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02/23/2013

For the week 2/18-2/22

[Posted 12:00 AM ET]

Washington

On to the sequester, March 1. President Barack Obama warned Congress “people will lose their jobs” if deep budget cuts are allowed to take effect. The $85 billion in cuts was a harmful, “meat-cleaver approach” to deficit reduction. “These cuts are not smart, they are not fair, they will hurt the economy. This is not an abstraction. People will lose their jobs.”

Obama said that while he was open to cutting back on unsuccessful or unnecessary government programs, he accused Republicans of “ideological rigidity” for opposing tax increases.

Instead, he proposes closing some tax loopholes to increase revenue, and backed a budget plan put together by Senate Democrats last week. But the Democratic plan does not include any changes to entitlements.

Republicans have supported the idea of closing some loopholes, but they say the changes should be part of a broader overhaul of the tax code.

Meanwhile, Alan Simpson and Erskine Bowles proposed a new plan to cut the deficit, rewrite the tax code and implement deep spending cuts.

The new $2.4 trillion Simpson-Bowles effort, call it 2.0, identifies $600 billion in spending reductions through changes to health-care programs such as Medicare and Medicaid; $600 billion in deficit-reduction from curbing or ending a number of tax breaks; and $1.2 trillion from lower caps on discretionary spending – such as in changing the way cost-of-living increases are calculated for Social Security checks and other government benefits, cuts to farm subsidies, and changes to military and civilian retirement programs.

Good...to all three components. But Democrats don’t like the changes to entitlements, Republicans don’t want any further tax increases, and both don’t have the guts to tackle the Pentagon’s programs for health-care and pension benefits.

As the Washington Post editorialized:

“(There’s) almost no point debating the specifics, because there’s little chance of a ‘grand bargain’ along Simpson-Bowles lines....

“Meanwhile, Mr. Obama seems content to warn of dire cutbacks in everything from naval operations to firefighters and to accuse the GOP of risking them to protect the wealthy. The Republicans denounce the sequester as Mr. Obama’s brainchild (though they accepted it as part of a 2011 budget deal) and say they won’t vote for any more tax increases. Both sides are obviously playing a political blame game, which must give way to serious bargaining soon – or the country will be the loser.”

Editorial / Wall Street Journal

“Americans need to understand that Mr. Obama is threatening that if he doesn’t get what he wants, he’s ready to inflict maximum pain on everybody else. He won’t force government agencies to shave spending on travel and conferences and excessive pay and staffing. He won’t demand that agencies cut the lowest priority spending as any half-competent middle manager would.

“It’s the old ploy to stir public support for all government spending by shutting down vital services first. Voters should scoff at the idea that a $3.6 trillion government can’t save one nickel of every dollar that agencies spend. The $85 billion in savings is a mere 2.3% of total spending. The agencies that the White House says can’t save 5% received an average increase in their budgets of 17% in the previous five years – not counting their $276 billion stimulus bonus....

“Mr. Obama just whacked the economy with a roughly $160 billion tax increase in 2013 that he says will do no harm, but he wants us to believe that $85 billion in spending cuts will trigger a recession.”

Peggy Noonan / Wall Street Journal

“It is always cliffs, ceilings and looming catastrophes with Barack Obama. It is always government by freakout.

“That’s what’s happening now with the daily sequester warnings. Seven hundred thousand children will be dropped from Head Start. Six hundred thousand women and children will be dropped from aid programs. Meat won’t be inspected. Seven thousand TSA workers will be laid off, customs workers too, and air traffic controllers. Lines at airports will be impossible. The Navy will slow down the building of an aircraft carrier. Troop readiness will be disrupted, weapons programs slowed or stalled, civilian contractors stiffed, uniformed first responders cut back. Our nuclear deterrent will be indefinitely suspended. Ha, made that one up, but give them time.

“Mr. Obama has finally hit on his own version of national unity: Everyone get scared together....

“(Obama) thrives in chaos. He flourishes in unsettled circumstances and grooves on his own calm. He spins an air of calamity, points fingers and garners support. His only opponent is a hapless, hydra-headed House. America has a weakness for winners, and Republicans just now do not look like winners. They have many voices but no real voice, and no one saying anything that makes you stop and think. Mr. Obama, on the other hand, is a singular character who tells you in measured tones that we must have measured answers. Half the country finds his politics to be too much to one side, but his temperament is not extreme and he often looks reasonable. With this gift he ties his foes in knots to get what he wants, which is higher taxes. He wants the rich to pay more and those he judges to be in need to receive more. End of story. Debt and deficits don’t interest him, except to the extent he must give them lip service.

“And so far this seems to be working fine for him. A USA TODAY/Pew Research Center poll out this week reported half the respondents said it will be the Republicans’ fault if the sequester goes through. Only a third said they’d blame the president.”

---

As to the economy, January housing starts were worse than expected, down 8.5%, while existing home sales for the month were in line. Shares in the homebuilders cratered after a long run-up amid the uncertainty as to whether the housing recovery is still in place.

More importantly in the here and now, various retailers ranging from Wal-Mart to Burger King to Kraft lowered their forecasts as the expiration of the payroll tax cut is having an impact, as are rising gasoline prices. Refinery closures are leading to tighter supply than usual for this time of year, when there are normally shutdowns for maintenance, but inventories were already down due to Hurricane Sandy and the refinery issues that caused, plus oil prices are higher than they were a few months ago.

Meanwhile, the Federal Reserve’s Open Market Committee released its minutes from the January meeting and there was a feeling among some FOMC members that QE3 – quantitative easing and the Fed’s bond buying / asset purchase program – should end sooner than first announced, which was essentially when the unemployment rate fell to 6.5% (or if inflation went crazy). The Fed’s balance sheet is now over $3 trillion, on its way to $4 trillion by year end, and so how, when that inevitable day arises, do you begin to wind it all down?

According to the minutes, “a number of participants stated that an ongoing evaluation of the efficacy, costs and risks of asset purchases might well lead the committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred.”

But others believe stopping the program too soon could damage the economy and on Friday, one of the Fed’s voting members, James Bullard, deemed to be a moderate, strongly suggested that the Fed will carry on with its plan as is, which gave the stock market a big lift. Specifically, Bullard said “Fed policy is going to stay easier for a long time.”

In addressing the jobs outlook, however, Mortimer Zuckerman had the following in an op-ed for  the Wall Street Journal.

“After four years America remains in a jobs depression as great as the Great Depression....

“The jobless today are much less visible than they were in the 1930s because relief is organized differently.  Today in the ‘recovery,’ the millions are being assisted, out of sight, by government checks, unemployment checks, Social Security disability checks and food stamps.

“More than 48 million Americans are in the food-stamp program – an almost incredible record. That is 15% of the total population compared with the 7.9% participation in food stamps from 1970-2000. Then there are the more than 11 million Americans who are collecting Social Security checks to compensate for disability, also a record. Half have signed on since President Obama came to office. In 1992, there was one person on disability for every 35 workers; today it is one for every 16.

“Such an increase is simply impossible to connect to direct disability experienced during employment, for it is inconceivable that work in America has become so dangerous. For many, this disability program has become another form of unemployment compensation, only this time without end.

“But the predicament of our times is worse than that, worse in its way than the 1930s figures might suggest. Employers are either shortening the workweek or asking employees to take unpaid leave in unprecedented numbers. Neither those on disability nor those on leave are included in the unemployment numbers.”

What a country.

Europe

First some data points.

Car sales (what they call ‘registrations’) in the Euro-17 fell 8.7% in January from year ago levels; the worst start to a year since the Euro Automobile Manufacturers Association began tracking such data in 1990. 

Sales in Germany were down 8.6%, down 15% in France, 18% in Italy and 9.6% in Spain.

Ford’s sales in the Euro region were down 26%. This is after Euro-wide sales in 2012 hit a 17-year low for the company.

A composite index of euro-area services and manufacturing contracted in February, according to Markit’s flash report (final reading March 3).

The Euro-17 fell to 47.3 from 48.6 in January (50 being the dividing line between growth and contraction), with the services PMI also falling to the same 47.3 from 48.6, while manufacturing slipped to 47.8 from 47.9.

Germany’s services measure fell to 54.1 from 55.7, while manufacturing rose to 50.1. Germany’s comp was 52.7 vs. 54.4 last month.

But France’s services PMI fell to 42.7 from 43.6, with manufacturing ticking up to 43.6 from 42.9. Both absolutely putrid.

And now the EU is forecasting the eurozone as a whole will shrink 0.3% this year. The Commission had predicted growth of 0.1% in November. France is expected to grow just 0.1%, Germany 0.5% for the full year. [Spain is forecast to contract another 1.5%, Italy 1.0%, Portugal 1.9%, and Greece 4.4%.]

Michael Stothard and Ralph Atkins of the Financial Times had a piece on bank borrowing that summed up a topic I’ve hammered away at...the difference in obtaining credit between the haves and the have nots.

“Businesses in the core of the eurozone are cashing in on easy monetary policy to borrow at record low rates, while those based in the periphery are still struggling to find market funding, according to new data.

“Barclays analysis of European Central Bank data suggests that companies based in the ‘core’ of the bloc have been the main beneficiaries of the central bank’s promise last June to do ‘whatever it takes’ to save the eurozone.

“Companies based in France, Germany, Belgium and Holland were able to borrow a net 37 billion euro of ultra-cheap debt from the markets in the second half of last year, following the announcement.

“But companies based in Italy, Spain, Portugal and Greece added only about 12 billion euro of market borrowing, with only the biggest companies such as Telecom Italia and Telefonica able to access the capital markets.”

On a net level, there was a 65 billion reduction in bank lending in the periphery, a 43 billion decline in bank lending in Spain in the second half.

In Italy, a final poll ahead of the Sunday-Monday election had Pier Luigi Bersani’s union-backed Democratic Party with 33.8% of the vote, former Prime Minister Silvio Berlusconi with 27.8%, ex-comedian Bepe Grillo with 18.8% and Prime Minister Mario Monti fourth at 13.4%.

In Greece, there was a general strike with one protester telling the AP, “We are faced with a societal explosion if any more pressure is put on society.”

Not only are Greece’s 1.35 million unemployed (out of a total population of 11 million) unable to make ends meet, but a growing number of those still employed are struggling to feed, heat and clothe themselves – and pay the hefty taxes the government is levying in an attempt to turn the economy around. 450,000 households have no one employed. It’s a broken society. As one unemployed mother of two told the AP:

“Greece is not a country of bright lights and flashy events. It’s a country with people committing suicide, of those unable to feed their kids properly, or who steal from the supermarket...It’s happening to everybody. We are these people.”

According to researchers, two-thirds of employees in the hammered private sector no longer receive regular pay. The government estimates 3.6 million are working, with 1.6 million employed by private-sector companies – down from around 2.5 million before the crisis broke in 2010. Only 600,000 are left who still work an eight-hour day and are paid regularly. Said one professor in Athens, “The remainder – a million workers – have had their hours cut or are getting paid late, four or five months late. They are in a state of desperation.”

As noted above, GDP is expected to fall another 4%+ this year after a five-year depression. The jobless rate is 27%, on its way to 30%. The youth unemployment rate is a sickening 61.7%.

And in Bulgaria, Prime Minister Borisov resigned and dissolved parliament. Even after days of protests over austerity measures this shocked the country.

Borisov had frozen salaries and pensions rather than cutting them. But higher energy costs, low living standards and new corruption allegations did in the government.

Borisov said the threat of protests turning violent spurred his decision. “I cannot stand looking at a bloody Eagles’ Bridge,” referring to an iconic intersection in Sofia that was the scene of bloody clashes between police and protesters on Tuesday. “Every drop of blood is a shame for us.”

Cyber War

The New York Times had an extensive story Monday on China’s military operating one of the world’s “most prolific cyber espionage groups,” according to cyber security firm Mandiant, which supplied the Times first with a detailed report.

It’s called Unit 61398 or “Comment Crew” and is believed to have “systematically stolen hundreds of terabytes of data” from at least 141 organizations around the world.

Officials at the Chinese Embassy told the Times that hacking is illegal under Chinese law and that its government does not engage in it.

For its part, Mandiant said it investigated hundreds of data breaches since 2004. Mandiant said the details it uncovered “convince us that the Chinese government is aware of them.”

The most aggressive hacking unit was traced to a 12-story, non-descript building in an area of Shanghai, the precise location where Unit 61398 of the People’s Liberation Army is located.

The Times reports the hackers stayed inside networks for an average 356 days, with the longest lasting 1,764 days.

