutdown, the parties had agreed to slash $37.8 billion....

“(At the time) Republicans savored a win for austerity. There would be ‘deep, but responsible, reductions in virtually all areas of government,’ House Appropriations Committee Chairman Harold Rogers (R-Ky.) promised a few days later.”

But as Fahrenthold reported:

“Nearly two years later...these landmark budget cuts have fallen far short of their promises...

“(In) fact, many of their ‘cuts’ cut nothing at all. The Transportation Department got credit for ‘cutting’ a $280 million tunnel that had been canceled six months earlier. It also ‘cut’ a $375,000 road project that had been created by a legislative typo, on a road that did not exist.

“At the Census Bureau, officials got credit for a whopping $6 billion cut, simply for obeying the calendar. They promised not to hold the expensive 2010 census again in 2011.

“Today, an examination of 12 of the largest cuts shows that, thanks in part to these gimmicks, federal agencies absorbed $23 billion in reductions without losing a single employee.”

And one more... “Congress... ‘cut’ $14.6 million from its own budget to build the Capitol Visitor Center. That changed nothing. The center was already built.”

We did have some news on the deficit front this week as January, the fourth month of the fiscal year, came in with a small surplus, meaning the deficit for F2013 thus far is $290 billion, down 17% from this time last year. Individual income tax receipts are up 16%, corporate tax receipts (much smaller) up 16.8%, while outlays are up only 3.5%.

But just last week I reiterated that the danger is we may increasingly hear talk, especially out of the White House, that the deficit is stabilizing, especially if the economy continues to improve, but this false sense of security will mask the fact the deficit is going to explode all over again if we don’t do anything on entitlements...and we aren't!  There is zero talk of entitlement reform, whether in the sequester debate and looking for alternate ways to cut, or the March 27 deadline for a continuing resolution to fund the government through the end of the fiscal year (Sept. 30). It’s depressing. That’s why talk of ‘stabilizing the deficit’ is so dangerous.

I told you last time I did two “Nightly Review” videos on Feb. 6 and 7 where I try and simplify the numbers going forward. Take a look. In a week or so I’ll cut a separate presentation as well as do a “Wall Street History” piece on the topic and will alert you to those as they are produced.

In the meantime, Fred Barnes had the following in the Feb. 18 issue of The Weekly Standard.

“In February 1981, President Reagan was searching for ways to win support for spending cuts. He’d been president less than a month. The national debt was closing in on $1 trillion and Reagan wanted the public to grasp the danger of owing that much money – and thus the need to slash government spending.

“Reagan had come upon a tantalizing nugget of information: A stack of $1,000 bills totaling $1 trillion would be 80 miles high. But when he informed his speechwriters of this, they were skeptical. They checked with the U.S. Mint. By extrapolating from measurements of $1,000 bills, the mint determined Reagan was on to something. A $1 trillion stack, it turned out, would be 67 miles high.

“And so Reagan’s speech to Congress on February 18, 1981, included this passage near the top:

Our national debt is approaching $1 trillion. A few weeks ago I called such a figure incomprehensible, and I’ve been trying ever since to think of a way to illustrate how big a trillion really is. And the best I could come up with is that if you had a stack of $1,000 bills in your hand only four inches high, you’d be a millionaire. A trillion dollars would be a stack of $1,000 bills 67 miles high.

“That spring, Reagan’s spending cuts – most of them – were approved by a solidly Democratic House to the chagrin of Speaker Tip O’Neill. And Reagan’s knack for explaining dry economic numbers in plain and uncomplicated terms was an important contributing factor.

“I cite this example of Reagan’s gift of political persuasion for two reasons. It’s instructive, or at least should be. He did what politicians don’t do today. He defined economic terms and concepts in easily understandable language. Mitt Romney failed at this in his presidential campaign....

“Reagan didn’t assume voters understand economic jargon. Do they know why the debt-to-GDP ratio matters? Do they have a clue about the damage a ‘debt crisis’ would cause? Can they visualize what today’s national debt of $16 trillion looks like? Not likely. Reagan would have tutored them so they could....

“In early 1981, Reagan didn’t agonize about using a gimmick like that stack of $1,000 bills. He used another as a metaphor for a weak dollar. Again, his aides were dubious. But it was Reagan’s idea and he went ahead with it.

“ ‘Here is a dollar such as you earned, spent, or saved in 1960,’ he said in a televised speech to Congress. He held up a dollar bill. ‘And here is a quarter, a dime, and a penny – 36 cents.’ He held up the three coins. ‘That’s what this 1960 dollar is worth today. And if the present world inflation rate should continue three more years, that dollar will be worth a quarter.’

“It was a contrivance, for sure, but it made the case, as only Reagan could.”

Europe

This week it was all about the GDP figures for the continent. In a word, dismal.

The Euro-17 nations had fourth quarter GDP of -0.6% over the third quarter and -0.9% for all of 2012.

Even Germany’s came in -0.6%, again, quarter over quarter, though Germany managed to eke out growth of 0.4% for the year.

France’s GDP was -0.3% for both the quarter and the year.

Italy’s figures were -0.9% and -2.7%, respectively.

