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04/06/2013

For the week 4/1-4/5

[Posted 12:00 AM ET]

Japan and Europe

Cyprus was largely off the front page this week but that doesn’t mean the issue there has been resolved. On Friday it was revealed that there are huge gaps in the Bank of Cyprus’ record-keeping, specifically of its holdings of Greek bonds, and there are signs of mass deletions of data. This as the country settles in for a protracted depression, with the economy contracting 7.5% to 15% over the coming year by most accounts. Uninsured depositors are going to see losses of 60 to 77 percent, which will have devastating consequences not just on individuals in the two impacted banks, but also large depositors such as schools and universities.

And when one looks across the entire European Union and the 17-nation eurozone, there is zero cause for optimism. This week saw the release of Markit’s figures on both manufacturing and the service sector and a composite index of both for the eurozone came in at a final 46.5 for March vs. 47.9 for February, below the 50 dividing line between growth and contraction a 14th straight month. An index of the service sector alone was 46.4, also vs. 47.9 in February.

In Germany, the composite declined to 50.6 from 53.3 in February, near stagnation. As Chris Williamson, chief economist of Markit said:

“The unresolved election in Italy was commonly cited as a key factor clouding the economic outlook in March, and the botched bail-out of Cyprus could well filter through to a further worsening of business sentiment across the region in April.”

As for Germany, its weak showing “suggests that the only source of bright light in an otherwise gloomy region has once again begun to fade.” [Germany’s new car sales for March fell 17% from a year earlier, the worst pace in 2 ½ years.]

France’s composite fell to 41.9, the worst since March 2009.

On manufacturing, specifically, the final eurozone PMI was 46.8 in March.

Germany’s was only 49.0, France was at 44.0. Spain 44.2 (5-month low). Italy 44.5 (7-month low). Greece a still sickly 42.1. Even Ireland, which has been improving, fell back to 48.6, a 14-month low. Non-euro U.K. registered a 48.3.

None above 50!

And the eurozone jobless rate hit a record 12% in February, according to Eurostats, with January being revised upward to the same 12% figure. The eurozone jobless rate was 10.9% a year ago.

The European Commission predicts euro area unemployment of 12.2% in 2013, 12.1% in 2014.

Spain’s unemployment rate for February was 26.3%, Portugal’s 17.5%, Greece’s 26.4% (December).

And the youth unemployment picture – under age 25 – continues to worsen; 23.5% for the entire 27-nation European Union from 22.5% a year ago.

Greece has a 58.4% youth jobless rate (Dec.), Spain’s is 55.7%, Portugal’s 38.2% and Italy’s 37.8%.

Back to Cyprus, it’s jobless rate has risen to 14%, as of February, from 10.2% a year ago, to give you a sense of how the economy was heading in the wrong direction before the crisis exploded; the island being in search of a bailout since last June. You will now see an exodus of the young there, in particular, with no hope for the future.

In Italy, it’s not likely to have a new government until around May 15, the end of President Giorgio Napolitano’s term. Napolitano charged a 10-person committee with coming up with a solution, though it seems clear his intent is to buy time for Pier Luigi Bersani’s Democratic Party to join forces with Silvio Berlusconi’s center-right alliance, which Bersani has been adamant he wouldn’t do. And in a slap in the face to Beppe Grillo’s Five Star Movement, Napolitano didn’t include any committee representatives with ties to Grillo’s party.

Matteo Renzi, the 38-year-old popular reformist mayor of Florence, who has the highest ratings among potential prime ministers in opinion polls, called on Bersani either to abandon his opposition to forming a coalition government with Berlusconi or prepare for early elections.

“Italy is totally stalled,” Renzi said after breaking his silence.  “Companies are closing. Unemployment is rising. And politics is wasting time. Even the Church, not noted as a model of speed, has responded more quickly.”

Whoever emerges will have to immediately deal with a very sick economy. Auto sales are expected to decline 21% in 2013, with March sales declining 13% vs. a year earlier following the inconclusive February vote. In the first quarter, VW’s Porsche unit saw its sales fall 36%, while Fiat’s Ferrari division also saw Q1 sales drop 36%. Ergo, luxury car sales have tanked, a rather important barometer.

In France, President Francois Hollande’s poll numbers continue to dive, just 11 months into his five-year term, amid an economy that by some measurements, such as those above, is in free fall. He is already the least popular president in France since 1981, with just 29% of the people supporting him.

Hollande is facing a huge uproar over the issue of his former budget director, Jerome Cahuzac, who resigned two weeks ago amid allegations he was evading taxes, which he at first denied. Cahuzac then admitted on Tuesday that he was caught in a “spiral of lies” and that he did indeed hold $770,000 in an offshore account for years. Hollande said Cahuzac lied to him, the French parliament and the French people.

Earlier, Hollande granted an extensive television interview wherein he laid out coming budget pain, specifically lower pension and welfare benefits as part of his fiscal reform to deal with France’s budget deficit, which is well above the EU’s target of 3%.

So with all the above in mind, and an economy, region wide, showing zero signs of growth, the European Central Bank left interest rates on hold for a 9th month in a row.

ECB President Mario Draghi said the bank stands ready to cut interest rates if the economy deteriorates further, but it already is!

Draghi maintained risks to the economic outlook remain on the downside and inflation is “edging down well below” the ECB’s 2 percent target.

Draghi did comment that the initial plan to make small savers pay for the Cyprus bailout was “not smart” and that the proposal to make “insured depositors” pay did not come from the ECB, the European Commission or the IMF (the troika).

“You have a pecking order, and here the insured depositors should be the very last category to be touched. The (European) Commission draft directive foresees exactly this.”

Draghi also said the Cyprus bailout was not a blueprint for what would happen in future bailouts.

“Cyprus is no template,” he said.

Distressingly, small and medium businesses across both the periphery (Portugal, Spain, Italy and Greece), as well as Eastern Europe, are suffering big time as a result of the ongoing credit crunch. Much of the funding for these enterprises had come from French and German banks that have pulled in their horns to improve their capital bases, while in the case of Spain, their own banking system is in a shambles.

And here’s the kicker...the ECB has yet to unveil a program to address small business.

On to Japan....

Bank of Japan Governor Haruhiko Kuroda began a campaign to end 15 years of deflation by doubling monthly bond purchases in a bid to fulfill Prime Minister Shinzo Abe’s mandate for 2 percent inflation in two years. 

The BOJ will purchase 7.5 trillion yen ($78.6 billion) of bonds a month and double the monetary base in two years.

The yen fell and stocks surged to their highest level since August 2008 on Friday.

In the process of its asset purchases, the BOJ will be boosting Japan’s monetary base from $1.43 trillion to $2.86 trillion by March 2015, mainly by purchasing long-term government bonds vs. the more intermediate-term paper it had been buying before, thus pressuring long-term rates even further and indeed on Friday, the 10-year government bond at one point traded with a yield of 0.32% before finishing the week around 0.50%. For a 10-year bond!

To give you a truer sense of how massive the BOJ plan is, it will expand its balance sheet by 1 percent of GDP each month and by 1.1% in 2014, while the U.S. Federal Reserve’s current QE3 program involves increasing the balance sheet by 0.54 percent of GDP per month. [Barclays]

Prime Minister Abe won election in December by vowing to end stagnation.

But the demographics in Japan, a declining population, and government debt about 250% of the size of the economy, remain major restraints.

Kuroda said, “We can’t escape deflation with the incremental approach that’s been taken until now. We need to use every means available.”

Of course with the stated policy, a weaker yen, perhaps drastically weaker over time, makes Japanese products more attractive worldwide, particularly in the rest of Asia, while making American exports less attractive.

Howard Schneider of the Washington Post summed it all up.

“Japan’s move is the latest example of how the developed world is relying on its central bankers to keep the economy afloat while politicians grapple with underlying problems, including government debt and economic competitiveness.

“Institutions such as the Fed, the European Central Bank and the Bank of Japan have waded deep into unfamiliar territory to do the job, buying government bonds and other assets while their own internal balance sheets balloon.....

“The risks are known but impossible to quantify: of inflation remaining tame until it roars out of control, or of asset bubbles creeping into unexpected parts of the economy as investors take advantage of cheap money worldwide to make ever-riskier bets.”

Wall Street

The economic data on the week was generally weaker than expected, before Friday’s abysmal jobs report. First, the March ISM figure on manufacturing came in at just 51.3, down from 54.2 in February and far worse than projected. The ISM services reading was also down, 54.4 vs. 56.0 in February. But February construction spending, up 1.2%, and factory orders, up 3.0%, were slightly better than expected.

On Friday, however, there was no sugarcoating a nonfarm employment gain of just 88,000 vs. the 200,000 that most economists were forecasting. Earlier, ADP’s jobs report, also expected to be around 200,000, came in at 158,000, causing some economists to lower their outlook for the official Labor Department report but no one was thinking 88,000. January and February were revised upward, however, from 119,000 to 148,000 for January and 236,000 to 268,000 for February. So if you want to be an optimist, you can say the 3-month average, 168,000, isn’t awful.

The jobless rate in March, though, fell to 7.6%, but this was for all the wrong reasons, specifically, 500,000 stopped looking and the labor participation rate is now at the lowest level since May 1979.

Federal Reserve Bank of San Francisco President John Williams sees improvement in the outlook for the labor market by this summer and if it happens as he expects, “We could start tapering our (asset) purchases. If all goes as hoped, we could end the purchase program sometime later this year.”

Williams thus became the first Fed governor to give an actual timetable to the removal, or tapering, of QE3, quantitative easing through the Fed’s current monthly purchase of $85 billion in Treasuries and mortgage-backed securities. Williams also sees GDP growth of 2.5% in 2013, 3.25% in 2014.

Fed Vice Chairman Janet Yellen then said a few days later that she favored a tapered approach to reducing the monthly purchases of government bonds.

“Adjusting the pace of asset purchases in response to the evolution of the outlook for the labor market will provide the public with information” about Fed policymakers’ intentions and “should reduce the risk of misunderstanding and market disruption,” she said.

But then you had former Reagan administration budget director David Stockman in an extensive op-ed for the New York Times as part of the publication of his new book, “The Great Deformation: The Corruption of Capitalism in America.”

Just a snippet of his thinking:

“The future is bleak. The greatest construction boom in recorded history – China’s money dump on infrastructure over the last 15 years – is slowing. Brazil, India, Russia, Turkey, South Africa and all the other growing middle-income nations cannot make up for the shortfall in demand. The American machinery of monetary and fiscal stimulus has reached its limits. Japan is sinking into old-age bankruptcy and Europe into welfare-state senescence. The new rulers enthroned in Beijing last year know that after two decades of wild lending, speculation and building, even they will face a day of reckoning, too.

“The state-wreck ahead is a far cry from the ‘Great Moderation’ proclaimed in 2004 by Mr. Bernanke, who predicted that prosperity would be everlasting because the Fed had tamed the business cycle and, as late as March 2007, testified that the impact of the subprime meltdown ‘seems likely to be contained.’ Instead of moderation, what’s at hand is a Great Deformation, arising from a rogue central bank that has abetted the Wall Street casino, crucified savers on a cross of zero interest rates and fueled a global commodity bubble that erodes Main Street living standards through rising food and energy prices – a form of inflation that the Fed fecklessly disregards in calculating inflation.”

I can’t say I disagree with the above. Nor his conclusion.

“The United States is broke – fiscally, morally, intellectually – and the Fed has incited a global currency war (Japan just signed up, the Brazilians and Chinese are angry, and the German-dominated eurozone is crumbling) that will soon overwhelm it. When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is.”

‘Intellectually broke’ is what upsets me the most, as I hope you’ve picked up on with my past budget deficit diatribes and the failure of our elected representatives to tell the truth when it comes to items such as $800 billion in projected interest expense by 2022 without attacking entitlements today.

