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03/30/2013

For the week 3/25-3/29

[Posted 12:00 AM ET]

Cyprus and Europe

Last weekend, the troika – the International Monetary Fund, the European Central Bank, and the European Commission – reached agreement with Cyprus on a new bailout, Plan B, if you will, or really Plan C, by then. As opposed to the disastrous Plan A, this time depositors with under 100,000 euro in Cypriot banks would remain insured, safe, not dinged for 6.75% as was the original idea. But in two banks, Laiki and Bank of Cyprus, the two largest by deposits on the island, accounts over 100,000 euro would be hit...hit hard. In the case of the former, perhaps up to 80% (40% in the latter), with the other 20% not being returned for a lengthy period while Laiki’s “bad assets” were sold off. Laiki’s “good assets,” deposits under 100,000, were being moved to Bank of Cyprus. Junior/senior bondholders and shareholders in both would essentially be wiped out.

For this pain, and a new pile of liabilities for Bank of Cyprus, the troika (i.e., Germany Inc.) would grant Cyprus 10 billion euro in bailout funds, though as we’ll learn over time, payment for much of this could fall not just on the Cypriot government, whose revenues will be drying up as the economy dies a rapid death, but also the Bank of Cyprus.

The other banks on the island, roughly the other 50% of deposits, appear safe but are severely tainted by the action taken against the big two.

Initially, markets around the world, Monday, reacted very well, especially in Europe, when all hell broke loose. Jeroen Dijsselbloem, the Dutch finance minister representing the 17 eurozone finance ministers in the negotiations, said the deal represented a new template for resolving future eurozone banking problems...and then added other countries may have to restructure their banks.

“If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalize yourself?

“If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalizing the bank, and if necessary the uninsured deposit holders.”

Frankly, this is exactly what should take place. You know here in the United States your deposits are only insured up to a certain limit and you are risking any funds over that. And in a normal capital structure, the bondholders and then the shareholders should get whacked first, and then you hit the deposits that aren’t insured.

But the markets were like, ‘Wohhh, Nelly! You mean, Mr. Dijsselbloem, if I’m in a weak bank in Italy or Spain, anything over the insured limit is at risk?’

Yup...but this principle does mark a drastic change of course for the Euro crisis of the past three years.

In both the Irish and Spanish banking sector rescues – which were similar to Cyprus in that massive bank failures risked putting the governments into bankruptcy because of huge bailout bills – several categories of private creditors, particularly senior bondholders and uninsured depositors, were untouched.

Instead, such as in Ireland, the taxpayers were whacked, and forced to pay off senior bondholders in Anglo Irish Bank, for one. The thinking by the European Central Bank and other eurozone officials at the time was that if the bondholders weren’t protected, i.e., the big investors, it would exacerbate flight of capital out of the eurozone. No investment, no growth.

So, still on Monday, Dijsselbloem acknowledged the concerns over his approach and then attempted to backpedal as the markets tanked, saying Cyprus was a unique situation and it was not necessarily a template, or rather, “a specific case with exceptional challenges.”

Where Dijsselbloem also ran up against resistance, however, was his thinking that in hitting bondholders, shareholders, and uninsured depositors rather than taxpayers, it was far less likely that the 500 billion euro rescue fund, the European Stability Mechanism, would ever be used to recapitalize struggling banks, even though this was exactly what was agreed to at the EU summit last summer as part of the idea of a true banking union.

Since the likes of Luxembourg and Malta have large financial sectors compared with their overall economy, a la Cyprus, this gave them the willies, too.

Moody’s warned in a report last Sunday, ahead of the deal, that events in Cyprus were likely to have a lasting negative impact on the eurozone.

“Even if negotiations are successful and Cyprus remains within the euro area, policy makers’ recent decisions raise the risk of deposit outflows, capital flight, increased bank and sovereign funding costs and broader financial market dislocation throughout the euro area in the future.”

So, as it was, things calmed down the balance of the holiday-shortened week, but all eyes were on Cypriots Thursday at noon, local time, when the banks finally reopened amid heavy security.

Having lived off meager ATM withdrawals for almost two weeks, there was no telling what the people would do, especially customers of Laiki and Bank of Cyprus.

But, limited to new daily withdrawals of 300 euros ($390), or just 1,000 euros if you were traveling outside the country, or 5,000 credit/debit card limitations, and other restrictions, Cypriots, despite their anger and frustration with all the authorities, acted with “maturity and responsibility,” as Cypriot President Nicos Anastasiades put it. Just understand the pain is going to be severe, with some economists predicting the Cypriot economy will crater as much as 15% this year. After all, the banking sector represents 75% of economic activity on the divided island and thousands of jobs are going to be lost in the process. In many cases, savings have been wiped out.

The controls could be in place for months, and with these unprecedented restrictions on capital, an important principle of the European Union has been breached. The principle that capital, as well as people and trade, should be able to move freely across borders.

I stumbled on this piece from Nick Miller of the Sydney Morning Herald.

“ ‘Very bad, very, very bad,’ says 65-year-old John Demetriou, rubbing tears from his lined face. ‘I lost all my money.’

“John now lives in the picturesque fishing village of Liopetri on Cyprus’ south coast. But for 35 years he lived at Bondi Junction and worked days, nights and weekends in Sydney markets selling jewelry and imitation jewelry.

“He had left Cyprus in the early 1970s at the height of its war with Turkey, taking his wife and young children to safety in Australia. He built a life from nothing and, gradually, a substantial nest egg. He retired to Cyprus in 2007 with about $1 million, his life savings....

“He wanted to leave any big purchases a few years, to be sure this was where he would spend his retirement. There was no hurry. But now it is all gone.

“ ‘If I made the decision to stay, I was going to build a house,’ John says. ‘Unfortunately I didn’t make the decision yet.

“ ‘I went to sleep Friday as a rich man. I woke up a poor man.’

“His money was all in the Laiki Bank which was the main casualty of Cyprus’ bailout package set by the European Union. Laiki is to be dismantled. Savings of less than 100,000 euro are to move to the Bank of Cyprus. Anything more than that will almost certainly be wiped out as the bank is wound down, it’s remaining assets taken by the bank’s creditors.

“Last week he heard a rumor that the bank was in trouble and went into Aiya Napa to ask his bank manager – a friend – if he should move his life savings.

“ ‘There’s no problem, nothing to worry about,’ he was told.

“Not so. ‘I go to bed and I can’t sleep. I walk around. I have a coffee. I am thinking about my family.’

“John’s tears flow.”

An editorial in The Economist agrees with Dijsselbloem’s plan and thinking: “If banks fail, creditors can expect to pay the whole bill. The principle of moral hazard has supposedly been re-established.

“But at what cost?....

“First, Cyprus itself looks crushed....

“Second, the deal allows Cyprus to use capital controls to stop deposits fleeing the banks when they reopen. The single currency is now not so single: a euro in a Cypriot account is not worth the same as a euro in Greece or Belgium....

“Third, the decision to punish large depositors will also weaken the eurozone. Whatever the justice of saving Russian money-launderers, the best way to protect European taxpayers from the cost of cleaning up banks is to give all short-term creditors reason to stay put. Hitting them will discourage them from putting money into weak banks in peripheral economies, and make it even harder to keep sick banks alive in crises. When a run starts it is rational for others, even insured depositors, to join. The euro area has 8 trillion euro of deposits and only 4.5 trillion of annual government revenues: governments could not guarantee all the deposits even if they wanted to.”

What Europe needs most today is a true banking union, with a joint deposit-guarantee scheme, but this is still a ways off.

On Friday, President Anastasiades, in power just a month, accused the eurozone of making “unprecedented demands that forced Cyprus to become an experiment.”

But he added: “We have no intention of leaving the euro. In no way will we experiment with the future of our country.”

Editorial / Washington Post

“This much can be said fairly certainly about the new bailout plan for Cyprus: It’s a big improvement on the previous plan....

“Beyond that, however, the implications are much harder to determine. Has Europe set a precedent, according to which big bank creditors, from uninsured depositors to bondholders, must henceforth assume that their funds are at risk? Who knows? Jeroen Dijseelbloem of the Netherlands, who heads the ‘Eurogroup’ of finance ministers, suggested that such a precedent had indeed been set – whereupon a top official of the European Central Bank, Benoit Coeure, declared that Mr. Dijsselbloem was ‘wrong.’ In his view, Cyprus is a ‘unique’ case.

“Wouldn’t it be healthy for Europe if bank creditors did get the idea that their funds were at risk, so that shaky banks would find it harder to get funded in the first place? Yes, according to those who say Europe’s problem has always been a ‘too big to fail’ mentality. No, according to those who say that the Cyprus deal fatally undermined depositor confidence, thus making bank runs in other countries more likely.

“Certainly Cyprus and its paymasters in the European Central Bank have broken a taboo of the common European currency by imposing controls on the flow of capital into and out of the country, albeit ‘temporarily.’ As long as those controls last, a euro held in Cyprus is no longer as valuable as those deposited elsewhere. But even that measure can be justified by the greater threat of a bank run; to save the euro, it was necessary to destroy it, partially, in one place, for a while.

“Cyprus is a template; Cyprus is a one-off situation. Deposits are susceptible to confiscation; deposits are sacrosanct. Capital controls are inconsistent with currency union – except when they are necessary. Maybe the real problem in Europe is that all of these statements are true, or might be true, depending on who’s talking, and where, and what particular interest – financial or national – the speaker represents.

“The Cyprus experience confirms that the powers that be in Brussels and Berlin are improvising to meet the crisis du jour, which is what they must do to hold together a currency union absent the usual political, legal and regulatory infrastructure. Until that inherently confusing and unstable situation changes, Europe’s policymakers will continue to make it up as they go along. For better or worse, investor confidence will develop accordingly.”

Editorial / Wall Street Journal

“The key, for Cyprus and the eurozone, will be to rebuild sufficient confidence to encourage capital to stick around even after the controls are removed. Cypriot and European officials are playing their part by chanting ceaselessly that these are temporary restrictions, and that the EU’s rules don’t forbid ‘safeguard measures’ to preserve systemic stability.

“But it’s worth remembering that Cyprus is facing a run on its banks, not on its currency. That alone means capital controls in this case shouldn’t have gone beyond what’s necessary to stabilize the financial system. Europe’s monetary union is premised on the idea that a euro held in one country is the same as a euro held anywhere else. When that trust has been violated, and a Cypriot euro isn’t identical to a German or even a Greek euro, the single currency is closer to a hopeful fiction than an economic reality.

“In this sense, capital controls in Cyprus could reinforce a broader confidence crisis if they convince depositors elsewhere in Europe that they too might someday face strictures on capital movement. The euro zone is entering risky territory, and what might look like a necessary stabilizer today could eventually be remembered as the first breaking-away from one of its most important founding principles.”

John Plender / Financial Times

“Well, a definite consequence of the limits on transfers of bank deposits and cash withdrawals in Cyprus is that the euro in Cyprus has indeed been devalued. It is, in effect, a different currency to euros held in the rest of the eurozone. That flies in the face of the principle that a prerequisite of a monetary union is a free flow of capital across national borders. It also potentially weakens the stability of the retail bank deposit base of the eurozone periphery. For while the circumstances of Cyprus, with an oversize financial system and a large Russian presence, are special, the horses will undoubtedly have been frightened all around the eurozone periphery.

“As for the notion that these capital controls will be short lived, it is worth remembering that Britain imposed exchange controls as a purely temporary measure at the outbreak of the Second World War in 1939. A highly restrictive regime was in place until Margaret Thatcher’s incoming Tory government abolished them 40 years later. The longer such controls are in place, the more uncertain the consequences of unwinding them become and the more dangerous, politically, it becomes to embark on a liberalizing course. Note, too, that Iceland’s capital controls, introduced as a temporary measure in 2008, remain in situ....

“Steve Hanke of Johns Hopkins University offers a...quote from Friedrich Hayek in 1944 in The Road to Serfdom: ‘Nothing would at first seem to affect private life less than state control of the dealings in foreign exchange, and most people will regard its introduction with complete indifference. Yet the experience of most Continental countries has taught thoughtful people to regard this step as the decisive advance on the path to totalitarianism and the suppression of individual liberty. It is, in fact, the complete delivery of the individual to the tyranny of the state, the final suppression of all means of escape – not merely for the rich but for everybody.’”

---

On the issue of why Russia refused to bail out Cyprus...Ian Bremmer had the following take in the Financial Times.

“Economics explains some of (Russia’s reluctance to lead). Moscow is under real pressure, with a budgetary process that is only getting rockier, and rising unemployment. The notion of a Cyprus deal was never going to fly for the Kremlin, as it was largely perceived as throwing good money after bad. Rather, the Russians are – as the Chinese have been doing in Greece – waiting for select assets at a bargain price. It is a ‘buy low’ approach and it is a safe bet that Cypriot assets will become more affordable....

“As far as we can tell at this stage, the outcome could have been worse for Russia had all Cypriot banks been targeted, rather than just two. Russia’s largest trading partner remains the EU; Moscow is dependent on revenues from gas sales to Europe. The bottom line: Moscow has far more to lose than gain from aggressively reacting to the crisis. Mr. Putin seems well aware of this, telling his government to begin talks on restructuring Russia’s 2.5 billion euro loan to Cyprus.”

Also related to Cyprus, consider that at least 1,600 Greek shipping, trade and tourism companies headquartered in Cyprus are threatened with closure. Greek firms that held deposits in Cyprus were unable to meet a deadline this week for paying taxes in Greece (because the banks were closed), so Greek government revenue will not be as projected, making it even less likely the troika will supply Greece with more bailout funding (just thinking to the extreme....but possible).

Elsewhere, in Italy, the Democratic Party head Pier Luigi Bersani was rejected by leaders of Beppe Grillo’s Five Star Movement in a bizarre situation where the talks between the two over forming a governing coalition were broadcast live on the Internet because Grillo wants more transparency.

So at one point, Bersani says, “Believe me, only an insane person would want to govern at this moment,” seated across from Vito Crimi, head of Five Star’s contingent in the upper house (the Senate). “Let’s get this straight: I am ready to take on an enormous responsibility and I’d ask everyone to take a small part of it, period.”

Now I believe in transparency as much as the next guy, but what an incredibly stupid idea to broadcast negotiations. Not public hearings on an item of import, but negotiations.

Bersani was doomed to fail anyway, seeing as he refused to form an alliance with former Prime Minister Silvio Berlusconi’s coalition, and Grillo long said his party wouldn’t be part of any traditional government.