Here’s what most worrisome. According to Mandiant, the companies increasingly targeted are involved in the critical infrastructure of the United States – like the electrical power grid, gas lines and waterworks.  “According to the security researchers, one target was a company with remote access to more than 60% of oil and gas pipelines in North America.”

Mike Rogers, Republican chairman of the House Intelligence Committee, told the Times that Mandiant’s report was “completely consistent with the type of activity the Intelligence Committee has been seeing for some time.”

Chinese Foreign Ministry spokesman Hong Lei denied Mandiant’s accusations.

“Cyberattacks are anonymous and transnational and it is hard to trace the origin of attacks, so I don’t know how the findings of the report are credible.”

It was back in October that Defense Secretary Leon Panetta said in a speech that China was “rapidly growing” its cyber capabilities.

“In my visit to Beijing, I underscored the need to increase communication and transparency with each other so that we could avoid a misunderstanding or miscalculation in cyberspace,” he said, while also calling for greater information sharing about cybersecurity between private enterprise and the government.

Akamai Technologies, which monitors large amounts of web traffic, said in the third quarter of 2012, China was the world’s No. 1 source of observed attack traffic, 33% of the total which was more than double the 16% registered in the second quarter. [Wall Street Journal]

Former FBI executive assistant director Shawn Henry told the Associated Press:

“If the Chinese government flew planes into our airspace, our planes would escort them away. If it happened two, three or four times, the president would be on the phone and there would be threats of retaliation. This is happening thousands of times a day. There needs to be some definition of where the red line is and what the repercussions would be.”

Editorial / Wall Street Journal

“The world has never seen a state devote such large resources to siphoning off data from private companies to advance a broad range of national interests, political and economic. China’s penchant for online theft and sabotage could change the world economic order.

“If that seems an overstatement, consider that the Industrial Revolution and successive waves of innovation have depended on a legal and cultural framework that allows entrepreneurs to profit from their ingenuity and hard work. In China and other authoritarian regimes by contrast, tycoons typically rise and maintain their position through political clout or corruption. They have always been free-riders on the free market’s creative power.

“Until now China did little damage to innovators and even helped them, for instance, by supplying the labor to build Steve Jobs’ gadgets. But Beijing now seems intent on abusing the world’s economic rules to such an extent that it threatens the prosperity of everyone else. No wonder former Google CEO Eric Schmidt writes in a forthcoming book that China’s hacking and control over information make it dangerous....

“The Soviet Union threatened the capitalist West using overt military might and political subversion. The danger from Chinese hacking is more insidious because Beijing purports to play by the rules while subverting them with tools that are hard to track and stop. Beijing has calculated that in order for Chinese companies to continue to grow at breakneck speed, they need to cheat. The effect could be to drag the West back to a world in which companies and states must work hand in glove instead of at arm’s length....

“Beijing has long wanted to showcase the triumph of ‘socialism with Chinese characteristics,’ and in a way it has. Its defining characteristic is theft.”

Ralph Peters / New York Post

“Our military and intelligence services know the situation has gone beyond the Chinese preparing for cyber-war: Beijing’s already waging war against us.

“It’s not that we can’t fight back. We have stunning, close-held capabilities to respond with punishing cyber-strikes of our own. We have the intelligence. We have the targets.

“But the order never comes.

“We’re bleeding money, government secrets, technology secrets, corporate strategies – and seem to have suffered trial attacks on our critical infrastructure. Why won’t the Obama administration do anything to retaliate against Chinese cyber-assaults?

“Playing defense doesn’t cut it. The Chinese won’t throttle back until they feel pain. Serious pain.

“There are four possible reasons for President Obama’s inaction – only one of them faintly valid:

Our own businessmen put profit over patriotism. The minority of U.S.-based corporations that make money in (or off of) China form an influential lobby in Washington. It was bad enough when outsourcing dumped hardworking Americans out on the street, but arguing that we shouldn’t respond to Chinese attacks is greed bordering on treason.

Imaginary legal concerns paralyze this administration. If Obama had been president on Dec. 7, 1941, he’d have spent all of 1942 having government lawyers research whether sinking our Pacific fleet in a surprise attack was an act of war. We are under attack. Every day, around the clock. And our president seems afraid that Chinese spies are going to sue us.

Team Obama just has other priorities: If the administration had a theme song, it’d be the old country number, ‘Make the World Go Away.’ Obama came to office with no serious interest in foreign policy, but a highly charged domestic agenda. And foreign policy has bewildered, befuddled and bloodied his presidency, as it’s done to Democrats since the Vietnam War. He just wants foreign problems to disappear.

We fear a massive cyber-attack. This is the only remotely valid reason for responding carefully, but inaction merely worsens the prospect of disasters to come. And the administration is doing precious little to improve our defenses in the meantime.

“The more complex a socio-economic system becomes, the more vulnerable it is to any kind of attack. Our vast infrastructure offers countless target nodes, while our centralized systems for distributing everything from energy to foodstuffs rely on national networks and long-distance supply chains. An African village wouldn’t suffer much from a cyber-attack; a Chinese town would feel it, but not severely. An American city would shut down.

“Which means you can’t play tit-for-tat and let the Chinese continue to escalate. You have to hit their military and intelligence computer networks with shocking force – demonstrating what we could do to their showcase cities, if they don’t behave.

“They have to be punished for their massive theft of our secrets and intellectual capital – as well as for the direct damage they do.

“If you don’t stand up to the bully, the bully keeps taking your lunch money.

“As for the nonsense that we can’t retaliate because Beijing holds so much U.S. debt, that situation makes China our prisoner, not the other way around. The Chinese economy is far more fragile than the leadership in Beijing lets on.

“In the time you spent reading this column, the Chinese launched multiple attacks upon our country. Your president, whose fundamental mission is to protect the United States, did nothing.”

Street Bytes

--The Dow Jones was the only one of the major averages to finish up on the week, eking out a 0.1% gain to finish at 14000, while the S&P 500 saw its 7-week winning streak end with a 0.3% decline to 1515 and Nasdaq fell 0.9% to 3161. 

--U.S. Treasury Yields

6-mo. 0.14% 2-yr. 0.25% 10-yr. 1.96% 30-yr. 3.15%

Some inflation news. Producer prices for the month of January rose 0.2%, ex-food and energy up a like amount. For the last 12 months, the PPI is up 1.4%, up 1.8% on core. The CPI was unchanged last month, ex- up 0.3%. For the 12 months, the figures are 1.6%, 1.9% core.

--China reported retail sales for the Lunar New Year week-long holiday rose 15% over last year’s pace. But, 2012’s sales were 16% ahead of 2011.

--China’s stock market suffered its worst week in 20 months amid concerns rising property prices will force the government to adopt tighter monetary policy to prevent a bubble. After prices had stabilized much of last year, they rose in most cities in January, on top of December’s increases, as data released this week showed.

--Despite this week’s snowstorm in the Midwest and Plains, the drought picture is not only forecast to persist this year, it could intensify in the Plains, Southwest and Rockies, according to the Climate Prediction Center. I’ve told you how I follow the radar a few times daily in the Oklahoma Panhandle because of the farmer friends I have there and until this week, there has literally been nothing all winter. 

Snowpack in parts of New Mexico, Colorado and Wyoming is also less than 50% of average. [Basins in Washington and Oregon, on the other hand, are in great shape.]

--Wal-Mart reported same-store sales were up just 1.2% in the fourth quarter and saw flat first-quarter sales in the U.S. owing to a slow start in February, citing “the mounting economic concern from both small business and consumers” for the weakness. Its full-year guidance was basically in line and the company did raise the dividend.

--While David Einhorn presses his dissident plan for distributing some of Apple’s cash (winning a legal vote on Friday to proceed), Foxconn, the world’s largest contract electronics manufacturer, imposed a hiring freeze across most of its factories in China as a result of slowing production for Apple’s iPhone 5.

It’s the first such countrywide move for Foxconn, China’s largest private-sector employer and the leading assembler of Apple products, since the 2009 downturn, as reported by the Financial Times.

Foxconn’s China workforce rose from 800,000 during the 2009 crisis to 1.2 million last year ahead of the iPhone 5 launch. Apple CEO Tim Cook told a conference last week he did not think demand for iPhones was peaking.

--In its first quarterly report since it’s announced buyout by founder Michael Dell and private equity firm Silver Lake, Dell said its revenues had fallen by 11% from a year before to $14.3 billion. Earning fell 22%, though both were slightly ahead of Wall Street estimates. The company’s consumer business saw revenues decline 24%, with overall PC sales down 20%.

--Hewlett-Packard’s sales dropped 6% in its fiscal first-quarter as demand for PCs continued to shrink for everyone. Net profit fell 16% from the previous year.

But the results, like in the case of Wal-Mart, beat Street estimates so the shares rose; in H-P’s case some $2 to $19 on Friday.

--Gerald F. Seib / Wall Street Journal...on President Obama’s coming Keystone XL pipeline decision:

“Now, the temperature is rising. Environmentalists, whose admiration for Mr. Obama is about matched by their hatred of the pipeline and the oil it would transport, were busy over the weekend protesting in Washington in an attempt to stop the pipeline.

“Still, unions back the idea because of the construction and refining jobs it could create, and nine Democratic senators have joined 44 Republicans in a letter asking for approval. There is ample reason to think the second-term Obama White House, seeing openings to shake America’s dependence on Middle East oil, would like to find a way to give the green light.

“And if that’s so, a combination of forces are lining up in a way that should make it possible for Mr. Obama to get to a ‘yes’ answer, while limiting the political fallout....

“Environmental groups aren’t concerned merely with the route of the pipeline, of course, but with its very reason for existence: its use in facilitating the further burning of oil, and specifically oil extracted from Canada’s tar sands, which is dirtier than average to produce.

“But on this front, the pipeline’s symbolic importance outstrips its practical impact. Stopping Keystone won’t stop Canada from producing the oil. The Canadians have too much invested in oil-sands extraction to simply stop.

“One likely effect of shutting down the pipeline – aside from deeply straining U.S.-Canadian relations – would be to divert the same oil into exports to Asia, for use by China, a country that is doing far less on other fronts to deal with climate change and dirty auto emissions than is the U.S....

“Whatever the president has in mind specifically, it should be easier to sell Keystone XL if that decision is paired with one showing that the progress the U.S. already has made on climate change will continue, even if the U.S. can’t soon kick its oil habit. That is precisely the picture Mr. Obama ought to be able to paint as the big decision point nears.”

--Maurice Taylor, CEO of Titan International, a maker of tires, wrote a no-holds-barred letter to France’s industrial renewal minister Arnaud Montebourg explaining why his firm would never buy part of an ailing Goodyear factory in Amiens.

“I have visited the factory a couple of times. The French workforce gets paid high wages but only work for three hours. They get one hour for breaks and lunch, talk for three and work for three. I told this to the French union workers to their faces. They told me that’s the French way!

“How stupid do you think we are? Titan is the one with the money and the talent to produce tires. What does the crazy union have? It has the French government.”

Taylor later said the union in question is nothing more than a bunch of “communists.”

Montebourg, in his written reply, said in part: “Your words, as extremist as they are insulting, show a perfect ignorance of our country.” He went on to claim Michelin, based in France, was the technology leader and far more profitable than Titan, which Taylor disputes.

France has a 35-hour statutory work week, brought in by the Socialists in 2000, but critics say it is stifling economic growth.

--Office Depot is buying smaller rival OfficeMax in a $1.2 billion all-stock deal, in what it’s calling a “merger of equals” as the combined operation will go after industry leader Staples.   The office-supply market is estimated by research group IBISWorld to be $21.2 billion, with the likes of Amazon.com and Wal-Mart beginning to encroach on the mainstays.

--The United States set a record of $168.1 billion in foreign visitor spending in 2012, according to the Commerce Department. There were 66 million foreign visitors, whose spending represents a 10% increase over 2011.

The greatest increase in visitors came from China, Brazil and India, with growing middle classes in all three.

But with the recession in Europe, visitors numbers from the continent have been dropping. [Hugo Martin / Los Angeles Times]

--In yet another study of fake fish, a survey for Oceana found that after volunteers collected fish samples at 674 supermarkets, restaurants and sushi counters in 21 states, 87% of the snapper samples were not snapper! White tuna was mislabeled 59% of the time. Between one-third and one-fifth of the halibut, grouper, cod and Chilean sea bass tested were mislabeled.

Oceana wasn’t able to determine whether the mislabeling occurred at the supplier, distributor or retailer.

At least the five most commonly eaten seafood types in the United States – shrimp, canned tuna, salmon, Pollock (used in fish sticks) and tilapia – are low-cost and not often substituted. And, those happen to be the fish I buy at my local A&P.