Lastly, Steven Malanga had a piece in the Journal titled “The Debt Bomb That Taxpayers Won’t See Coming.”

“Earlier this month, the Securities and Exchange Commission charged Illinois officials with making misleading statements to bond investors about the state’s pension system. The agency detailed a long list of deceptive practices including failure to tell investors that the system was so underfunded that it risked bankruptcy.

“Illinois taxpayers, as well as the holders of its debt, will ultimately bear the burden of the officials’ misdeeds. But there is nothing unique about the Prairie State. For years, elected officials in states and municipalities across the country have been imprudently piling up obligations that are imposing serious strains on budgets, prompting higher taxes and cutbacks in services....

“According to studies by the Pew Center on the States, states and the biggest cities have made nearly three-quarters of a trillion dollars in promises to pay for retiree health-care insurance. Yet governments have set aside only about 5% of the money they’ll need to pay for these promises....

“A December report by the States Project, a joint venture of Harvard’s Institute of Politics and the University of Pennsylvania Fels Institute of Government, estimated that state and local governments now owe in sum a staggering $7.3 trillion. Incredibly, the vast majority of this debt has never been approved by taxpayers, who are often unaware of the extent of their obligations.”

Street Bytes

--It proved to be a strange week in the market. The Dow Jones fell for only a fourth time this year, but each decline has been all of 0.1%. The Dow now sits at 14565.

It was a far different picture for the broader averages, especially small and midcaps, with the Russell 2000 down 3.0% and the S&P MidCap off 2.6%.

The S&P 500 lost 1.0% and Nasdaq fell 1.9%.

Not for nothing but for all the hoopla over the great start to 2013, the Nasdaq is up just 6%.   Shares in Google hit $844 intraday on March 6 but closed Friday at $783, while Apple had rallied back to $469 intraday on March 25, only to close the week at $423.

--U.S. Treasury Yields

6-mo. 0.10% 2-yr. 0.23% 10-yr. 1.71% 30-yr. 2.87%

It’s all about the safe haven play, with yields dropping to levels last seen in December.

--President Obama is unveiling his budget, finally, on Wednesday and will call for higher taxes on the rich in exchange for some cuts to entitlements, including a measure that would recalculate cost-of-living increases for Social Security.

But Democrats have refused changes to entitlements, and Republicans have vowed no more tax increases. More next time when full details are released.

--China’s official manufacturing PMI for March came in at 50.9, up from 50.1 in February (HSBC pegged it at 51.6). The services PMI for the month was a solid 55.6 (HSBC 54.3).

But home prices keep surging which is forcing the government to crack down again on speculation, especially in the likes of Beijing and Shanghai.

--Manufacturing numbers in Asia were stronger in March compared to prior months.

Indonesia’s manufacturing PMI rose to 51.3 in March from 50.5 February, according to HSBC; Taiwan’s PMI improved to 51.2 from 50.2, Vietnam’s 50.8 compared with 48.3, and Korea’s 52.0 vs. 50.9 in February.

--Japanese auto sales declined for a seventh straight month in March, hurt by the expiration of a government subsidy for fuel-efficient cars. Sales of passenger vehicles fell 16.7%, with Honda Motor Co.’s down 36% and Nissan’s and Toyota’s off 16% each for the month.

--U.S. equity mutual funds saw their strongest flows in the first quarter since Q1 2004, according to TrimTabs Investment Research, $52 billion.

--March U.S. new car sales jumped more than 5% from a year ago to the strongest March sales in five years. GM’s rose 6.4%, Ford’s 5.7% and Chrysler’s were up 5%, while Toyota’s and Nissan’s rose just 1%, and Honda’s U.S. sales increased 7%.

German luxury-car sellers had a solid month, with Daimler AG’s Mercedes-Benz unit up 6.5%, BMW AG’s up 13.1% and Volkswagen’s Audi unit up 14%. [VW itself reported a 3.1% increase.]

Edmunds.com raised its 2013 sales forecast to 15.5 million new cars and light trucks in the U.S., a 6.9% gain over 2012.

--Australia reported strong retail sales for February, up 1.3% from a month earlier.

Woolworths Ltd., Australia’s largest retailer, said first-half earnings rose 19%. I just report this angle because Americans have a different view of Woolworths. But I was in one in Cairns, Australia two years ago and this isn’t your father’s Woolworths, my fellow Americans.

--CoreLogic, a real estate data provider, said home prices rose 10.2% in February compared with a year earlier, the biggest gain since March 2006. Prices rose in 47 of 50 states. [Delaware, Alabama and Illinois being the exceptions.]

--The average price for a Manhattan apartment fell 16% to $1.2 million in the first quarter from the year-earlier period.

--Fannie Mae reported an annual profit of $17.2 billion on Tuesday, its first annual profit since 2006 and its largest ever, boosted by the housing market’s turnaround. During the fourth quarter, the company posted profit of $7.6 billion, compared with a net loss of $2.4 billion in the year-earlier quarter.

Fannie received $116.2 billion in federal aid and has now paid $35.6 billion in dividends, bringing the cost to taxpayers to $80.6 billion. Freddie Mac received $71.3 billion and has paid $29.6 billion in dividends, bringing its total cost to taxpayers to around $41.7 billion.

--Apple has been bowing down to China, removing at least one online application from the China App Store because it provides access to books banned by the Chinese government, this according to the developer of the app.

The decision came days after CEO Tim Cook issued an apology to Chinese customers for the company’s perceived arrogance, at least as described in an editorial by the People’s Daily and state TV.

“We are aware that a lack of communications...led to the perception Apple’s attitude was arrogant and that we do not care and attach importance to consumer feedback,” Cook wrote. “We express our sincere apologies for any concerns or misunderstandings this gave consumers.”

China is Apple’s second-largest market and earlier this year, Cook said he expected China to be number one soon. Apple has 17,000 outlets in China selling its products.

--Facebook unveiled a package of mobile software called Facebook Home that effectively turns the news feed into the screen saver of a smartphone, updating it constantly and seamlessly with Facebook posts and messages.

The Facebook News Feed appears as soon as the phone is turned on. Every time a user glances at their phone, whether at a restaurant or while driving 80 mph in a 55 zone, they will be looking at their Facebook page.

--Samsung reported profits will rise 53% in the first quarter to about $7.74 billion as results were driven by its mobile phone business, specifically the massive success of the Galaxy line.

--You’ve got to love the turnaround at Best Buy, at least in its stock performance which is up more than 100% just this year. On Thursday, the big-box electronics merchant launched a new partnership with Samsung that some are calling brilliant. Best Buy salespeople will be trained in Samsung product and Samsung will receive its own high-visibility section of the store (a store-within-a-store).

One thing that is helping Best Buy after it was declared near death last fall is competitors like Amazon.com are being pushed to collect state sales taxes, narrowing their price advantages. Best Buy has also offered to match online retailers’ prices in its stores.

--Global television shipments declined last year for the first time in over a decade, down 6.3% over 2011, as demand for flat-panel TVs cooled...the market being saturated. Demand was particularly soft in Japan.

--In a poll by the Pew Research Center, 66% of American adults favor the building of the Keystone XL pipeline, while just 22% oppose the line that would carry heavy crude from Canada through the Midwest to Texas refineries. Support is highest among Republicans (80%) and independents (70%) and lowest among Democrats (54%).

President Obama’s decision on Keystone could come any week now.

--The Securities and Exchange Commission has ruled that social-media sites such as Facebook and Twitter can be used for corporate news releases as long as the companies have told investors which outlets they intend to use. The SEC said in its report:

“An increasing number of public companies are using social media to communicate with their shareholders and the investing public. We appreciate the value and prevalence of social media channels in contemporary market communications, and the commission supports companies seeking new ways to communicate.”

Fair disclosure requires companies to disseminate information in a way that wouldn’t be expected to give an advantage to one group of investors over another.

--Health insurance companies soared Tuesday after federal officials approved a rate increase to private Medicare plans (Medicare Advantage) when it was thought a ‘cut’ would be instituted. 

--The court appointed trustee for collapsed brokerage MF Global, former FBI Director Louis Freeh, concluded in a report to the bankruptcy court that Jon Corzine helped bring down his firm with a dangerous trading strategy and inadequate risk controls. Corzine was also found to execute many of the trades personally, which is unusual, to say the least.

Freeh reported: “At one point, management even debated how aggressively the [broker-dealer], on an intraday basis, could borrow...customer funds [from its futures brokerage arm] required to be kept in secured and segregated accounts.”

--The Bundesbank launched an investigation into claims that Deutsche Bank hid up to $12 billion in losses on credit derivatives during the financial crisis, which helped it avoid a government bailout.

--As of this posting, a sixth person has died of H7N9 bird flu in China, with 14 confirmed human cases of the virus to date. Four of the six fatalities are in Shanghai, where authorities slaughtered poultry in a mass cull at a Shanghai market where the virus has been detected.

This is a scary situation. There is no evidence yet that any of the cases are related, human to human transmission, but there is no vaccine as yet for this strain and just as in the case of the H5N1 variant, the fear has always been the viruses could mutate into a form easily transmissible between humans, with the potential to trigger a pandemic.

And that would be a global game-changer, sports fans!

Experts are concerned the virus appears to have spread across a wide geographical area in China.

Virologist John Oxford of the Queen Mary University of London, told Agence France-Presse:

“I am cautiously worried. If there were four cases in Shanghai, I would be much less concerned, but because it is so geographically widespread I think it is trying to tell us something.”

--Atlantic City’s casinos saw their profit fall by more than 27% last year, though revenue from non-gambling sources inched up; such as revenue from renting hotel rooms, food and beverage sales, and entertainment, as well as casino-owned retail sales and rental income.

Occupied hotel room nights exceeded 5.2 million, a new annual high, despite the impact of Hurricane Sandy.

Sandy did impact A.C. in the fourth quarter, however, with the casinos posting a collective $18 million loss, compared with an operating profit of $81 million in the last three months of 2011. [Star-Ledger / AP]

--It’s official...Jimmy Fallon is taking over “The Tonight Show” gig from Jay Leno next February, tied to the network’s coverage of the Sochi Olympics. I have to admit I probably only stay up to catch Leno or Letterman’s opening monologue once a month. Now if I lived in the central time zone, it would be a different situation.

The thing is, Leno is still the undisputed king of late-night, though his audience is considerably smaller than 10 years ago, 3.4 million viewers today compared with 5.8 million per night in the 2002-03 season. Of course increased fragmentation has a lot to do with this. That aside, Leno is still winning the 18 to 49 demographic.

Letterman, by the way, is at 3 million viewers a night and ABC’s Jimmy Kimmel is up to 2.16 million.

--The volume of Scotch whisky exported fell by 5% in 2012, to 1.19 billion bottles. In France, which imports the most Scotch whisky of any export market, the volume of sales was down 25% to 154 million bottles. I never would have guessed France was the number one import market. Volume in Spain fell 20%, so between these two countries you perhaps see another sign of economic distress in euroland.

Foreign Affairs

North Korea: Pyongyang placed two of its intermediate range missiles on mobile launchers and has hidden them on the east coast, according to South Korean intelligence sources. It would appear the North is intending to test-fire one of them around the April 15 anniversary of founder Kim Il-Sung’s birth. The missiles may have a range sufficient to reach as far as Guam. Friday, North Korea also told foreign embassies in Pyongyang it could no longer guarantee their safety in the event of conflict, and to consider evacuating their employees.

South Korea has responded to recent events by deploying two warships with missile-defense systems.

Earlier in the week, the regime in Pyongyang issued statements such as “The moment of explosion is approaching fast,” warning that war could break out “today or tomorrow.”

And that U.S. threats would be “smashed by...cutting-edge smaller, lighter and diversified nuclear strike means.”