This was Wednesday. The next day, Thursday, Bersani met with 87-year-old President Giorgio Napolitano, whose term is expiring in May, and when it was clear Bersani couldn’t form a government, Napolitano told him to hit the road and now the president will act “without delay” to nominate a prime minister of his own choosing who could come from outside parliament.

Any government Napolitano appoints would have a narrow mandate to enact some reforms, including of the electoral variety, pass a few emergency measures to try and kick-start the economy, but within months it’s clear Italians would be back at the polls and the result could easily be another hung parliament because while Grillo’s movement has momentum, suddenly Berlusconi is gaining again in new polls.

In Slovenia, the next possible bailout target, Prime Minister Alenka Bratusek, in office just one week, told Parliament her government would rebuild ailing banks and improve state finances and that there was no need for a bailout. Slovenia’s bond market was unimpressed and yields rose to all-time highs; never a good sign, sports fans.

Meanwhile, the Bank of Spain announced that nation’s economy would shrink 1.5% this year, worse than the government is forecasting, and unemployment will rise above 27%

In France, his poll numbers continuing to crater after a little bounce from the heroics in Mali, President Francois Hollande said insisting on meeting strict budget-deficit targets could fuel social discontent, result in a rise of populist governments and endanger Europe’s cohesion. Speaking in a prime-time television interview, Hollande said, “More austerity would condemn Europe to recession. It would make it explode.”

Finally, in Germany, February retail sales rose 0.4% over January, but were down 2.2% from year ago levels, while the seasonally adjusted unemployment rate in March remained unchanged at 6.9%.

---

The Organization for Economic Cooperation and Development, whose members are mostly developed nations, warned that a meaningful recovery will elude the eurozone until at least the second half of next year. 

The OECD expects the three largest eurozone economies – Germany, France and Italy – to avoid an outright contraction, growing by an annualized rate of 0.4% in the first quarter and 1% in the second.

But this is only because Germany is expected to expand 2.3% in the first, 2.6% in the second.

France, on the other hand, will contract 0.6% in the first quarter before growing 0.5%, while Italy is expected to shrink in both quarters by 1.6% and 1%, respectively.

So...it’s a good time to look at the United States,
Washington and Wall Street...

The OECD sees the U.S. growing by 3.5% in the first and 2% in the second quarter. I think we’d all take that.

As we learned this week, the final figure on fourth quarter GDP came in a tick less than expected, up 0.4%, after the initial estimate was a contraction of 0.1%.

February durable goods (big ticket items) were better than expected, up 5.7%, but when you ex- out the volatile transportation sector, orders were actually down 0.5%, not up as expected.

February new home sales also came in less than expected, though the two-month period, Jan./Feb., was the best pace since Aug./Sept. 2008. February pending home sales were light.

The S&P/Case-Shiller index of property values in 20 major metropolitan areas was up 8.1% for January over year ago levels, the best 12-month performance since June 2006. Phoenix saw the largest increase, Jan. over Jan., up 23.4%. All 20 cities registered gains.

And on Thursday, the March Chicago Purchasing Managers Index came in far less than expected, 52.4, but it’s still above the 50 dividing line between growth and contraction.

The equity market took all the above, and the news in Cyprus, and stutter-stepped to a new all-time high in the S&P 500, finally, on Thursday, closing the week at 1569, ahead of the October 2007 mark of 1565. So, importantly, the S&P has joined the Dow Jones in record territory.

There was other economic news on Friday, with the markets closed. Consumer spending climbed 0.7% in February, better than expected and the best in five months, while personal income, up 1.1%, also beat estimates.

This is good. Plus a reading on consumer sentiment from the folks at the University of Michigan (and Thomson/Reuters) far exceeded all estimates, though earlier in the week a reading on sentiment from the Conference Board was awful.

Anyway, assuming North Korea doesn’t fire any bottle rockets at Guam over the weekend, let alone Seoul or Tokyo, Monday could be pretty good.

Payroll tax hikes? $4.00 gasoline? The sequester? What me worry?

Nope. For the Dow Jones, we just completed the best first quarter since 1998, up 11.2%. Score one for Ben Bernanke and his merry band of Fedsters for pumping up equity prices. Unless you’re ‘short’ the market, or are holding crappola like moi, what’s not to like? Plus home values are increasing.

And it’s Easter. The Muslim Brotherhood might not be thrilled by this last pronouncement, but they can stick it.

One Washington note. For the first time since 2009 the Democratic-controlled Senate produced a budget blueprint so with the Republican-controlled House having already put forward the Ryan plan, we have two competing visions. Plus the president will be unveiling his own belated budget shortly and then the two sides can discuss their ideas on the Sunday talk shows for the next few months, well into summer, at which point we have to deal with another debt ceiling deadline.

So you are going to see a lot of Paul Ryan for the Republicans and Washington Sen. Patty Murray for the Democrats, who will be their party’s respective lead negotiators for the fiscal 2014 budget, the accounting for which begins October 1st. 

Isn’t this exciting?! 

Street Bytes

--For the week the Dow Jones rose 0.5% to 14578, again, the new high water mark, while the S&P 500 added 0.8% to the aforementioned 1569 level. Nasdaq tacked on 0.7% to 3267.

It’s now earnings season. The early readings from important bellwethers Oracle, Caterpillar and FedEx have not been good. I am curious to see the impact of ongoing recession in Europe on the large multinationals, along with the statements accompanying the results.

--U.S. Treasury Yields

6-mo. 0.11% 2-yr.  0.24% 10-yr. 1.85% 30-yr. 3.10%

The long end of the curve benefited from the safe haven play with the turmoil and banking uncertainty in euroland. The euro hit new cycle lows.

--Payrolls grew in 42 states in February, the Labor Department announced Friday. Texas once again led in job creation, adding 80,600, which, according to a report I’m reading from Bloomberg is the biggest increase for that state going back to 1982?! Kind of makes you want to reach for the best beer in America, Shiner Bock...brewed in Shiner, Texas.

California’s jobless rate is down to 9.6%, though tied with Nevada and Mississippi for highest in the nation. North Dakota remains the lowest at 3.3%, owing to the energy boom there. 

I see in my home state of New Jersey, we are at 9.3%, New York is at 8.4%, and Texas is 6.4%.

--The Japanese government’s attempt to generate inflation was dealt another setback as core consumer prices, ex-fresh food (vs. our core, ex-food and energy), declined a fourth consecutive month, off 0.3% in February compared with a year earlier. The government hopes to generate 2% inflation in two years. Industrial production last month also declined 0.1% when a gain of 2.5% was expected, and retail sales for February fell 2.3% from a year earlier, though up 1.6% from the previous month. Barclays Capital cut its forecast for growth in the first quarter to 1.1% on an annualized basis, a far cry from what the OECD predicts. It sees Japan growing 3.2% and 2.2% in the first two quarters.

Separately, Japan’s new central bank governor, Haruhiko Kuroda, told parliament that the government’s vast and growing debt is “not sustainable,” and that a loss of confidence in state finances could “have a very negative impact” on the entire economy.

Remember, Japan’s gross debt to GDP ratio is expected to top 245% this year, according to the IMF.

--South Korea’s industrial production unexpectedly fell in February, 0.8% from January when it declined 1.2%. Economists were expecting a gain for the month. Earlier the government cut its 2013 growth outlook for a second time in three months to 2.3% from 3%, after expanding 2% in 2012. South Korean exporters such as Samsung are suffering due to the won’s 17% rise against the Japanese yen in the last year.

--Ireland’s Central Statistics Office reported that while home and apartment values rose 3% in Dublin over the past year to February, in the rest of the country they cratered another 6%. Nationwide, prices are still off 51% from the peak five years ago.

--Shares in Apple plunged $18 on Thursday and Friday, in no small part after being slammed by China Central Television and the Communist Party mouthpiece the People’s Daily over its customer service and warranty practices. Specifically, a People’s Daily editorial was titled “Let’s strike away Apple’s unparalleled arrogance,” criticizing the company for being “dishonest,” “greedy” – and, above all – “arrogant.”

Apple has returned the considerable contributions China has made to its revenue, the editorial said, with a “swaggering arrogance” that must have originated from the “traditional superiority enjoyed by westerners.”

“(Apple must have thought) why does a developing ancient oriental country deserve the same customer service as their western counterparts?” the commentary continued.

“If you insist on challenging Chinese customers’ love and patience, and continue to be heedless, then your business will eventually decline no matter how glamorous or successful your brand is,” it said.

Well, China’s netizens lashed out at CCTV and the People’s Daily for picking on Apple and avoiding more serious domestic issues. “Talking about arrogance, how about these state-owned Chinese behemoths?” wrote one. [South China Morning Post]

This could be bad news for Apple. “Greater China accounted for 12% of the company’s global revenue in the first quarter of 2013. Sales were up 67% from a year earlier, massively outpacing the 18% growth for the company as a whole.” [Tom Orlik / Wall Street Journal]

The government had success in launching a somewhat similar attack against Yum! Brands when the quality of the suppliers for its KFC chain was questioned.

--Chinese telecom equipment maker Huawei suffered a big blow when Sprint Nextel and its Japanese suitor SoftBank agreed not to use equipment made by Huawei, the two having given assurances to Mike Rogers, the chairman of the House intelligence committee, who has long been concerned about Huawei’s aspirations in the U.S. Many members of Congress have wanted to ensure the company doesn’t gain access to critical infrastructure.

Last year, a highly critical House report singled out Huawei and another Chinese telecom equipment maker, ZTE, as being national security threats and that networks they installed in the U.S. could be switched on remotely to send data back to China.

--The internet around the world fell victim to a battle between Spamhaus, a group based in London and Geneva, a non-profit that aims to help email providers filter out spam and other unwanted content, and Cyberbunker, a Dutch web host which states it will host anything with the exception of child pornography or terrorism-related material.

Spamhaus put Cyberbunker’s servers on its blacklists – a database of servers known to be being used for malicious purposes. 

Cyberbunker, in cooperation with “criminal gangs” from Eastern Europe and Russia, according to Spamhaus, then launched a wave of denial of service attacks against Spamhaus’ Domain Name System servers.

This battle has the chance of getting far uglier.

--Research firm eMarketer projects Twitter could take in close to $1 billion in ad revenue in 2014. By 2015, mobile advertising will account for 60% of Twitter’s estimated $1.33 billion. In 2011, Twitter had “virtually no ad revenue from mobile,” the firm said.

--The nation’s airlines set a new record last year with an overall load factor of 82.8%, up from 82% in 2011, according to the Department of Transportation.

Delta carried the most passengers for a third year in a row, 116.4 million, ahead of Southwest Airlines and its 112.2 million.

--Good lord. With my trips to Iowa in 2007 and 2011, I thought I had a decent handle on the skyrocketing value of farmland there, but I read in USA TODAY this week that an 80-acre parcel in Sioux County sold last October for a record $21,900 per acre! Generally, good farmland in the state goes for $8,000 or so.

But if I went back through my musings on my trips to the state, I’m sure I talked of a bubble in 2007 and the prices just kept going up.

$21,900, however, is a bubble. Back in the 1980s, Iowa farmland plunged from $2,147 an acre in 1981 to a low of $787 five years later. A third of the state’s farms went out of business.

Farmers have learned from those lessons, though, and are far more conservative today. Many purchases are all-cash, or close to it. And the banks appear to be more cautious as well.

Plus corn prices are headed down with the drought situation in that region, at least, clearing up.

--Not for nothing, but am I the only one kind of amazed at the rapid success of Hawthorne, California’s SpaceX and its missions to supply the International Space Station? I mean founder Elon Musk and his crew must be ecstatic over the progress being made, the latest mission having concluded on Wednesday with a successful splashdown in the Pacific, 2,668 pounds of science samples from human research and such successfully secured.

You rock, men and women of SpaceX!!!

Meanwhile, Orbital Sciences Corp. of Dulles, Va., is testing its Antares rocket in mid-April.

--Interesting piece in Bloomberg by Renee Dudley on how customers are fleeing Wal-Mart because of empty shelves.

“It’s not as though the merchandise isn’t there. It’s piling up in aisles and in the back of stores because Wal-Mart doesn’t have enough bodies to restock the shelves, according to interviews with store workers. In the past five years, the world’s largest retailer added 455 U.S. Wal-Mart stores, a 13% increase...In the same period, its total U.S. workforce, which includes Sam’s Club employees, dropped by about 20,000, or 1.4%. Wal-Mart employs about 1.4 million U.S. workers.

“A thinly spread workforce has other consequences: Longer check-out lines, less help with electronics and jewelry and more disorganized stores.”

Of course last week I noted how Wal-Mart placed last among department and discount stores in the American Customer Satisfaction Index, the sixth year in a row the company had either tied or taken the last spot.

The nearest Wal-Mart to me is generally too far and I never think of going there, but I love shopping there when I’m traveling.

My big spot these days is Dollar Tree. Great tortilla chips, by the way....for a dollar!

Plus at least at my location, somehow they hire the cashiers with the best attitudes, which you wouldn’t necessarily expect at a place like that...seeing as they probably make...a dollar!

Now I’m experimenting with socks at Dollar Tree and I’ll let you know if they survive multiple washings. Because nothing ticks me off more than paying $9.00 for a pair of socks as I’m used to doing.

--After my comment last week on the incredibly awful sales clerk at my local CVS store, Jeff B. wrote in with his tale of Radius North, an internet provider in New Hampshire where Jeff spends half his time. As in Jeff has had it with “Internet Bob” at the company. Actually, Jeff’s account is hilarious but it’s kind of for adults only and I need to protect the children reading “Week in Review” for their Middle East updates.

--Shares in BlackBerry were all over the place this week with the launch in the U.S. of its new Z10 phone and the release of its earnings. Sales of the Z10 were said to be “tepid,” while the company, in making a profit due to severe cost-cutting, also lost 3 million subscribers.

--According to Alair Townsend in Crain’s New York Business, New York City’s unfunded future health care obligation is an estimated $83 billion for the city’s public workers, $56 billion for the state’s employees and $200 billion in the state as a whole. As Ms. Townsend put it:

“One obvious question is why, given the passage of Medicare in 1965, we offer retiree health plans at all. A large part of the answer lies in the fact that so many public workers retire well before age 65, the time when they become eligible for Medicare.”

--University of Hong Kong researchers have found that the mysterious new coronavirus that emerged in the Middle East and has killed 11 people is potentially more deadly than Sars and also more “promiscuous,” – able to infect many different species, as reported by Emily Tsang of the South China Morning Post.