For more expensive fish, one thing to look for is a logo such as the Marine Stewardship Council, which ensures the seafood is properly labeled.

--U.S. wine exports rose to a record $1.4 billion in 2012. 90% originated in California. Sales to China soared 18% to $74 million. Europe remains the top market, up 1.7% to $485 million, while sales to Canada rose 14% to $434 million.

--Finally, the great Martin Zweig passed away at the age of 70. I had the opportunity to meet him a number of times when I was in the brokerage business in the 1980s and he was a class act. I’ll never forget coordinating a conference call around the launch of one of his closed-end funds, he calls in from a phone booth along a Florida highway, he had an awful cold, could barely speak, I said we could reschedule, and he soldiered on.

In case you don’t know who I’m referencing, just understand Zweig was a Wall Street legend, a regular on “Wall Street Week with Louis Rukeyser” who on Oct. 16, 1987, the Friday before the Crash, forecast a “vicious decline,” adding “in my own mind, looking for a crash.”

Zweig was the great worrier. “I worry when I don’t worry.” A man who first said, “Don’t fight the Fed.” I urge you to go to YouTube and check out the “Wall Street Week” videos from 10/16/87 and 10/23/87. It’s a real trip down memory lane for older Wall Street junkies. Rukeyser’s program was critical to the times and must-see television for anyone in the industry.

My condolences also go out to Marty’s wife, Barbara, with whom I worked professionally.

Foreign Affairs

Iran: The International Atomic Energy Agency said there has been a slowdown in the growth of Iran’s stockpile of higher-grade enriched uranium, with more being used for reactor fuel. If true, this may postpone the Israeli “red line” for action. The P5+1 meets with Iran next week for the first time in eight months in an attempt to break the stalemate.

Last weekend, however, Supreme Leader Ayatollah Khamenei said that while Iran was not seeking the bomb, if his country “intended to possess nuclear weapons, no power could stop us.” American officials still believe Khamenei has ultimate say on the direction of the program.

Khamenei also has his hands full with refereeing the coming June 14 presidential elections, stepping in between President Ahmadinejad and rival Ali Larijani, parliament speaker, with Khamenei chastising both for their “inappropriate” mudslinging. 

Meanwhile, Iran’s nuke chief, Mohsen Fakhrizadeh-Mahabadi, is believed to have been present in North Korea when it conducted its recent nuclear bomb test, according to The Sunday Times of London.

Alon Levkowitz of Bar-Ilan University told the Jerusalem Post:

“The most disturbing question is whether the Iranians are using North Korea as a backdoor plan for their own nuclear program. The Iranians didn’t carry out a nuclear test in Iran, but they may have done so in North Korea. There is no official information on this...but Iran may have bypassed inspections via North Korea. If true, this is a very worrying development.”

I have to be honest. I never thought of it this way. It’s a brilliant theory. It’s taking a ‘known,’ Iran’s longstanding cooperation with North Korea, to what should be a logical conclusion that I’ve never seen expressed anywhere before.

Syria: A massive car bomb at a security checkpoint in Damascus between Syria’s ruling party headquarters and the Russian Embassy claimed at least 53 lives, while a few hours later, two other attacks in the city killed another 13; the worst wave of violence in the capital since the uprising began nearly two years ago. The rebels are finding it hard to break through Assad’s defenses so they are increasingly relying on guerrilla tactics.

Opposition figures have been complaining that their arsenals are at a level that only prolongs the conflict, blaming a slowdown on arms shipments on the United States, which it says is pressuring the likes of Qatar and Saudi Arabia to hold off on heavy weapons because of the fear they could end up in the wrong hands.

But the Islamist groups in the country are getting armed anyway by al-Qaeda and its financial backers.

Israel: Prime Minister Benjamin Netanyahu’s coalition building process continues following the January election and a new poll shows that were a vote held today, Yair Lapid’s Yesh Atid would defeat the Netanyahu-Lieberman / Likud Beytenu alliance, 30 seats to 22 (out of 120 in the Knesset). 65% of respondents in the poll for the Jerusalem Post’s weekend sister newspaper said they did not trust Netanyahu and only 31% said they did. On the other hand, 59% trust Lapid, with 54% trusting Naftali Bennett, head of Bayit Yehudi, which takes third in the poll.

Netanyahu only has until March 15 to form his government and if he fails, President Shimon Peres can either give him more time or call for a new election.

Meanwhile, Hizbullah leader Sheikh Nasrallah said yet again: “I am warning the Israelis and their allies that the resistance in Lebanon will not keep quiet over any violation that occurs on Lebanese territory...They know that their energy plants and their airports [are under threat]. Their power plants would require six months to repair. Lebanon, on the other hand, is used to lack of electricity.” [Jerusalem Post]

Nasrallah’s comments appear to be in response to Israel’s alleged attack on a Syrian weapons convoy destined for Hizbullah.

Regarding Hizbullah’s presence in the Lebanese government, a senior opposition source told the Daily Star of Beirut that with Hizbullah’s alleged involvement in the Burgas, Bulgaria bus bombing that killed a number of Israeli tourists, “the party’s agenda and strategy can no longer be said to protect Lebanon as its leaders and lawmakers claim. It would also suggest that Hizbullah is implementing the aims of Syria and Iran, and will eventually harm the state and implicate it in problems the country does not want or need.

“The senior source said his party has information that indicates Hizbullah is involved in activities outside Lebanon that go beyond resistance against Israel or defending Lebanon’s sovereignty and independence.

“He added that Lebanon will have difficulty defending Hizbullah and rejecting accusations of terrorism if the party’s agenda is not related to resisting Israel and curbing its attempts to control the south.” [Antoine Ghattas Saab / The Daily Star]

Egypt: President Mohammed Morsi has called for parliamentary elections, a staggered, four-stage voting process that beings April 27, with the last round to be held in June and the newly elected parliament to convene on July 6.

Rights groups continue to cite widespread police abuse, saying brutality at detention centers and demonstrations is on the rise. They hold Morsi responsible, 60 lives having been lost since the end of January.

At the same time, the military is expressing its impatience with Morsi, issuing veiled threats it may seize power as it did when Hosni Mubarak stepped down and the generals took over.

The opposition has to decide whether or not to participate in the vote or boycott it in an attempt to deny legitimacy to the process.

Tunisia: Prime Minister Hamadi Jebali resigned Tuesday after failing to form a nonpartisan government to end the political crisis resulting from the assassination of a leading opposition figure. Jebali’s efforts were rebuffed by his own ruling Islamist party Ennahda. Jebali, acting heroically, said he was standing down to “fulfill a promise made to the people.”

“This is a big disappointment. Our people are disillusioned by the political class. We must restore confidence.”

Sadly, not likely with the Islamists seeking to dominate power.

Afghanistan: An annual U.N. report on civilian casualties showed the first drop in six years, though insurgents dramatically expanded their campaign of assassinating government supporters. In all, 2,754 civilians died in the war last year, bringing the death toll to 14,728 since 2007, when the U.N. began tracking civilian casualties. Insurgents were responsible for 81% of civilian casualties in 2012.

Separately, on Friday, the U.S. and its NATO allies announced they may keep as many as 12,000 troops in Afghanistan after the formal combat mission ends next year.

Pakistan: Over 80 were killed in a horrific bombing against a Shiite neighborhood in Quetta. Shiites are a minority in Pakistan and increasingly targeted by Sunni militant groups like Lashkar-e-Jhangvi that the intelligence agency (ISI) has nurtured over the years.

India: A pair of bombs exploded in the southern city of Hyderabad, killing at least 15 in the worst bombing in the country in more than year. An Islamist group is being blamed.

The bombs were attached to two bicycles. From my archives:

WIR 5/6/2006

“Sri Lanka: Last time I observed that civil war here is important if for no other reason than the spreading of terror techniques by the leaders in the field, the Tamil Tiger rebels. By way of backing up my claim, know that this week the rebels set off a remote-controlled bomb concealed in a bicycle that was detonated as a naval foot patrol passed, killing five and strewing body parts all over the place. These guys are terrorist masterminds and passing their knowledge to other groups spells further trouble for the West. [Think dirty bomb in a bicycle.]”

WIR 7/1/2006

“Remember when I wrote a few weeks ago about the Tamil rebels, the world’s leading terrorists when it comes to methods, and their employment of a bicycle bomb? I saw this week, for the first time in my memory, where a suicide attacker in Iraq used a bicycle, killing 15. Which means since these ideas have been exported by the Tamil Tigers for a generation now, expect to hear of a bus hitting two claymore mines dangling from a tree branch in Baghdad or Mosul; because this also happened in Sri Lanka a few weeks ago.”

One side note on India: A staggering fact...one-third of its elected politicians have been charged with a crime.

Japan: Prime Minister Shinzo Abe met with Barack Obama on Friday at the White House, but earlier in the week he granted an interview with the Washington Post, as reported by Chico Harlan, that reads in part:

“China has a ‘deeply ingrained’ need to spar with Japan and other Asian neighbors over territory, because the ruling Communist Party uses the disputes to maintain strong domestic support, (Abe said).

“Clashes with neighbors, notably Japan, play to popular opinion, Abe said, given a Chinese education system that emphasizes patriotism and ‘anti-Japanese sentiment.’

“Abe’s theory on the entrenched motivation behind China’s recent naval aggression helps explain why he has spent more effort trying to counter the Chinese than make peace with them: He thinks the fierce dispute with China over an island chain in the East China Sea isn’t going away anytime soon.

“Abe spoke about China in what aides described as unusually detailed terms, laying out challenges that Chinese leaders might face if other Asian countries, unnerved by Beijing’s maritime expansionism, decide to reduce trade and other economic ties. China’s government would be hurt by such moves, Abe said, because without economic growth, it ‘will not be able to control the 1.3 billion people...under the one-party rule.’

“ ‘What is important first and foremost,’ Abe said, ‘is to make [China] realize that they would not be able to change the rules or take away somebody’s territorial water or territory by coercion or intimidation.’”

North Korea: Former ambassador John Bolton had the following conclusion in a Wall Street Journal op-ed.

“North Korea is an unnatural relic of a ‘temporary’ Moscow-Washington arrangement following Japan’s defeat. It has no historical claim to legitimacy as a separate state. Its citizens have never freely consented to it. And its continued existence leaves 23 million people perennially close to starvation. We have repeatedly heard from naïfs that Pyongyang was about to open up. It never does. North Korea cannot open and survive, as the regime itself well knows. But it almost has deliverable nuclear weapons.

“Persuading China to support reunification is the best answer. If China disagrees, nuclear-capable Japan and South Korea, ranking among China’s worst fears, could become reality. A reunification strategy should have been pressed decades ago, but better late than never.”

Meanwhile, at a U.N. Conference on Disarmament on Tuesday, North Korean diplomat Jon Yong Ryong shocked the gathering in declaring, “As the saying goes, a new-born puppy knows no fear of a tiger. South Korea’s erratic behavior would only herald its final destruction.”

Spanish Ambassador Javier Gil Catalina said the comment left him stupefied and appeared to be a breach of international law.

“In the 30 years of my career I’ve never heard anything like it and it seems to me that we are not speaking about something that is even admissible, we are speaking about a threat of the use of force that is prohibited by Article 2.4 of the United Nations charter.”

In the South, Choi Jin Wook, a senior researcher at the Korea Institute for Unification Studies, said that as far as the South Korean public was concerned, this was a time for punishment, though this was a game that could prove dangerous.

“Kim Jong Un is much more aggressive than his father. He thinks he can be more provocative. He is not worried about retaliation. He implied that he might do another test and I think he is not just bluffing. He is ready to play a totally new game because he sees this as North Korea’s final gamble.” [Leo Lewis / Times of London]

Russia: President Obama is preparing to reach out to President Vladimir Putin in another attempt to reduce nuclear arms, but as the Washington Post editorializes, “what’s striking about Mr. Obama’s strategy is its seeming detachment from the reality of how Mr. Putin has governed Russia since his return to the presidency last year....

“Some Russian analysts believe that the regime is well on its way to crushing the opposition movement, which attracted the support of much of the urban middle class. Others regard the repression as the death spasms of an exhausted autocracy. ‘There are classical criteria of a dying regime and its key signs are evident in Russia,’ Lilia Shevtsova of the Carnegie Endowment’s Moscow office wrote recently, citing ‘the Kremlin’s inability either to preserve the status quo or begin changes.’ Either side might be right, though our bet is with Ms. Shevtsova.