Pyongyang also blocked South Koreans from crossing the border to the jointly-operated industrial park at Kaesong, which is economic suicide for the North as it generates more than $92 million a year in wages for 53,400 North Koreans employed by 123 textile and other labor-intensive South Korean factories there.

And on Tuesday the regime announced it will restart an idled plutonium reactor at Yongbyon.

South Korea’s Defense Minister Kim Kwan-jin said his military has spotted no signs that North Korea is nonetheless mobilizing for a full-scale conflict.

But as the North Koreans keep ratcheting up the rhetoric, the United States is trying to lower the temperature of its own, after confirming it would deploy a missile-defense system to Guam, host for major U.S. Army and Naval bases.

Various opinion:

Republican Congressman Mike Rogers (Mich.), chairman of the House Intelligence Committee, told the National Journal Daily, “Kim Jong Un has surrounded himself with hard-liners; his rhetoric grows more confrontational, not leaving himself a whole lot of room to back off; we don’t really know his mentality under this kind of circumstance, he doesn’t have a pattern here. We know the military is eager for some conflict somewhere to prove itself, and we know that he is interested in impressing the military – he’s a 28-year-old leader. All of that spells trouble for us....The very fact it was important for the United States to move into position interceptors on the West Coast tells you this is serious.” Rogers praised the Obama administration’s response thus far.

Noted Stanford nuclear scientist Siegfried Hecker, who was shown a new North Korean nuclear facility at Yongbyon in 2010, said, “I don’t believe North Korea has the capacity to attack the United States with nuclear weapons mounted on missiles, and won’t for many years....And even if Pyongyang had the technical means, why would the regime want to launch a nuclear attack when it fully knows that any use of nuclear weapons would result in a devastating military response and would spell the end of the regime.”

British Prime Minister David Cameron on Thursday told a gathering of defense-industry workers in Scotland, “North Korea does now have missile technology that is able to reach the whole of the U.S. If so they can reach Europe and us too.”

Retired Army General Colin Powell offered, “I do not see the prospect of conflict as some of my friends in the United States do. They bluster, they threaten, they say things they cannot do.”

Retired U.S. Admiral Dennis Blair, who served as President Obama’s director of national intelligence and earlier as head of the U.S. Pacific Command, said, “I’m not relaxed about this one. I think this one’s more dangerous than in 2010” because of the youth and inexperience of Kim.

The International Institute for Strategic Studies, a London think tank, stated, “North Korea may have been able to develop a warhead over the past decade that is small and light enough to be delivered using a Nodong missile (with a range up to 900 miles), but there is insufficient information to make a confident assessment.”

The problem, as you can readily see from all the above, is there is a startling lack of intelligence on what North Korea truly possesses, and that is why you have such a divergence of opinion on the real threat.

What we do know is North Korea has about 700,000 of its 1.1 million soldiers within 60 miles of the DMZ, including 8,000 artillery pieces. Seoul is just 30 miles from the demilitarized zone.

And as the Wall Street Journal reported this week, Seoul is increasingly pressuring the United States for key nuclear technologies that could allow it to produce fissile materials for a bomb, though the government is always denying that is their intent.

“They are pushing hard for this reprocessing ability,” said Sen. Bob Corker (R., Tenn.), who met with South Korean officials in Seoul last week, adding, “For what it’s worth, two-thirds of the population have said they’d like the country to have nuclear weapons.”

Daniel Finkelstein / London Times

“It’s easy to dismiss Pyongyang’s threats as empty rhetoric. Postwar history should teach us to take the noise seriously.

“And in other news, someone is threatening to start a nuclear war.

“These people are murderous, deeply eccentric, have tested nuclear weapons and have just declared themselves in a state of war with their neighbors.

“Do I have your attention? Quite possibly not, I fear....

“The threats being issued by the new North Korean leadership against South Korea are easy to dismiss. The regime is keen on overheated rhetoric, which usually comes to nothing. And even people willing to starve their own population to death for ideological reasons are less keen on dying themselves, as they surely would in a nuclear conflict. Besides, even if we thought the North Koreans might be serious, what can we do about it?

“But I think postwar history teaches that this is wrong. It teaches that it is wrong to simply dismiss the threat and wrong to believe that nothing can be done.

“The first history lesson comes from the book of Osama bin Laden, chapter 1 verse 1. If someone threatens to kill you over and over again, they might, erm, kill you. And it is not a good idea just to ignore them.

“Between 1996 and September 11, 2001, bin Laden repeatedly stated that he intended to attack Americans and that ‘as long as I am alive there will be no rest for the enemies of Islam,’ of which the United States was one. While it would be incorrect to say that this threat was entirely overlooked, it is notable that measures to respond to it were only put in place once he had killed thousands of people.”

Iran: With tensions sky-high on the Korean Peninsula, talks between the “P5+1” and Iran take on even more importance as the two sides meet in Kazakhstan to take another stab at resolving the conflict over Iran’s nuclear program. The United States and its partners are demanding Iran cease enriching uranium to 20% purity in exchange for some minor sanctions relief. 

One think tank reported this week that Iran’s pursuit of the bomb has cost it about $100 billion thus far, which makes it more difficult for Iran to just capitulate to the demands of the six powers.

The authors of the report, Ali Zaez of the International Crisis Group and Carnegie’s Karim Sadjadpour, state:

“Economic pressure or military force cannot ‘end’ Iran’s nuclear program. It is entangled with too much pride – however misguided – and sunk costs simply to be abandoned.” [Carol Williams / Los Angeles Times]

Thursday, in Almaty, Iran’s lead negotiator said talks could progress if the U.S. and its allies accepted Iran’s “right” to enrich uranium.

What is happening on the Korean Peninsula, though, can only make leaders in the Middle East even more uneasy when looking at the prospects for Iran obtaining the bomb. It would be one crisis after another.

Finally, if you ever had any doubts as to Iran’s sincerity, or lack thereof, all you need to know is that the International Atomic Energy Agency continues to be denied access to the military base at Parchin, where the IAEA suspects Iran has conducted tests on a nuclear trigger device, but Tehran blocks access, saying its nuclear work has no military component and that Parchin is not involved in the atomic sector.

Syria: Syria’s regime warned Jordan that it was “playing with fire” by allowing the U.S. and others to train and arm rebels on its territory. Jordan has long been concerned Syria could use chemical weapons against it, or that agents linked to the regime could attack.

President Bashar Assad suffered a new blow as it became clear the military wing of Hamas was training the rebel Free Syrian Army in eastern Damascus, thus making a break with its former Syrian host, while embracing the patronage of Qatar, that is a major backer of some rebel factions.

One story, as reported by the Times of London, has Hamas training the rebels to build tunnels under the city center before an expected assault on it.

Hamas’ leadership, though, maintains it is not interfering in Syria’s affairs.

Hamas has been caught in the middle since the uprising erupted two years ago. On one hand it was Syria that gave shelter to Hamas in Damascus from 1999 when the group was expelled from Jordan. But the Palestinians overwhelmingly support the opposition.

Separately, the head of the Syrian Observatory for Human Rights said more than 6,000 people were killed in March alone, the deadliest month yet in the war.

Joseph Lieberman / Wall Street Journal

“Assad’s killing machine is tearing Syria to pieces, miring the country deeper and deeper in a sectarian civil war that could rage for years. The biggest winner if Syria becomes a failed state is likely to be al Qaeda, which is already making inroads by exploiting the anger of Syrians at the West for our refusal to provide them with the help they need....

“There is no more stark illustration of our refusal to help Syrians, despite having the military means to do so, than the continuing devastation caused by the Syrian regime’s ballistic missiles mere miles away from our Patriot batteries.

“Conversely, if the Patriots were used to establish a safe zone in northern Syria, they would instantly become a powerful symbol of U.S. solidarity with Syrians, bolstering moderates in the opposition and giving them the space they need to organize inside the country.

“America and its allies also need to start genuine planning for the day after Assad goes.

“As in the Balkans in the 1990s, peacekeeping forces will be needed if there is any prospect of holding Syria together, along with a large-scale international effort to train Syrian forces that can maintain security. If we wait until after Assad falls to begin this discussion, it will be too late.

“It is often said that the longer the conflict in Syria grinds on, the worse the situation on the ground grows. That is true. But it is equally true that the longer the U.S. refuses to lead, the higher the cost will be when America ultimately decides it must get involved because of the country’s vital national interests at stake in Syria.

“Rather than waiting for proof that Assad has used his chemical weapons, the United States should introduce its own game-changer to the conflict: strong, decisive leadership.”

Michael Young / Daily Star

“In March 1998, President Bill Clinton issued an apology to the people of Rwanda for having done nothing to prevent the genocide of 1994, in which between 500,000 and 1 million people were killed.

“President Barack Obama should prepare his apology to the Syrians. While a genocide may not be taking place, the deaths of over 70,000 people, the fact that the Assad regime is using tactical ballistic missiles and warplanes against its own civilians, and the creation of a refugee population in the hundreds of thousands demand more from Washington than the utterly useless response of today....

“(To) many people Obama is above reproach. His inaction has been viewed as laudable prudence, after the George W. Bush years. But the reality is that Obama has behaved shamefully in Syria, and his administration has been lethargic and usually wrong. The president should prepare his apology now, and read it with his Nobel peace prize in the other hand. No image would better illustrate the pointlessness of American behavior in the Syrian conflict.”

Egypt: The bond market often tells you everything. This week the average yield on one-year Egyptian securities was a whopping 14.79 percent. Six-month yields surged to 14.28 percent. Egypt’s economy is in free fall and it desperately needs a $4.8 billion loan from the IMF to boost foreign reserves and lower borrowing costs.

Egypt’s economy is also highly dependent on tourism and it doesn’t help that the country was recently ranked last for safety and security in a report by the World Economic Forum, behind Chad, Pakistan and Yemen.

I was reading a report by Sarah Lynch of USA TODAY on this topic and she gave the example of the Old Cataract, a resort built in Aswan in 1899 and managed by Sofitel, a French luxury hotel group. Occupancy in April, which is the high season, is expected to be below 10%. Meaning during the coming low season, you’re talking near zero.

Afghanistan: An annual Military Times poll revealed a spike in skepticism about the 12-year-old war here, with 53% now saying that it is “not very likely” or “not at all likely” the U.S. is going to succeed, a sharp rise from the 39% who responded that way in the two previous polls.

This week saw a huge suicide attack on a courthouse in western Afghanistan that left more than 50 dead, most of them civilians.

The U.S. lost 14 soldiers in the month of March.

China: Last December, the British medical journal The Lancet published a report titled “2010 Global Burden of Disease Study.” Now the authors have broken out numbers for specific countries and are presenting them at international conferences. For China, the statistics show that outdoor air pollution contributed to 1.2 million premature deaths in 2010, nearly 40 percent of the global total.

Last week, an official Chinese news report said the cost of environmental degradation in the country was about $230 billion in 2010, three times the amount in 2004. [New York Times]

A related story by Jamil Anderlini of the Financial Times addressed the exodus of expatriates out of Beijing.

“No official figures are available on how many people are planning to leave after three months of the worst air pollution on record in the Chinese capital. But companies that mainly serve foreign residents are bracing for an exodus around the middle of the year when the school term ends.”

One doctor at a Beijing hospital told the FT, “We don’t have good statistics yet but we are seeing many more patients telling us they are leaving because of air pollution.”

There are an estimated 200,000 registered foreign residents in Beijing (600,000 in all of China), but “the expat community is overwhelmingly concentrated in high-earning professional jobs and contributes enormously to the city’s economy and the development of advanced industries,” i.e., the economic impact will be significant.

Separately, the lying Chinese have been hauling in a ton more fish than they are reporting, fisheries researchers have found.

The group, led by Canadian Daniel Pauly, said China was taking 198,000 tons of fish a year out of Oceania, vs. a reported western Pacific catch, almost exclusively of tuna, of 105,000 tons in 2011.