While the source of the new infection is not known, it is suspected the virus originates in bats.

The coronavirus causes widespread organ failure, resulting in a high mortality rate of 56% vs. 11% for Sars.

So throw this into the ‘risk category’ file in terms of things that could put a major crimp on trade, as Sars did for a spell in Asia.

--E.L. James’ “Fifty Shades” erotic trilogy has sold more than 70 million copies in print, audio and e-book editions in various languages from March through December, according to the publisher, Bertelsmann SE & Co., parent of the books’ publisher Random House. As Ronald Reagan would have said...not bad, not bad at all.

But this is cool. The Wall Street Journal reported that the books have been so successful for Random House that the CEO gave every U.S. employee on the payroll for at least a year a $5,000 thank-you bonus in December.

The Harry Potter series, by the way, has sold over 450 million copies globally since debuting in 1997.

--A New Jersey resident was the lone winner of the $338 million Powerball drawing the other day (your editor lost again) and let’s just say Pedro Quezada hasn’t been a model citizen in his 26 years in this country.    As in he owes $29,000 in unpaid child support and has various liens against him and his bodega business. But we wish him well with the $152 million lump sum after taxes.

--Forbes estimates the Yankees are worth $2.3 billion, the most valuable franchise in all of sports, besting the $2.1 billion for the Dallas Cowboys.

But seeing as the Yanks are going 76-86 this season, with fans abandoning them in droves, if I’m owner Hal Steinbrenner, I sell. One baseball insider told the New York Daily News, “If the Yankees were ever on the block, it would probably be $1 billion more than what (Forbes) has.”

My Mets are sixth on Forbes’ list at $811 million. They are going 75-87 this season, making for a tight race between the two Gotham clubs.

--Due to lingering damage from Hurricane Sandy, Ellis Island “will not likely be open in 2013,” according to the National Park Service; in case you live in Egypt or Syria and are thinking of coming to our shores.

--I was just informed Ellis Island stopped processing immigrants in 1924 and that the closure only referred to the museum. Never mind. Go ahead and use Newark Airport then. It’s more convenient to Manhattan than Kennedy.

--I’m not a fan of Picasso, but hedge fund titan Steven Cohen just purchased Picasso’s “Le Reve” for $155 million, buying it from casino mogul Steve Wynn. Cohen apparently told friends it was a ‘gift to himself.’

My gift to myself this week was a chocolate Easter Bunny from Dollar Tree...for a dollar!

Cohen, by the way, also owns works by Van Gogh, Manet, de Kooning, Cezanne, Warhol, Francis Bacon and Damien Hirst.

I prefer Monet and Pissarro.

--But what’s this? Another one of Cohen’s long-time associates at SAC Capital Advisors LP, Michael Steinberg, was arrested by the FBI at the crack of dawn on Friday for insider-trading?!

Why this means the feds remain relentless in their effort to reach all the way up to Cohen himself, Steinberg being a key portfolio manager and confidant of Cohen’s at the $15 billion hedge fund. Since 2009, six former SAC employees have now been convicted of or pleaded guilty to insider-trading charges; four are cooperating with authorities.

Steinberg, who was put on leave by SAC last September, without explanation, faces as much as 20 years in prison for each fraud charge; specifically for his activities in trading Dell and Nvidia Corp. stock.

--Congratulations to 17-year-old Londoner Nick D’Aloisio, who sold his smartphone news app to Yahoo for a reported $30 million.

“If you have a good idea, or you think there’s a gap in the market, just go out and launch it, because there are investors across the world right now looking for companies to invest in,” he said in an interview with the Washington Post.

--Finally, I loved the story in Crain’s New York Business by Annie Karni on 11-year-old Olivia Crenshaw, a fifth-grader who is the No. 1 seller of Girl Scout Cookies in all of the Big Apple. As in she sold 1,651 boxes in 2011, and 1,812 last year.

“Olivia drops boxes at her mixed-martial-arts class, sells to restaurants, cold-calls cleaners and, dressed in her green vest and sash, pitches parents in Central Park on the cookies delivered worldwide each March.”

One real estate broker purchased 155 boxes.

“A lot of people like to buy from a successful seller,” Olivia explained. “That helps me. They know I’m serious and that I’m the one to trust.”

I’m thinking Internet Bob could learn a lesson or two from Olivia.

Foreign Affairs

North / South Korea: Pyongyang said its strategic rocket and long-range artillery units have been ordered to be combat ready, targeting U.S. bases on Guam, Hawaii and the mainland; North Korea being upset over recent sorties by B-52 bombers over the Korean peninsula as part of South Korea-U.S. drills, let alone the flight of two U.S. nuclear-capable B-2 stealth bombers that dropped dummy warheads in joint military drills with South Korea on Thursday. Kim Jong Un then upped the warning Friday that his rocket forces were ready “to settle accounts with the U.S.”

North Korea also cut off a military hotline that was essential in operating the joint industrial complex in the North, Kaesong, that employs 750 or so workers from the South. Back in 2009, as a protest of that year’s South Korean-U.S. military drills, the North closed the border for one week, leaving hundreds of South Korean workers stranded in Kaesong. This isn’t a big deal, yet, and on Thursday the border crossing to Kaesong remained open as 400 South Korean workers were allowed in.

The U.S. and South Korea have signed a new cooperation agreement in the event of an attack from the North. As reported by the Wall Street Journal, the Chosun Ilbo, South Korea’s leading daily, said in an editorial Monday that Washington and Seoul have long been ‘naïve’ in assessing North Korea’s threat, and that their responses have been ‘muddled’ and ‘ineffectual’ against its provocations.

“The most effective way to stop North Korean provocation is a strong response,” the daily said. “The latest joint plan must be strong enough to make North Korea think twice about launching any provocation, and envisage striking fiercely if it does.”

So what will Kim Jong Eun do? I’m guessing he takes out a South Korean naval vessel, expecting there to be little response while he improves his image with his generals. But the South has vowed to hit back hard if Kim attacks.

James Hardy, Asia-Pacific editor at Jane’s Defense Weekly, said: “It is undeniable that the U.S. is escalating its military response to North Korea’s rhetoric, but it may be that these B-2 flights – and the B-52 flights earlier in the month – are intended to pacify South Korea public opinion as much as deter North Korean provocations.

“Obama likely wants to show the new South Korean leadership that it has U.S. support...The last thing the U.S. wants is South Korea to overreact to some kind of North Korean provocation.”

As I go to post, on Saturday, a statement out of Pyongyang said: “From this time on, the North-South relations will be entering the state of war and all issues raised between the North and the South will be handled accordingly....

“The long-standing situation of the Korean peninsula being neither at peace nor at war is finally over.”

Syria: It does not appear the Syrian regime used chemical weapons the other week, at least there is no evidence of such use as yet, though the UN has not formally conducted its investigation. Israel’s Justice Minister Tzipi Livni said her country has seen no evidence.

Of course if evidence was uncovered, that is supposed to be President Obama’s “game changer,” let alone Israel’s. A red line.

But whether Assad used chlorine or what most would define as chemical weapons, the fact is they are being moving around.

The other day British and French officials questioned U.N. Secretary-General Ban Ki-moon as to whether chemical weapons were used as early as December in Homs.

Meanwhile, speaking in Jordan last week, President Obama warned an “enclave of extremism” could fill the leadership void in Syria, warning that when Assad’s government finally collapses, Syria would not be “put back together perfectly,” with the country becoming a hotbed for extremists. “They thrive in failed states,” said Obama.

No kidding.

Separately, despite the resignation of the opposition’s leader, the rebels did take the country’s seat for the first time at an Arab summit Tuesday. Needless to say, the government in Damascus blasted the Arab League’s decision. Arab League Secretary-General Elaraby encouraged members to arm the opposition to provide more “balance” with Assad’s superior firepower and aid he is receiving from Russia and Iran. Russian Foreign Minister Sergey Lavrov said the Arab League’s action had raised serious questions about the role of Lakhdar Brahimi, the special Syria envoy from the U.N. who also represents the Arab League.

Mouaz al-Khatib represented the opposition even though he had resigned two days earlier. He said he would discuss his situation later.

But on the broader topic of the Syrian war spilling over into neighboring lands, following are some headlines from this week.

“Turkey and Israel Feel the Effect as Syria’s Civil War Fuels Tensions at Borders”

“Lebanon: the next Mideast war zone?”

“Israel eyes Lebanon as Syrian army loses steam”

“Syrian conflict’s impact is felt across border in Iraq”

“UN concerned Syrian war spilling over into Golan Heights”

“Jordan shuts Syria border crossing, UN pulls staff”

Iraq...Jordan...Lebanon...

Israeli military intelligence chief Major General Aviv Kochavi said recently, “Hizbullah and Iran understand that Assad’s fate is sealed, and they’re preparing for the day after. They are trying and in some cases succeeding to obtain air defense capabilities, shore-to-sea missiles, surface-to-surface missiles and other capabilities,” he said. [Daily Star]

On the Iraq front, Ali al-Moussawi, a spokesman for Iraqi Prime Minister Nouri al-Maliki, said in an interview with the Washington Post, “We will be the most affected if violence spreads in a way that cannot be controlled. What worries us is that there is no plan to control things in Syria, to find a peaceful political solution or a type of change that can be controlled.”

Maliki, while aligned with Iran, is no friend of Assad because Syria allowed weapons and fighters to cross the border the past decade, fueling Iraq’s sectarian war. But Maliki also fears a rebel victory in Damascus.

For their part, the Sunnis are feeling emboldened, both in Syria, as represented by the rebels, as well as in Iraq, where they are increasingly protesting the hardline Shia government.

Last weekend, U.S. Secretary of State John Kerry lobbied Maliki to stop allowing Iranian arms and fighters to cross into Syria through Iraq. Maliki denied aiding the Syrian government.

U.S. ambassador to Syria Robert Ford said in congressional testimony last week, “We want the Iraqi government to understand that it has no interest in having an extremist government in Syria.”

Yes, it’s complicated. As the Washington Post editorialized:

“President Obama has often given the impression that he has turned his back on Iraq, and many Americans understandably sympathize with him. But a failure to engage with the fragile state U.S. troops left behind would endanger U.S. interests and break faith with the many Americans who made sacrifices there.”

And one other depressing note. The New York Times reported that in Syria, “More than 100 physicians have been killed and hundreds more have disappeared into Syrian jails in the last two years, according to doctors and opposition organizations. The government reviles treating wounded rebels as ‘akin to carrying weapons,’ said Wadah Maktabi, a pharmacist.”

Actually, in a U.N. report, both sides have been accused of targeting medical care as part of their military strategy. Doctors Without Borders reached the same conclusion. “Medical structures became military targets,” it said in a report this month. Another group based in Damascus says 50 nurses have been killed and 469 doctors jailed. The condition of the jails is said to be beyond belief. Space is rationed among the prisoners.

Editorial / Wall Street Journal

“So now – 24 months, 70,000 deaths and 500,000-plus-refugees later – President Obama is contemplating a Syria policy that amounts to something other than determined inaction. The Administration’s initial argument was that U.S. involvement would intensify the violence within Syria, strengthen the hand of extremists, extend Bashar Assad’s political lease on life, and turn a civil war into a regional crisis.

“That being exactly what has come to pass, Mr. Obama wants a course correction. A small one. In nautical terms, we’re talking a half-point to starboard.

“Specifically, the President is said to favor slightly beefing up the not-so-covert CIA assistance to secular Syrian rebels, which so far has amounted to some military training, to include actionable intelligence sharing. He also wants the State Department to coordinate overall regional assistance to the rebels, and to help with governance in Syrian areas under rebel control.

“But Mr. Obama remains firmly opposed to providing arms to the rebels, much less involving U.S. military forces directly. His greatest fear, according to someone whose job it is to publicize authorized leaks from the government, is that too much involvement will require Mr. Obama to ‘own’ the Syria problem in a way that will come to define the remainder of his Presidency.

“We hate to break it to the Administration’s Boswells, but Mr. Obama has owned the Syria debacle from Day One of the uprising, and even before it. The President came to office determined to improve relations with the Syrian dictator. That effort was unofficially led by then-Senator John Kerry, who once praised Mr. Assad as a man who had been ‘very generous with me.’ It took five months for the Administration to call for Mr. Assad to go, though it has since done nothing to make that happen....

“Nobody is arguing for American boots on the ground, but the sooner Mr. Assad falls the easier it will be to prevent the various nightmare scenarios that are becoming more likely. Among those scenarios: the disintegration of the Syrian state into warring ethnic enclaves; revenge killings amounting to genocide against Mr. Assad’s Allawite sect; the spillover of war into Lebanon, Jordan or Iraq; the further empowerment of al Nusra and similar jihadists; the seizure by parties unknown of Syria’s chemical weapons stocks; or the breakout of a pan-regional Shiite-Sunni conflict.

“Mr. Obama may imagine that his only foreign policy problems are those he chooses to touch. If he were Prime Minister of New Zealand, that might be true. But that’s not how the world works. Sooner or later the world’s biggest problems always land on an American President’s desk. The catastrophe in Syria is unfolding on his watch, and history will judge him not merely on how he acts, but on how he has refused to act.”

Gee, where have you read this before?

By the way, at the Arab League summit, Syrian opposition leader Khatib said the number of Syrians killed just topped 100,000, with more than one million refugees and an estimated four million more “displaced” inside Syria. It is also estimated the devastation has cost $100 billion. As the London Times noted, by comparison, Syria’s three wars with Israel displaced about 60,000 and cost the lives of fewer than 3,000 Syrians. The U.N. now estimates 10,000 are driven out of their homes each day.

The Times also editorializes:

“The Syrians do not ask for Western boots on the ground. The choice is not between full-scale invasion and doing nothing. Syrians want safe havens where they are protected from Assad’s death squads. They need no-fly zones so they are not being bombed. They want surface-to-air missiles to halt the helicopter gunships. They demand arms for self-defense. They need someone strong enough to challenge Russia and Iran. Only the U.S. has the power to take on that task. President Obama should try to match that power with the moral courage needed to use it.”

Israel: According to a survey taken by the Jerusalem Post, following President Obama’s trip to the country, “The percentage of Israelis who consider the Obama administration more pro-Palestinian than pro-Israel fell by a whopping 20% since before the visit.

“But the number of Israelis who consider the administration more pro-Israel than pro-Palestinian rose by only 1 percentage point, despite what was billed as Obama’s ‘charm offensive’ to reach out to citizens of the Jewish state.”