Spain’s -0.7% and -1.8%.

Portugal’s -1.8% and -3.8%.

Over the last year, though, I’ve written a lot about Eastern Europe, which is getting lost in the story of the pain in the periphery (Italy, Spain, Portugal and Greece...whose figures come in later).

Eastern Europe receives a lion’s share of its funding for business from German and French banks and they’ve been pulling in their horns because of their exposure to the periphery. So this means the cost of funding has gone up for the likes of Czech Republic and Hungary and the 2012 GDP hits for them were -1.7% and -2.8%.

While there is talk of recovery, and stability, on the continent these days, Europe is still very much in recession. Stability is possible in 2013. But no one is talking growth. 

Meanwhile, in just a week’s time there is a critical election in Italy, Feb. 24-25, and former Prime Minister Silvio Berlusconi had cut the leading center-left party’s Pier Luigi Bersani’s lead to 5-6 points from 14 a month earlier as Berlusconi stoked fears over Italy’s economy.

But then Pope Benedict XVI submitted his resignation and media attention turned away from the election and towards Vatican City. Berlusconi, who owns the nation’s largest private broadcaster, desperately needs a media blitz if he is to have a shot at winning, but now with a polling blackout, there is no telling where he really stands.

One thing we do know. The result is bound to be chaotic and forming a coalition, whoever emerges victorious, is likely to create tremendous uncertainty throughout the continent. There is, after all, chance of contagion in the financial markets all over again if the process of forming a new government drags out too long, or if, heaven forbid, Berlusconi is the kingmaker.

Finally, a note on Japan. It was expected to report fourth quarter growth over the third of 0.4% but instead it fell 0.1% as that nation’s recession continues.

Regarding the issue of “currency wars,” which all started with new Japanese Prime Minister Shinzo Abe wanting to stoke growth in his country’s economy, the G20, meeting in Moscow on Friday, signaled it would not interfere in Japan’s plans. Christine Lagarde, managing director of the International Monetary Fund, said:

“The talk of currency wars is overblown. Yes, the euro has appreciated and yes, the yen has depreciated but that is the result of good policies in the eurozone and looser policy in Japan.

“There is no major deviation from the fair value of major currencies. The international financial system can work if each of its members follow the right policies for their economy.” [Financial Times]

Ah, not so fast, Ms. Lagarde. This topic is far from dead.

Street Bytes

--This week ended up being the dullest five days of trading in the history of the Solar System....OK, dullest since 2007. The S&P 500, for one, while finishing up a seventh straight week, tacked on just 0.1% and had the narrowest trading range since January ’07. Not to be outdone, the Dow Jones registered its second straight fractional decline, off 0.1% to 13981. Nasdaq also lost 0.1% to 3192. So it was a great week to be on a cruise, say, Carnival’s Triumph, for example....save for sloshing sewage and onion sandwiches.

The market was headed for a slightly more significant decline, including for the S&P, when it was reported on Friday that an internal email from Wal-Mart’s vice president of finance and logistics stated, “In case you haven’t seen a sales report these days, February MTD sales are a total disaster. The worst start to a month I have seen in my ~7 years with the company.”

As reported by Bloomberg News’ Renee Dudley, this followed another exec’s email commenting on January: “Have you ever had one of those weeks where your best-prepared plans weren’t good enough to accomplish everything you set out to do? Well, we just had one of those weeks here at Walmart U.S. Where are all the customers? And where’s their money?”

Yes, it could be about the payroll tax hike, especially for Wal-Mart’s clientele. The company’s shares fell $1.50 on the Bloomberg scoop.

--U.S. Treasury Yields

6-mo. 0.13% 2-yr. 0.27% 10-yr. 2.00% 30-yr. 3.18%

Retail sales for January were up 0.1%, as expected (but not good), and industrial production for the month fell 0.1% when a gain was forecast.

I just have to repeat that when it comes to the bond market, I won’t waste your time with blarney on rising yields until the 10-year gets to 2.25%. I’m in the bond bubble camp, in terms of an inevitable debacle, with investors at some point being shell-shocked when they look at their statements, but I do not believe that occurs this year because I see a soft global economy (let alone what the Federal Reserve has already telegraphed).

--Warren Buffett’s Berkshire Hathaway and Brazilian private equity giant 3G are acquiring Heinz for $28 billion. Heinz, aside from ketchup, owns brands such as Ore-Ida potatoes and Lea & Perrins Worcestershire sauce. I’ve never been a fan of ketchup. Instead I prefer the goodness of horseradish sauce...which detoxifies the liver.

The deal offers shareholders $72.50 a share, a 20% premium on the company’s all-time high share price. Heinz, which has been operating out of Pittsburgh since its founding, maintains it is committed to the Steel City, which is really no longer about steel but rather healthcare, with the largest employer being the University of Pittsburgh Medical Center.

But of immediate concern for Pittsburghers is whether or not the Pirates can finally break their North American professional sports record 20-season losing streak this year.