China has 241 China-flagged vessels approved to fish by the Forum Fisheries Agency, more than doubling in a few years, according to Greenpeace.

“It’s a grave situation,” said Greenpeace Oceans campaigner Nathaniel Pelle. “China is turning its fishing attention everywhere.”

Dr. Pauly’s group estimates the Chinese are operating a far-seas fisheries fleet of at least 900 vessels to capture at least $11 billion worth of fish a year.

China reported to the U.N.’s Food and Agriculture Organization that it took in an average 368,000 tons a year, whereas Pauly’s group puts the total haul at 4.6 million tons.

Japan: There are signs of thawing relations with China, with the two having resumed cultural exchanges after their heated row over disputed islands in the East China Sea. This would be good.

Random Musings

--One of my long-running themes since day one of “Week in Review” has been, “corruption makes the world go ‘round.”

Daniel Henninger / Wall Street Journal

“The plight of the world’s poor can be summed up in three truly ugly C-words: corruption, collusion and cronyism. All three may be kissing cousins but each in any language makes a mockery of both capitalism and justice.

“Some 20 years ago economists began asking why so many countries, especially in Africa, never get better, even amid periods of global growth. An enormous body of economic literature now exists confirming that corruption keeps the poor down. A survey of this work for the International Monetary Fund concluded that countries get stuck in a ‘vicious circle of widespread corruption and low economic growth.

“Corruption suppresses growth because citizens in time recognize that honest work produces a lower return than spending one’s energies gaming the system....

“Global poverty persists because corruption kills capitalism. History’s most recent exhibit is the Arab Spring, a product of economic exasperation, especially in Egypt. In time, corruption accelerates political instability, erodes democratic order if it exists, and someone from the outside has to clean up the mess. Think Syria or Mali....

“Recall the famous case of Paul Wolfowitz, who on becoming World Bank president in 2005 made withholding loans to corrupt governments an explicit goal of the bank. Like a swamp’s toxic gases, the bank’s bureaucracy, abetted by amoral Western governments wanting access to corrupt but lucrative foreign markets, joined to expel Mr. Wolfowitz.

“It’d be nice to see them take on the pope.

“Psychologists may explain why denunciations of greed and uncaring capitalism so often come from a London, Washington, Paris or Rome. A pope’s limited time must be spent with moral issues more real than imagined. Corruption qualifies.”

--Editorial / Defense News:

“Britain’s top military leadership will meet this week with their U.S. counterparts to talk about the strategic future they face together, the first meeting of the combined chiefs since the late 1940s, sources believe....

“It’s astonishing that it hasn’t happened sooner given how inexorably linked the two nations are on defense matters – from strategy to policy to acquisition and industrial matters – and the sheer number of looming security challenges they face.”

Yes, it is astonishing!

--Connecticut Gov. Dannel Malloy signed into law sweeping new restrictions on weapons and large capacity ammunition magazines similar to the ones used in the Sandy Hook Elementary massacre, thus joining California, New York and New Jersey among those states having the strongest gun control laws.

The legislation adds more than 100 firearms to the state’s assault weapons ban and establishes the nation’s first statewide registry, available only to law enforcement, for people convicted of crimes involving dangerous weapons.

Prior to passage of the bill, gun sales in the state surged.

--New York City Police Commissioner Ray Kelly is an outstanding public servant and it ticks me off when he gets grief on items such as “stop and frisk” that have put a huge dent in crime rates in the Big Apple.

So I note what Kelly said in remarks to the Rev. Al Sharpton’s National Action Network the other day, via a New York Post editorial.

“African-Americans, 25 percent of the city’s population, made up 64 percent of the murder victims and 71percent of the shooting victims last year. African-American men aged 16 to 37, just 4 percent of the city’s population, comprised 40 percent of those murdered citywide, 82 percent of these young men were killed with a firearm. As a city, we can’t stand idly by in the face of these facts....

“Last year, stops by police resulted in the seizure of more than 7,000 illegal weapons, mostly knives, as well as nearly 800 guns. Stops are authorized by New York state criminal-procedure law. Every state in the country has a variant of this statute, as does federal law. It is a fundamental to policing.

“The number of stops we conduct – 530,000 last year – has also been a point of criticism. But with roughly 19,600 officers on patrol, this equates to less than one stop per officer per week.”

--I was shocked by a piece I read in the Star-Ledger here in New Jersey on the heroin problem in some of our suburbs. In one town in Passaic County whose name I will purposefully omit, five have died of overdoses since September 2011, while another five in a neighboring town (to the first) have died in a similar fashion in just the past few months. That’s unbelievable. Ten in these two small towns, all in their teens and early twenties.

--Josh Margolin, Carl Campanile and Bob Fredericks / New York Post

“Democratic state Sen. Malcolm Smith and GOP City Councilman Dan Halloran were caught on damning FBI wiretaps bribing GOP bosses in order to ‘grease the wheels’ for Smith’s mayoral run on the Republican ticket, authorities revealed...

“Smith, Halloran and four others were arrested in predawn raids on a slew of federal conspiracy and bribery charges that could send them to prison for up to 45 years.

“The FBI used a confidential informant and an undercover agent – both posing as real-estate developers – to secretly record the pols hatching their plot.

“ ‘That’s politics, that’s politics. It’s all about how much, not about whether or will. It’s about how much, and that’s our politicians in New York, they’re all like that, all like that,’ Halloran said in one conversation.

“ ‘You can’t get anything without the f---ing money. Money is what greases the wheels --- good, bad, or indifferent,’ he added before allegedly pocketing a $7,500 cash bribe from Morris Stern, who sources said was the cooperating witness.”

U.S. Attorney Preet Bharara charged that Smith planned to “bribe his way into Gracie Mansion.”

It was really pathetic, the whole scene.

--That was an unbelievable clerical screw-up on the part of Colorado officials who let Evan Spencer Ebel out early on Jan. 28, with prison officials assuming Ebel had finished his court-ordered sentence, even as he deserved another four more years for punching a prison guard.

--From the New York Times: “Glacial ice in the Peruvian Andes that took at least 1,600 years to form has melted in just 25 years, scientists reported Thursday, the latest indication that the recent spike in global temperatures has thrown the natural world out of balance.”

Specifically, the findings are at the Quelccaya (sic) ice cap in Peru, the world’s largest tropical ice sheet. “Rapid melting there in the modern era is uncovering plants that were locked in a deep freeze when the glacier advanced many thousands of years ago.”

The research from an Ohio State glaciologist is in a paper released by the journal Science.

--From BBC News: “Climate change is expanding Antarctica’s sea ice, according to a scientific study in the journal Nature Geoscience.

“The paradoxical phenomenon is thought to be caused by relatively cold plumes of fresh water derived from melting beneath the Antarctic ice shelves.

“The melt water has a relatively low density, so it accumulates in the top layer of the ocean.

“The cool surface waters then re-freeze more easily during Autumn and Winter....

“Climate scientists have been intrigued by observations that Antarctic sea ice shows a small but statistically significant expansion of about 1.9% per decade since 1985, while sea ice in the Arctic has been shrinking over past decades.”

--Easter Sunday was the coldest on record for Britain, just two years after the warmest Easter on record. [And it’s not just about the calendar.]

--Peggy Noonan in her Wall Street Journal column cites the wisdom of Singapore founder Lee Kuan Yew, who at age 89 has written a book on his insights, including on the United States.

“America has shown over its history ‘a great capacity for renewal and revival.’ It doesn’t get stuck in ‘grooved thinking’ but is able to think pragmatically and imaginatively. Its language ‘is the equivalent of an open system that is clearly the lingua franca’ of all the economic and political leaders and strivers in the world. In the coming decades ‘it is the U.S. that will be pre-eminent in setting the rules of the game. No major issue of world peace and stability can be resolved without U.S. leadership.’

“A major factor in America’s rise and economic dominance: All the brightest people in the world know ‘Americans will let you work for them in America and in their multinational corporations abroad.’ But America will lose its technological edge unless it is able to continue attracting talent.

“The American advantage in coming economic and technological contests? A ‘can-do’ approach to life. Americans always believe a problem can be solved. An ‘entrepreneurial culture’ that sees both risk and failure ‘as natural and necessary for success.’ The U.S. is still ‘a frontier society.’ ‘The American culture...is that we start from scratch and beat you.’ They would settle an empty area, call it a town, and say, ‘You be the sheriff, I am the judge, you are the policeman, and you are the banker, let us start.’”

But Mr. Lee also notes that what can destroy America is “multiculturalism,” as Ms. Noonan writes, “the gradual surrendering of the essential culture that has sustained America since its beginning....America must continue to invite in all the most gifted and hard-working people in the world, but it must not lose its culture, which is the secret of its success.”

--Daniel Beekman / New York Daily News

“President Obama felt the heat Thursday after calling a powerful female official smoking hot.

“And as luck would have it, he made the unfortunate comment on the same day his wife – remember her, tall lady with the midlife bangs? – mistakenly referred to herself as a single mother.

“But back to the Prez and his very male salivary glands:

“ ‘She also happens to be by far the best looking attorney general in the country,’ Obama said of California’s Kamala Harris during a fund-raiser. The unexpected comment ruffled the feathers of some observers and caused a commotion on social media such as Twitter.

“ ‘It’s true, come on,’ the President added as fund-raiser attendees in Atherton, Calif., guffawed....

“But Thursday turned out to be double trouble for the First Family, with Michelle Obama calling herself a ‘busy single mother’ in an interview. The top mom immediately caught herself, saying, ‘You know, when you’ve got the husband who’s president, it can feel a little single, but he’s there,’ she said, CBS reported.”

Heck, Mrs. Robinson is there taking care of the kids, anyway.

--A report in the journal “Arteriosclerosis, Thrombosis and Vascular Biology” concludes that walking is just as good for your heart as running. Actually, the team at the Lawrence Berkeley National Laboratory in California looked at 33,000 runners and 15,000 walkers and the walkers lowered their risk of high blood pressure and high cholesterol more than the runners. The differences were not big enough to say walking is better, plus runners tend to exercise more, but the message is clear. People are advised to do 2 ½ hours of moderate activity a week, or an hour and a half of vigorous exercise, both of which can be taken in ten-minute bursts.

--And a Georgetown University led study suggests that tea is gaining ground when it comes to preventing cardiovascular disease, burn calories and ward off some types of cancer, as reported by the Washington Post.

Tea purchases have risen for 20 consecutive years.

--Homicides in Chicago have declined from 120 for the first three months of 2012 to 70 for the first three months of this year. March saw 16 homicides vs. 52 in March 2012.

--In his first public statement on clerical sex abuse, Pope Francis called for “decisive action,” and “help for those who have suffered such violence in the past (and) the necessary procedures against those who are guilty.”

--Science weighed in on the Shroud of Turin – with Pope Francis taking the extraordinary step of including footage of the shroud in his televised Easter message. As Michael A. Walsh wrote in the New York Post, the pope didn’t take a position, rather, he simply observed, “This image, impressed upon the cloth, speaks to our heart. This disfigured face resembles all those faces of men and women marred by a life which does not respect their dignity, by war and violence which afflict the weakest.”

Scientists now date the shroud to the 1st century AD. Actually, 280 BC to 220 AD – or right at the time when Jesus is said to have lived.

The shroud, said the pope, “lets a pure and calm energy shine through and it seems to say to us: ‘Trust and don’t to lose hope.’”

---

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

God bless America.

---

Gold closed at $1578
Oil, $93.02

Returns for the week 4/1-4/5

Dow Jones -0.1% [14565]
S&P 500 -1.0% [1553]
S&P MidCap -2.6%
Russell 2000 -3.0%
Nasdaq -1.9% [3203]

Returns for the period 1/1/13-4/5/13

Dow Jones +11.1%
S&P 500 +8.9%
S&P MidCap +10.1%
Russell 2000 +8.7%
Nasdaq +6.1%

Bulls 52.0
Bears 19.4 [Source: Investors Intelligence]

Dr. Bortrum posted a great piece on Bell Labs history.