Egypt: In an interview with King Abdullah II of Jordan in The Atlantic, Jeffrey Goldberg notes that Abdullah warns President Obama not to be too naïve when it comes to the Muslim Brotherhood, specifically that, as Goldberg writes in a separate editorial for Bloomberg, “U.S. officials discount warnings about the Brothers as the empty complaints of Arab liberals or those vested in the status quo. Some Westerners, he said, argue that ‘the only way you can have democracy is through the Muslim Brotherhood.’”

Goldberg:

“(The) truth of his argument about the Brotherhood’s extremism...was borne out anew a week ago, when the Muslim Brotherhood in Egypt issued an extraordinary, and extraordinarily disturbing, rejoinder to the draft of a declaration calling for an end to violence against women that was eventually passed at the annual session of the United Nations Commission on the Status of Women.

“In an official statement responding to the draft, the Brotherhood argued that, if approved, it would ‘lead to complete disintegration of society, and would certainly be the final step in the intellectual and cultural invasion of Muslim countries, eliminating the moral specificity that helps preserve cohesion of Islamic societies.’....

“(Some criticisms) are flat-out brutal...

“In sum, the Brotherhood’s rebuttal is a remarkable document and evidence that the movement simply cannot wait to wage war on women. Human-rights groups in Egypt have so far stopped Brotherhood activists from decriminalizing female genital mutilation, but women are losing on multiple fronts....

“(Egyptian President Mohamed) Mursi hasn’t fulfilled his pledge to appoint a woman as one of his vice presidents. When I last interviewed him, before he took office, I asked him if the Brotherhood could support a woman, or a Christian, for president.

“ ‘Which Christian?’ he asked. I explained that I was asking a theoretical question. Could any Christian become president? ‘There are no Christians running for president,’ he said. ‘This is a nonsense question.’ So I asked him if he could support a woman for president. ‘Which woman?’

“This tragicomic dialogue went on for some time, before I gave up.

“Leaders like Jordan’s Abdullah have been warning the Obama administration for some time not to trust the Muslim Brotherhood and like-minded movements. They are, he said, ‘wolves in sheep’s clothing.’ I suppose the saving grace of the Egyptian Brotherhood is that its leaders don’t even bother to dress like sheep.”

From all I’ve read about Mursi, he has the brain of a turnip.

China: Vietnam claimed China fired at a Vietnamese fishing vessel about a week ago in another South China Sea dispute. China, Vietnam and other countries contest the potentially mineral-rich Spratley and Paracel islands which are within major shipping routes and are home to bountiful fishing grounds.

China says the sea is part of its sovereign territory, even though the Paracels, which it seized from South Vietnam in 1974, are 320 kilometers from the Chinese island of Hainan.

Then it was reported China’s PLA launched an amphibious task force and headed to the James Shoal, 80 kilometers from Malaysia and 1,800 kilometers from China’s mainland. China claims this area as well.

Gary Li, an analyst for IHS Fairplay in London, told the South China Morning Post:

“We’ve never seen anything like this that far south in terms of quantity or quality...it is hard to know whether it is just coincidence, but it does seem to reflect (President) Xi Jinping’s desire for more practical operationally based exercises.”

Remember, Xi’s father was a 4-star general in the Chinese Army and Xi has strong relations with the military. He’s already announced he wants a stronger army and navy. He clearly wants to show the region who is boss, but in exerting a more robust maritime effort he risks miscalculating. 

A commentary in the government mouthpiece Global Times newspaper the other day read in part:

“The 18th Party Congress report clearly pointed out the strategic intention and task of ‘building a strong maritime country,’ making a strong call for the Chinese people’s control of the ocean.”

A Chinese foreign ministry spokesman said on Thursday, “China has made important contributions to maintaining peace and security in the South China Sea. The patrolling is China’s exercising its sovereignty and inherent rights.”

An annual report from Japan’s Defense Ministry concluded the rising might of China is causing it to act with increasing disregard towards its neighbors.

“China, against the backdrop of its rising national power and improvement in its military power, is increasingly taking actions that can cause frictions with neighboring countries without fear,” said the East Asian Strategic Review.

Last Saturday in Moscow, in a different vein, Xi warned against foreign interference in the affairs of other nations during a speech at Moscow University.

“We must respect the right of each country in the world to independently choose its path of development and oppose interference in the internal affairs of other countries.”

Xi added: “Strong Chinese-Russian relations...not only answer to our interests but also serve as an important, reliable guarantee of an international strategic balance and peace.”

[Xi and Russian President Vladimir Putin signed a number of energy accords, both on the natural gas and oil fronts, thus tightening the ties between the world’s largest energy producer and a voracious consumer of same. By 2018, China will be receiving more natural gas from Russia than Germany does currently, Germany long being the largest consumer of Russian gas.]

After traveling to Russia, Xi then went to Tanzania, where he vowed to build a beneficial relationship that benefits African nations through cooperation, not the perceived exploitation.

Lastly, after some 11,000 dead pigs were pulled out of a river serving as Shanghai’s drinking water source, with the government still not providing an explanation of how all the pigs ended up there, in another part of the country, 1,000 dead ducks were found in a river, though this was not a source for drinking water.

As for the pigs, here’s something I didn’t know before. A local newspaper reported that illegal traders used to buy up dead pigs to make dumpling filling, so check your soup labels.

Russia: Oligarch Boris Berezovsky, who had a lot to do with Vladimir Putin’s rise to power, only to have a falling out with him, forcing Berezovsky to London, hung himself amid severe financial pressures.

Britain: Up to 100 British jihadis are fighting in Syria for the most militant al-Qaeda faction, Jabhat al-Nusra, with the fear being some will be ordered home to carry out terror attacks in the U.K.

Scotland Yard has been stepping up its investigations into the networks recruiting the fighters and eight have been detained in Britain for recruiting and organizing for the Syrian civil war.

Brazil: A doctor and seven assistants at a hospital in the city of Curitiba have been charged with killing seven patients, but it’s possible Dr. Virginia Soares de Souza was involved in up to 300! At least 20 more are suspicious but a further 300 are being looked into.

Prosecutors say she gave muscle relaxing drugs to patients before reducing their oxygen supply, causing them to asphyxiate.

According to Reuters, wiretaps have been released by prosecutors where her motive apparently was to free up beds.

“I want to clear the intensive care unit. It’s making me itch,” the doctor says on one tape.

“Unfortunately, our mission is to be go-betweens on the springboard to the next life,” she added.

All manner of folks in the hospital, from nurses and dieticians to physiotherapists reported their fears Dr. de Souza was hastening deaths of critically ill patients.

Random Musings

--As reported by Alan Zarembo of the Los Angeles Times:

“The wars in Iraq and Afghanistan will ultimately cost between $4 trillion and $6 trillion, with medical care and disability benefits weighing heavily for decades to come, according to a new analysis.

“The bill to taxpayers so far has been $2 trillion, plus $260 billion in interest on the resulting debt. By comparison, the current federal budget is $3.8 trillion.”

Linda Bilmes, a public policy expert at Harvard University, predicts, “The big, big cost comes 30 or 40 years out.”

“Of the 1.56 million troops that have been discharged, more than half have received treatment at Veterans Affairs facilities and filed claims for lifetime disability payments, the study found.”

--After the Supreme Court’s ruling on ObamaCare, who the heck really knows what the Court will do over the Defense of Marriage Act and California’s same-sex marriage law (overturned by an appeals court). But...it would seem from oral arguments this week that the Court will rule the federal DOMA went too far in defining marriage and that California’s voter-approved ban on same-sex marriage could stand. Or maybe I’m wrong. 

--As depressed as the Republicans may be these days, they have a great chance at taking back the Senate, even being five down, with South Dakota Democratic Sen. Tim Johnson’s announcement he wouldn’t seek another term in 2014. That makes five Democrats and two Republicans who aren’t seeking another six years, with five incumbent Democrats also seeking reelection in Republican-leaning states.

In all, 21 Senate Democrats are running next year, compared with 14 Republicans.

The five Democratic incumbents running in states Mitt Romney won are Mary Landrieu of Louisiana, Kay Hagan of North Carolina, Mark Pryor of Arkansas, Max Baucus of Montana and Mark Begich of Alaska. 

Aside from Johnson, Jay Rockefeller (West Virginia), Carl Levin (Mich.), Frank Lautenberg (N.J.), and Tom Harkin (Iowa), have also announced plans to retire after 2014. Two Republicans, Mike Johanns (Neb.) and Saxby Chambliss (Ga.) have said they won’t run.

Hagan, Pryor, Baucus and Begich all voted against the Senate’s budget plan...hmmm...

--So the U.S. Navy is building this vessel you may have heard about, the Littoral Combat Ship, which is small, speedy and designed for use in shallow waters, but, as a top commander revealed in a classified memo obtained by Bloomberg, the Littoral lacks the firepower it needs.

David Lerman / Bloomberg

“Vice Admiral Tom Copeman, the commander of naval surface forces, called on the Navy to consider a ship with more offensive capability after the first 24 vessels are built, according to a Navy official who asked not to be identified discussing the confidential document.

“Copeman’s memo, prepared late last year at the request of Admiral Jonathan Greenert, the chief of naval operations, indicates the Navy may be starting to re-examine the $37 billion program. The ship has been beset by troubles, including cracks and corrosion, its price has doubled since 2005 to $440 million per vessel and a decision to build two versions will add to long-term operating costs.”

$440 million....for a vessel “derided by critics inside the Navy as the ‘Little Crappy Ship,” as reported by Lerman.

--Few murder cases have upset me more, let alone warranted inclusion in this column, than the Brunswick, Ga., murder of a 13-month-old baby shot in the face while the shooter was trying to rob the child’s mother, as noted in an indictment returned on Wednesday charging 17-year-old De’Marquise Elkins on 11 counts, including malice murder. Another suspect, 15-year-old Dominique Lang, was indicted on seven counts including felony murder.

At first I thought, ‘wait 24 hours,’ after seeing the mother’s reaction. It just didn’t seem possible that a kid would do that.

But now I want this kid put to death.

Alas, Georgia law doesn’t allow capital punishment for defendants charged with crimes committed before they are 18....and that is understandable. It’s the law.

Change it.

[Elkins, by the way, was also charged with a second attempted robbery and shooting that happened 10 days before the baby was slain. The same caliber revolver was used in both. Three of Elkins’ relatives were then indicted on charges that they tried to help the kid after the shootings. They all said Elkins was with them when he was out shooting the baby. God this one pisses me off.]

--There was another case this week, this one in New York City, that got to me.

Christopher Inserra, a Port Authority officer, was accused of collecting disability pay while on tour with his heavy metal band. Really. You should see the videos.

The feds busted him on mail fraud after he was caught head-banging while claiming a disability from an on-the-job accident.

Inserra, 31, claimed he had a right-arm injury yet there he is on film, gripping a microphone on stage and screaming out lyrics. He claimed he was hurt while on duty in downtown Manhattan in 2010 and then remained out sick for two years – pulling his full $90,000 salary!

As the New York Daily News reported, “The do-nothing cop repeatedly lied to PA doctors, in addition to scamming AFLAC insurance company out of $31,486 in short-term disability payments, according to the complaint unsealed Tuesday....

“Inserra is all over the Internet in photos and YouTube video of performances with his band as they promoted their album, ‘Sick Maniacs.’

“While he claimed to be laid up unable to work, his rock star Internet persona shows him ‘constantly and repeatedly jumping up and down and flailing both of his arms in a back and forth fashion,’ said U.S. Postal Inspector John McDermott, who headed the mail fraud case.”

The guy is such a jerk, he returned to work in March 2012, but kept taking sick days, according to investigators who were filming him in Brooklyn clubs. He was on a sick day when he was cuffed.

Inserra faces up to 20 years in prison.
 
--Gen. David Petraeus appeared for the first time in a public forum since the scandal that led to his resignation. He apologized for his indiscretions that cost him his job as director of the CIA.

“I am...keenly aware that the reason for my recent journey was my own doing. So please allow me to begin my remarks this evening by reiterating how deeply I regret – and apologize for – the circumstances that led to my resignation from the CIA and caused such pain for my family, friends and supporters.”

I forget who I was watching who said it (Gloria Borger?) but Petraeus doesn’t owe me an apology. I’m assuming national security was never in doubt. 

What many of us learned after, though, was that Petraeus is highly overrated! [And I was one who initially thought he was the perfect third party presidential candidate. The parallel is why we have extended presidential primary seasons...it can take that long before we really get to know someone...for those of you who think the process should be much shorter...]

--Barbara Walters announced she is retiring May 2014. Walters, 83, has had one helluva career.

--Moscow has seen its coldest March since the 1950s. There have been similar conditions in Britain. The Moscow Times reported “the unseasonably cold weather was a result of unusually warm temperatures in the Arctic that pushed cold currents toward the Russian mainland.”

And that’s how global warming works, Charlie Brown.

--Very cool bit in TIME magazine this week, 4/1, on the possibilities of life on one of Jupiter’s moons, Europa.

“What we...know is that Europa has water – perhaps a vast, globe-girdling ocean up to 100 miles deep, beneath a rind of fractured ice as little as 10 miles thick....

“ ‘I’m not an expert on life,’ says (Caltech planetary scientists Mike) Brown, ‘but I do know that if you dip a net in the ocean here, you’re bound to pick up something.’”

Europa has two needed ingredients...sodium chloride – ordinary sea salt, and organic compounds carried by comets that have constantly been plunging into it. Europa is also about the size of our moon.

--Pope Francis gave Holy Thursday Mass at a juvenile detention center in Rome and was asked by one of the inmates why he had come to visit them.

Francis responded that it was to “help me to be humble, as a bishop should be.”

The gesture, he said, came “from my heart. Things from the heart don’t have an explanation.” [Nicole Winfield / AP]

---

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

God bless America.
---

Gold closed at $1595
Oil, $97.23

Returns for the week 3/25-3/29

Dow Jones +0.5% [14578]
S&P 500 +0.8% [1569]
S&P MidCap +1.2%
Russell 2000 +0.6%
Nasdaq +0.7% [3267]

Returns for the period 1/1/13-3/29/13

Dow Jones +11.2%
S&P 500 +10.0%
S&P MidCap +13.1%
Russell 2000 +12.0%
Nasdaq +8.2%

Bulls 49.5
Bears 19.6 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Happy Easter.

Nightly Review video schedule Mon. thru Thurs., posted around 5:30 PM ET.