--US Airways Group Inc. finalized its merger with AMR Corp.’s American Airlines in an $11 billion all-stock deal that creates the world’s largest carrier. US Air CEO Doug Parker will run the new airline, which will retain American’s name, while AMR CEO Tom Horton becomes chairman. Parker said of the combined operation:

“One of the really nice things is how complementary the route networks are. Of over 900 routes, only 12 have any overlap, which is phenomenal.” [Bloomberg]

--Comcast is paying $16.7 billion to buy out General Electric’s remaining 49% stake in NBCUniversal. This comes just two years after Comcast acquired a 51% stake in NBCU. Comcast kicked in another $1.4 billion for NBCU’s floors at 30 Rockefeller Plaza, as well as CNBC’s headquarters in Englewood Cliffs, N.J.

GE sold the naming rights to 30 Rock but is retaining space in the building.

--Anheuser-Busch InBev NV offered to cede full control of Corona distribution in the U.S. to Constellation Brands Inc. for $2.9 billion in order to secure its purchase of Grupo Modelo after U.S. regulators sought to block the deal, which would have resulted in AB InBev and Grupo Modelo controlling 46% of the beer market in the U.S.

The Justice Department said it would give the new proposal “serious consideration.” I suspect DoJ will eventually drop its suit.

--In the Euro horsemeat scandal, on Thursday, French authorities named a French meat wholesaler as the main culprit, declaring that officials at Spanghero knowingly passed off cheap horsemeat as ground beef for frozen food sold throughout the continent. 

In Paris, the country’s consumer affairs minister said it appeared fraudulent meat sales had been going on for several months, reaching across 13 countries and 28 companies. Spanghero denied wrongdoing.

Horsemeat was found in lasagna and spaghetti dishes in the UK, Germany, Norway and Austria, at last report, while we learned the horsemeat originated with two Romanian slaughterhouses who maintain they clearly labeled their meat. [In fact, in hindsight, Romania’s prime minister, Victor Ponta, appears to have been right in expressing outrage his nation was unfairly singled out initially.] The meat was then bought by a Cyprus-registered trader and sent to a warehouse in the Netherlands.

Of course this whole story points to deficiencies in the food safety chain throughout the European Union.

--General Motors announced its third-straight profitable year after bankruptcy, with fourth-quarter earnings coming in at $1.19 billion, even as it lost $699 million in Europe for the quarter and $1.8 billion for the full year, compared with a loss of $747 million a year earlier. In January, Ford Motor Co. posted a $1.75 billion loss in Europe for 2012 and is projecting losses there of $2 billion in 2013.

On the positive side, GM earned $6.95 billion in 2012 from its North American operations, though this was down from $7.19 billion a year earlier. GM workers will receive profit-sharing bonuses of about $6,750 for 2012 vs. $7,000 the prior year.

One other item of note, GM’s sales in China rose 11% last year to 2.84 million vehicles.

--The EU and the United States vowed to complete talks on a new trade agreement within two years, touted by President Obama in his State of the Union. This has been talked about for decades but now the pressure is on to revive growth and create jobs. Any agreement would have to be approved by the EU’s 27 member states, the European parliament and the U.S. Congress.

Frankly, tariffs are already low and the two sides have long vowed to eliminate those that still exist so I don’t see what the big deal is. As individual issues arise, there should be a more concerted effort to resolve them quickly but I’m not so sure we need a big sweeping deal.

Actually, just keep the horsemeat out of my burgers and I’m a happy camper.

--China surpassed the U.S. to become the world’s biggest trading nation last year as China’s customs administration reported that the country’s total trade in goods in 2012 amounted to $3.87 trillion. U.S. exports and imports totaled $3.82 trillion. Economic growth averaged 9.9 percent a year in China from 1978 through 2012. [Bloomberg]

--Thomson Reuters is cutting 2,500 jobs, or about 4% of its work force. The cuts are coming out of the “Financial and Risk” division, which rents out trading terminals to the financial industry.

--Dutch banking and insurance group ING announced a further 2,400 job cuts, with 1,400 coming from the Netherlands and 1,000 coming out of ING Belgium. The total job cuts at ING are now 7,500 in the past 15 months.

--Barclays announced it is cutting 3,700 jobs, with about half coming from the investment banking division and the rest from the retail and business banking unit.

--A Bloomberg survey of its data reveals that financial firms around the world have announced over 114,000 layoffs the last year, or 1.6% of their combined workforces.

--Before the crash, 190,000 New Yorkers worked in the securities industry. This year the total is expected to drop to 167,000, according to Gotham’s Budget Office.

--Equity trading revenues at the 10 largest investment banks are down 40% from 2008. [Crain’s New York Business]

--Speaking of ‘crash,’ the last fatal commercial airline crash in the United States was four years ago, Feb. 12, 2009; the Colgan Air Flight near Buffalo that claimed 50 lives and was totally due to pilot error. This is the longest such stretch since the move to the jet age.

One reason for the tremendous safety record are the lengths the aviation industry goes to to examine each accident. 

--The Apple-David Einhorn tussle bores the hell out of me and thus I see nothing of value or import to pass on.