“What’s strange is that the Obama administration would seek to undertake a major new piece of business with Mr. Putin without regard for this ugly climate. New U.S.-Russian nuclear warhead reductions, while welcome, are hardly urgent: The big challenges of nuclear weapons lie elsewhere in the world. At the same time, the survival of a pro-democracy movement in Russia is an important and pressing U.S. interest, just as Mr. Putin’s growing hostility to the United States threatens U.S. initiatives in the Middle East and elsewhere. Maybe offering Mr. Putin a new nuclear weapons deal is the best way to counter his noxious policies – but it is hard to see how.”

Mali: Islamists continue to try and retake the northern town of Gao, which has a population of 80,000, and in fighting on Thursday, between 15 and 20 rebels were killed, with the French suffering two wounded and the Malian casualties numbering four.

Also, there was heavy fighting in a remote part of the north, with Chad’s military saying it killed 65 Islamist insurgents while losing 13 of its own. Chad has pledged 2,000 soldiers to the effort.

The U.S. also announced it was deploying surveillance teams in Niger to provide information to French troops in Mali.

Nigeria: Seven French tourists, all from the same family, including four children, were kidnapped by terrorists, probably Boko Haram, in Cameroon and taken into nearby Nigeria. A few days earlier, last Sunday, another Islamist group, Ansaru, abducted seven foreign workers in Nigeria (Italian, British, Greek and Lebanese).

After all this time since 9/11, in some respects I feel as if the war with Islamic Fundamentalism is just beginning.

Britain: According to a Harris Interactive poll for the Financial Times, given an in-out referendum on EU membership tomorrow, 50% vote “out,” 33% “in,” 17% undecided. The referendum isn’t likely to take place until 2017, assuming the Tories win the vote in 2015, but this is an issue that bears watching long before. Unless the continent-wide economy, including Britain’s, picks up in a big way attitudes will only harden.

[Late Friday, Moody’s stripped Britain of its triple-A rating, citing “continued weakness in the U.K.’s medium-term growth outlook.”]

Venezuela: President Hugo Chavez returned home unexpectedly but has yet to be seen in public. An official said on Thursday that Chavez’ breathing problems persist, “and the tendency has not been favorable, so it is still being treated.”

It seems virtually impossible that he’ll return to active politics. I frankly thought he would have been dead by now.

Random Musings

--Joe Klein / TIME

“It turns out...that Obama is not a visionary. His moments of passion are a bit too accessible. His Inaugural celebration of the equality we have achieved was worthy, but not very challenging. His State of the Union peroration calling for a vote on gun control was worthy too – but why didn’t he mention the need to reform mental-health laws and programs so that more of our violently ill young people can be placed in secure settings, a goal perhaps more important and certainly more difficult to achieve?

“He closed the speech with a celebration of a police officer who took 12 bullets defending a Sikh temple? ‘That’s just the way we’re made,’ the officer said. We’re citizens, Obama amplified. But most of us aren’t very active citizens, and the President never addressed the responsibilities that accompany citizenship. He asked nothing of us. But government isn’t only about taking from some and giving to others. It is about the creation and maintenance of something much larger than all of us – a learning, evolving democracy, which requires an informed, rigorous public. I haven’t heard a politician speak honestly about the sacrifices required for greatness in a long time.”

--Nebraska Republican Senator Mike Johanns announced he wouldn’t run for reelection in 2014 after serving just one term, saying after 32 years of public service overall it was time “to close this chapter of our lives,” referring to his wife, who also has been a public servant in the state.

Johanns, considered a shoo-in, thus becomes the fifth Senate incumbent to say he won’t run in 2014. Republican Gov. Dave Heineman, who can’t run for reelection, would be the frontrunner should he decide to give it a go.

Charlie Cook, editor of the nonpartisan Cook Political Report, said Johanns unexpected retirement underscored the “frustrations” of serving in a polarized Senate.

“It kind of says something when you have a freshman senator with no political problem whatsoever and no discernible health issue just deciding not to stick around,” he said.

--According to a poll by Monmouth University/Asbury Park Press, more than 70% of New Jersey residents say they are at least somewhat satisfied with the state’s recovery from Superstorm Sandy. In the hardest-hit areas, 27% are very satisfied and 48% somewhat satisfied.

Coincidentally, a Quinnipiac survey gives Gov. Chris Christie a 74% job approval rating. Absolutely stunning, given the political makeup of my state.

--Speaking of storm recovery in New Jersey, the Associated Press had a story this week on just how slow the recovery is going, through no real fault of anyone, citing the extensive problems with storm debris in the waterways. As in they can’t be cleared for pleasure craft come summer, for example, because you have pieces of homes, sunken boats, appliances and such as potential hazards for boaters.

Separately, a good friend of mine whose shore house survived but suffered extensive damage just had his electricity restored on Wednesday. Feb. 20, almost four months after Sandy.

[Sign of the Apocalypse: Homes being rebuilt at the shore or still unable to be entered are being plundered for their copper. Where’s Joe Biden and his shotgun when we need him?]

--One thing to watch in the coming conclave to elect a new pope is the situation with Cardinal Roger Mahony of Los Angeles. 

Peggy Noonan / Wall Street Journal

“A Washington-based Catholic activist spoke with some urgency of Cardinal Roger Mahony, who is scheduled to go to Rome to vote on Benedict’s successor. As the Washington Post this week noted in an editorial, Cardinal Mahony is ‘lucky not to be in prison’ for his role in covering up hundreds of well-chronicled cases of child sexual abuse in the 1980s, during his 25-year tenure as archbishop of Los Angeles. A few weeks ago he was forcefully rebuked and relieved of many of his public duties by his successor, Archbishop Jose Gomez.

“Said the activist: ‘If Mahony goes to Rome it will be so wrong. And the media will make everything about him.’

“They will, and understandably. It would be a shame, and another scandal for the church, if Cardinal Mahony goes, and votes. He should take a nod from the pope he praises, and remove himself.”

But it turns out back in 1993, Mahony “wrote to the Vatican with an urgent problem. One of his priests in the Archdiocese of Los Angeles had been accused of plying teenage boys with alcohol and molesting them, sometimes during prayer....

“Mahony yanked (the priest) out of his parish and wanted to make sure he couldn’t return. But (the priest) appealed to the one body that could overrule Mahony: the Vatican.” [Los Angeles Times]

Mahony, in this instance, did the right thing but was railroaded by the Vatican bureaucracy that was also reluctant to acknowledge the scope of the issue in the United States.

For example, in 1994, as the L.A. Times reports, Mahony wrote: “Given the pastoral situation in the United States today, which is all too well known, Bishops need to be able to act quickly and decisively in cases of alleged clerical misconduct to assure the People of God that their rights are being fully protected.”

A month later, he wrote to the Vatican official he was dealing with: “It is now almost five months since my meeting with you and yet nothing further has come from you or your Congregation.” [Congregation for the Doctrine of the Faith, which has a staff of 45 that monitors the world’s 400,000 priests.]

It took a full decade before the priest was defrocked.

Cardinal Mahony would make for a fascinating “60 Minutes” double-segment.

--According to a government report, seniors who got flu shots received minimal protection this season. In fact for people 65 and older, “the vaccination was just 9% effective, less than one-fifth as effective as for the general population,” as reported by the Wall Street Journal’s Timothy W. Martin. “Across all age groups, the flu shot was moderately effective at 56%, a rate similar to previous years,” the Centers for Disease Control and Prevention noted.

I haven’t received a flu shot in at least 25 years and never gotten the flu over that time. Instead I drink light beer.

--I watched “Killing Lincoln” and if you didn’t know your history you’d find it interesting, just as Steven Spielberg’s “Lincoln” is, even though it doesn’t exactly deal with the facts either.

I was exchanging notes with my brother, a far better history buff than I’ll ever be, and he pointed out a number of falsehoods in the “Killing Lincoln” Nat Geo film, while it’s now well-known Spielberg screws with the facts in the instance of the Connecticut delegation.

Here’s what concerns some of us with the success of Bill O’Reilly’s “Killing Lincoln,” “Killing Kennedy,” and the upcoming “Killing Jesus” books, films, etc. For those taking these up, this will be their knowledge of history. It sucks.

Understand something about what O’Reilly is doing. By his own admission he turns over the research to collaborator Martin Dugard and then handles the writing. His approach, he told USA TODAY, is to write “history that’s fun to read” in a “populist way. No pinheaded stuff, just roar it through!” And Bill assures us, “It’s all true!” Right.

--Eight armed robbers made off with an estimated $50 million in diamonds at Brussels Airport on Monday evening, a huge embarrassment for the Antwerp World Diamond Center, the hub of the global diamond trade, with about $200 million worth of stones moving in and out of the city every day.

--You can’t make this stuff up. From the South China Morning Post:

“Chinese Health Ministry is planning to improve the hygiene standards of China’s public toilets – it even intends to restrict the number of flies in them. Under the new requirements, no more than three flies will be allowed per square meter in each toilet.

“At the most, only three flies will be allowed per square meter in stand-alone public toilets. Only one fly will be allowed in public toilets built within other facilities.”

Needless to say this has created quite a buzz among the fly population, seeing as they have to cue up to gain access once the regulations go into effect.

--Speaking of vermin, former Illinois Democratic Congressman Jesse Jackson Jr. pleaded guilty to conspiracy to commit mail and wire fraud and false statements connected to his misuse of campaign funds for personal expenses. He faces up to five years in prison. Jackson’s wife faces potential jail time as well for income-tax charges.

--You know what ticks me off about the sequester? Cutting $110 million from the budget for our national parks. This is the one, and only item, I would advocate increasing spending on. But the Parks Service’s looming cuts will impact not only access, along with poor maintenance (think godawful restrooms), but it will hurt local economies.

The thing is, the lion’s share of the Parks Service budget is salaries and these are the lowest paid, good people on the planet. They are the only government employees who deserve to be paid more, not less.

And that’s a memo....Bernie Goldberg is here....Bernie, what say you?

--For the record, the meteor that crashed near Chelyabinsk, Russia, was 55 feet in diameter and weighed around 10,000 tons, making it the largest such object to hit the Earth in more than a century.

Editorial / The Times of London

“There are no known asteroids on a collision course with Earth that could do catastrophic damage. But there is no way of predicting the next impact from an unknown object. Only a fraction of the space around Earth is monitored. Were a one-kilometer NEO (Near-Earth Objects) to be on a collision course with Earth, scientists would have warning of either several years, or nothing.

“To devote research funds to expanding the search for potential objects would be good science. But policymakers need in that case to ensure public understanding that more rocks will be discovered that at first sight appear to have a chance of hitting the Earth. That does not make them inherently threatening. Nor would it be sensible to divert billions of dollars to defense systems when there is no identifiable threat. In the future of the species, the best defense is neither alarmism nor fatalism: it is the expansion of knowledge of the external world, by the only reliable route.”

Editorial / Wall Street Journal

“The fashionable end-of-world fear of recent years has been global warming, which Al Gore tells us will be catastrophic based solely on computer modeling. But an asteroid crash is capable of inflicting more damage in an hour than climate change could in two or three hundred years.

“We’re all for studying the climate and doing what can be done within economic reason to cope with temperature changes. But if it’s catastrophe we want to avoid, maybe the marginal dollar is better spent searching for the space rock that we know is eventually headed our way so we can prevent it.”

--Go Danica! [Pole winners at Daytona never then finish first, but I’m hoping she ends up in the top five and is on the lead lap at the end.]

---

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

God bless America.
---

Gold closed at $1572...was $1565 on 12/31/11
Oil,
$93.13

Returns for the week 2/18-2/22

Dow Jones +0.1% [14000]
S&P 500 -0.3% [1515]
S&P MidCap -1.1%
Russell 2000 -0.8%
Nasdaq -0.9% [3161]

Returns for the period 1/1/13-2/22/13

Dow Jones +6.8%
S&P 500 +6.3%
S&P MidCap +8.2%
Russell 2000 +7.9%
Nasdaq +4.7%

Bulls 48.4
Bears 22.1 [Source: Investors Intelligence...peaked at 54.7 / 21.1 two weeks ago. The fairest S&P 500 figure for the bull/bear reading was the Friday close before the Wed. a.m. release of the data...1513 on 2/1. So that’s the figure I’m looking at in gauging whether the 30+ point spread between bulls and bears was really a danger signal as it’s been in the past. For newcomers, this is a contrarian indicator, just one arrow in the quiver for market forecasters.]

Nightly Review schedule, Mon. - Thurs.  Posted around 5:30 PM ET.

Have a great week. I appreciate your support.