Brian Trumbore



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Week in Review

03/30/2013

For the week 3/25-3/29

[Posted 12:00 AM ET]

Cyprus and Europe

Last weekend, the troika – the International Monetary Fund, the European Central Bank, and the European Commission – reached agreement with Cyprus on a new bailout, Plan B, if you will, or really Plan C, by then. As opposed to the disastrous Plan A, this time depositors with under 100,000 euro in Cypriot banks would remain insured, safe, not dinged for 6.75% as was the original idea. But in two banks, Laiki and Bank of Cyprus, the two largest by deposits on the island, accounts over 100,000 euro would be hit...hit hard. In the case of the former, perhaps up to 80% (40% in the latter), with the other 20% not being returned for a lengthy period while Laiki’s “bad assets” were sold off. Laiki’s “good assets,” deposits under 100,000, were being moved to Bank of Cyprus. Junior/senior bondholders and shareholders in both would essentially be wiped out.

For this pain, and a new pile of liabilities for Bank of Cyprus, the troika (i.e., Germany Inc.) would grant Cyprus 10 billion euro in bailout funds, though as we’ll learn over time, payment for much of this could fall not just on the Cypriot government, whose revenues will be drying up as the economy dies a rapid death, but also the Bank of Cyprus.

The other banks on the island, roughly the other 50% of deposits, appear safe but are severely tainted by the action taken against the big two.

Initially, markets around the world, Monday, reacted very well, especially in Europe, when all hell broke loose. Jeroen Dijsselbloem, the Dutch finance minister representing the 17 eurozone finance ministers in the negotiations, said the deal represented a new template for resolving future eurozone banking problems...and then added other countries may have to restructure their banks.

“If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalize yourself?

“If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalizing the bank, and if necessary the uninsured deposit holders.”

Frankly, this is exactly what should take place. You know here in the United States your deposits are only insured up to a certain limit and you are risking any funds over that. And in a normal capital structure, the bondholders and then the shareholders should get whacked first, and then you hit the deposits that aren’t insured.

But the markets were like, ‘Wohhh, Nelly! You mean, Mr. Dijsselbloem, if I’m in a weak bank in Italy or Spain, anything over the insured limit is at risk?’

Yup...but this principle does mark a drastic change of course for the Euro crisis of the past three years.

In both the Irish and Spanish banking sector rescues – which were similar to Cyprus in that massive bank failures risked putting the governments into bankruptcy because of huge bailout bills – several categories of private creditors, particularly senior bondholders and uninsured depositors, were untouched.

Instead, such as in Ireland, the taxpayers were whacked, and forced to pay off senior bondholders in Anglo Irish Bank, for one. The thinking by the European Central Bank and other eurozone officials at the time was that if the bondholders weren’t protected, i.e., the big investors, it would exacerbate flight of capital out of the eurozone. No investment, no growth.

So, still on Monday, Dijsselbloem acknowledged the concerns over his approach and then attempted to backpedal as the markets tanked, saying Cyprus was a unique situation and it was not necessarily a template, or rather, “a specific case with exceptional challenges.”

Where Dijsselbloem also ran up against resistance, however, was his thinking that in hitting bondholders, shareholders, and uninsured depositors rather than taxpayers, it was far less likely that the 500 billion euro rescue fund, the European Stability Mechanism, would ever be used to recapitalize struggling banks, even though this was exactly what was agreed to at the EU summit last summer as part of the idea of a true banking union.

Since the likes of Luxembourg and Malta have large financial sectors compared with their overall economy, a la Cyprus, this gave them the willies, too.

Moody’s warned in a report last Sunday, ahead of the deal, that events in Cyprus were likely to have a lasting negative impact on the eurozone.

“Even if negotiations are successful and Cyprus remains within the euro area, policy makers’ recent decisions raise the risk of deposit outflows, capital flight, increased bank and sovereign funding costs and broader financial market dislocation throughout the euro area in the future.”

So, as it was, things calmed down the balance of the holiday-shortened week, but all eyes were on Cypriots Thursday at noon, local time, when the banks finally reopened amid heavy security.

Having lived off meager ATM withdrawals for almost two weeks, there was no telling what the people would do, especially customers of Laiki and Bank of Cyprus.

But, limited to new daily withdrawals of 300 euros ($390), or just 1,000 euros if you were traveling outside the country, or 5,000 credit/debit card limitations, and other restrictions, Cypriots, despite their anger and frustration with all the authorities, acted with “maturity and responsibility,” as Cypriot President Nicos Anastasiades put it. Just understand the pain is going to be severe, with some economists predicting the Cypriot economy will crater as much as 15% this year. After all, the banking sector represents 75% of economic activity on the divided island and thousands of jobs are going to be lost in the process. In many cases, savings have been wiped out.

The controls could be in place for months, and with these unprecedented restrictions on capital, an important principle of the European Union has been breached. The principle that capital, as well as people and trade, should be able to move freely across borders.

I stumbled on this piece from Nick Miller of the Sydney Morning Herald.

“ ‘Very bad, very, very bad,’ says 65-year-old John Demetriou, rubbing tears from his lined face. ‘I lost all my money.’

“John now lives in the picturesque fishing village of Liopetri on Cyprus’ south coast. But for 35 years he lived at Bondi Junction and worked days, nights and weekends in Sydney markets selling jewelry and imitation jewelry.

“He had left Cyprus in the early 1970s at the height of its war with Turkey, taking his wife and young children to safety in Australia. He built a life from nothing and, gradually, a substantial nest egg. He retired to Cyprus in 2007 with about $1 million, his life savings....

“He wanted to leave any big purchases a few years, to be sure this was where he would spend his retirement. There was no hurry. But now it is all gone.

“ ‘If I made the decision to stay, I was going to build a house,’ John says. ‘Unfortunately I didn’t make the decision yet.

“ ‘I went to sleep Friday as a rich man. I woke up a poor man.’

“His money was all in the Laiki Bank which was the main casualty of Cyprus’ bailout package set by the European Union. Laiki is to be dismantled. Savings of less than 100,000 euro are to move to the Bank of Cyprus. Anything more than that will almost certainly be wiped out as the bank is wound down, it’s remaining assets taken by the bank’s creditors.

“Last week he heard a rumor that the bank was in trouble and went into Aiya Napa to ask his bank manager – a friend – if he should move his life savings.

“ ‘There’s no problem, nothing to worry about,’ he was told.

“Not so. ‘I go to bed and I can’t sleep. I walk around. I have a coffee. I am thinking about my family.’

“John’s tears flow.”

An editorial in The Economist agrees with Dijsselbloem’s plan and thinking: “If banks fail, creditors can expect to pay the whole bill. The principle of moral hazard has supposedly been re-established.

“But at what cost?....

“First, Cyprus itself looks crushed....

“Second, the deal allows Cyprus to use capital controls to stop deposits fleeing the banks when they reopen. The single currency is now not so single: a euro in a Cypriot account is not worth the same as a euro in Greece or Belgium....

“Third, the decision to punish large depositors will also weaken the eurozone. Whatever the justice of saving Russian money-launderers, the best way to protect European taxpayers from the cost of cleaning up banks is to give all short-term creditors reason to stay put. Hitting them will discourage them from putting money into weak banks in peripheral economies, and make it even harder to keep sick banks alive in crises. When a run starts it is rational for others, even insured depositors, to join. The euro area has 8 trillion euro of deposits and only 4.5 trillion of annual government revenues: governments could not guarantee all the deposits even if they wanted to.”

What Europe needs most today is a true banking union, with a joint deposit-guarantee scheme, but this is still a ways off.

On Friday, President Anastasiades, in power just a month, accused the eurozone of making “unprecedented demands that forced Cyprus to become an experiment.”

But he added: “We have no intention of leaving the euro. In no way will we experiment with the future of our country.”

Editorial / Washington Post

“This much can be said fairly certainly about the new bailout plan for Cyprus: It’s a big improvement on the previous plan....

“Beyond that, however, the implications are much harder to determine. Has Europe set a precedent, according to which big bank creditors, from uninsured depositors to bondholders, must henceforth assume that their funds are at risk? Who knows? Jeroen Dijseelbloem of the Netherlands, who heads the ‘Eurogroup’ of finance ministers, suggested that such a precedent had indeed been set – whereupon a top official of the European Central Bank, Benoit Coeure, declared that Mr. Dijsselbloem was ‘wrong.’ In his view, Cyprus is a ‘unique’ case.

“Wouldn’t it be healthy for Europe if bank creditors did get the idea that their funds were at risk, so that shaky banks would find it harder to get funded in the first place? Yes, according to those who say Europe’s problem has always been a ‘too big to fail’ mentality. No, according to those who say that the Cyprus deal fatally undermined depositor confidence, thus making bank runs in other countries more likely.

“Certainly Cyprus and its paymasters in the European Central Bank have broken a taboo of the common European currency by imposing controls on the flow of capital into and out of the country, albeit ‘temporarily.’ As long as those controls last, a euro held in Cyprus is no longer as valuable as those deposited elsewhere. But even that measure can be justified by the greater threat of a bank run; to save the euro, it was necessary to destroy it, partially, in one place, for a while.

“Cyprus is a template; Cyprus is a one-off situation. Deposits are susceptible to confiscation; deposits are sacrosanct. Capital controls are inconsistent with currency union – except when they are necessary. Maybe the real problem in Europe is that all of these statements are true, or might be true, depending on who’s talking, and where, and what particular interest – financial or national – the speaker represents.

“The Cyprus experience confirms that the powers that be in Brussels and Berlin are improvising to meet the crisis du jour, which is what they must do to hold together a currency union absent the usual political, legal and regulatory infrastructure. Until that inherently confusing and unstable situation changes, Europe’s policymakers will continue to make it up as they go along. For better or worse, investor confidence will develop accordingly.”

Editorial / Wall Street Journal

“The key, for Cyprus and the eurozone, will be to rebuild sufficient confidence to encourage capital to stick around even after the controls are removed. Cypriot and European officials are playing their part by chanting ceaselessly that these are temporary restrictions, and that the EU’s rules don’t forbid ‘safeguard measures’ to preserve systemic stability.

“But it’s worth remembering that Cyprus is facing a run on its banks, not on its currency. That alone means capital controls in this case shouldn’t have gone beyond what’s necessary to stabilize the financial system. Europe’s monetary union is premised on the idea that a euro held in one country is the same as a euro held anywhere else. When that trust has been violated, and a Cypriot euro isn’t identical to a German or even a Greek euro, the single currency is closer to a hopeful fiction than an economic reality.

“In this sense, capital controls in Cyprus could reinforce a broader confidence crisis if they convince depositors elsewhere in Europe that they too might someday face strictures on capital movement. The euro zone is entering risky territory, and what might look like a necessary stabilizer today could eventually be remembered as the first breaking-away from one of its most important founding principles.”

John Plender / Financial Times

“Well, a definite consequence of the limits on transfers of bank deposits and cash withdrawals in Cyprus is that the euro in Cyprus has indeed been devalued. It is, in effect, a different currency to euros held in the rest of the eurozone. That flies in the face of the principle that a prerequisite of a monetary union is a free flow of capital across national borders. It also potentially weakens the stability of the retail bank deposit base of the eurozone periphery. For while the circumstances of Cyprus, with an oversize financial system and a large Russian presence, are special, the horses will undoubtedly have been frightened all around the eurozone periphery.

“As for the notion that these capital controls will be short lived, it is worth remembering that Britain imposed exchange controls as a purely temporary measure at the outbreak of the Second World War in 1939. A highly restrictive regime was in place until Margaret Thatcher’s incoming Tory government abolished them 40 years later. The longer such controls are in place, the more uncertain the consequences of unwinding them become and the more dangerous, politically, it becomes to embark on a liberalizing course. Note, too, that Iceland’s capital controls, introduced as a temporary measure in 2008, remain in situ....

“Steve Hanke of Johns Hopkins University offers a...quote from Friedrich Hayek in 1944 in The Road to Serfdom: ‘Nothing would at first seem to affect private life less than state control of the dealings in foreign exchange, and most people will regard its introduction with complete indifference. Yet the experience of most Continental countries has taught thoughtful people to regard this step as the decisive advance on the path to totalitarianism and the suppression of individual liberty. It is, in fact, the complete delivery of the individual to the tyranny of the state, the final suppression of all means of escape – not merely for the rich but for everybody.’”

---

On the issue of why Russia refused to bail out Cyprus...Ian Bremmer had the following take in the Financial Times.

“Economics explains some of (Russia’s reluctance to lead). Moscow is under real pressure, with a budgetary process that is only getting rockier, and rising unemployment. The notion of a Cyprus deal was never going to fly for the Kremlin, as it was largely perceived as throwing good money after bad. Rather, the Russians are – as the Chinese have been doing in Greece – waiting for select assets at a bargain price. It is a ‘buy low’ approach and it is a safe bet that Cypriot assets will become more affordable....

“As far as we can tell at this stage, the outcome could have been worse for Russia had all Cypriot banks been targeted, rather than just two. Russia’s largest trading partner remains the EU; Moscow is dependent on revenues from gas sales to Europe. The bottom line: Moscow has far more to lose than gain from aggressively reacting to the crisis. Mr. Putin seems well aware of this, telling his government to begin talks on restructuring Russia’s 2.5 billion euro loan to Cyprus.”

Also related to Cyprus, consider that at least 1,600 Greek shipping, trade and tourism companies headquartered in Cyprus are threatened with closure. Greek firms that held deposits in Cyprus were unable to meet a deadline this week for paying taxes in Greece (because the banks were closed), so Greek government revenue will not be as projected, making it even less likely the troika will supply Greece with more bailout funding (just thinking to the extreme....but possible).

Elsewhere, in Italy, the Democratic Party head Pier Luigi Bersani was rejected by leaders of Beppe Grillo’s Five Star Movement in a bizarre situation where the talks between the two over forming a governing coalition were broadcast live on the Internet because Grillo wants more transparency.

So at one point, Bersani says, “Believe me, only an insane person would want to govern at this moment,” seated across from Vito Crimi, head of Five Star’s contingent in the upper house (the Senate). “Let’s get this straight: I am ready to take on an enormous responsibility and I’d ask everyone to take a small part of it, period.”

Now I believe in transparency as much as the next guy, but what an incredibly stupid idea to broadcast negotiations. Not public hearings on an item of import, but negotiations.

Bersani was doomed to fail anyway, seeing as he refused to form an alliance with former Prime Minister Silvio Berlusconi’s coalition, and Grillo long said his party wouldn’t be part of any traditional government.