Nightly Review video schedule, Mon.-Thurs., posted around 5:30 PM ET...subject to the vagaries of YouTube.

S&N has an iPad app....for new readers out there.

Have a great week. I appreciate your support.

Brian Trumbore



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Week in Review

04/06/2013

For the week 4/1-4/5

[Posted 12:00 AM ET]

Japan and Europe

Cyprus was largely off the front page this week but that doesn’t mean the issue there has been resolved. On Friday it was revealed that there are huge gaps in the Bank of Cyprus’ record-keeping, specifically of its holdings of Greek bonds, and there are signs of mass deletions of data. This as the country settles in for a protracted depression, with the economy contracting 7.5% to 15% over the coming year by most accounts. Uninsured depositors are going to see losses of 60 to 77 percent, which will have devastating consequences not just on individuals in the two impacted banks, but also large depositors such as schools and universities.

And when one looks across the entire European Union and the 17-nation eurozone, there is zero cause for optimism. This week saw the release of Markit’s figures on both manufacturing and the service sector and a composite index of both for the eurozone came in at a final 46.5 for March vs. 47.9 for February, below the 50 dividing line between growth and contraction a 14th straight month. An index of the service sector alone was 46.4, also vs. 47.9 in February.

In Germany, the composite declined to 50.6 from 53.3 in February, near stagnation. As Chris Williamson, chief economist of Markit said:

“The unresolved election in Italy was commonly cited as a key factor clouding the economic outlook in March, and the botched bail-out of Cyprus could well filter through to a further worsening of business sentiment across the region in April.”

As for Germany, its weak showing “suggests that the only source of bright light in an otherwise gloomy region has once again begun to fade.” [Germany’s new car sales for March fell 17% from a year earlier, the worst pace in 2 ½ years.]

France’s composite fell to 41.9, the worst since March 2009.

On manufacturing, specifically, the final eurozone PMI was 46.8 in March.

Germany’s was only 49.0, France was at 44.0. Spain 44.2 (5-month low). Italy 44.5 (7-month low). Greece a still sickly 42.1. Even Ireland, which has been improving, fell back to 48.6, a 14-month low. Non-euro U.K. registered a 48.3.

None above 50!

And the eurozone jobless rate hit a record 12% in February, according to Eurostats, with January being revised upward to the same 12% figure. The eurozone jobless rate was 10.9% a year ago.

The European Commission predicts euro area unemployment of 12.2% in 2013, 12.1% in 2014.

Spain’s unemployment rate for February was 26.3%, Portugal’s 17.5%, Greece’s 26.4% (December).

And the youth unemployment picture – under age 25 – continues to worsen; 23.5% for the entire 27-nation European Union from 22.5% a year ago.

Greece has a 58.4% youth jobless rate (Dec.), Spain’s is 55.7%, Portugal’s 38.2% and Italy’s 37.8%.

Back to Cyprus, it’s jobless rate has risen to 14%, as of February, from 10.2% a year ago, to give you a sense of how the economy was heading in the wrong direction before the crisis exploded; the island being in search of a bailout since last June. You will now see an exodus of the young there, in particular, with no hope for the future.

In Italy, it’s not likely to have a new government until around May 15, the end of President Giorgio Napolitano’s term. Napolitano charged a 10-person committee with coming up with a solution, though it seems clear his intent is to buy time for Pier Luigi Bersani’s Democratic Party to join forces with Silvio Berlusconi’s center-right alliance, which Bersani has been adamant he wouldn’t do. And in a slap in the face to Beppe Grillo’s Five Star Movement, Napolitano didn’t include any committee representatives with ties to Grillo’s party.

Matteo Renzi, the 38-year-old popular reformist mayor of Florence, who has the highest ratings among potential prime ministers in opinion polls, called on Bersani either to abandon his opposition to forming a coalition government with Berlusconi or prepare for early elections.

“Italy is totally stalled,” Renzi said after breaking his silence.  “Companies are closing. Unemployment is rising. And politics is wasting time. Even the Church, not noted as a model of speed, has responded more quickly.”

Whoever emerges will have to immediately deal with a very sick economy. Auto sales are expected to decline 21% in 2013, with March sales declining 13% vs. a year earlier following the inconclusive February vote. In the first quarter, VW’s Porsche unit saw its sales fall 36%, while Fiat’s Ferrari division also saw Q1 sales drop 36%. Ergo, luxury car sales have tanked, a rather important barometer.

In France, President Francois Hollande’s poll numbers continue to dive, just 11 months into his five-year term, amid an economy that by some measurements, such as those above, is in free fall. He is already the least popular president in France since 1981, with just 29% of the people supporting him.

Hollande is facing a huge uproar over the issue of his former budget director, Jerome Cahuzac, who resigned two weeks ago amid allegations he was evading taxes, which he at first denied. Cahuzac then admitted on Tuesday that he was caught in a “spiral of lies” and that he did indeed hold $770,000 in an offshore account for years. Hollande said Cahuzac lied to him, the French parliament and the French people.

Earlier, Hollande granted an extensive television interview wherein he laid out coming budget pain, specifically lower pension and welfare benefits as part of his fiscal reform to deal with France’s budget deficit, which is well above the EU’s target of 3%.

So with all the above in mind, and an economy, region wide, showing zero signs of growth, the European Central Bank left interest rates on hold for a 9th month in a row.

ECB President Mario Draghi said the bank stands ready to cut interest rates if the economy deteriorates further, but it already is!

Draghi maintained risks to the economic outlook remain on the downside and inflation is “edging down well below” the ECB’s 2 percent target.

Draghi did comment that the initial plan to make small savers pay for the Cyprus bailout was “not smart” and that the proposal to make “insured depositors” pay did not come from the ECB, the European Commission or the IMF (the troika).

“You have a pecking order, and here the insured depositors should be the very last category to be touched. The (European) Commission draft directive foresees exactly this.”

Draghi also said the Cyprus bailout was not a blueprint for what would happen in future bailouts.

“Cyprus is no template,” he said.

Distressingly, small and medium businesses across both the periphery (Portugal, Spain, Italy and Greece), as well as Eastern Europe, are suffering big time as a result of the ongoing credit crunch. Much of the funding for these enterprises had come from French and German banks that have pulled in their horns to improve their capital bases, while in the case of Spain, their own banking system is in a shambles.

And here’s the kicker...the ECB has yet to unveil a program to address small business.

On to Japan....

Bank of Japan Governor Haruhiko Kuroda began a campaign to end 15 years of deflation by doubling monthly bond purchases in a bid to fulfill Prime Minister Shinzo Abe’s mandate for 2 percent inflation in two years. 

The BOJ will purchase 7.5 trillion yen ($78.6 billion) of bonds a month and double the monetary base in two years.

The yen fell and stocks surged to their highest level since August 2008 on Friday.

In the process of its asset purchases, the BOJ will be boosting Japan’s monetary base from $1.43 trillion to $2.86 trillion by March 2015, mainly by purchasing long-term government bonds vs. the more intermediate-term paper it had been buying before, thus pressuring long-term rates even further and indeed on Friday, the 10-year government bond at one point traded with a yield of 0.32% before finishing the week around 0.50%. For a 10-year bond!

To give you a truer sense of how massive the BOJ plan is, it will expand its balance sheet by 1 percent of GDP each month and by 1.1% in 2014, while the U.S. Federal Reserve’s current QE3 program involves increasing the balance sheet by 0.54 percent of GDP per month. [Barclays]

Prime Minister Abe won election in December by vowing to end stagnation.

But the demographics in Japan, a declining population, and government debt about 250% of the size of the economy, remain major restraints.

Kuroda said, “We can’t escape deflation with the incremental approach that’s been taken until now. We need to use every means available.”

Of course with the stated policy, a weaker yen, perhaps drastically weaker over time, makes Japanese products more attractive worldwide, particularly in the rest of Asia, while making American exports less attractive.

Howard Schneider of the Washington Post summed it all up.

“Japan’s move is the latest example of how the developed world is relying on its central bankers to keep the economy afloat while politicians grapple with underlying problems, including government debt and economic competitiveness.

“Institutions such as the Fed, the European Central Bank and the Bank of Japan have waded deep into unfamiliar territory to do the job, buying government bonds and other assets while their own internal balance sheets balloon.....

“The risks are known but impossible to quantify: of inflation remaining tame until it roars out of control, or of asset bubbles creeping into unexpected parts of the economy as investors take advantage of cheap money worldwide to make ever-riskier bets.”

Wall Street

The economic data on the week was generally weaker than expected, before Friday’s abysmal jobs report. First, the March ISM figure on manufacturing came in at just 51.3, down from 54.2 in February and far worse than projected. The ISM services reading was also down, 54.4 vs. 56.0 in February. But February construction spending, up 1.2%, and factory orders, up 3.0%, were slightly better than expected.

On Friday, however, there was no sugarcoating a nonfarm employment gain of just 88,000 vs. the 200,000 that most economists were forecasting. Earlier, ADP’s jobs report, also expected to be around 200,000, came in at 158,000, causing some economists to lower their outlook for the official Labor Department report but no one was thinking 88,000. January and February were revised upward, however, from 119,000 to 148,000 for January and 236,000 to 268,000 for February. So if you want to be an optimist, you can say the 3-month average, 168,000, isn’t awful.

The jobless rate in March, though, fell to 7.6%, but this was for all the wrong reasons, specifically, 500,000 stopped looking and the labor participation rate is now at the lowest level since May 1979.

Federal Reserve Bank of San Francisco President John Williams sees improvement in the outlook for the labor market by this summer and if it happens as he expects, “We could start tapering our (asset) purchases. If all goes as hoped, we could end the purchase program sometime later this year.”

Williams thus became the first Fed governor to give an actual timetable to the removal, or tapering, of QE3, quantitative easing through the Fed’s current monthly purchase of $85 billion in Treasuries and mortgage-backed securities. Williams also sees GDP growth of 2.5% in 2013, 3.25% in 2014.

Fed Vice Chairman Janet Yellen then said a few days later that she favored a tapered approach to reducing the monthly purchases of government bonds.

“Adjusting the pace of asset purchases in response to the evolution of the outlook for the labor market will provide the public with information” about Fed policymakers’ intentions and “should reduce the risk of misunderstanding and market disruption,” she said.

But then you had former Reagan administration budget director David Stockman in an extensive op-ed for the New York Times as part of the publication of his new book, “The Great Deformation: The Corruption of Capitalism in America.”

Just a snippet of his thinking:

“The future is bleak. The greatest construction boom in recorded history – China’s money dump on infrastructure over the last 15 years – is slowing. Brazil, India, Russia, Turkey, South Africa and all the other growing middle-income nations cannot make up for the shortfall in demand. The American machinery of monetary and fiscal stimulus has reached its limits. Japan is sinking into old-age bankruptcy and Europe into welfare-state senescence. The new rulers enthroned in Beijing last year know that after two decades of wild lending, speculation and building, even they will face a day of reckoning, too.

“The state-wreck ahead is a far cry from the ‘Great Moderation’ proclaimed in 2004 by Mr. Bernanke, who predicted that prosperity would be everlasting because the Fed had tamed the business cycle and, as late as March 2007, testified that the impact of the subprime meltdown ‘seems likely to be contained.’ Instead of moderation, what’s at hand is a Great Deformation, arising from a rogue central bank that has abetted the Wall Street casino, crucified savers on a cross of zero interest rates and fueled a global commodity bubble that erodes Main Street living standards through rising food and energy prices – a form of inflation that the Fed fecklessly disregards in calculating inflation.”

I can’t say I disagree with the above. Nor his conclusion.