Brian Trumbore



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Week in Review

02/23/2013

For the week 2/18-2/22

[Posted 12:00 AM ET]

Washington

On to the sequester, March 1. President Barack Obama warned Congress “people will lose their jobs” if deep budget cuts are allowed to take effect. The $85 billion in cuts was a harmful, “meat-cleaver approach” to deficit reduction. “These cuts are not smart, they are not fair, they will hurt the economy. This is not an abstraction. People will lose their jobs.”

Obama said that while he was open to cutting back on unsuccessful or unnecessary government programs, he accused Republicans of “ideological rigidity” for opposing tax increases.

Instead, he proposes closing some tax loopholes to increase revenue, and backed a budget plan put together by Senate Democrats last week. But the Democratic plan does not include any changes to entitlements.

Republicans have supported the idea of closing some loopholes, but they say the changes should be part of a broader overhaul of the tax code.

Meanwhile, Alan Simpson and Erskine Bowles proposed a new plan to cut the deficit, rewrite the tax code and implement deep spending cuts.

The new $2.4 trillion Simpson-Bowles effort, call it 2.0, identifies $600 billion in spending reductions through changes to health-care programs such as Medicare and Medicaid; $600 billion in deficit-reduction from curbing or ending a number of tax breaks; and $1.2 trillion from lower caps on discretionary spending – such as in changing the way cost-of-living increases are calculated for Social Security checks and other government benefits, cuts to farm subsidies, and changes to military and civilian retirement programs.

Good...to all three components. But Democrats don’t like the changes to entitlements, Republicans don’t want any further tax increases, and both don’t have the guts to tackle the Pentagon’s programs for health-care and pension benefits.

As the Washington Post editorialized:

“(There’s) almost no point debating the specifics, because there’s little chance of a ‘grand bargain’ along Simpson-Bowles lines....

“Meanwhile, Mr. Obama seems content to warn of dire cutbacks in everything from naval operations to firefighters and to accuse the GOP of risking them to protect the wealthy. The Republicans denounce the sequester as Mr. Obama’s brainchild (though they accepted it as part of a 2011 budget deal) and say they won’t vote for any more tax increases. Both sides are obviously playing a political blame game, which must give way to serious bargaining soon – or the country will be the loser.”

Editorial / Wall Street Journal

“Americans need to understand that Mr. Obama is threatening that if he doesn’t get what he wants, he’s ready to inflict maximum pain on everybody else. He won’t force government agencies to shave spending on travel and conferences and excessive pay and staffing. He won’t demand that agencies cut the lowest priority spending as any half-competent middle manager would.

“It’s the old ploy to stir public support for all government spending by shutting down vital services first. Voters should scoff at the idea that a $3.6 trillion government can’t save one nickel of every dollar that agencies spend. The $85 billion in savings is a mere 2.3% of total spending. The agencies that the White House says can’t save 5% received an average increase in their budgets of 17% in the previous five years – not counting their $276 billion stimulus bonus....

“Mr. Obama just whacked the economy with a roughly $160 billion tax increase in 2013 that he says will do no harm, but he wants us to believe that $85 billion in spending cuts will trigger a recession.”

Peggy Noonan / Wall Street Journal

“It is always cliffs, ceilings and looming catastrophes with Barack Obama. It is always government by freakout.

“That’s what’s happening now with the daily sequester warnings. Seven hundred thousand children will be dropped from Head Start. Six hundred thousand women and children will be dropped from aid programs. Meat won’t be inspected. Seven thousand TSA workers will be laid off, customs workers too, and air traffic controllers. Lines at airports will be impossible. The Navy will slow down the building of an aircraft carrier. Troop readiness will be disrupted, weapons programs slowed or stalled, civilian contractors stiffed, uniformed first responders cut back. Our nuclear deterrent will be indefinitely suspended. Ha, made that one up, but give them time.

“Mr. Obama has finally hit on his own version of national unity: Everyone get scared together....

“(Obama) thrives in chaos. He flourishes in unsettled circumstances and grooves on his own calm. He spins an air of calamity, points fingers and garners support. His only opponent is a hapless, hydra-headed House. America has a weakness for winners, and Republicans just now do not look like winners. They have many voices but no real voice, and no one saying anything that makes you stop and think. Mr. Obama, on the other hand, is a singular character who tells you in measured tones that we must have measured answers. Half the country finds his politics to be too much to one side, but his temperament is not extreme and he often looks reasonable. With this gift he ties his foes in knots to get what he wants, which is higher taxes. He wants the rich to pay more and those he judges to be in need to receive more. End of story. Debt and deficits don’t interest him, except to the extent he must give them lip service.

“And so far this seems to be working fine for him. A USA TODAY/Pew Research Center poll out this week reported half the respondents said it will be the Republicans’ fault if the sequester goes through. Only a third said they’d blame the president.”

---

As to the economy, January housing starts were worse than expected, down 8.5%, while existing home sales for the month were in line. Shares in the homebuilders cratered after a long run-up amid the uncertainty as to whether the housing recovery is still in place.

More importantly in the here and now, various retailers ranging from Wal-Mart to Burger King to Kraft lowered their forecasts as the expiration of the payroll tax cut is having an impact, as are rising gasoline prices. Refinery closures are leading to tighter supply than usual for this time of year, when there are normally shutdowns for maintenance, but inventories were already down due to Hurricane Sandy and the refinery issues that caused, plus oil prices are higher than they were a few months ago.

Meanwhile, the Federal Reserve’s Open Market Committee released its minutes from the January meeting and there was a feeling among some FOMC members that QE3 – quantitative easing and the Fed’s bond buying / asset purchase program – should end sooner than first announced, which was essentially when the unemployment rate fell to 6.5% (or if inflation went crazy). The Fed’s balance sheet is now over $3 trillion, on its way to $4 trillion by year end, and so how, when that inevitable day arises, do you begin to wind it all down?

According to the minutes, “a number of participants stated that an ongoing evaluation of the efficacy, costs and risks of asset purchases might well lead the committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred.”

But others believe stopping the program too soon could damage the economy and on Friday, one of the Fed’s voting members, James Bullard, deemed to be a moderate, strongly suggested that the Fed will carry on with its plan as is, which gave the stock market a big lift. Specifically, Bullard said “Fed policy is going to stay easier for a long time.”

In addressing the jobs outlook, however, Mortimer Zuckerman had the following in an op-ed for  the Wall Street Journal.

“After four years America remains in a jobs depression as great as the Great Depression....

“The jobless today are much less visible than they were in the 1930s because relief is organized differently.  Today in the ‘recovery,’ the millions are being assisted, out of sight, by government checks, unemployment checks, Social Security disability checks and food stamps.

“More than 48 million Americans are in the food-stamp program – an almost incredible record. That is 15% of the total population compared with the 7.9% participation in food stamps from 1970-2000. Then there are the more than 11 million Americans who are collecting Social Security checks to compensate for disability, also a record. Half have signed on since President Obama came to office. In 1992, there was one person on disability for every 35 workers; today it is one for every 16.

“Such an increase is simply impossible to connect to direct disability experienced during employment, for it is inconceivable that work in America has become so dangerous. For many, this disability program has become another form of unemployment compensation, only this time without end.

“But the predicament of our times is worse than that, worse in its way than the 1930s figures might suggest. Employers are either shortening the workweek or asking employees to take unpaid leave in unprecedented numbers. Neither those on disability nor those on leave are included in the unemployment numbers.”

What a country.

Europe

First some data points.

Car sales (what they call ‘registrations’) in the Euro-17 fell 8.7% in January from year ago levels; the worst start to a year since the Euro Automobile Manufacturers Association began tracking such data in 1990. 

Sales in Germany were down 8.6%, down 15% in France, 18% in Italy and 9.6% in Spain.

Ford’s sales in the Euro region were down 26%. This is after Euro-wide sales in 2012 hit a 17-year low for the company.

A composite index of euro-area services and manufacturing contracted in February, according to Markit’s flash report (final reading March 3).

The Euro-17 fell to 47.3 from 48.6 in January (50 being the dividing line between growth and contraction), with the services PMI also falling to the same 47.3 from 48.6, while manufacturing slipped to 47.8 from 47.9.

Germany’s services measure fell to 54.1 from 55.7, while manufacturing rose to 50.1. Germany’s comp was 52.7 vs. 54.4 last month.

But France’s services PMI fell to 42.7 from 43.6, with manufacturing ticking up to 43.6 from 42.9. Both absolutely putrid.

And now the EU is forecasting the eurozone as a whole will shrink 0.3% this year. The Commission had predicted growth of 0.1% in November. France is expected to grow just 0.1%, Germany 0.5% for the full year. [Spain is forecast to contract another 1.5%, Italy 1.0%, Portugal 1.9%, and Greece 4.4%.]

Michael Stothard and Ralph Atkins of the Financial Times had a piece on bank borrowing that summed up a topic I’ve hammered away at...the difference in obtaining credit between the haves and the have nots.

“Businesses in the core of the eurozone are cashing in on easy monetary policy to borrow at record low rates, while those based in the periphery are still struggling to find market funding, according to new data.

“Barclays analysis of European Central Bank data suggests that companies based in the ‘core’ of the bloc have been the main beneficiaries of the central bank’s promise last June to do ‘whatever it takes’ to save the eurozone.

“Companies based in France, Germany, Belgium and Holland were able to borrow a net 37 billion euro of ultra-cheap debt from the markets in the second half of last year, following the announcement.

“But companies based in Italy, Spain, Portugal and Greece added only about 12 billion euro of market borrowing, with only the biggest companies such as Telecom Italia and Telefonica able to access the capital markets.”

On a net level, there was a 65 billion reduction in bank lending in the periphery, a 43 billion decline in bank lending in Spain in the second half.

In Italy, a final poll ahead of the Sunday-Monday election had Pier Luigi Bersani’s union-backed Democratic Party with 33.8% of the vote, former Prime Minister Silvio Berlusconi with 27.8%, ex-comedian Bepe Grillo with 18.8% and Prime Minister Mario Monti fourth at 13.4%.

In Greece, there was a general strike with one protester telling the AP, “We are faced with a societal explosion if any more pressure is put on society.”

Not only are Greece’s 1.35 million unemployed (out of a total population of 11 million) unable to make ends meet, but a growing number of those still employed are struggling to feed, heat and clothe themselves – and pay the hefty taxes the government is levying in an attempt to turn the economy around. 450,000 households have no one employed. It’s a broken society. As one unemployed mother of two told the AP:

“Greece is not a country of bright lights and flashy events. It’s a country with people committing suicide, of those unable to feed their kids properly, or who steal from the supermarket...It’s happening to everybody. We are these people.”

According to researchers, two-thirds of employees in the hammered private sector no longer receive regular pay. The government estimates 3.6 million are working, with 1.6 million employed by private-sector companies – down from around 2.5 million before the crisis broke in 2010. Only 600,000 are left who still work an eight-hour day and are paid regularly. Said one professor in Athens, “The remainder – a million workers – have had their hours cut or are getting paid late, four or five months late. They are in a state of desperation.”

As noted above, GDP is expected to fall another 4%+ this year after a five-year depression. The jobless rate is 27%, on its way to 30%. The youth unemployment rate is a sickening 61.7%.

And in Bulgaria, Prime Minister Borisov resigned and dissolved parliament. Even after days of protests over austerity measures this shocked the country.

Borisov had frozen salaries and pensions rather than cutting them. But higher energy costs, low living standards and new corruption allegations did in the government.

Borisov said the threat of protests turning violent spurred his decision. “I cannot stand looking at a bloody Eagles’ Bridge,” referring to an iconic intersection in Sofia that was the scene of bloody clashes between police and protesters on Tuesday. “Every drop of blood is a shame for us.”

Cyber War

The New York Times had an extensive story Monday on China’s military operating one of the world’s “most prolific cyber espionage groups,” according to cyber security firm Mandiant, which supplied the Times first with a detailed report.

It’s called Unit 61398 or “Comment Crew” and is believed to have “systematically stolen hundreds of terabytes of data” from at least 141 organizations around the world.

Officials at the Chinese Embassy told the Times that hacking is illegal under Chinese law and that its government does not engage in it.

For its part, Mandiant said it investigated hundreds of data breaches since 2004. Mandiant said the details it uncovered “convince us that the Chinese government is aware of them.”

The most aggressive hacking unit was traced to a 12-story, non-descript building in an area of Shanghai, the precise location where Unit 61398 of the People’s Liberation Army is located.

The Times reports the hackers stayed inside networks for an average 356 days, with the longest lasting 1,764 days.