This was Wednesday. The next day, Thursday, Bersani met with 87-year-old President Giorgio Napolitano, whose term is expiring in May, and when it was clear Bersani couldn’t form a government, Napolitano told him to hit the road and now the president will act “without delay” to nominate a prime minister of his own choosing who could come from outside parliament.

Any government Napolitano appoints would have a narrow mandate to enact some reforms, including of the electoral variety, pass a few emergency measures to try and kick-start the economy, but within months it’s clear Italians would be back at the polls and the result could easily be another hung parliament because while Grillo’s movement has momentum, suddenly Berlusconi is gaining again in new polls.

In Slovenia, the next possible bailout target, Prime Minister Alenka Bratusek, in office just one week, told Parliament her government would rebuild ailing banks and improve state finances and that there was no need for a bailout. Slovenia’s bond market was unimpressed and yields rose to all-time highs; never a good sign, sports fans.

Meanwhile, the Bank of Spain announced that nation’s economy would shrink 1.5% this year, worse than the government is forecasting, and unemployment will rise above 27%

In France, his poll numbers continuing to crater after a little bounce from the heroics in Mali, President Francois Hollande said insisting on meeting strict budget-deficit targets could fuel social discontent, result in a rise of populist governments and endanger Europe’s cohesion. Speaking in a prime-time television interview, Hollande said, “More austerity would condemn Europe to recession. It would make it explode.”

Finally, in Germany, February retail sales rose 0.4% over January, but were down 2.2% from year ago levels, while the seasonally adjusted unemployment rate in March remained unchanged at 6.9%.

---

The Organization for Economic Cooperation and Development, whose members are mostly developed nations, warned that a meaningful recovery will elude the eurozone until at least the second half of next year. 

The OECD expects the three largest eurozone economies – Germany, France and Italy – to avoid an outright contraction, growing by an annualized rate of 0.4% in the first quarter and 1% in the second.

But this is only because Germany is expected to expand 2.3% in the first, 2.6% in the second.

France, on the other hand, will contract 0.6% in the first quarter before growing 0.5%, while Italy is expected to shrink in both quarters by 1.6% and 1%, respectively.

So...it’s a good time to look at the United States,
Washington and Wall Street...

The OECD sees the U.S. growing by 3.5% in the first and 2% in the second quarter. I think we’d all take that.

As we learned this week, the final figure on fourth quarter GDP came in a tick less than expected, up 0.4%, after the initial estimate was a contraction of 0.1%.

February durable goods (big ticket items) were better than expected, up 5.7%, but when you ex- out the volatile transportation sector, orders were actually down 0.5%, not up as expected.

February new home sales also came in less than expected, though the two-month period, Jan./Feb., was the best pace since Aug./Sept. 2008. February pending home sales were light.

The S&P/Case-Shiller index of property values in 20 major metropolitan areas was up 8.1% for January over year ago levels, the best 12-month performance since June 2006. Phoenix saw the largest increase, Jan. over Jan., up 23.4%. All 20 cities registered gains.

And on Thursday, the March Chicago Purchasing Managers Index came in far less than expected, 52.4, but it’s still above the 50 dividing line between growth and contraction.

The equity market took all the above, and the news in Cyprus, and stutter-stepped to a new all-time high in the S&P 500, finally, on Thursday, closing the week at 1569, ahead of the October 2007 mark of 1565. So, importantly, the S&P has joined the Dow Jones in record territory.

There was other economic news on Friday, with the markets closed. Consumer spending climbed 0.7% in February, better than expected and the best in five months, while personal income, up 1.1%, also beat estimates.

This is good. Plus a reading on consumer sentiment from the folks at the University of Michigan (and Thomson/Reuters) far exceeded all estimates, though earlier in the week a reading on sentiment from the Conference Board was awful.

Anyway, assuming North Korea doesn’t fire any bottle rockets at Guam over the weekend, let alone Seoul or Tokyo, Monday could be pretty good.

Payroll tax hikes? $4.00 gasoline? The sequester? What me worry?

Nope. For the Dow Jones, we just completed the best first quarter since 1998, up 11.2%. Score one for Ben Bernanke and his merry band of Fedsters for pumping up equity prices. Unless you’re ‘short’ the market, or are holding crappola like moi, what’s not to like? Plus home values are increasing.

And it’s Easter. The Muslim Brotherhood might not be thrilled by this last pronouncement, but they can stick it.

One Washington note. For the first time since 2009 the Democratic-controlled Senate produced a budget blueprint so with the Republican-controlled House having already put forward the Ryan plan, we have two competing visions. Plus the president will be unveiling his own belated budget shortly and then the two sides can discuss their ideas on the Sunday talk shows for the next few months, well into summer, at which point we have to deal with another debt ceiling deadline.

So you are going to see a lot of Paul Ryan for the Republicans and Washington Sen. Patty Murray for the Democrats, who will be their party’s respective lead negotiators for the fiscal 2014 budget, the accounting for which begins October 1st. 

Isn’t this exciting?! 

Street Bytes

--For the week the Dow Jones rose 0.5% to 14578, again, the new high water mark, while the S&P 500 added 0.8% to the aforementioned 1569 level. Nasdaq tacked on 0.7% to 3267.

It’s now earnings season. The early readings from important bellwethers Oracle, Caterpillar and FedEx have not been good. I am curious to see the impact of ongoing recession in Europe on the large multinationals, along with the statements accompanying the results.

--U.S. Treasury Yields

6-mo. 0.11% 2-yr.  0.24% 10-yr. 1.85% 30-yr. 3.10%

The long end of the curve benefited from the safe haven play with the turmoil and banking uncertainty in euroland. The euro hit new cycle lows.

--Payrolls grew in 42 states in February, the Labor Department announced Friday. Texas once again led in job creation, adding 80,600, which, according to a report I’m reading from Bloomberg is the biggest increase for that state going back to 1982?! Kind of makes you want to reach for the best beer in America, Shiner Bock...brewed in Shiner, Texas.

California’s jobless rate is down to 9.6%, though tied with Nevada and Mississippi for highest in the nation. North Dakota remains the lowest at 3.3%, owing to the energy boom there. 

I see in my home state of New Jersey, we are at 9.3%, New York is at 8.4%, and Texas is 6.4%.

--The Japanese government’s attempt to generate inflation was dealt another setback as core consumer prices, ex-fresh food (vs. our core, ex-food and energy), declined a fourth consecutive month, off 0.3% in February compared with a year earlier. The government hopes to generate 2% inflation in two years. Industrial production last month also declined 0.1% when a gain of 2.5% was expected, and retail sales for February fell 2.3% from a year earlier, though up 1.6% from the previous month. Barclays Capital cut its forecast for growth in the first quarter to 1.1% on an annualized basis, a far cry from what the OECD predicts. It sees Japan growing 3.2% and 2.2% in the first two quarters.

Separately, Japan’s new central bank governor, Haruhiko Kuroda, told parliament that the government’s vast and growing debt is “not sustainable,” and that a loss of confidence in state finances could “have a very negative impact” on the entire economy.

Remember, Japan’s gross debt to GDP ratio is expected to top 245% this year, according to the IMF.

--South Korea’s industrial production unexpectedly fell in February, 0.8% from January when it declined 1.2%. Economists were expecting a gain for the month. Earlier the government cut its 2013 growth outlook for a second time in three months to 2.3% from 3%, after expanding 2% in 2012. South Korean exporters such as Samsung are suffering due to the won’s 17% rise against the Japanese yen in the last year.

--Ireland’s Central Statistics Office reported that while home and apartment values rose 3% in Dublin over the past year to February, in the rest of the country they cratered another 6%. Nationwide, prices are still off 51% from the peak five years ago.

--Shares in Apple plunged $18 on Thursday and Friday, in no small part after being slammed by China Central Television and the Communist Party mouthpiece the People’s Daily over its customer service and warranty practices. Specifically, a People’s Daily editorial was titled “Let’s strike away Apple’s unparalleled arrogance,” criticizing the company for being “dishonest,” “greedy” – and, above all – “arrogant.”

Apple has returned the considerable contributions China has made to its revenue, the editorial said, with a “swaggering arrogance” that must have originated from the “traditional superiority enjoyed by westerners.”

“(Apple must have thought) why does a developing ancient oriental country deserve the same customer service as their western counterparts?” the commentary continued.

“If you insist on challenging Chinese customers’ love and patience, and continue to be heedless, then your business will eventually decline no matter how glamorous or successful your brand is,” it said.

Well, China’s netizens lashed out at CCTV and the People’s Daily for picking on Apple and avoiding more serious domestic issues. “Talking about arrogance, how about these state-owned Chinese behemoths?” wrote one. [South China Morning Post]

This could be bad news for Apple. “Greater China accounted for 12% of the company’s global revenue in the first quarter of 2013. Sales were up 67% from a year earlier, massively outpacing the 18% growth for the company as a whole.” [Tom Orlik / Wall Street Journal]

The government had success in launching a somewhat similar attack against Yum! Brands when the quality of the suppliers for its KFC chain was questioned.

--Chinese telecom equipment maker Huawei suffered a big blow when Sprint Nextel and its Japanese suitor SoftBank agreed not to use equipment made by Huawei, the two having given assurances to Mike Rogers, the chairman of the House intelligence committee, who has long been concerned about Huawei’s aspirations in the U.S. Many members of Congress have wanted to ensure the company doesn’t gain access to critical infrastructure.

Last year, a highly critical House report singled out Huawei and another Chinese telecom equipment maker, ZTE, as being national security threats and that networks they installed in the U.S. could be switched on remotely to send data back to China.

--The internet around the world fell victim to a battle between Spamhaus, a group based in London and Geneva, a non-profit that aims to help email providers filter out spam and other unwanted content, and Cyberbunker, a Dutch web host which states it will host anything with the exception of child pornography or terrorism-related material.

Spamhaus put Cyberbunker’s servers on its blacklists – a database of servers known to be being used for malicious purposes. 

Cyberbunker, in cooperation with “criminal gangs” from Eastern Europe and Russia, according to Spamhaus, then launched a wave of denial of service attacks against Spamhaus’ Domain Name System servers.

This battle has the chance of getting far uglier.

--Research firm eMarketer projects Twitter could take in close to $1 billion in ad revenue in 2014. By 2015, mobile advertising will account for 60% of Twitter’s estimated $1.33 billion. In 2011, Twitter had “virtually no ad revenue from mobile,” the firm said.

--The nation’s airlines set a new record last year with an overall load factor of 82.8%, up from 82% in 2011, according to the Department of Transportation.

Delta carried the most passengers for a third year in a row, 116.4 million, ahead of Southwest Airlines and its 112.2 million.

--Good lord. With my trips to Iowa in 2007 and 2011, I thought I had a decent handle on the skyrocketing value of farmland there, but I read in USA TODAY this week that an 80-acre parcel in Sioux County sold last October for a record $21,900 per acre! Generally, good farmland in the state goes for $8,000 or so.

But if I went back through my musings on my trips to the state, I’m sure I talked of a bubble in 2007 and the prices just kept going up.

$21,900, however, is a bubble. Back in the 1980s, Iowa farmland plunged from $2,147 an acre in 1981 to a low of $787 five years later. A third of the state’s farms went out of business.

Farmers have learned from those lessons, though, and are far more conservative today. Many purchases are all-cash, or close to it. And the banks appear to be more cautious as well.

Plus corn prices are headed down with the drought situation in that region, at least, clearing up.

--Not for nothing, but am I the only one kind of amazed at the rapid success of Hawthorne, California’s SpaceX and its missions to supply the International Space Station? I mean founder Elon Musk and his crew must be ecstatic over the progress being made, the latest mission having concluded on Wednesday with a successful splashdown in the Pacific, 2,668 pounds of science samples from human research and such successfully secured.

You rock, men and women of SpaceX!!!

Meanwhile, Orbital Sciences Corp. of Dulles, Va., is testing its Antares rocket in mid-April.

--Interesting piece in Bloomberg by Renee Dudley on how customers are fleeing Wal-Mart because of empty shelves.

“It’s not as though the merchandise isn’t there. It’s piling up in aisles and in the back of stores because Wal-Mart doesn’t have enough bodies to restock the shelves, according to interviews with store workers. In the past five years, the world’s largest retailer added 455 U.S. Wal-Mart stores, a 13% increase...In the same period, its total U.S. workforce, which includes Sam’s Club employees, dropped by about 20,000, or 1.4%. Wal-Mart employs about 1.4 million U.S. workers.

“A thinly spread workforce has other consequences: Longer check-out lines, less help with electronics and jewelry and more disorganized stores.”

Of course last week I noted how Wal-Mart placed last among department and discount stores in the American Customer Satisfaction Index, the sixth year in a row the company had either tied or taken the last spot.

The nearest Wal-Mart to me is generally too far and I never think of going there, but I love shopping there when I’m traveling.

My big spot these days is Dollar Tree. Great tortilla chips, by the way....for a dollar!

Plus at least at my location, somehow they hire the cashiers with the best attitudes, which you wouldn’t necessarily expect at a place like that...seeing as they probably make...a dollar!

Now I’m experimenting with socks at Dollar Tree and I’ll let you know if they survive multiple washings. Because nothing ticks me off more than paying $9.00 for a pair of socks as I’m used to doing.

--After my comment last week on the incredibly awful sales clerk at my local CVS store, Jeff B. wrote in with his tale of Radius North, an internet provider in New Hampshire where Jeff spends half his time. As in Jeff has had it with “Internet Bob” at the company. Actually, Jeff’s account is hilarious but it’s kind of for adults only and I need to protect the children reading “Week in Review” for their Middle East updates.

--Shares in BlackBerry were all over the place this week with the launch in the U.S. of its new Z10 phone and the release of its earnings. Sales of the Z10 were said to be “tepid,” while the company, in making a profit due to severe cost-cutting, also lost 3 million subscribers.

--According to Alair Townsend in Crain’s New York Business, New York City’s unfunded future health care obligation is an estimated $83 billion for the city’s public workers, $56 billion for the state’s employees and $200 billion in the state as a whole. As Ms. Townsend put it:

“One obvious question is why, given the passage of Medicare in 1965, we offer retiree health plans at all. A large part of the answer lies in the fact that so many public workers retire well before age 65, the time when they become eligible for Medicare.”

--University of Hong Kong researchers have found that the mysterious new coronavirus that emerged in the Middle East and has killed 11 people is potentially more deadly than Sars and also more “promiscuous,” – able to infect many different species, as reported by Emily Tsang of the South China Morning Post.