“The United States is broke – fiscally, morally, intellectually – and the Fed has incited a global currency war (Japan just signed up, the Brazilians and Chinese are angry, and the German-dominated eurozone is crumbling) that will soon overwhelm it. When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is.”

‘Intellectually broke’ is what upsets me the most, as I hope you’ve picked up on with my past budget deficit diatribes and the failure of our elected representatives to tell the truth when it comes to items such as $800 billion in projected interest expense by 2022 without attacking entitlements today.

Lastly, Steven Malanga had a piece in the Journal titled “The Debt Bomb That Taxpayers Won’t See Coming.”

“Earlier this month, the Securities and Exchange Commission charged Illinois officials with making misleading statements to bond investors about the state’s pension system. The agency detailed a long list of deceptive practices including failure to tell investors that the system was so underfunded that it risked bankruptcy.

“Illinois taxpayers, as well as the holders of its debt, will ultimately bear the burden of the officials’ misdeeds. But there is nothing unique about the Prairie State. For years, elected officials in states and municipalities across the country have been imprudently piling up obligations that are imposing serious strains on budgets, prompting higher taxes and cutbacks in services....

“According to studies by the Pew Center on the States, states and the biggest cities have made nearly three-quarters of a trillion dollars in promises to pay for retiree health-care insurance. Yet governments have set aside only about 5% of the money they’ll need to pay for these promises....

“A December report by the States Project, a joint venture of Harvard’s Institute of Politics and the University of Pennsylvania Fels Institute of Government, estimated that state and local governments now owe in sum a staggering $7.3 trillion. Incredibly, the vast majority of this debt has never been approved by taxpayers, who are often unaware of the extent of their obligations.”

Street Bytes

--It proved to be a strange week in the market. The Dow Jones fell for only a fourth time this year, but each decline has been all of 0.1%. The Dow now sits at 14565.

It was a far different picture for the broader averages, especially small and midcaps, with the Russell 2000 down 3.0% and the S&P MidCap off 2.6%.

The S&P 500 lost 1.0% and Nasdaq fell 1.9%.

Not for nothing but for all the hoopla over the great start to 2013, the Nasdaq is up just 6%.   Shares in Google hit $844 intraday on March 6 but closed Friday at $783, while Apple had rallied back to $469 intraday on March 25, only to close the week at $423.

--U.S. Treasury Yields

6-mo. 0.10% 2-yr. 0.23% 10-yr. 1.71% 30-yr. 2.87%

It’s all about the safe haven play, with yields dropping to levels last seen in December.

--President Obama is unveiling his budget, finally, on Wednesday and will call for higher taxes on the rich in exchange for some cuts to entitlements, including a measure that would recalculate cost-of-living increases for Social Security.

But Democrats have refused changes to entitlements, and Republicans have vowed no more tax increases. More next time when full details are released.

--China’s official manufacturing PMI for March came in at 50.9, up from 50.1 in February (HSBC pegged it at 51.6). The services PMI for the month was a solid 55.6 (HSBC 54.3).

But home prices keep surging which is forcing the government to crack down again on speculation, especially in the likes of Beijing and Shanghai.

--Manufacturing numbers in Asia were stronger in March compared to prior months.

Indonesia’s manufacturing PMI rose to 51.3 in March from 50.5 February, according to HSBC; Taiwan’s PMI improved to 51.2 from 50.2, Vietnam’s 50.8 compared with 48.3, and Korea’s 52.0 vs. 50.9 in February.

--Japanese auto sales declined for a seventh straight month in March, hurt by the expiration of a government subsidy for fuel-efficient cars. Sales of passenger vehicles fell 16.7%, with Honda Motor Co.’s down 36% and Nissan’s and Toyota’s off 16% each for the month.

--U.S. equity mutual funds saw their strongest flows in the first quarter since Q1 2004, according to TrimTabs Investment Research, $52 billion.

--March U.S. new car sales jumped more than 5% from a year ago to the strongest March sales in five years. GM’s rose 6.4%, Ford’s 5.7% and Chrysler’s were up 5%, while Toyota’s and Nissan’s rose just 1%, and Honda’s U.S. sales increased 7%.

German luxury-car sellers had a solid month, with Daimler AG’s Mercedes-Benz unit up 6.5%, BMW AG’s up 13.1% and Volkswagen’s Audi unit up 14%. [VW itself reported a 3.1% increase.]

Edmunds.com raised its 2013 sales forecast to 15.5 million new cars and light trucks in the U.S., a 6.9% gain over 2012.

--Australia reported strong retail sales for February, up 1.3% from a month earlier.

Woolworths Ltd., Australia’s largest retailer, said first-half earnings rose 19%. I just report this angle because Americans have a different view of Woolworths. But I was in one in Cairns, Australia two years ago and this isn’t your father’s Woolworths, my fellow Americans.

--CoreLogic, a real estate data provider, said home prices rose 10.2% in February compared with a year earlier, the biggest gain since March 2006. Prices rose in 47 of 50 states. [Delaware, Alabama and Illinois being the exceptions.]

--The average price for a Manhattan apartment fell 16% to $1.2 million in the first quarter from the year-earlier period.

--Fannie Mae reported an annual profit of $17.2 billion on Tuesday, its first annual profit since 2006 and its largest ever, boosted by the housing market’s turnaround. During the fourth quarter, the company posted profit of $7.6 billion, compared with a net loss of $2.4 billion in the year-earlier quarter.

Fannie received $116.2 billion in federal aid and has now paid $35.6 billion in dividends, bringing the cost to taxpayers to $80.6 billion. Freddie Mac received $71.3 billion and has paid $29.6 billion in dividends, bringing its total cost to taxpayers to around $41.7 billion.

--Apple has been bowing down to China, removing at least one online application from the China App Store because it provides access to books banned by the Chinese government, this according to the developer of the app.

The decision came days after CEO Tim Cook issued an apology to Chinese customers for the company’s perceived arrogance, at least as described in an editorial by the People’s Daily and state TV.

“We are aware that a lack of communications...led to the perception Apple’s attitude was arrogant and that we do not care and attach importance to consumer feedback,” Cook wrote. “We express our sincere apologies for any concerns or misunderstandings this gave consumers.”

China is Apple’s second-largest market and earlier this year, Cook said he expected China to be number one soon. Apple has 17,000 outlets in China selling its products.

--Facebook unveiled a package of mobile software called Facebook Home that effectively turns the news feed into the screen saver of a smartphone, updating it constantly and seamlessly with Facebook posts and messages.

The Facebook News Feed appears as soon as the phone is turned on. Every time a user glances at their phone, whether at a restaurant or while driving 80 mph in a 55 zone, they will be looking at their Facebook page.

--Samsung reported profits will rise 53% in the first quarter to about $7.74 billion as results were driven by its mobile phone business, specifically the massive success of the Galaxy line.

--You’ve got to love the turnaround at Best Buy, at least in its stock performance which is up more than 100% just this year. On Thursday, the big-box electronics merchant launched a new partnership with Samsung that some are calling brilliant. Best Buy salespeople will be trained in Samsung product and Samsung will receive its own high-visibility section of the store (a store-within-a-store).

One thing that is helping Best Buy after it was declared near death last fall is competitors like Amazon.com are being pushed to collect state sales taxes, narrowing their price advantages. Best Buy has also offered to match online retailers’ prices in its stores.

--Global television shipments declined last year for the first time in over a decade, down 6.3% over 2011, as demand for flat-panel TVs cooled...the market being saturated. Demand was particularly soft in Japan.

--In a poll by the Pew Research Center, 66% of American adults favor the building of the Keystone XL pipeline, while just 22% oppose the line that would carry heavy crude from Canada through the Midwest to Texas refineries. Support is highest among Republicans (80%) and independents (70%) and lowest among Democrats (54%).

President Obama’s decision on Keystone could come any week now.

--The Securities and Exchange Commission has ruled that social-media sites such as Facebook and Twitter can be used for corporate news releases as long as the companies have told investors which outlets they intend to use. The SEC said in its report:

“An increasing number of public companies are using social media to communicate with their shareholders and the investing public. We appreciate the value and prevalence of social media channels in contemporary market communications, and the commission supports companies seeking new ways to communicate.”

Fair disclosure requires companies to disseminate information in a way that wouldn’t be expected to give an advantage to one group of investors over another.

--Health insurance companies soared Tuesday after federal officials approved a rate increase to private Medicare plans (Medicare Advantage) when it was thought a ‘cut’ would be instituted. 

--The court appointed trustee for collapsed brokerage MF Global, former FBI Director Louis Freeh, concluded in a report to the bankruptcy court that Jon Corzine helped bring down his firm with a dangerous trading strategy and inadequate risk controls. Corzine was also found to execute many of the trades personally, which is unusual, to say the least.

Freeh reported: “At one point, management even debated how aggressively the [broker-dealer], on an intraday basis, could borrow...customer funds [from its futures brokerage arm] required to be kept in secured and segregated accounts.”

--The Bundesbank launched an investigation into claims that Deutsche Bank hid up to $12 billion in losses on credit derivatives during the financial crisis, which helped it avoid a government bailout.

--As of this posting, a sixth person has died of H7N9 bird flu in China, with 14 confirmed human cases of the virus to date. Four of the six fatalities are in Shanghai, where authorities slaughtered poultry in a mass cull at a Shanghai market where the virus has been detected.

This is a scary situation. There is no evidence yet that any of the cases are related, human to human transmission, but there is no vaccine as yet for this strain and just as in the case of the H5N1 variant, the fear has always been the viruses could mutate into a form easily transmissible between humans, with the potential to trigger a pandemic.

And that would be a global game-changer, sports fans!

Experts are concerned the virus appears to have spread across a wide geographical area in China.

Virologist John Oxford of the Queen Mary University of London, told Agence France-Presse:

“I am cautiously worried. If there were four cases in Shanghai, I would be much less concerned, but because it is so geographically widespread I think it is trying to tell us something.”

--Atlantic City’s casinos saw their profit fall by more than 27% last year, though revenue from non-gambling sources inched up; such as revenue from renting hotel rooms, food and beverage sales, and entertainment, as well as casino-owned retail sales and rental income.

Occupied hotel room nights exceeded 5.2 million, a new annual high, despite the impact of Hurricane Sandy.

Sandy did impact A.C. in the fourth quarter, however, with the casinos posting a collective $18 million loss, compared with an operating profit of $81 million in the last three months of 2011. [Star-Ledger / AP]

--It’s official...Jimmy Fallon is taking over “The Tonight Show” gig from Jay Leno next February, tied to the network’s coverage of the Sochi Olympics. I have to admit I probably only stay up to catch Leno or Letterman’s opening monologue once a month. Now if I lived in the central time zone, it would be a different situation.

The thing is, Leno is still the undisputed king of late-night, though his audience is considerably smaller than 10 years ago, 3.4 million viewers today compared with 5.8 million per night in the 2002-03 season. Of course increased fragmentation has a lot to do with this. That aside, Leno is still winning the 18 to 49 demographic.

Letterman, by the way, is at 3 million viewers a night and ABC’s Jimmy Kimmel is up to 2.16 million.

--The volume of Scotch whisky exported fell by 5% in 2012, to 1.19 billion bottles. In France, which imports the most Scotch whisky of any export market, the volume of sales was down 25% to 154 million bottles. I never would have guessed France was the number one import market. Volume in Spain fell 20%, so between these two countries you perhaps see another sign of economic distress in euroland.

Foreign Affairs

North Korea: Pyongyang placed two of its intermediate range missiles on mobile launchers and has hidden them on the east coast, according to South Korean intelligence sources. It would appear the North is intending to test-fire one of them around the April 15 anniversary of founder Kim Il-Sung’s birth. The missiles may have a range sufficient to reach as far as Guam. Friday, North Korea also told foreign embassies in Pyongyang it could no longer guarantee their safety in the event of conflict, and to consider evacuating their employees.