--On the other hand, the Dell / Silver Lake buyout is interesting from the standpoint that there is growing opposition to the $13.65 per share being offered, with T. Rowe Price (4.4% of Dell shares) and Southeastern Asset Management (8.4%) among those rejecting the figure. 

Dell says, hey, it’s a 37% premium on the average share price the previous three months, while those in opposition say, but the share price was $18 a year ago!

--Google CEO Eric Schmidt plans to sell $2.5 billion in stock over the next year as he cuts his stake by more than 40%. The announcement had zero impact on Google’s share price. I’ve offered to be Schmidt’s lawn jockey in exchange for a cot in his garage and free beer.

--Syndicated columnist George Will has joined the chorus of those calling for a breakup of the big banks. I totally concur. Writing in his Washington Post column, Will opined:

“In 2011, the four biggest U.S. banks (JPMorgan Chase, Bank of America, Citigroup and Wells Fargo) had 40 percent of all federal insured deposits. Today, the 5,500 community banks have 12 percent of the banking industry’s assets. The 12 banks with $250 billion to $2.3 trillion in assets total 69 percent. The 20 largest banks’ assets total 84.5 percent of the nation’s gross domestic product.

“Such banks have become bigger, relative to the economy, since the financial crisis began, and they are not the only economic entities to do so. Last year, the Economist reported that in the past 15 years the combined assets of the 50 largest U.S. companies had risen from around 70 percent of GDP to around 130 percent. And banks are not the only entities designated TBTF [too big to fail] because they are ‘systemically important.’ General Motors supposedly required a bailout because a chain of parts suppliers might have failed with it.

“But this just means that the pernicious practice of socializing losses while keeping profits private is not quarantined in the financial sector....

“By breaking up the biggest banks, conservatives will not be putting asunder what the free market has joined together. Government nurtured these behemoths by weaving an improvident safety net and by practicing crony capitalism. Dismantling them would be a blow against government that has become too big not to fail. Aux barricades!

--It is reported George Soros made almost $1 billion from bets that the yen would tumble, plus he had a bullish bet on Japanese stocks, which have rallied strongly as the yen has declined at the behest of Prime Minister Shinzo Abe. Back in 1992, Soros became a legend when he netted $1 billion on a bet the Bank of England would be forced to devalue the pound.

--It was revealed billionaire investor Carl Icahn has taken a 12.98 percent stake in controversial Herbalife, as Bill Ackman takes the other side of the trade, calling the nutritional supplements company a “pyramid scheme.” Ackman’s price is $50. The company has called his claim “bogus.” HLF shares finished the week at $38.75.

--Owing to a bad flu season, sales of orange juice in the U.S. rose 5.5% in volume terms in the month of January, the first such rise in two years.

--The Carnival Cruise Lines / Triumph debacle ended after five days with the disabled ship being towed into Mobile, Ala. Ten years ago I spent 25 days on the QE2, traveling from Los Angeles to Australia. I was bored to tears (and lived for the days in port). 

So with that experience, I got a kick out of some of the comments from passengers on Triumph. It all depended where you were on the ship. CNBC interviewed one guy about ten hours before the ship came into Mobile and he was all happy and such when finally he was asked where his cabin was located. ‘Oh, we have an outside room with a balcony so we have fresh air...’

Well, gee whiz, that makes all the difference in the world! If you had an inside cabin, with no natural light during the day (during a power failure), what a living hell that would be, forgetting the sanitation situation.

And note to those who haven’t taken a cruise but plan to in the future. Yes, inside cabins are far less expensive, but trust me, it’s worth paying up for an outside one. 

I also was pleased to hear the generally universal praise for the crew. These guys and girls are terrific. That was the best part of my cruise experience.

But will I ever take another one? Not likely.

--A National Hurricane Center report concluded Hurricane Sandy was the deadliest to hit the northeastern United States in more than 40 years and, by best estimate (admittedly tough to calculate), the second costliest storm next to Hurricane Katrina.

72 died from Virginia to New Hampshire – 48 in New York, 12 in New Jersey – directly because of the storm with falling trees killing 20.

But another 87 died with indirect ties to Sandy and about 50 of these were caused by extended power outages in frigid temperatures. Falls in the dark by senior citizens was sadly the cause of many of the after-storm fatalities as well.

--“For the first time in almost four years, investors deposited more money into American Funds than they pulled out in a single month.” [Jason Kephart / Investment News]

Ah yes, when I was in the fund business, American Funds was the 800-pound gorilla. Then they got their comeuppance...but over the long haul most of their funds have performed well.

--According to a survey conducted for the Allstate insurance company, more than four in 10 Americans are living paycheck to paycheck and nearly one in 10 doesn’t earn enough to pay for essentials. At least 52% say they’re better off than when they were growing up. [Walter Hamilton / Los Angeles Times]

Foreign Affairs

North Korea: Pyongyang, as expected, conducted its third nuclear test, the first two being in 2006 and 2009, with an official statement saying in part: “The test was conducted in a safe and perfect way on a high level, with the use of a smaller and light A-bomb, unlike the previous ones, yet with great explosive power.”

The statement added the test was aimed at coping with “the ferocious hostile act of the U.S.,” referring, it seems, to Washington’s attempts to block its recent satellite launch, after which the U.N. levied more sanctions.