Here’s what most worrisome. According to Mandiant, the companies increasingly targeted are involved in the critical infrastructure of the United States – like the electrical power grid, gas lines and waterworks.  “According to the security researchers, one target was a company with remote access to more than 60% of oil and gas pipelines in North America.”

Mike Rogers, Republican chairman of the House Intelligence Committee, told the Times that Mandiant’s report was “completely consistent with the type of activity the Intelligence Committee has been seeing for some time.”

Chinese Foreign Ministry spokesman Hong Lei denied Mandiant’s accusations.

“Cyberattacks are anonymous and transnational and it is hard to trace the origin of attacks, so I don’t know how the findings of the report are credible.”

It was back in October that Defense Secretary Leon Panetta said in a speech that China was “rapidly growing” its cyber capabilities.

“In my visit to Beijing, I underscored the need to increase communication and transparency with each other so that we could avoid a misunderstanding or miscalculation in cyberspace,” he said, while also calling for greater information sharing about cybersecurity between private enterprise and the government.

Akamai Technologies, which monitors large amounts of web traffic, said in the third quarter of 2012, China was the world’s No. 1 source of observed attack traffic, 33% of the total which was more than double the 16% registered in the second quarter. [Wall Street Journal]

Former FBI executive assistant director Shawn Henry told the Associated Press:

“If the Chinese government flew planes into our airspace, our planes would escort them away. If it happened two, three or four times, the president would be on the phone and there would be threats of retaliation. This is happening thousands of times a day. There needs to be some definition of where the red line is and what the repercussions would be.”

Editorial / Wall Street Journal

“The world has never seen a state devote such large resources to siphoning off data from private companies to advance a broad range of national interests, political and economic. China’s penchant for online theft and sabotage could change the world economic order.

“If that seems an overstatement, consider that the Industrial Revolution and successive waves of innovation have depended on a legal and cultural framework that allows entrepreneurs to profit from their ingenuity and hard work. In China and other authoritarian regimes by contrast, tycoons typically rise and maintain their position through political clout or corruption. They have always been free-riders on the free market’s creative power.

“Until now China did little damage to innovators and even helped them, for instance, by supplying the labor to build Steve Jobs’ gadgets. But Beijing now seems intent on abusing the world’s economic rules to such an extent that it threatens the prosperity of everyone else. No wonder former Google CEO Eric Schmidt writes in a forthcoming book that China’s hacking and control over information make it dangerous....

“The Soviet Union threatened the capitalist West using overt military might and political subversion. The danger from Chinese hacking is more insidious because Beijing purports to play by the rules while subverting them with tools that are hard to track and stop. Beijing has calculated that in order for Chinese companies to continue to grow at breakneck speed, they need to cheat. The effect could be to drag the West back to a world in which companies and states must work hand in glove instead of at arm’s length....

“Beijing has long wanted to showcase the triumph of ‘socialism with Chinese characteristics,’ and in a way it has. Its defining characteristic is theft.”

Ralph Peters / New York Post

“Our military and intelligence services know the situation has gone beyond the Chinese preparing for cyber-war: Beijing’s already waging war against us.

“It’s not that we can’t fight back. We have stunning, close-held capabilities to respond with punishing cyber-strikes of our own. We have the intelligence. We have the targets.

“But the order never comes.

“We’re bleeding money, government secrets, technology secrets, corporate strategies – and seem to have suffered trial attacks on our critical infrastructure. Why won’t the Obama administration do anything to retaliate against Chinese cyber-assaults?

“Playing defense doesn’t cut it. The Chinese won’t throttle back until they feel pain. Serious pain.

“There are four possible reasons for President Obama’s inaction – only one of them faintly valid:

Our own businessmen put profit over patriotism. The minority of U.S.-based corporations that make money in (or off of) China form an influential lobby in Washington. It was bad enough when outsourcing dumped hardworking Americans out on the street, but arguing that we shouldn’t respond to Chinese attacks is greed bordering on treason.

Imaginary legal concerns paralyze this administration. If Obama had been president on Dec. 7, 1941, he’d have spent all of 1942 having government lawyers research whether sinking our Pacific fleet in a surprise attack was an act of war. We are under attack. Every day, around the clock. And our president seems afraid that Chinese spies are going to sue us.

Team Obama just has other priorities: If the administration had a theme song, it’d be the old country number, ‘Make the World Go Away.’ Obama came to office with no serious interest in foreign policy, but a highly charged domestic agenda. And foreign policy has bewildered, befuddled and bloodied his presidency, as it’s done to Democrats since the Vietnam War. He just wants foreign problems to disappear.

We fear a massive cyber-attack. This is the only remotely valid reason for responding carefully, but inaction merely worsens the prospect of disasters to come. And the administration is doing precious little to improve our defenses in the meantime.

“The more complex a socio-economic system becomes, the more vulnerable it is to any kind of attack. Our vast infrastructure offers countless target nodes, while our centralized systems for distributing everything from energy to foodstuffs rely on national networks and long-distance supply chains. An African village wouldn’t suffer much from a cyber-attack; a Chinese town would feel it, but not severely. An American city would shut down.

“Which means you can’t play tit-for-tat and let the Chinese continue to escalate. You have to hit their military and intelligence computer networks with shocking force – demonstrating what we could do to their showcase cities, if they don’t behave.

“They have to be punished for their massive theft of our secrets and intellectual capital – as well as for the direct damage they do.

“If you don’t stand up to the bully, the bully keeps taking your lunch money.

“As for the nonsense that we can’t retaliate because Beijing holds so much U.S. debt, that situation makes China our prisoner, not the other way around. The Chinese economy is far more fragile than the leadership in Beijing lets on.

“In the time you spent reading this column, the Chinese launched multiple attacks upon our country. Your president, whose fundamental mission is to protect the United States, did nothing.”

Street Bytes

--The Dow Jones was the only one of the major averages to finish up on the week, eking out a 0.1% gain to finish at 14000, while the S&P 500 saw its 7-week winning streak end with a 0.3% decline to 1515 and Nasdaq fell 0.9% to 3161. 

--U.S. Treasury Yields

6-mo. 0.14% 2-yr. 0.25% 10-yr. 1.96% 30-yr. 3.15%

Some inflation news. Producer prices for the month of January rose 0.2%, ex-food and energy up a like amount. For the last 12 months, the PPI is up 1.4%, up 1.8% on core. The CPI was unchanged last month, ex- up 0.3%. For the 12 months, the figures are 1.6%, 1.9% core.

--China reported retail sales for the Lunar New Year week-long holiday rose 15% over last year’s pace. But, 2012’s sales were 16% ahead of 2011.

--China’s stock market suffered its worst week in 20 months amid concerns rising property prices will force the government to adopt tighter monetary policy to prevent a bubble. After prices had stabilized much of last year, they rose in most cities in January, on top of December’s increases, as data released this week showed.

--Despite this week’s snowstorm in the Midwest and Plains, the drought picture is not only forecast to persist this year, it could intensify in the Plains, Southwest and Rockies, according to the Climate Prediction Center. I’ve told you how I follow the radar a few times daily in the Oklahoma Panhandle because of the farmer friends I have there and until this week, there has literally been nothing all winter. 

Snowpack in parts of New Mexico, Colorado and Wyoming is also less than 50% of average. [Basins in Washington and Oregon, on the other hand, are in great shape.]

--Wal-Mart reported same-store sales were up just 1.2% in the fourth quarter and saw flat first-quarter sales in the U.S. owing to a slow start in February, citing “the mounting economic concern from both small business and consumers” for the weakness. Its full-year guidance was basically in line and the company did raise the dividend.

--While David Einhorn presses his dissident plan for distributing some of Apple’s cash (winning a legal vote on Friday to proceed), Foxconn, the world’s largest contract electronics manufacturer, imposed a hiring freeze across most of its factories in China as a result of slowing production for Apple’s iPhone 5.

It’s the first such countrywide move for Foxconn, China’s largest private-sector employer and the leading assembler of Apple products, since the 2009 downturn, as reported by the Financial Times.

Foxconn’s China workforce rose from 800,000 during the 2009 crisis to 1.2 million last year ahead of the iPhone 5 launch. Apple CEO Tim Cook told a conference last week he did not think demand for iPhones was peaking.

--In its first quarterly report since it’s announced buyout by founder Michael Dell and private equity firm Silver Lake, Dell said its revenues had fallen by 11% from a year before to $14.3 billion. Earning fell 22%, though both were slightly ahead of Wall Street estimates. The company’s consumer business saw revenues decline 24%, with overall PC sales down 20%.

--Hewlett-Packard’s sales dropped 6% in its fiscal first-quarter as demand for PCs continued to shrink for everyone. Net profit fell 16% from the previous year.

But the results, like in the case of Wal-Mart, beat Street estimates so the shares rose; in H-P’s case some $2 to $19 on Friday.

--Gerald F. Seib / Wall Street Journal...on President Obama’s coming Keystone XL pipeline decision:

“Now, the temperature is rising. Environmentalists, whose admiration for Mr. Obama is about matched by their hatred of the pipeline and the oil it would transport, were busy over the weekend protesting in Washington in an attempt to stop the pipeline.

“Still, unions back the idea because of the construction and refining jobs it could create, and nine Democratic senators have joined 44 Republicans in a letter asking for approval. There is ample reason to think the second-term Obama White House, seeing openings to shake America’s dependence on Middle East oil, would like to find a way to give the green light.

“And if that’s so, a combination of forces are lining up in a way that should make it possible for Mr. Obama to get to a ‘yes’ answer, while limiting the political fallout....

“Environmental groups aren’t concerned merely with the route of the pipeline, of course, but with its very reason for existence: its use in facilitating the further burning of oil, and specifically oil extracted from Canada’s tar sands, which is dirtier than average to produce.

“But on this front, the pipeline’s symbolic importance outstrips its practical impact. Stopping Keystone won’t stop Canada from producing the oil. The Canadians have too much invested in oil-sands extraction to simply stop.

“One likely effect of shutting down the pipeline – aside from deeply straining U.S.-Canadian relations – would be to divert the same oil into exports to Asia, for use by China, a country that is doing far less on other fronts to deal with climate change and dirty auto emissions than is the U.S....

“Whatever the president has in mind specifically, it should be easier to sell Keystone XL if that decision is paired with one showing that the progress the U.S. already has made on climate change will continue, even if the U.S. can’t soon kick its oil habit. That is precisely the picture Mr. Obama ought to be able to paint as the big decision point nears.”

--Maurice Taylor, CEO of Titan International, a maker of tires, wrote a no-holds-barred letter to France’s industrial renewal minister Arnaud Montebourg explaining why his firm would never buy part of an ailing Goodyear factory in Amiens.

“I have visited the factory a couple of times. The French workforce gets paid high wages but only work for three hours. They get one hour for breaks and lunch, talk for three and work for three. I told this to the French union workers to their faces. They told me that’s the French way!

“How stupid do you think we are? Titan is the one with the money and the talent to produce tires. What does the crazy union have? It has the French government.”

Taylor later said the union in question is nothing more than a bunch of “communists.”

Montebourg, in his written reply, said in part: “Your words, as extremist as they are insulting, show a perfect ignorance of our country.” He went on to claim Michelin, based in France, was the technology leader and far more profitable than Titan, which Taylor disputes.

France has a 35-hour statutory work week, brought in by the Socialists in 2000, but critics say it is stifling economic growth.

--Office Depot is buying smaller rival OfficeMax in a $1.2 billion all-stock deal, in what it’s calling a “merger of equals” as the combined operation will go after industry leader Staples.   The office-supply market is estimated by research group IBISWorld to be $21.2 billion, with the likes of Amazon.com and Wal-Mart beginning to encroach on the mainstays.

--The United States set a record of $168.1 billion in foreign visitor spending in 2012, according to the Commerce Department. There were 66 million foreign visitors, whose spending represents a 10% increase over 2011.

The greatest increase in visitors came from China, Brazil and India, with growing middle classes in all three.

But with the recession in Europe, visitors numbers from the continent have been dropping. [Hugo Martin / Los Angeles Times]

--In yet another study of fake fish, a survey for Oceana found that after volunteers collected fish samples at 674 supermarkets, restaurants and sushi counters in 21 states, 87% of the snapper samples were not snapper! White tuna was mislabeled 59% of the time. Between one-third and one-fifth of the halibut, grouper, cod and Chilean sea bass tested were mislabeled.

Oceana wasn’t able to determine whether the mislabeling occurred at the supplier, distributor or retailer.

At least the five most commonly eaten seafood types in the United States – shrimp, canned tuna, salmon, Pollock (used in fish sticks) and tilapia – are low-cost and not often substituted. And, those happen to be the fish I buy at my local A&P.