South Korea has responded to recent events by deploying two warships with missile-defense systems.

Earlier in the week, the regime in Pyongyang issued statements such as “The moment of explosion is approaching fast,” warning that war could break out “today or tomorrow.”

And that U.S. threats would be “smashed by...cutting-edge smaller, lighter and diversified nuclear strike means.”

Pyongyang also blocked South Koreans from crossing the border to the jointly-operated industrial park at Kaesong, which is economic suicide for the North as it generates more than $92 million a year in wages for 53,400 North Koreans employed by 123 textile and other labor-intensive South Korean factories there.

And on Tuesday the regime announced it will restart an idled plutonium reactor at Yongbyon.

South Korea’s Defense Minister Kim Kwan-jin said his military has spotted no signs that North Korea is nonetheless mobilizing for a full-scale conflict.

But as the North Koreans keep ratcheting up the rhetoric, the United States is trying to lower the temperature of its own, after confirming it would deploy a missile-defense system to Guam, host for major U.S. Army and Naval bases.

Various opinion:

Republican Congressman Mike Rogers (Mich.), chairman of the House Intelligence Committee, told the National Journal Daily, “Kim Jong Un has surrounded himself with hard-liners; his rhetoric grows more confrontational, not leaving himself a whole lot of room to back off; we don’t really know his mentality under this kind of circumstance, he doesn’t have a pattern here. We know the military is eager for some conflict somewhere to prove itself, and we know that he is interested in impressing the military – he’s a 28-year-old leader. All of that spells trouble for us....The very fact it was important for the United States to move into position interceptors on the West Coast tells you this is serious.” Rogers praised the Obama administration’s response thus far.

Noted Stanford nuclear scientist Siegfried Hecker, who was shown a new North Korean nuclear facility at Yongbyon in 2010, said, “I don’t believe North Korea has the capacity to attack the United States with nuclear weapons mounted on missiles, and won’t for many years....And even if Pyongyang had the technical means, why would the regime want to launch a nuclear attack when it fully knows that any use of nuclear weapons would result in a devastating military response and would spell the end of the regime.”

British Prime Minister David Cameron on Thursday told a gathering of defense-industry workers in Scotland, “North Korea does now have missile technology that is able to reach the whole of the U.S. If so they can reach Europe and us too.”

Retired Army General Colin Powell offered, “I do not see the prospect of conflict as some of my friends in the United States do. They bluster, they threaten, they say things they cannot do.”

Retired U.S. Admiral Dennis Blair, who served as President Obama’s director of national intelligence and earlier as head of the U.S. Pacific Command, said, “I’m not relaxed about this one. I think this one’s more dangerous than in 2010” because of the youth and inexperience of Kim.

The International Institute for Strategic Studies, a London think tank, stated, “North Korea may have been able to develop a warhead over the past decade that is small and light enough to be delivered using a Nodong missile (with a range up to 900 miles), but there is insufficient information to make a confident assessment.”

The problem, as you can readily see from all the above, is there is a startling lack of intelligence on what North Korea truly possesses, and that is why you have such a divergence of opinion on the real threat.

What we do know is North Korea has about 700,000 of its 1.1 million soldiers within 60 miles of the DMZ, including 8,000 artillery pieces. Seoul is just 30 miles from the demilitarized zone.

And as the Wall Street Journal reported this week, Seoul is increasingly pressuring the United States for key nuclear technologies that could allow it to produce fissile materials for a bomb, though the government is always denying that is their intent.

“They are pushing hard for this reprocessing ability,” said Sen. Bob Corker (R., Tenn.), who met with South Korean officials in Seoul last week, adding, “For what it’s worth, two-thirds of the population have said they’d like the country to have nuclear weapons.”

Daniel Finkelstein / London Times

“It’s easy to dismiss Pyongyang’s threats as empty rhetoric. Postwar history should teach us to take the noise seriously.

“And in other news, someone is threatening to start a nuclear war.

“These people are murderous, deeply eccentric, have tested nuclear weapons and have just declared themselves in a state of war with their neighbors.

“Do I have your attention? Quite possibly not, I fear....

“The threats being issued by the new North Korean leadership against South Korea are easy to dismiss. The regime is keen on overheated rhetoric, which usually comes to nothing. And even people willing to starve their own population to death for ideological reasons are less keen on dying themselves, as they surely would in a nuclear conflict. Besides, even if we thought the North Koreans might be serious, what can we do about it?

“But I think postwar history teaches that this is wrong. It teaches that it is wrong to simply dismiss the threat and wrong to believe that nothing can be done.

“The first history lesson comes from the book of Osama bin Laden, chapter 1 verse 1. If someone threatens to kill you over and over again, they might, erm, kill you. And it is not a good idea just to ignore them.

“Between 1996 and September 11, 2001, bin Laden repeatedly stated that he intended to attack Americans and that ‘as long as I am alive there will be no rest for the enemies of Islam,’ of which the United States was one. While it would be incorrect to say that this threat was entirely overlooked, it is notable that measures to respond to it were only put in place once he had killed thousands of people.”

Iran: With tensions sky-high on the Korean Peninsula, talks between the “P5+1” and Iran take on even more importance as the two sides meet in Kazakhstan to take another stab at resolving the conflict over Iran’s nuclear program. The United States and its partners are demanding Iran cease enriching uranium to 20% purity in exchange for some minor sanctions relief. 

One think tank reported this week that Iran’s pursuit of the bomb has cost it about $100 billion thus far, which makes it more difficult for Iran to just capitulate to the demands of the six powers.

The authors of the report, Ali Zaez of the International Crisis Group and Carnegie’s Karim Sadjadpour, state:

“Economic pressure or military force cannot ‘end’ Iran’s nuclear program. It is entangled with too much pride – however misguided – and sunk costs simply to be abandoned.” [Carol Williams / Los Angeles Times]

Thursday, in Almaty, Iran’s lead negotiator said talks could progress if the U.S. and its allies accepted Iran’s “right” to enrich uranium.

What is happening on the Korean Peninsula, though, can only make leaders in the Middle East even more uneasy when looking at the prospects for Iran obtaining the bomb. It would be one crisis after another.

Finally, if you ever had any doubts as to Iran’s sincerity, or lack thereof, all you need to know is that the International Atomic Energy Agency continues to be denied access to the military base at Parchin, where the IAEA suspects Iran has conducted tests on a nuclear trigger device, but Tehran blocks access, saying its nuclear work has no military component and that Parchin is not involved in the atomic sector.

Syria: Syria’s regime warned Jordan that it was “playing with fire” by allowing the U.S. and others to train and arm rebels on its territory. Jordan has long been concerned Syria could use chemical weapons against it, or that agents linked to the regime could attack.

President Bashar Assad suffered a new blow as it became clear the military wing of Hamas was training the rebel Free Syrian Army in eastern Damascus, thus making a break with its former Syrian host, while embracing the patronage of Qatar, that is a major backer of some rebel factions.

One story, as reported by the Times of London, has Hamas training the rebels to build tunnels under the city center before an expected assault on it.

Hamas’ leadership, though, maintains it is not interfering in Syria’s affairs.

Hamas has been caught in the middle since the uprising erupted two years ago. On one hand it was Syria that gave shelter to Hamas in Damascus from 1999 when the group was expelled from Jordan. But the Palestinians overwhelmingly support the opposition.

Separately, the head of the Syrian Observatory for Human Rights said more than 6,000 people were killed in March alone, the deadliest month yet in the war.

Joseph Lieberman / Wall Street Journal

“Assad’s killing machine is tearing Syria to pieces, miring the country deeper and deeper in a sectarian civil war that could rage for years. The biggest winner if Syria becomes a failed state is likely to be al Qaeda, which is already making inroads by exploiting the anger of Syrians at the West for our refusal to provide them with the help they need....

“There is no more stark illustration of our refusal to help Syrians, despite having the military means to do so, than the continuing devastation caused by the Syrian regime’s ballistic missiles mere miles away from our Patriot batteries.

“Conversely, if the Patriots were used to establish a safe zone in northern Syria, they would instantly become a powerful symbol of U.S. solidarity with Syrians, bolstering moderates in the opposition and giving them the space they need to organize inside the country.

“America and its allies also need to start genuine planning for the day after Assad goes.

“As in the Balkans in the 1990s, peacekeeping forces will be needed if there is any prospect of holding Syria together, along with a large-scale international effort to train Syrian forces that can maintain security. If we wait until after Assad falls to begin this discussion, it will be too late.

“It is often said that the longer the conflict in Syria grinds on, the worse the situation on the ground grows. That is true. But it is equally true that the longer the U.S. refuses to lead, the higher the cost will be when America ultimately decides it must get involved because of the country’s vital national interests at stake in Syria.

“Rather than waiting for proof that Assad has used his chemical weapons, the United States should introduce its own game-changer to the conflict: strong, decisive leadership.”

Michael Young / Daily Star

“In March 1998, President Bill Clinton issued an apology to the people of Rwanda for having done nothing to prevent the genocide of 1994, in which between 500,000 and 1 million people were killed.

“President Barack Obama should prepare his apology to the Syrians. While a genocide may not be taking place, the deaths of over 70,000 people, the fact that the Assad regime is using tactical ballistic missiles and warplanes against its own civilians, and the creation of a refugee population in the hundreds of thousands demand more from Washington than the utterly useless response of today....

“(To) many people Obama is above reproach. His inaction has been viewed as laudable prudence, after the George W. Bush years. But the reality is that Obama has behaved shamefully in Syria, and his administration has been lethargic and usually wrong. The president should prepare his apology now, and read it with his Nobel peace prize in the other hand. No image would better illustrate the pointlessness of American behavior in the Syrian conflict.”

Egypt: The bond market often tells you everything. This week the average yield on one-year Egyptian securities was a whopping 14.79 percent. Six-month yields surged to 14.28 percent. Egypt’s economy is in free fall and it desperately needs a $4.8 billion loan from the IMF to boost foreign reserves and lower borrowing costs.

Egypt’s economy is also highly dependent on tourism and it doesn’t help that the country was recently ranked last for safety and security in a report by the World Economic Forum, behind Chad, Pakistan and Yemen.

I was reading a report by Sarah Lynch of USA TODAY on this topic and she gave the example of the Old Cataract, a resort built in Aswan in 1899 and managed by Sofitel, a French luxury hotel group. Occupancy in April, which is the high season, is expected to be below 10%. Meaning during the coming low season, you’re talking near zero.

Afghanistan: An annual Military Times poll revealed a spike in skepticism about the 12-year-old war here, with 53% now saying that it is “not very likely” or “not at all likely” the U.S. is going to succeed, a sharp rise from the 39% who responded that way in the two previous polls.

This week saw a huge suicide attack on a courthouse in western Afghanistan that left more than 50 dead, most of them civilians.

The U.S. lost 14 soldiers in the month of March.

China: Last December, the British medical journal The Lancet published a report titled “2010 Global Burden of Disease Study.” Now the authors have broken out numbers for specific countries and are presenting them at international conferences. For China, the statistics show that outdoor air pollution contributed to 1.2 million premature deaths in 2010, nearly 40 percent of the global total.

Last week, an official Chinese news report said the cost of environmental degradation in the country was about $230 billion in 2010, three times the amount in 2004. [New York Times]

A related story by Jamil Anderlini of the Financial Times addressed the exodus of expatriates out of Beijing.

“No official figures are available on how many people are planning to leave after three months of the worst air pollution on record in the Chinese capital. But companies that mainly serve foreign residents are bracing for an exodus around the middle of the year when the school term ends.”

One doctor at a Beijing hospital told the FT, “We don’t have good statistics yet but we are seeing many more patients telling us they are leaving because of air pollution.”

There are an estimated 200,000 registered foreign residents in Beijing (600,000 in all of China), but “the expat community is overwhelmingly concentrated in high-earning professional jobs and contributes enormously to the city’s economy and the development of advanced industries,” i.e., the economic impact will be significant.