North Korea is estimated to have enough weaponized plutonium for 4-8 bombs, according to American nuclear scientist Siegfried Hecker, who was the first outsider shown North Korea’s previously hidden uranium-enrichment facilities, and the huge concern on the part of the U.S. and its allies is whether Pyongyang not only exploded a uranium-based device for the first time, but are they rapidly gaining the know-how to miniaturize a warhead so it can fit on a long-range missile that can reach the U.S.

As of today, it’s not known if the device was plutonium or highly enriched uranium, but understand uranium centrifuges, unlike a plutonium-based program, can be hidden from satellites and drones. North Korea did offer a clue in using the word “diversified” in discussing their nuclear deterrence.

Meanwhile, Beijing expressed its “staunch opposition” but called for “all parties concerned to respond calmly.”

Nonetheless, it will be interesting to see how new leader Xi Jinping handles the relationship with his neighbor. If Xi isn’t tough on the North, Japan and South Korea are likely to pursue their own nuclear programs, which they may do so anyway. The United States will step up its missile defense efforts in the region, too.

Nuclear weapons expert Graham T. Allison Jr. / New York Times

“The most dangerous message North Korea sent Tuesday with its third nuclear weapon test is: nukes are for sale.

“The significance of this test is not the defiance by the North Korean leader, Kim Jong-un, of demands from the international community. In the circles of power in Pyongyang, red lines drawn by others make the provocation of violating them only more attractive.

“The real significance is that this test was, in the estimation of American officials, most likely fueled by highly enriched uranium, not the plutonium that served as the core of North Korea’s earlier tests. Testing a uranium-based bomb would announce to the world – including potential buyers – that North Korea is now operating a new, undiscovered production line for weapons-usable material....

“As the former secretary of defense Robert M. Gates put it, history shows that the North Koreans will ‘sell anything they have to anybody who has the cash to buy it.’ In intelligence circles, North Korea is known as ‘Missiles ‘R’ Us,’ having sold and delivered missiles to Iran, Syria and Pakistan, among others.

“Who could be interested in buying a weapon for several hundred millions of dollars? Iran is currently investing billions of dollars annually in its nuclear quest. While al-Qaeda’s core is greatly diminished and its resources depleted, the man who succeeded Osama bin Laden, Ayman al-Zawahiri, has been seeking nuclear weapons for more than a decade. And then there are Israel’s enemies, including wealthy individuals in some Arab countries, who might buy a bomb for the militant groups Hizbullah or Hamas.

“President Obama has rightly identified nuclear terrorism as ‘the single biggest threat to U.S. security.’ If terrorists explode a single nuclear bomb in an American city in the near future, there is a serious possibility that the core of the weapon will have come from North Korea.”

China / Japan: A senior Japanese diplomat will visit Beijing next week for talks on the nuclear test carried out by North Korea, this as tensions between Beijing and Tokyo are still running high over the territorial dispute in the East China Sea. Tokyo alleged last week that the People’s Liberation Army Navy frigates had locked fire-control radar on a Japanese military helicopter and destroyer in separate incidents. Japanese Prime Minister Shinzo Abe demanded an apology and none was forthcoming.

Iran: As Iran prepares to meet in Kazakhstan later this month with representatives of the United States, Britain, France, Russia, China and Germany (the P5+1), there were all manner of signs that Iran is plowing ahead with its nuclear program at worrisome speed.

The Washington Post reported that Iran attempted to buy 100,000 ring-shaped magnets, prohibited by UN sanctions because they can be modified for use with centrifuges to enrich uranium. As reported by Joby Warrick, this was “a sign that the country may be planning a major expansion of its nuclear program that could shorten the path to an atomic weapons capability.”

Iran also announced it was installing 3,000 new centrifuges at Natanz, which experts say can speed up the enrichment process by up to 50%.

And the International Atomic Energy Agency said talks with Iran on gaining access to a site suspected of being used to test bomb triggers failed. IAEA Director General Yukiya Amano said “The outlook is not bright.”

So everything points to a stepped up effort, making coming talks flat-out stupid.

Even U.N. Secretary General Ban Ki-moon (who is turning out to be pretty good) said in an interview with the Post that “We should not give much more time to the Iranians, and we should not waste time. We have seen what happened with the DPRK. [North Korea] 

“It ended up that they [were] secretly, quietly, without any obligations, without any pressure, making progress,” Ban said.

The Washington Post also reported that Iran is building a network of militias in Syria to work alongside Hizbullah should ally Assad fall. Iran is seeking a force of 50,000 militiamen in the country to protect its interests. This week, Iran announced a top Revolutionary Guard Corps general had been assassinated in Syria.

Separately, the Obama administration is finally putting pressure on Tehran to release Iran’s two top opposition leaders, Mir Hossein Mousavi and Mehdi Karroubi, who have been under house arrest for two years after charging the government with rigging the 2009 presidential election. The White House heretofore has said little on the topic. Mousavi and Karroubi’s families also continue to get harassed.