For more expensive fish, one thing to look for is a logo such as the Marine Stewardship Council, which ensures the seafood is properly labeled.

--U.S. wine exports rose to a record $1.4 billion in 2012. 90% originated in California. Sales to China soared 18% to $74 million. Europe remains the top market, up 1.7% to $485 million, while sales to Canada rose 14% to $434 million.

--Finally, the great Martin Zweig passed away at the age of 70. I had the opportunity to meet him a number of times when I was in the brokerage business in the 1980s and he was a class act. I’ll never forget coordinating a conference call around the launch of one of his closed-end funds, he calls in from a phone booth along a Florida highway, he had an awful cold, could barely speak, I said we could reschedule, and he soldiered on.

In case you don’t know who I’m referencing, just understand Zweig was a Wall Street legend, a regular on “Wall Street Week with Louis Rukeyser” who on Oct. 16, 1987, the Friday before the Crash, forecast a “vicious decline,” adding “in my own mind, looking for a crash.”

Zweig was the great worrier. “I worry when I don’t worry.” A man who first said, “Don’t fight the Fed.” I urge you to go to YouTube and check out the “Wall Street Week” videos from 10/16/87 and 10/23/87. It’s a real trip down memory lane for older Wall Street junkies. Rukeyser’s program was critical to the times and must-see television for anyone in the industry.

My condolences also go out to Marty’s wife, Barbara, with whom I worked professionally.

Foreign Affairs

Iran: The International Atomic Energy Agency said there has been a slowdown in the growth of Iran’s stockpile of higher-grade enriched uranium, with more being used for reactor fuel. If true, this may postpone the Israeli “red line” for action. The P5+1 meets with Iran next week for the first time in eight months in an attempt to break the stalemate.

Last weekend, however, Supreme Leader Ayatollah Khamenei said that while Iran was not seeking the bomb, if his country “intended to possess nuclear weapons, no power could stop us.” American officials still believe Khamenei has ultimate say on the direction of the program.

Khamenei also has his hands full with refereeing the coming June 14 presidential elections, stepping in between President Ahmadinejad and rival Ali Larijani, parliament speaker, with Khamenei chastising both for their “inappropriate” mudslinging. 

Meanwhile, Iran’s nuke chief, Mohsen Fakhrizadeh-Mahabadi, is believed to have been present in North Korea when it conducted its recent nuclear bomb test, according to The Sunday Times of London.

Alon Levkowitz of Bar-Ilan University told the Jerusalem Post:

“The most disturbing question is whether the Iranians are using North Korea as a backdoor plan for their own nuclear program. The Iranians didn’t carry out a nuclear test in Iran, but they may have done so in North Korea. There is no official information on this...but Iran may have bypassed inspections via North Korea. If true, this is a very worrying development.”

I have to be honest. I never thought of it this way. It’s a brilliant theory. It’s taking a ‘known,’ Iran’s longstanding cooperation with North Korea, to what should be a logical conclusion that I’ve never seen expressed anywhere before.

Syria: A massive car bomb at a security checkpoint in Damascus between Syria’s ruling party headquarters and the Russian Embassy claimed at least 53 lives, while a few hours later, two other attacks in the city killed another 13; the worst wave of violence in the capital since the uprising began nearly two years ago. The rebels are finding it hard to break through Assad’s defenses so they are increasingly relying on guerrilla tactics.

Opposition figures have been complaining that their arsenals are at a level that only prolongs the conflict, blaming a slowdown on arms shipments on the United States, which it says is pressuring the likes of Qatar and Saudi Arabia to hold off on heavy weapons because of the fear they could end up in the wrong hands.

But the Islamist groups in the country are getting armed anyway by al-Qaeda and its financial backers.

Israel: Prime Minister Benjamin Netanyahu’s coalition building process continues following the January election and a new poll shows that were a vote held today, Yair Lapid’s Yesh Atid would defeat the Netanyahu-Lieberman / Likud Beytenu alliance, 30 seats to 22 (out of 120 in the Knesset). 65% of respondents in the poll for the Jerusalem Post’s weekend sister newspaper said they did not trust Netanyahu and only 31% said they did. On the other hand, 59% trust Lapid, with 54% trusting Naftali Bennett, head of Bayit Yehudi, which takes third in the poll.

Netanyahu only has until March 15 to form his government and if he fails, President Shimon Peres can either give him more time or call for a new election.

Meanwhile, Hizbullah leader Sheikh Nasrallah said yet again: “I am warning the Israelis and their allies that the resistance in Lebanon will not keep quiet over any violation that occurs on Lebanese territory...They know that their energy plants and their airports [are under threat]. Their power plants would require six months to repair. Lebanon, on the other hand, is used to lack of electricity.” [Jerusalem Post]

Nasrallah’s comments appear to be in response to Israel’s alleged attack on a Syrian weapons convoy destined for Hizbullah.

Regarding Hizbullah’s presence in the Lebanese government, a senior opposition source told the Daily Star of Beirut that with Hizbullah’s alleged involvement in the Burgas, Bulgaria bus bombing that killed a number of Israeli tourists, “the party’s agenda and strategy can no longer be said to protect Lebanon as its leaders and lawmakers claim. It would also suggest that Hizbullah is implementing the aims of Syria and Iran, and will eventually harm the state and implicate it in problems the country does not want or need.

“The senior source said his party has information that indicates Hizbullah is involved in activities outside Lebanon that go beyond resistance against Israel or defending Lebanon’s sovereignty and independence.

“He added that Lebanon will have difficulty defending Hizbullah and rejecting accusations of terrorism if the party’s agenda is not related to resisting Israel and curbing its attempts to control the south.” [Antoine Ghattas Saab / The Daily Star]

Egypt: President Mohammed Morsi has called for parliamentary elections, a staggered, four-stage voting process that beings April 27, with the last round to be held in June and the newly elected parliament to convene on July 6.

Rights groups continue to cite widespread police abuse, saying brutality at detention centers and demonstrations is on the rise. They hold Morsi responsible, 60 lives having been lost since the end of January.

At the same time, the military is expressing its impatience with Morsi, issuing veiled threats it may seize power as it did when Hosni Mubarak stepped down and the generals took over.

The opposition has to decide whether or not to participate in the vote or boycott it in an attempt to deny legitimacy to the process.

Tunisia: Prime Minister Hamadi Jebali resigned Tuesday after failing to form a nonpartisan government to end the political crisis resulting from the assassination of a leading opposition figure. Jebali’s efforts were rebuffed by his own ruling Islamist party Ennahda. Jebali, acting heroically, said he was standing down to “fulfill a promise made to the people.”

“This is a big disappointment. Our people are disillusioned by the political class. We must restore confidence.”

Sadly, not likely with the Islamists seeking to dominate power.

Afghanistan: An annual U.N. report on civilian casualties showed the first drop in six years, though insurgents dramatically expanded their campaign of assassinating government supporters. In all, 2,754 civilians died in the war last year, bringing the death toll to 14,728 since 2007, when the U.N. began tracking civilian casualties. Insurgents were responsible for 81% of civilian casualties in 2012.

Separately, on Friday, the U.S. and its NATO allies announced they may keep as many as 12,000 troops in Afghanistan after the formal combat mission ends next year.

Pakistan: Over 80 were killed in a horrific bombing against a Shiite neighborhood in Quetta. Shiites are a minority in Pakistan and increasingly targeted by Sunni militant groups like Lashkar-e-Jhangvi that the intelligence agency (ISI) has nurtured over the years.

India: A pair of bombs exploded in the southern city of Hyderabad, killing at least 15 in the worst bombing in the country in more than year. An Islamist group is being blamed.

The bombs were attached to two bicycles. From my archives:

WIR 5/6/2006

“Sri Lanka: Last time I observed that civil war here is important if for no other reason than the spreading of terror techniques by the leaders in the field, the Tamil Tiger rebels. By way of backing up my claim, know that this week the rebels set off a remote-controlled bomb concealed in a bicycle that was detonated as a naval foot patrol passed, killing five and strewing body parts all over the place. These guys are terrorist masterminds and passing their knowledge to other groups spells further trouble for the West. [Think dirty bomb in a bicycle.]”

WIR 7/1/2006

“Remember when I wrote a few weeks ago about the Tamil rebels, the world’s leading terrorists when it comes to methods, and their employment of a bicycle bomb? I saw this week, for the first time in my memory, where a suicide attacker in Iraq used a bicycle, killing 15. Which means since these ideas have been exported by the Tamil Tigers for a generation now, expect to hear of a bus hitting two claymore mines dangling from a tree branch in Baghdad or Mosul; because this also happened in Sri Lanka a few weeks ago.”

One side note on India: A staggering fact...one-third of its elected politicians have been charged with a crime.

Japan: Prime Minister Shinzo Abe met with Barack Obama on Friday at the White House, but earlier in the week he granted an interview with the Washington Post, as reported by Chico Harlan, that reads in part:

“China has a ‘deeply ingrained’ need to spar with Japan and other Asian neighbors over territory, because the ruling Communist Party uses the disputes to maintain strong domestic support, (Abe said).

“Clashes with neighbors, notably Japan, play to popular opinion, Abe said, given a Chinese education system that emphasizes patriotism and ‘anti-Japanese sentiment.’

“Abe’s theory on the entrenched motivation behind China’s recent naval aggression helps explain why he has spent more effort trying to counter the Chinese than make peace with them: He thinks the fierce dispute with China over an island chain in the East China Sea isn’t going away anytime soon.

“Abe spoke about China in what aides described as unusually detailed terms, laying out challenges that Chinese leaders might face if other Asian countries, unnerved by Beijing’s maritime expansionism, decide to reduce trade and other economic ties. China’s government would be hurt by such moves, Abe said, because without economic growth, it ‘will not be able to control the 1.3 billion people...under the one-party rule.’

“ ‘What is important first and foremost,’ Abe said, ‘is to make [China] realize that they would not be able to change the rules or take away somebody’s territorial water or territory by coercion or intimidation.’”

North Korea: Former ambassador John Bolton had the following conclusion in a Wall Street Journal op-ed.

“North Korea is an unnatural relic of a ‘temporary’ Moscow-Washington arrangement following Japan’s defeat. It has no historical claim to legitimacy as a separate state. Its citizens have never freely consented to it. And its continued existence leaves 23 million people perennially close to starvation. We have repeatedly heard from naïfs that Pyongyang was about to open up. It never does. North Korea cannot open and survive, as the regime itself well knows. But it almost has deliverable nuclear weapons.

“Persuading China to support reunification is the best answer. If China disagrees, nuclear-capable Japan and South Korea, ranking among China’s worst fears, could become reality. A reunification strategy should have been pressed decades ago, but better late than never.”

Meanwhile, at a U.N. Conference on Disarmament on Tuesday, North Korean diplomat Jon Yong Ryong shocked the gathering in declaring, “As the saying goes, a new-born puppy knows no fear of a tiger. South Korea’s erratic behavior would only herald its final destruction.”

Spanish Ambassador Javier Gil Catalina said the comment left him stupefied and appeared to be a breach of international law.

“In the 30 years of my career I’ve never heard anything like it and it seems to me that we are not speaking about something that is even admissible, we are speaking about a threat of the use of force that is prohibited by Article 2.4 of the United Nations charter.”

In the South, Choi Jin Wook, a senior researcher at the Korea Institute for Unification Studies, said that as far as the South Korean public was concerned, this was a time for punishment, though this was a game that could prove dangerous.

“Kim Jong Un is much more aggressive than his father. He thinks he can be more provocative. He is not worried about retaliation. He implied that he might do another test and I think he is not just bluffing. He is ready to play a totally new game because he sees this as North Korea’s final gamble.” [Leo Lewis / Times of London]

Russia: President Obama is preparing to reach out to President Vladimir Putin in another attempt to reduce nuclear arms, but as the Washington Post editorializes, “what’s striking about Mr. Obama’s strategy is its seeming detachment from the reality of how Mr. Putin has governed Russia since his return to the presidency last year....

“Some Russian analysts believe that the regime is well on its way to crushing the opposition movement, which attracted the support of much of the urban middle class. Others regard the repression as the death spasms of an exhausted autocracy. ‘There are classical criteria of a dying regime and its key signs are evident in Russia,’ Lilia Shevtsova of the Carnegie Endowment’s Moscow office wrote recently, citing ‘the Kremlin’s inability either to preserve the status quo or begin changes.’ Either side might be right, though our bet is with Ms. Shevtsova.