While the source of the new infection is not known, it is suspected the virus originates in bats.

The coronavirus causes widespread organ failure, resulting in a high mortality rate of 56% vs. 11% for Sars.

So throw this into the ‘risk category’ file in terms of things that could put a major crimp on trade, as Sars did for a spell in Asia.

--E.L. James’ “Fifty Shades” erotic trilogy has sold more than 70 million copies in print, audio and e-book editions in various languages from March through December, according to the publisher, Bertelsmann SE & Co., parent of the books’ publisher Random House. As Ronald Reagan would have said...not bad, not bad at all.

But this is cool. The Wall Street Journal reported that the books have been so successful for Random House that the CEO gave every U.S. employee on the payroll for at least a year a $5,000 thank-you bonus in December.

The Harry Potter series, by the way, has sold over 450 million copies globally since debuting in 1997.

--A New Jersey resident was the lone winner of the $338 million Powerball drawing the other day (your editor lost again) and let’s just say Pedro Quezada hasn’t been a model citizen in his 26 years in this country.    As in he owes $29,000 in unpaid child support and has various liens against him and his bodega business. But we wish him well with the $152 million lump sum after taxes.

--Forbes estimates the Yankees are worth $2.3 billion, the most valuable franchise in all of sports, besting the $2.1 billion for the Dallas Cowboys.

But seeing as the Yanks are going 76-86 this season, with fans abandoning them in droves, if I’m owner Hal Steinbrenner, I sell. One baseball insider told the New York Daily News, “If the Yankees were ever on the block, it would probably be $1 billion more than what (Forbes) has.”

My Mets are sixth on Forbes’ list at $811 million. They are going 75-87 this season, making for a tight race between the two Gotham clubs.

--Due to lingering damage from Hurricane Sandy, Ellis Island “will not likely be open in 2013,” according to the National Park Service; in case you live in Egypt or Syria and are thinking of coming to our shores.

--I was just informed Ellis Island stopped processing immigrants in 1924 and that the closure only referred to the museum. Never mind. Go ahead and use Newark Airport then. It’s more convenient to Manhattan than Kennedy.

--I’m not a fan of Picasso, but hedge fund titan Steven Cohen just purchased Picasso’s “Le Reve” for $155 million, buying it from casino mogul Steve Wynn. Cohen apparently told friends it was a ‘gift to himself.’

My gift to myself this week was a chocolate Easter Bunny from Dollar Tree...for a dollar!

Cohen, by the way, also owns works by Van Gogh, Manet, de Kooning, Cezanne, Warhol, Francis Bacon and Damien Hirst.

I prefer Monet and Pissarro.

--But what’s this? Another one of Cohen’s long-time associates at SAC Capital Advisors LP, Michael Steinberg, was arrested by the FBI at the crack of dawn on Friday for insider-trading?!

Why this means the feds remain relentless in their effort to reach all the way up to Cohen himself, Steinberg being a key portfolio manager and confidant of Cohen’s at the $15 billion hedge fund. Since 2009, six former SAC employees have now been convicted of or pleaded guilty to insider-trading charges; four are cooperating with authorities.

Steinberg, who was put on leave by SAC last September, without explanation, faces as much as 20 years in prison for each fraud charge; specifically for his activities in trading Dell and Nvidia Corp. stock.

--Congratulations to 17-year-old Londoner Nick D’Aloisio, who sold his smartphone news app to Yahoo for a reported $30 million.

“If you have a good idea, or you think there’s a gap in the market, just go out and launch it, because there are investors across the world right now looking for companies to invest in,” he said in an interview with the Washington Post.

--Finally, I loved the story in Crain’s New York Business by Annie Karni on 11-year-old Olivia Crenshaw, a fifth-grader who is the No. 1 seller of Girl Scout Cookies in all of the Big Apple. As in she sold 1,651 boxes in 2011, and 1,812 last year.

“Olivia drops boxes at her mixed-martial-arts class, sells to restaurants, cold-calls cleaners and, dressed in her green vest and sash, pitches parents in Central Park on the cookies delivered worldwide each March.”

One real estate broker purchased 155 boxes.

“A lot of people like to buy from a successful seller,” Olivia explained. “That helps me. They know I’m serious and that I’m the one to trust.”

I’m thinking Internet Bob could learn a lesson or two from Olivia.

Foreign Affairs

North / South Korea: Pyongyang said its strategic rocket and long-range artillery units have been ordered to be combat ready, targeting U.S. bases on Guam, Hawaii and the mainland; North Korea being upset over recent sorties by B-52 bombers over the Korean peninsula as part of South Korea-U.S. drills, let alone the flight of two U.S. nuclear-capable B-2 stealth bombers that dropped dummy warheads in joint military drills with South Korea on Thursday. Kim Jong Un then upped the warning Friday that his rocket forces were ready “to settle accounts with the U.S.”

North Korea also cut off a military hotline that was essential in operating the joint industrial complex in the North, Kaesong, that employs 750 or so workers from the South. Back in 2009, as a protest of that year’s South Korean-U.S. military drills, the North closed the border for one week, leaving hundreds of South Korean workers stranded in Kaesong. This isn’t a big deal, yet, and on Thursday the border crossing to Kaesong remained open as 400 South Korean workers were allowed in.

The U.S. and South Korea have signed a new cooperation agreement in the event of an attack from the North. As reported by the Wall Street Journal, the Chosun Ilbo, South Korea’s leading daily, said in an editorial Monday that Washington and Seoul have long been ‘naïve’ in assessing North Korea’s threat, and that their responses have been ‘muddled’ and ‘ineffectual’ against its provocations.

“The most effective way to stop North Korean provocation is a strong response,” the daily said. “The latest joint plan must be strong enough to make North Korea think twice about launching any provocation, and envisage striking fiercely if it does.”

So what will Kim Jong Eun do? I’m guessing he takes out a South Korean naval vessel, expecting there to be little response while he improves his image with his generals. But the South has vowed to hit back hard if Kim attacks.

James Hardy, Asia-Pacific editor at Jane’s Defense Weekly, said: “It is undeniable that the U.S. is escalating its military response to North Korea’s rhetoric, but it may be that these B-2 flights – and the B-52 flights earlier in the month – are intended to pacify South Korea public opinion as much as deter North Korean provocations.

“Obama likely wants to show the new South Korean leadership that it has U.S. support...The last thing the U.S. wants is South Korea to overreact to some kind of North Korean provocation.”

As I go to post, on Saturday, a statement out of Pyongyang said: “From this time on, the North-South relations will be entering the state of war and all issues raised between the North and the South will be handled accordingly....

“The long-standing situation of the Korean peninsula being neither at peace nor at war is finally over.”

Syria: It does not appear the Syrian regime used chemical weapons the other week, at least there is no evidence of such use as yet, though the UN has not formally conducted its investigation. Israel’s Justice Minister Tzipi Livni said her country has seen no evidence.

Of course if evidence was uncovered, that is supposed to be President Obama’s “game changer,” let alone Israel’s. A red line.

But whether Assad used chlorine or what most would define as chemical weapons, the fact is they are being moving around.

The other day British and French officials questioned U.N. Secretary-General Ban Ki-moon as to whether chemical weapons were used as early as December in Homs.

Meanwhile, speaking in Jordan last week, President Obama warned an “enclave of extremism” could fill the leadership void in Syria, warning that when Assad’s government finally collapses, Syria would not be “put back together perfectly,” with the country becoming a hotbed for extremists. “They thrive in failed states,” said Obama.

No kidding.

Separately, despite the resignation of the opposition’s leader, the rebels did take the country’s seat for the first time at an Arab summit Tuesday. Needless to say, the government in Damascus blasted the Arab League’s decision. Arab League Secretary-General Elaraby encouraged members to arm the opposition to provide more “balance” with Assad’s superior firepower and aid he is receiving from Russia and Iran. Russian Foreign Minister Sergey Lavrov said the Arab League’s action had raised serious questions about the role of Lakhdar Brahimi, the special Syria envoy from the U.N. who also represents the Arab League.

Mouaz al-Khatib represented the opposition even though he had resigned two days earlier. He said he would discuss his situation later.

But on the broader topic of the Syrian war spilling over into neighboring lands, following are some headlines from this week.

“Turkey and Israel Feel the Effect as Syria’s Civil War Fuels Tensions at Borders”

“Lebanon: the next Mideast war zone?”

“Israel eyes Lebanon as Syrian army loses steam”

“Syrian conflict’s impact is felt across border in Iraq”

“UN concerned Syrian war spilling over into Golan Heights”

“Jordan shuts Syria border crossing, UN pulls staff”

Iraq...Jordan...Lebanon...

Israeli military intelligence chief Major General Aviv Kochavi said recently, “Hizbullah and Iran understand that Assad’s fate is sealed, and they’re preparing for the day after. They are trying and in some cases succeeding to obtain air defense capabilities, shore-to-sea missiles, surface-to-surface missiles and other capabilities,” he said. [Daily Star]

On the Iraq front, Ali al-Moussawi, a spokesman for Iraqi Prime Minister Nouri al-Maliki, said in an interview with the Washington Post, “We will be the most affected if violence spreads in a way that cannot be controlled. What worries us is that there is no plan to control things in Syria, to find a peaceful political solution or a type of change that can be controlled.”

Maliki, while aligned with Iran, is no friend of Assad because Syria allowed weapons and fighters to cross the border the past decade, fueling Iraq’s sectarian war. But Maliki also fears a rebel victory in Damascus.

For their part, the Sunnis are feeling emboldened, both in Syria, as represented by the rebels, as well as in Iraq, where they are increasingly protesting the hardline Shia government.

Last weekend, U.S. Secretary of State John Kerry lobbied Maliki to stop allowing Iranian arms and fighters to cross into Syria through Iraq. Maliki denied aiding the Syrian government.

U.S. ambassador to Syria Robert Ford said in congressional testimony last week, “We want the Iraqi government to understand that it has no interest in having an extremist government in Syria.”

Yes, it’s complicated. As the Washington Post editorialized:

“President Obama has often given the impression that he has turned his back on Iraq, and many Americans understandably sympathize with him. But a failure to engage with the fragile state U.S. troops left behind would endanger U.S. interests and break faith with the many Americans who made sacrifices there.”

And one other depressing note. The New York Times reported that in Syria, “More than 100 physicians have been killed and hundreds more have disappeared into Syrian jails in the last two years, according to doctors and opposition organizations. The government reviles treating wounded rebels as ‘akin to carrying weapons,’ said Wadah Maktabi, a pharmacist.”

Actually, in a U.N. report, both sides have been accused of targeting medical care as part of their military strategy. Doctors Without Borders reached the same conclusion. “Medical structures became military targets,” it said in a report this month. Another group based in Damascus says 50 nurses have been killed and 469 doctors jailed. The condition of the jails is said to be beyond belief. Space is rationed among the prisoners.

Editorial / Wall Street Journal

“So now – 24 months, 70,000 deaths and 500,000-plus-refugees later – President Obama is contemplating a Syria policy that amounts to something other than determined inaction. The Administration’s initial argument was that U.S. involvement would intensify the violence within Syria, strengthen the hand of extremists, extend Bashar Assad’s political lease on life, and turn a civil war into a regional crisis.

“That being exactly what has come to pass, Mr. Obama wants a course correction. A small one. In nautical terms, we’re talking a half-point to starboard.

“Specifically, the President is said to favor slightly beefing up the not-so-covert CIA assistance to secular Syrian rebels, which so far has amounted to some military training, to include actionable intelligence sharing. He also wants the State Department to coordinate overall regional assistance to the rebels, and to help with governance in Syrian areas under rebel control.

“But Mr. Obama remains firmly opposed to providing arms to the rebels, much less involving U.S. military forces directly. His greatest fear, according to someone whose job it is to publicize authorized leaks from the government, is that too much involvement will require Mr. Obama to ‘own’ the Syria problem in a way that will come to define the remainder of his Presidency.

“We hate to break it to the Administration’s Boswells, but Mr. Obama has owned the Syria debacle from Day One of the uprising, and even before it. The President came to office determined to improve relations with the Syrian dictator. That effort was unofficially led by then-Senator John Kerry, who once praised Mr. Assad as a man who had been ‘very generous with me.’ It took five months for the Administration to call for Mr. Assad to go, though it has since done nothing to make that happen....

“Nobody is arguing for American boots on the ground, but the sooner Mr. Assad falls the easier it will be to prevent the various nightmare scenarios that are becoming more likely. Among those scenarios: the disintegration of the Syrian state into warring ethnic enclaves; revenge killings amounting to genocide against Mr. Assad’s Allawite sect; the spillover of war into Lebanon, Jordan or Iraq; the further empowerment of al Nusra and similar jihadists; the seizure by parties unknown of Syria’s chemical weapons stocks; or the breakout of a pan-regional Shiite-Sunni conflict.

“Mr. Obama may imagine that his only foreign policy problems are those he chooses to touch. If he were Prime Minister of New Zealand, that might be true. But that’s not how the world works. Sooner or later the world’s biggest problems always land on an American President’s desk. The catastrophe in Syria is unfolding on his watch, and history will judge him not merely on how he acts, but on how he has refused to act.”

Gee, where have you read this before?

By the way, at the Arab League summit, Syrian opposition leader Khatib said the number of Syrians killed just topped 100,000, with more than one million refugees and an estimated four million more “displaced” inside Syria. It is also estimated the devastation has cost $100 billion. As the London Times noted, by comparison, Syria’s three wars with Israel displaced about 60,000 and cost the lives of fewer than 3,000 Syrians. The U.N. now estimates 10,000 are driven out of their homes each day.

The Times also editorializes:

“The Syrians do not ask for Western boots on the ground. The choice is not between full-scale invasion and doing nothing. Syrians want safe havens where they are protected from Assad’s death squads. They need no-fly zones so they are not being bombed. They want surface-to-air missiles to halt the helicopter gunships. They demand arms for self-defense. They need someone strong enough to challenge Russia and Iran. Only the U.S. has the power to take on that task. President Obama should try to match that power with the moral courage needed to use it.”

Israel: According to a survey taken by the Jerusalem Post, following President Obama’s trip to the country, “The percentage of Israelis who consider the Obama administration more pro-Palestinian than pro-Israel fell by a whopping 20% since before the visit.

“But the number of Israelis who consider the administration more pro-Israel than pro-Palestinian rose by only 1 percentage point, despite what was billed as Obama’s ‘charm offensive’ to reach out to citizens of the Jewish state.”