Syria: There was a suicide bombing at a border crossing with Turkey, with 12 killed. 3,000 refugees a day are now crossing into Lebanon, whose refugee population will expand to 500,000 by May...this in a country of just four million; a disaster waiting to happen. Having hundreds of thousands of Sunni Muslim Syrians can only inflame sectarian tensions.

5,000 overall are leaving Syria every day, with a total of one million having fled, both registered refugees and unregistered, while two million others are displaced in the country. The U.N. Human Rights Commission now puts the death toll at 70,000.

And as a story in the New York Times on Friday by J. Malcolm Garcia put it, the Islamists are winning over the hearts and minds vs. the rebels. The Islamists have a vision, and the experience at dolling out social services, while the rebels flounder in terms of direction. As one man told the Times, “I had a shop, but when the revolution came to Aleppo I couldn’t stock it, so I sold everything. Islamic youth organizations now give us flour. We need bread, at least, just to live. We support the Free Syrian Army, but the Islamists let us eat.”

The people are just looking for normalcy at this point and will accept anyone who can give that to them.

Israel: Prime Minister Benjamin Netanyahu has until approximately mid-March to form a new coalition after the Jan. 22 elections or President Shimon Peres can tab someone else to give it a go (though I see no signs of this being a possibility, as yet). That said, Netanyahu is not finding success as second-place finisher Yesh Atid is coordinating its moves with Bayit Yehudi. The two are led by charismatic leaders, Yair Lapid for Yesh and Naftali Bennett for Bayit, and aside from having large egos, they have somewhat different agendas on some issues. Ergo, Netanyahu is scrambling

At the same time, the prime minister has to focus on Iran and the chemical weapons threat coming from Syria. The installation of the faster centrifuges in Iran, for example, caused Netanyahu to state this week that Tehran is closer to crossing his red line, as outlined in a speech at the U.N. in September; “what they are doing is shortening the time it will take them to cross that line.”

Afghanistan: U.S. casualties are declining as Afghans now lead over 80% of combat operations. In his farewell speech last week, Marine Gen. John Allen said “this is what winning looks like.”

But as Daoud Sultanzoy, a political analyst in Kabul told the Los Angeles Times, “The U.S. political climate is such that the administration has to show some sort of good news to justify [the troop exit], and that is dictating what is being shown in terms of progress, even if there isn’t any.”

There remains little sign that the Afghan army and security forces are competent enough to hold the country once the U.S. fully leaves end of 2014.

Iraq: Not for nothing but sectarian tensions are soaring as Sunnis call for Prime Minister Nouri al-Maliki to resign. There have been huge turnouts at protests, largely peaceful thus far, but as the head of Fallujah’s local council told the Washington Post’s Liz Sly, “we don’t know for how long they (the masses) will be patient.”

Kimberly Kagan and Frederick W. Kagan / Washington Post

“Iraq teeters on the brink of renewed insurgency and, potentially, civil war.

“This crisis matters for America. U.S. vital interests that have been undermined over the past year include preventing Iraq from becoming a haven for al-Qaeda and destabilizing the region by becoming a security vacuum or a dictatorship that inflames sectarian civil war; containing Iranian influence in the region; and ensuring the free flow of oil to the global market.”

Maliki has been targeting Sunni officeholders and/or their bodyguards, including the recent arrest of Vice President Tariq al-Hashimi’s security detail. Hashimi then fled to Turkey and is unlikely to return, having been sentenced to death in absentia for murder and financing terrorism.

“Al-Qaeda in Iraq has already taken advantage of this situation through its front group, the Islamic State of Iraq, which deployed combat teams in Fallujah last month that targeted Iraqi army positions and killed several soldiers....The group is back in the havens it held in 2006. If Maliki does not allow proper Sunni representation in government, al-Qaeda will gain greater popular tolerance and foreign support. [Ed. see above comments on Syria and how the Islamists are winning the hearts and minds.]

“Over the past year, the situation in Iraq has become explosive while sectarian sentiment and armed violence in neighboring nations have escalated dramatically. Americans have become accustomed to watching Iraq approach the precipice and draw back. But circumstances have changed with the withdrawal of all U.S. forces and Maliki’s year-long efforts to intimidate his opponents through political, judicial and military maneuvers. If Maliki does not accept many of the protesters’ reasonable demands and allow meaningful Sunni participation in government, prospects for stopping Iraq’s descent into sectarian conflict are grim.”

Mali: Little news, which is good. Islamists attempted to retake the northern city of Gao after French troops left but when they returned to help the Malian forces, the terrorists fled again. Ghana’s president warned France not to make a hasty withdrawal from Mali before African forces are fully able to takeover peacekeeping duties and I hope the French understand that as well.

Russia: As I go to post, the number injured in the meteor crashing into Russia’s Ural mountains is 1,100, as the shockwave blew out windows and rocked buildings. Most suffered cuts from flying glass but at least 46 remained in hospital. The meteor’s dramatic entry was even witnessed in Kazakhstan.

It is said the explosion that resulted was at a level of an atomic bomb.

Suffice it to say, there was panic in some parts. It was a UFO that crashed to earth, many surmised. Ultranationalist political leader Vladimir Zhirinovsky said the event was a U.S. weapons test.