“What’s strange is that the Obama administration would seek to undertake a major new piece of business with Mr. Putin without regard for this ugly climate. New U.S.-Russian nuclear warhead reductions, while welcome, are hardly urgent: The big challenges of nuclear weapons lie elsewhere in the world. At the same time, the survival of a pro-democracy movement in Russia is an important and pressing U.S. interest, just as Mr. Putin’s growing hostility to the United States threatens U.S. initiatives in the Middle East and elsewhere. Maybe offering Mr. Putin a new nuclear weapons deal is the best way to counter his noxious policies – but it is hard to see how.”

Mali: Islamists continue to try and retake the northern town of Gao, which has a population of 80,000, and in fighting on Thursday, between 15 and 20 rebels were killed, with the French suffering two wounded and the Malian casualties numbering four.

Also, there was heavy fighting in a remote part of the north, with Chad’s military saying it killed 65 Islamist insurgents while losing 13 of its own. Chad has pledged 2,000 soldiers to the effort.

The U.S. also announced it was deploying surveillance teams in Niger to provide information to French troops in Mali.

Nigeria: Seven French tourists, all from the same family, including four children, were kidnapped by terrorists, probably Boko Haram, in Cameroon and taken into nearby Nigeria. A few days earlier, last Sunday, another Islamist group, Ansaru, abducted seven foreign workers in Nigeria (Italian, British, Greek and Lebanese).

After all this time since 9/11, in some respects I feel as if the war with Islamic Fundamentalism is just beginning.

Britain: According to a Harris Interactive poll for the Financial Times, given an in-out referendum on EU membership tomorrow, 50% vote “out,” 33% “in,” 17% undecided. The referendum isn’t likely to take place until 2017, assuming the Tories win the vote in 2015, but this is an issue that bears watching long before. Unless the continent-wide economy, including Britain’s, picks up in a big way attitudes will only harden.

[Late Friday, Moody’s stripped Britain of its triple-A rating, citing “continued weakness in the U.K.’s medium-term growth outlook.”]

Venezuela: President Hugo Chavez returned home unexpectedly but has yet to be seen in public. An official said on Thursday that Chavez’ breathing problems persist, “and the tendency has not been favorable, so it is still being treated.”

It seems virtually impossible that he’ll return to active politics. I frankly thought he would have been dead by now.

Random Musings

--Joe Klein / TIME

“It turns out...that Obama is not a visionary. His moments of passion are a bit too accessible. His Inaugural celebration of the equality we have achieved was worthy, but not very challenging. His State of the Union peroration calling for a vote on gun control was worthy too – but why didn’t he mention the need to reform mental-health laws and programs so that more of our violently ill young people can be placed in secure settings, a goal perhaps more important and certainly more difficult to achieve?

“He closed the speech with a celebration of a police officer who took 12 bullets defending a Sikh temple? ‘That’s just the way we’re made,’ the officer said. We’re citizens, Obama amplified. But most of us aren’t very active citizens, and the President never addressed the responsibilities that accompany citizenship. He asked nothing of us. But government isn’t only about taking from some and giving to others. It is about the creation and maintenance of something much larger than all of us – a learning, evolving democracy, which requires an informed, rigorous public. I haven’t heard a politician speak honestly about the sacrifices required for greatness in a long time.”

--Nebraska Republican Senator Mike Johanns announced he wouldn’t run for reelection in 2014 after serving just one term, saying after 32 years of public service overall it was time “to close this chapter of our lives,” referring to his wife, who also has been a public servant in the state.

Johanns, considered a shoo-in, thus becomes the fifth Senate incumbent to say he won’t run in 2014. Republican Gov. Dave Heineman, who can’t run for reelection, would be the frontrunner should he decide to give it a go.

Charlie Cook, editor of the nonpartisan Cook Political Report, said Johanns unexpected retirement underscored the “frustrations” of serving in a polarized Senate.

“It kind of says something when you have a freshman senator with no political problem whatsoever and no discernible health issue just deciding not to stick around,” he said.

--According to a poll by Monmouth University/Asbury Park Press, more than 70% of New Jersey residents say they are at least somewhat satisfied with the state’s recovery from Superstorm Sandy. In the hardest-hit areas, 27% are very satisfied and 48% somewhat satisfied.

Coincidentally, a Quinnipiac survey gives Gov. Chris Christie a 74% job approval rating. Absolutely stunning, given the political makeup of my state.

--Speaking of storm recovery in New Jersey, the Associated Press had a story this week on just how slow the recovery is going, through no real fault of anyone, citing the extensive problems with storm debris in the waterways. As in they can’t be cleared for pleasure craft come summer, for example, because you have pieces of homes, sunken boats, appliances and such as potential hazards for boaters.

Separately, a good friend of mine whose shore house survived but suffered extensive damage just had his electricity restored on Wednesday. Feb. 20, almost four months after Sandy.

[Sign of the Apocalypse: Homes being rebuilt at the shore or still unable to be entered are being plundered for their copper. Where’s Joe Biden and his shotgun when we need him?]

--One thing to watch in the coming conclave to elect a new pope is the situation with Cardinal Roger Mahony of Los Angeles. 

Peggy Noonan / Wall Street Journal

“A Washington-based Catholic activist spoke with some urgency of Cardinal Roger Mahony, who is scheduled to go to Rome to vote on Benedict’s successor. As the Washington Post this week noted in an editorial, Cardinal Mahony is ‘lucky not to be in prison’ for his role in covering up hundreds of well-chronicled cases of child sexual abuse in the 1980s, during his 25-year tenure as archbishop of Los Angeles. A few weeks ago he was forcefully rebuked and relieved of many of his public duties by his successor, Archbishop Jose Gomez.

“Said the activist: ‘If Mahony goes to Rome it will be so wrong. And the media will make everything about him.’

“They will, and understandably. It would be a shame, and another scandal for the church, if Cardinal Mahony goes, and votes. He should take a nod from the pope he praises, and remove himself.”

But it turns out back in 1993, Mahony “wrote to the Vatican with an urgent problem. One of his priests in the Archdiocese of Los Angeles had been accused of plying teenage boys with alcohol and molesting them, sometimes during prayer....

“Mahony yanked (the priest) out of his parish and wanted to make sure he couldn’t return. But (the priest) appealed to the one body that could overrule Mahony: the Vatican.” [Los Angeles Times]

Mahony, in this instance, did the right thing but was railroaded by the Vatican bureaucracy that was also reluctant to acknowledge the scope of the issue in the United States.

For example, in 1994, as the L.A. Times reports, Mahony wrote: “Given the pastoral situation in the United States today, which is all too well known, Bishops need to be able to act quickly and decisively in cases of alleged clerical misconduct to assure the People of God that their rights are being fully protected.”

A month later, he wrote to the Vatican official he was dealing with: “It is now almost five months since my meeting with you and yet nothing further has come from you or your Congregation.” [Congregation for the Doctrine of the Faith, which has a staff of 45 that monitors the world’s 400,000 priests.]

It took a full decade before the priest was defrocked.

Cardinal Mahony would make for a fascinating “60 Minutes” double-segment.

--According to a government report, seniors who got flu shots received minimal protection this season. In fact for people 65 and older, “the vaccination was just 9% effective, less than one-fifth as effective as for the general population,” as reported by the Wall Street Journal’s Timothy W. Martin. “Across all age groups, the flu shot was moderately effective at 56%, a rate similar to previous years,” the Centers for Disease Control and Prevention noted.

I haven’t received a flu shot in at least 25 years and never gotten the flu over that time. Instead I drink light beer.

--I watched “Killing Lincoln” and if you didn’t know your history you’d find it interesting, just as Steven Spielberg’s “Lincoln” is, even though it doesn’t exactly deal with the facts either.

I was exchanging notes with my brother, a far better history buff than I’ll ever be, and he pointed out a number of falsehoods in the “Killing Lincoln” Nat Geo film, while it’s now well-known Spielberg screws with the facts in the instance of the Connecticut delegation.

Here’s what concerns some of us with the success of Bill O’Reilly’s “Killing Lincoln,” “Killing Kennedy,” and the upcoming “Killing Jesus” books, films, etc. For those taking these up, this will be their knowledge of history. It sucks.

Understand something about what O’Reilly is doing. By his own admission he turns over the research to collaborator Martin Dugard and then handles the writing. His approach, he told USA TODAY, is to write “history that’s fun to read” in a “populist way. No pinheaded stuff, just roar it through!” And Bill assures us, “It’s all true!” Right.

--Eight armed robbers made off with an estimated $50 million in diamonds at Brussels Airport on Monday evening, a huge embarrassment for the Antwerp World Diamond Center, the hub of the global diamond trade, with about $200 million worth of stones moving in and out of the city every day.

--You can’t make this stuff up. From the South China Morning Post:

“Chinese Health Ministry is planning to improve the hygiene standards of China’s public toilets – it even intends to restrict the number of flies in them. Under the new requirements, no more than three flies will be allowed per square meter in each toilet.

“At the most, only three flies will be allowed per square meter in stand-alone public toilets. Only one fly will be allowed in public toilets built within other facilities.”

Needless to say this has created quite a buzz among the fly population, seeing as they have to cue up to gain access once the regulations go into effect.

--Speaking of vermin, former Illinois Democratic Congressman Jesse Jackson Jr. pleaded guilty to conspiracy to commit mail and wire fraud and false statements connected to his misuse of campaign funds for personal expenses. He faces up to five years in prison. Jackson’s wife faces potential jail time as well for income-tax charges.

--You know what ticks me off about the sequester? Cutting $110 million from the budget for our national parks. This is the one, and only item, I would advocate increasing spending on. But the Parks Service’s looming cuts will impact not only access, along with poor maintenance (think godawful restrooms), but it will hurt local economies.

The thing is, the lion’s share of the Parks Service budget is salaries and these are the lowest paid, good people on the planet. They are the only government employees who deserve to be paid more, not less.

And that’s a memo....Bernie Goldberg is here....Bernie, what say you?

--For the record, the meteor that crashed near Chelyabinsk, Russia, was 55 feet in diameter and weighed around 10,000 tons, making it the largest such object to hit the Earth in more than a century.

Editorial / The Times of London

“There are no known asteroids on a collision course with Earth that could do catastrophic damage. But there is no way of predicting the next impact from an unknown object. Only a fraction of the space around Earth is monitored. Were a one-kilometer NEO (Near-Earth Objects) to be on a collision course with Earth, scientists would have warning of either several years, or nothing.

“To devote research funds to expanding the search for potential objects would be good science. But policymakers need in that case to ensure public understanding that more rocks will be discovered that at first sight appear to have a chance of hitting the Earth. That does not make them inherently threatening. Nor would it be sensible to divert billions of dollars to defense systems when there is no identifiable threat. In the future of the species, the best defense is neither alarmism nor fatalism: it is the expansion of knowledge of the external world, by the only reliable route.”

Editorial / Wall Street Journal

“The fashionable end-of-world fear of recent years has been global warming, which Al Gore tells us will be catastrophic based solely on computer modeling. But an asteroid crash is capable of inflicting more damage in an hour than climate change could in two or three hundred years.

“We’re all for studying the climate and doing what can be done within economic reason to cope with temperature changes. But if it’s catastrophe we want to avoid, maybe the marginal dollar is better spent searching for the space rock that we know is eventually headed our way so we can prevent it.”

--Go Danica! [Pole winners at Daytona never then finish first, but I’m hoping she ends up in the top five and is on the lead lap at the end.]

---

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

God bless America.
---

Gold closed at $1572...was $1565 on 12/31/11
Oil,
$93.13

Returns for the week 2/18-2/22

Dow Jones +0.1% [14000]
S&P 500 -0.3% [1515]
S&P MidCap -1.1%
Russell 2000 -0.8%
Nasdaq -0.9% [3161]

Returns for the period 1/1/13-2/22/13

Dow Jones +6.8%
S&P 500 +6.3%
S&P MidCap +8.2%
Russell 2000 +7.9%
Nasdaq +4.7%

Bulls 48.4
Bears 22.1 [Source: Investors Intelligence...peaked at 54.7 / 21.1 two weeks ago. The fairest S&P 500 figure for the bull/bear reading was the Friday close before the Wed. a.m. release of the data...1513 on 2/1. So that’s the figure I’m looking at in gauging whether the 30+ point spread between bulls and bears was really a danger signal as it’s been in the past. For newcomers, this is a contrarian indicator, just one arrow in the quiver for market forecasters.]

Nightly Review schedule, Mon. - Thurs.  Posted around 5:30 PM ET.

Have a great week. I appreciate your support.

Brian Trumbore