Egypt: In an interview with King Abdullah II of Jordan in The Atlantic, Jeffrey Goldberg notes that Abdullah warns President Obama not to be too naïve when it comes to the Muslim Brotherhood, specifically that, as Goldberg writes in a separate editorial for Bloomberg, “U.S. officials discount warnings about the Brothers as the empty complaints of Arab liberals or those vested in the status quo. Some Westerners, he said, argue that ‘the only way you can have democracy is through the Muslim Brotherhood.’”

Goldberg:

“(The) truth of his argument about the Brotherhood’s extremism...was borne out anew a week ago, when the Muslim Brotherhood in Egypt issued an extraordinary, and extraordinarily disturbing, rejoinder to the draft of a declaration calling for an end to violence against women that was eventually passed at the annual session of the United Nations Commission on the Status of Women.

“In an official statement responding to the draft, the Brotherhood argued that, if approved, it would ‘lead to complete disintegration of society, and would certainly be the final step in the intellectual and cultural invasion of Muslim countries, eliminating the moral specificity that helps preserve cohesion of Islamic societies.’....

“(Some criticisms) are flat-out brutal...

“In sum, the Brotherhood’s rebuttal is a remarkable document and evidence that the movement simply cannot wait to wage war on women. Human-rights groups in Egypt have so far stopped Brotherhood activists from decriminalizing female genital mutilation, but women are losing on multiple fronts....

“(Egyptian President Mohamed) Mursi hasn’t fulfilled his pledge to appoint a woman as one of his vice presidents. When I last interviewed him, before he took office, I asked him if the Brotherhood could support a woman, or a Christian, for president.

“ ‘Which Christian?’ he asked. I explained that I was asking a theoretical question. Could any Christian become president? ‘There are no Christians running for president,’ he said. ‘This is a nonsense question.’ So I asked him if he could support a woman for president. ‘Which woman?’

“This tragicomic dialogue went on for some time, before I gave up.

“Leaders like Jordan’s Abdullah have been warning the Obama administration for some time not to trust the Muslim Brotherhood and like-minded movements. They are, he said, ‘wolves in sheep’s clothing.’ I suppose the saving grace of the Egyptian Brotherhood is that its leaders don’t even bother to dress like sheep.”

From all I’ve read about Mursi, he has the brain of a turnip.

China: Vietnam claimed China fired at a Vietnamese fishing vessel about a week ago in another South China Sea dispute. China, Vietnam and other countries contest the potentially mineral-rich Spratley and Paracel islands which are within major shipping routes and are home to bountiful fishing grounds.

China says the sea is part of its sovereign territory, even though the Paracels, which it seized from South Vietnam in 1974, are 320 kilometers from the Chinese island of Hainan.

Then it was reported China’s PLA launched an amphibious task force and headed to the James Shoal, 80 kilometers from Malaysia and 1,800 kilometers from China’s mainland. China claims this area as well.

Gary Li, an analyst for IHS Fairplay in London, told the South China Morning Post:

“We’ve never seen anything like this that far south in terms of quantity or quality...it is hard to know whether it is just coincidence, but it does seem to reflect (President) Xi Jinping’s desire for more practical operationally based exercises.”

Remember, Xi’s father was a 4-star general in the Chinese Army and Xi has strong relations with the military. He’s already announced he wants a stronger army and navy. He clearly wants to show the region who is boss, but in exerting a more robust maritime effort he risks miscalculating. 

A commentary in the government mouthpiece Global Times newspaper the other day read in part:

“The 18th Party Congress report clearly pointed out the strategic intention and task of ‘building a strong maritime country,’ making a strong call for the Chinese people’s control of the ocean.”

A Chinese foreign ministry spokesman said on Thursday, “China has made important contributions to maintaining peace and security in the South China Sea. The patrolling is China’s exercising its sovereignty and inherent rights.”

An annual report from Japan’s Defense Ministry concluded the rising might of China is causing it to act with increasing disregard towards its neighbors.

“China, against the backdrop of its rising national power and improvement in its military power, is increasingly taking actions that can cause frictions with neighboring countries without fear,” said the East Asian Strategic Review.

Last Saturday in Moscow, in a different vein, Xi warned against foreign interference in the affairs of other nations during a speech at Moscow University.

“We must respect the right of each country in the world to independently choose its path of development and oppose interference in the internal affairs of other countries.”

Xi added: “Strong Chinese-Russian relations...not only answer to our interests but also serve as an important, reliable guarantee of an international strategic balance and peace.”

[Xi and Russian President Vladimir Putin signed a number of energy accords, both on the natural gas and oil fronts, thus tightening the ties between the world’s largest energy producer and a voracious consumer of same. By 2018, China will be receiving more natural gas from Russia than Germany does currently, Germany long being the largest consumer of Russian gas.]

After traveling to Russia, Xi then went to Tanzania, where he vowed to build a beneficial relationship that benefits African nations through cooperation, not the perceived exploitation.

Lastly, after some 11,000 dead pigs were pulled out of a river serving as Shanghai’s drinking water source, with the government still not providing an explanation of how all the pigs ended up there, in another part of the country, 1,000 dead ducks were found in a river, though this was not a source for drinking water.

As for the pigs, here’s something I didn’t know before. A local newspaper reported that illegal traders used to buy up dead pigs to make dumpling filling, so check your soup labels.

Russia: Oligarch Boris Berezovsky, who had a lot to do with Vladimir Putin’s rise to power, only to have a falling out with him, forcing Berezovsky to London, hung himself amid severe financial pressures.

Britain: Up to 100 British jihadis are fighting in Syria for the most militant al-Qaeda faction, Jabhat al-Nusra, with the fear being some will be ordered home to carry out terror attacks in the U.K.

Scotland Yard has been stepping up its investigations into the networks recruiting the fighters and eight have been detained in Britain for recruiting and organizing for the Syrian civil war.

Brazil: A doctor and seven assistants at a hospital in the city of Curitiba have been charged with killing seven patients, but it’s possible Dr. Virginia Soares de Souza was involved in up to 300! At least 20 more are suspicious but a further 300 are being looked into.

Prosecutors say she gave muscle relaxing drugs to patients before reducing their oxygen supply, causing them to asphyxiate.

According to Reuters, wiretaps have been released by prosecutors where her motive apparently was to free up beds.

“I want to clear the intensive care unit. It’s making me itch,” the doctor says on one tape.

“Unfortunately, our mission is to be go-betweens on the springboard to the next life,” she added.

All manner of folks in the hospital, from nurses and dieticians to physiotherapists reported their fears Dr. de Souza was hastening deaths of critically ill patients.

Random Musings

--As reported by Alan Zarembo of the Los Angeles Times:

“The wars in Iraq and Afghanistan will ultimately cost between $4 trillion and $6 trillion, with medical care and disability benefits weighing heavily for decades to come, according to a new analysis.

“The bill to taxpayers so far has been $2 trillion, plus $260 billion in interest on the resulting debt. By comparison, the current federal budget is $3.8 trillion.”

Linda Bilmes, a public policy expert at Harvard University, predicts, “The big, big cost comes 30 or 40 years out.”

“Of the 1.56 million troops that have been discharged, more than half have received treatment at Veterans Affairs facilities and filed claims for lifetime disability payments, the study found.”

--After the Supreme Court’s ruling on ObamaCare, who the heck really knows what the Court will do over the Defense of Marriage Act and California’s same-sex marriage law (overturned by an appeals court). But...it would seem from oral arguments this week that the Court will rule the federal DOMA went too far in defining marriage and that California’s voter-approved ban on same-sex marriage could stand. Or maybe I’m wrong. 

--As depressed as the Republicans may be these days, they have a great chance at taking back the Senate, even being five down, with South Dakota Democratic Sen. Tim Johnson’s announcement he wouldn’t seek another term in 2014. That makes five Democrats and two Republicans who aren’t seeking another six years, with five incumbent Democrats also seeking reelection in Republican-leaning states.

In all, 21 Senate Democrats are running next year, compared with 14 Republicans.

The five Democratic incumbents running in states Mitt Romney won are Mary Landrieu of Louisiana, Kay Hagan of North Carolina, Mark Pryor of Arkansas, Max Baucus of Montana and Mark Begich of Alaska. 

Aside from Johnson, Jay Rockefeller (West Virginia), Carl Levin (Mich.), Frank Lautenberg (N.J.), and Tom Harkin (Iowa), have also announced plans to retire after 2014. Two Republicans, Mike Johanns (Neb.) and Saxby Chambliss (Ga.) have said they won’t run.

Hagan, Pryor, Baucus and Begich all voted against the Senate’s budget plan...hmmm...

--So the U.S. Navy is building this vessel you may have heard about, the Littoral Combat Ship, which is small, speedy and designed for use in shallow waters, but, as a top commander revealed in a classified memo obtained by Bloomberg, the Littoral lacks the firepower it needs.

David Lerman / Bloomberg

“Vice Admiral Tom Copeman, the commander of naval surface forces, called on the Navy to consider a ship with more offensive capability after the first 24 vessels are built, according to a Navy official who asked not to be identified discussing the confidential document.

“Copeman’s memo, prepared late last year at the request of Admiral Jonathan Greenert, the chief of naval operations, indicates the Navy may be starting to re-examine the $37 billion program. The ship has been beset by troubles, including cracks and corrosion, its price has doubled since 2005 to $440 million per vessel and a decision to build two versions will add to long-term operating costs.”

$440 million....for a vessel “derided by critics inside the Navy as the ‘Little Crappy Ship,” as reported by Lerman.

--Few murder cases have upset me more, let alone warranted inclusion in this column, than the Brunswick, Ga., murder of a 13-month-old baby shot in the face while the shooter was trying to rob the child’s mother, as noted in an indictment returned on Wednesday charging 17-year-old De’Marquise Elkins on 11 counts, including malice murder. Another suspect, 15-year-old Dominique Lang, was indicted on seven counts including felony murder.

At first I thought, ‘wait 24 hours,’ after seeing the mother’s reaction. It just didn’t seem possible that a kid would do that.

But now I want this kid put to death.

Alas, Georgia law doesn’t allow capital punishment for defendants charged with crimes committed before they are 18....and that is understandable. It’s the law.

Change it.

[Elkins, by the way, was also charged with a second attempted robbery and shooting that happened 10 days before the baby was slain. The same caliber revolver was used in both. Three of Elkins’ relatives were then indicted on charges that they tried to help the kid after the shootings. They all said Elkins was with them when he was out shooting the baby. God this one pisses me off.]

--There was another case this week, this one in New York City, that got to me.

Christopher Inserra, a Port Authority officer, was accused of collecting disability pay while on tour with his heavy metal band. Really. You should see the videos.

The feds busted him on mail fraud after he was caught head-banging while claiming a disability from an on-the-job accident.

Inserra, 31, claimed he had a right-arm injury yet there he is on film, gripping a microphone on stage and screaming out lyrics. He claimed he was hurt while on duty in downtown Manhattan in 2010 and then remained out sick for two years – pulling his full $90,000 salary!

As the New York Daily News reported, “The do-nothing cop repeatedly lied to PA doctors, in addition to scamming AFLAC insurance company out of $31,486 in short-term disability payments, according to the complaint unsealed Tuesday....

“Inserra is all over the Internet in photos and YouTube video of performances with his band as they promoted their album, ‘Sick Maniacs.’

“While he claimed to be laid up unable to work, his rock star Internet persona shows him ‘constantly and repeatedly jumping up and down and flailing both of his arms in a back and forth fashion,’ said U.S. Postal Inspector John McDermott, who headed the mail fraud case.”

The guy is such a jerk, he returned to work in March 2012, but kept taking sick days, according to investigators who were filming him in Brooklyn clubs. He was on a sick day when he was cuffed.

Inserra faces up to 20 years in prison.
 
--Gen. David Petraeus appeared for the first time in a public forum since the scandal that led to his resignation. He apologized for his indiscretions that cost him his job as director of the CIA.

“I am...keenly aware that the reason for my recent journey was my own doing. So please allow me to begin my remarks this evening by reiterating how deeply I regret – and apologize for – the circumstances that led to my resignation from the CIA and caused such pain for my family, friends and supporters.”

I forget who I was watching who said it (Gloria Borger?) but Petraeus doesn’t owe me an apology. I’m assuming national security was never in doubt. 

What many of us learned after, though, was that Petraeus is highly overrated! [And I was one who initially thought he was the perfect third party presidential candidate. The parallel is why we have extended presidential primary seasons...it can take that long before we really get to know someone...for those of you who think the process should be much shorter...]

--Barbara Walters announced she is retiring May 2014. Walters, 83, has had one helluva career.

--Moscow has seen its coldest March since the 1950s. There have been similar conditions in Britain. The Moscow Times reported “the unseasonably cold weather was a result of unusually warm temperatures in the Arctic that pushed cold currents toward the Russian mainland.”

And that’s how global warming works, Charlie Brown.

--Very cool bit in TIME magazine this week, 4/1, on the possibilities of life on one of Jupiter’s moons, Europa.

“What we...know is that Europa has water – perhaps a vast, globe-girdling ocean up to 100 miles deep, beneath a rind of fractured ice as little as 10 miles thick....

“ ‘I’m not an expert on life,’ says (Caltech planetary scientists Mike) Brown, ‘but I do know that if you dip a net in the ocean here, you’re bound to pick up something.’”

Europa has two needed ingredients...sodium chloride – ordinary sea salt, and organic compounds carried by comets that have constantly been plunging into it. Europa is also about the size of our moon.

--Pope Francis gave Holy Thursday Mass at a juvenile detention center in Rome and was asked by one of the inmates why he had come to visit them.

Francis responded that it was to “help me to be humble, as a bishop should be.”

The gesture, he said, came “from my heart. Things from the heart don’t have an explanation.” [Nicole Winfield / AP]

---

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

God bless America.
---

Gold closed at $1595
Oil, $97.23

Returns for the week 3/25-3/29

Dow Jones +0.5% [14578]
S&P 500 +0.8% [1569]
S&P MidCap +1.2%
Russell 2000 +0.6%
Nasdaq +0.7% [3267]

Returns for the period 1/1/13-3/29/13

Dow Jones +11.2%
S&P 500 +10.0%
S&P MidCap +13.1%
Russell 2000 +12.0%
Nasdaq +8.2%

Bulls 49.5
Bears 19.6 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Happy Easter.

Nightly Review video schedule Mon. thru Thurs., posted around 5:30 PM ET.

Brian Trumbore