When you see the videos that have been emerging, I’m struck by those taken in schools, with the meteor striking at 9:20 a.m. local time. I just can’t imagine how frightening it must have been.

One Chelyabinsk resident told BBC News, “I was in the office when suddenly I saw a really bright flash in the window in front of me. Then I smelt fumes. I looked out the window and saw a huge line of smoke, like you get from a plane but many times bigger. A few minutes later the window suddenly came open and there was a huge explosion, followed by lots of little explosions.”

While the meteor broke into a number of pieces, the largest piece landed in a lake 1km outside a city of 46,000. A Russian army spokesman said a crater 20-feet wide had been found on the shore of the lake.

The Russian Academy of Sciences estimates the meteor weighed about 10 tons and entered the Earth’s atmosphere at a speed of 33,000 mph.

Venezuela: President Hugo Chavez hasn’t been seen in public since December 11 when he went to Havana for his fourth operation in 18 months, but on Friday, the government released photos it says were taken Thursday night, Chavez smiling as he lies in bed reading a newspaper, with his two daughters at his side. The Information Minister said that as Chavez was breathing through a tracheal tube, it was difficult for him to speak, but that he was writing down orders. The vice president, Nicolas Maduro, did admit on Wednesday that Chavez’ cancer treatments have been “extremely complex and tough.”

Random Musings

--Daniel Henninger / Wall Street Journal

“Here’s what has to be understood. It’s all about him.

“A State of the Union speech normally is about relating a president’s public policies to conditions in the country. An Obama State of the Union speech is about one thing: the Obama project.

“It would be unfair to say that everything and everyone else in a complex world are irrelevant. But let’s be clear about the priorities: Congress, the Cabinet of courtiers, the press, the people and indeed the national problems described in that State of the Union speech – it’s all brick and mortar in the future Obama monument.

“That we are all just riding in Barack Obama’s sidecar should have been obvious from day one. His 2008 Denver acceptance speech enveloped nearly everything. The vast, sweeping goals he then laid out in January 2009 are virtually the same ones he described Tuesday night – the climate cleansed, education for all, social justice achieved and the drowning middle-class saved....

“Commentary from right to left after the speech noted the mismatch between its goals and money available in any conceivable federal budget. So why is he doing this? More to the point, what have we gotten ourselves into with this president?

“Well, it’s big. Mr. Obama by his own statements has made clear that he’s at the center of something larger than the mere here and now.

“In a 2011 CBS interview he said, ‘I would put out legislative and foreign policy accomplishments in our first two years against any president – with the possible exceptions of Johnson, FDR and Lincoln, just in terms of what we’ve gotten done in modern history.’....

“It’s about him and history. Everything is a function of mobilizing the base on behalf of the Obama project. The now-famous Obama campaign media operation in place the past four years has now reincarnated as Organizing for Action, essentially a mega-flack machine for selling the project.

“And that’s a danger. Barack Obama is indeed in sync with the public will, so much so that he has largely dismissed and devalued the rest of the system, specifically Congress and the courts. In the next four years, that could prove to be a problem.”

--Editorial / Washington Post

“Three major U.S. newspapers – The Washington Post, the New York Times and the Wall Street Journal – reported recently that Chinese intruders hacked into their computer networks, snooping for passwords and information about coverage of China....

“China denies carrying out cyber-espionage, theft and disruption. But there is a growing amount of evidence that it is behind one of history’s great heists of intellectual property, a vast and multi-tentacled collection drive aimed at corporations, the U.S. government, universities, stock exchanges and think tanks, among others....

“China’s motivation in economic espionage is to steal technology that will help leapfrog generations of development; going after the military and newspapers is more like classic spying. The U.S. government spies on China, too, although U.S. intelligence agencies do not steal technology for the private sector.

“All of this raises a question: How should the United States respond? In the absence of action by Congress, President Obama has just issued an executive order intended to help the private sector defend against cyberattacks by China and others. But discussions with China itself have gone nowhere. The time is ripe for something stronger....

“China is no longer the poor and isolated nation of Mao’s day. In cyberspace, it must behave like a global economic superpower and not like a petty pickpocket.”

--New Jersey Democratic Senator Frank Lautenberg, 89, announced he will not run for reelection to a sixth term next year, thus clearing the way for Newark Mayor Cory Booker. Thank god. I’m on record as having no problem with Booker, but was astounded Lautenberg was even considering running again.

Granted, Booker doesn’t have a clear path. There should be quite a primary fight, but I don’t see a Republican who can defeat him. It will also be interesting to see how Chris Christie acts. The governor, who had a private fundraiser thrown for him in Palo Alto by Facebook founder Mark Zuckerberg this week, will cruise to reelection this year and then position himself for a presidential run in 2016. He likes Booker and they get along fine, but he can’t exactly endorse the guy.

--In recommending Amity Shlaes’ new biography of Calvin Coolidge, George Will notes in his Washington Post op-ed:

“During the 67 months of his presidency, the national debt, the national government, the federal budget, unemployment (3.6 percent) and even consumer prices shrank. The GDP expanded 13.4 percent.”

Will adds:

“He met his wife, the vivacious Grace, after hearing her laughter when she saw through a window him shaving while wearing a hat. Shlaes’ biography would be even more engaging had she included this oft-repeated anecdote:

“When President and Mrs. Coolidge were being given simultaneous but separate tours of a chicken farm, Grace asked her guide whether the rooster copulated more than once a day. ‘Dozens of times,’ she was told. ‘Tell that to the president,’ she said. When told, Coolidge asked, ‘Same hen every time?’ When the guide said, ‘A different one each time,’ the president said: ‘Tell that to Mrs. Coolidge.’”

--I like Utah Republican Congressman Jason Chaffetz and got a kick out of this blurb in U.S. News & World Report Weekly by Kira Zalan:

“The Republican Party may be searching for the most electable candidate, but it has undoubtedly found its comedic headliner. ‘Republicans are trying to turn over a new leaf, bring diversity to the party. So they sent me, a white, male, conservative, Mormon from Utah to speak to you tonight,’ said Rep. Jason Chaffetz at the Washington Press Club Foundation’s 69th annual Congressional Dinner this week. ‘Reality is, I am the only demographic Republicans have left.’...

“ ‘I do have to give President Obama credit for one thing. Just when we’ve all pretty much decided that the president is the most arrogant man in Washington, he manages to remind us about John Kerry. And just when we’ve decided that John Kerry is the most arrogant guy in town, the president then brings back Chuck Hagel.’”

--Speaking of Hagel, his confirmation has been put on hold by Senate Republicans until they return from their recess Feb. 26 as some seek more information on his post-Senate career.

--Talk about a dirtball...we learned on Friday that former Illinois Congressman Jesse Jackson Jr. misused $750,000 in campaign funds for purchases including a Michael Jackson hat, an Eddie Van Halen guitar and a $40,000 Rolex watch. Jackson was charged in federal court in Washington with conspiracy, part of his plea deal. His wife was charged in a separate case with filing false tax returns.

In an emailed statement, Jackson said in part: “Over the course of my life I have come to realize that none of us are immune from our share of shortcomings and human frailties.”

I’m biting my tongue.

--I have nothing to say about the whole Christopher Dorner case, except to note what many of us are now thinking, courtesy of the Los Angeles Times:

“It is unclear how long Dorner...was hunkered down in the cabin...in the snowy mountains near Big Bear. But the cabin was so close to the manhunt command post and to an adjacent press area that countless police and reporters would have fallen in his line of vision.”

One word....incompetence.

--Finally, I think an editorial in the New York Post best summed up my own opinion, as a Catholic, on the resignation of Pope Benedict XVI.

“(We) find ourselves struck by the great courage and selflessness of his decision of his decision to step down from the chair of St. Peter.

“We suspect many of the faithful may find a papal abdication more unsettling than a papal death. Over the centuries, Catholics have known popes who have been martyred, popes who have been kidnapped, popes who have endured all manner of suffering. The last time a pope voluntarily resigned his office was way back in 1294.

“That’s what you would expect from an office that calls to mind the challenge Jesus put to his Apostles: Can you drink from the cup of my suffering?

“So in Pope Benedict’s resignation we see heroism. He explained his decision simply: ‘After having repeatedly examined my conscience before God, I have come to the certainty that my strengths, due to an advanced age, are no longer suited to an adequate exercise of the Petrine ministry.’

“It strikes us that in these words are a recognition of today’s new realities. Modernity has brought a longer human lifespan – but it has also meant increased demands on the papacy. Pope Benedict no doubt believes that the cost to the faithful of an incapacitated pope is unacceptably high; having reached that conclusion, he is now following through in the way we have come to expect: with no regard for ego.

“This is the cross given Joseph Ratzinger, and he has shown his love for his church by embracing it. On this sad day, we salute the humble priest from Bavaria who became pope – and the great gift of his witness for all men and women of goodwill.”

Of course there were countless other editorials on Benedict XVI’s eight years as pope, many not so favorable as he fiercely resisted change.

For 14 years in writing this column, I have steered clear of discussions on religion, with few exceptions. I’m not about to start now. I will just state, as I have in the past, that since the scandals in my church first broke, I have not been a regular church goer but I remain a person of faith, which is why I can in good conscience continue to close each week in the manner that I do.

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

God bless America.
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Gold closed $1608...lowest weekly close since 8/3/12
Oil, $95.96

Returns for the week 2/11-2/15

Dow Jones -0.1% [13981]
S&P 500 +0.1% [1519]
S&P MidCap +0.6%
Russell 2000 +1.0%
Nasdaq -0.1% [3192]

Returns for the period 1/1/13-2/15/13

Dow Jones +6.7%
S&P 500 +6.6%
S&P MidCap +9.3%
Russell 2000 +8.7%
Nasdaq +5.7%

Bulls 52.6
Bears 21.1 [Source: Investors Intelligence]

Nightly Review video schedule this week...Tues. thru Thurs. [Market closed on Monday]

Enjoy the holiday. I appreciate your support.

Brian Trumbore