Separately, the lying Chinese have been hauling in a ton more fish than they are reporting, fisheries researchers have found.

The group, led by Canadian Daniel Pauly, said China was taking 198,000 tons of fish a year out of Oceania, vs. a reported western Pacific catch, almost exclusively of tuna, of 105,000 tons in 2011.

China has 241 China-flagged vessels approved to fish by the Forum Fisheries Agency, more than doubling in a few years, according to Greenpeace.

“It’s a grave situation,” said Greenpeace Oceans campaigner Nathaniel Pelle. “China is turning its fishing attention everywhere.”

Dr. Pauly’s group estimates the Chinese are operating a far-seas fisheries fleet of at least 900 vessels to capture at least $11 billion worth of fish a year.

China reported to the U.N.’s Food and Agriculture Organization that it took in an average 368,000 tons a year, whereas Pauly’s group puts the total haul at 4.6 million tons.

Japan: There are signs of thawing relations with China, with the two having resumed cultural exchanges after their heated row over disputed islands in the East China Sea. This would be good.

Random Musings

--One of my long-running themes since day one of “Week in Review” has been, “corruption makes the world go ‘round.”

Daniel Henninger / Wall Street Journal

“The plight of the world’s poor can be summed up in three truly ugly C-words: corruption, collusion and cronyism. All three may be kissing cousins but each in any language makes a mockery of both capitalism and justice.

“Some 20 years ago economists began asking why so many countries, especially in Africa, never get better, even amid periods of global growth. An enormous body of economic literature now exists confirming that corruption keeps the poor down. A survey of this work for the International Monetary Fund concluded that countries get stuck in a ‘vicious circle of widespread corruption and low economic growth.

“Corruption suppresses growth because citizens in time recognize that honest work produces a lower return than spending one’s energies gaming the system....

“Global poverty persists because corruption kills capitalism. History’s most recent exhibit is the Arab Spring, a product of economic exasperation, especially in Egypt. In time, corruption accelerates political instability, erodes democratic order if it exists, and someone from the outside has to clean up the mess. Think Syria or Mali....

“Recall the famous case of Paul Wolfowitz, who on becoming World Bank president in 2005 made withholding loans to corrupt governments an explicit goal of the bank. Like a swamp’s toxic gases, the bank’s bureaucracy, abetted by amoral Western governments wanting access to corrupt but lucrative foreign markets, joined to expel Mr. Wolfowitz.

“It’d be nice to see them take on the pope.

“Psychologists may explain why denunciations of greed and uncaring capitalism so often come from a London, Washington, Paris or Rome. A pope’s limited time must be spent with moral issues more real than imagined. Corruption qualifies.”

--Editorial / Defense News:

“Britain’s top military leadership will meet this week with their U.S. counterparts to talk about the strategic future they face together, the first meeting of the combined chiefs since the late 1940s, sources believe....

“It’s astonishing that it hasn’t happened sooner given how inexorably linked the two nations are on defense matters – from strategy to policy to acquisition and industrial matters – and the sheer number of looming security challenges they face.”

Yes, it is astonishing!

--Connecticut Gov. Dannel Malloy signed into law sweeping new restrictions on weapons and large capacity ammunition magazines similar to the ones used in the Sandy Hook Elementary massacre, thus joining California, New York and New Jersey among those states having the strongest gun control laws.

The legislation adds more than 100 firearms to the state’s assault weapons ban and establishes the nation’s first statewide registry, available only to law enforcement, for people convicted of crimes involving dangerous weapons.

Prior to passage of the bill, gun sales in the state surged.

--New York City Police Commissioner Ray Kelly is an outstanding public servant and it ticks me off when he gets grief on items such as “stop and frisk” that have put a huge dent in crime rates in the Big Apple.

So I note what Kelly said in remarks to the Rev. Al Sharpton’s National Action Network the other day, via a New York Post editorial.

“African-Americans, 25 percent of the city’s population, made up 64 percent of the murder victims and 71percent of the shooting victims last year. African-American men aged 16 to 37, just 4 percent of the city’s population, comprised 40 percent of those murdered citywide, 82 percent of these young men were killed with a firearm. As a city, we can’t stand idly by in the face of these facts....

“Last year, stops by police resulted in the seizure of more than 7,000 illegal weapons, mostly knives, as well as nearly 800 guns. Stops are authorized by New York state criminal-procedure law. Every state in the country has a variant of this statute, as does federal law. It is a fundamental to policing.

“The number of stops we conduct – 530,000 last year – has also been a point of criticism. But with roughly 19,600 officers on patrol, this equates to less than one stop per officer per week.”

--I was shocked by a piece I read in the Star-Ledger here in New Jersey on the heroin problem in some of our suburbs. In one town in Passaic County whose name I will purposefully omit, five have died of overdoses since September 2011, while another five in a neighboring town (to the first) have died in a similar fashion in just the past few months. That’s unbelievable. Ten in these two small towns, all in their teens and early twenties.

--Josh Margolin, Carl Campanile and Bob Fredericks / New York Post

“Democratic state Sen. Malcolm Smith and GOP City Councilman Dan Halloran were caught on damning FBI wiretaps bribing GOP bosses in order to ‘grease the wheels’ for Smith’s mayoral run on the Republican ticket, authorities revealed...

“Smith, Halloran and four others were arrested in predawn raids on a slew of federal conspiracy and bribery charges that could send them to prison for up to 45 years.

“The FBI used a confidential informant and an undercover agent – both posing as real-estate developers – to secretly record the pols hatching their plot.

“ ‘That’s politics, that’s politics. It’s all about how much, not about whether or will. It’s about how much, and that’s our politicians in New York, they’re all like that, all like that,’ Halloran said in one conversation.

“ ‘You can’t get anything without the f---ing money. Money is what greases the wheels --- good, bad, or indifferent,’ he added before allegedly pocketing a $7,500 cash bribe from Morris Stern, who sources said was the cooperating witness.”

U.S. Attorney Preet Bharara charged that Smith planned to “bribe his way into Gracie Mansion.”

It was really pathetic, the whole scene.

--That was an unbelievable clerical screw-up on the part of Colorado officials who let Evan Spencer Ebel out early on Jan. 28, with prison officials assuming Ebel had finished his court-ordered sentence, even as he deserved another four more years for punching a prison guard.

--From the New York Times: “Glacial ice in the Peruvian Andes that took at least 1,600 years to form has melted in just 25 years, scientists reported Thursday, the latest indication that the recent spike in global temperatures has thrown the natural world out of balance.”

Specifically, the findings are at the Quelccaya (sic) ice cap in Peru, the world’s largest tropical ice sheet. “Rapid melting there in the modern era is uncovering plants that were locked in a deep freeze when the glacier advanced many thousands of years ago.”

The research from an Ohio State glaciologist is in a paper released by the journal Science.

--From BBC News: “Climate change is expanding Antarctica’s sea ice, according to a scientific study in the journal Nature Geoscience.

“The paradoxical phenomenon is thought to be caused by relatively cold plumes of fresh water derived from melting beneath the Antarctic ice shelves.

“The melt water has a relatively low density, so it accumulates in the top layer of the ocean.

“The cool surface waters then re-freeze more easily during Autumn and Winter....

“Climate scientists have been intrigued by observations that Antarctic sea ice shows a small but statistically significant expansion of about 1.9% per decade since 1985, while sea ice in the Arctic has been shrinking over past decades.”

--Easter Sunday was the coldest on record for Britain, just two years after the warmest Easter on record. [And it’s not just about the calendar.]

--Peggy Noonan in her Wall Street Journal column cites the wisdom of Singapore founder Lee Kuan Yew, who at age 89 has written a book on his insights, including on the United States.

“America has shown over its history ‘a great capacity for renewal and revival.’ It doesn’t get stuck in ‘grooved thinking’ but is able to think pragmatically and imaginatively. Its language ‘is the equivalent of an open system that is clearly the lingua franca’ of all the economic and political leaders and strivers in the world. In the coming decades ‘it is the U.S. that will be pre-eminent in setting the rules of the game. No major issue of world peace and stability can be resolved without U.S. leadership.’

“A major factor in America’s rise and economic dominance: All the brightest people in the world know ‘Americans will let you work for them in America and in their multinational corporations abroad.’ But America will lose its technological edge unless it is able to continue attracting talent.

“The American advantage in coming economic and technological contests? A ‘can-do’ approach to life. Americans always believe a problem can be solved. An ‘entrepreneurial culture’ that sees both risk and failure ‘as natural and necessary for success.’ The U.S. is still ‘a frontier society.’ ‘The American culture...is that we start from scratch and beat you.’ They would settle an empty area, call it a town, and say, ‘You be the sheriff, I am the judge, you are the policeman, and you are the banker, let us start.’”

But Mr. Lee also notes that what can destroy America is “multiculturalism,” as Ms. Noonan writes, “the gradual surrendering of the essential culture that has sustained America since its beginning....America must continue to invite in all the most gifted and hard-working people in the world, but it must not lose its culture, which is the secret of its success.”

--Daniel Beekman / New York Daily News

“President Obama felt the heat Thursday after calling a powerful female official smoking hot.

“And as luck would have it, he made the unfortunate comment on the same day his wife – remember her, tall lady with the midlife bangs? – mistakenly referred to herself as a single mother.

“But back to the Prez and his very male salivary glands:

“ ‘She also happens to be by far the best looking attorney general in the country,’ Obama said of California’s Kamala Harris during a fund-raiser. The unexpected comment ruffled the feathers of some observers and caused a commotion on social media such as Twitter.

“ ‘It’s true, come on,’ the President added as fund-raiser attendees in Atherton, Calif., guffawed....

“But Thursday turned out to be double trouble for the First Family, with Michelle Obama calling herself a ‘busy single mother’ in an interview. The top mom immediately caught herself, saying, ‘You know, when you’ve got the husband who’s president, it can feel a little single, but he’s there,’ she said, CBS reported.”

Heck, Mrs. Robinson is there taking care of the kids, anyway.

--A report in the journal “Arteriosclerosis, Thrombosis and Vascular Biology” concludes that walking is just as good for your heart as running. Actually, the team at the Lawrence Berkeley National Laboratory in California looked at 33,000 runners and 15,000 walkers and the walkers lowered their risk of high blood pressure and high cholesterol more than the runners. The differences were not big enough to say walking is better, plus runners tend to exercise more, but the message is clear. People are advised to do 2 ½ hours of moderate activity a week, or an hour and a half of vigorous exercise, both of which can be taken in ten-minute bursts.

--And a Georgetown University led study suggests that tea is gaining ground when it comes to preventing cardiovascular disease, burn calories and ward off some types of cancer, as reported by the Washington Post.

Tea purchases have risen for 20 consecutive years.

--Homicides in Chicago have declined from 120 for the first three months of 2012 to 70 for the first three months of this year. March saw 16 homicides vs. 52 in March 2012.

--In his first public statement on clerical sex abuse, Pope Francis called for “decisive action,” and “help for those who have suffered such violence in the past (and) the necessary procedures against those who are guilty.”

--Science weighed in on the Shroud of Turin – with Pope Francis taking the extraordinary step of including footage of the shroud in his televised Easter message. As Michael A. Walsh wrote in the New York Post, the pope didn’t take a position, rather, he simply observed, “This image, impressed upon the cloth, speaks to our heart. This disfigured face resembles all those faces of men and women marred by a life which does not respect their dignity, by war and violence which afflict the weakest.”

Scientists now date the shroud to the 1st century AD. Actually, 280 BC to 220 AD – or right at the time when Jesus is said to have lived.

The shroud, said the pope, “lets a pure and calm energy shine through and it seems to say to us: ‘Trust and don’t to lose hope.’”

---

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

God bless America.

---

Gold closed at $1578
Oil, $93.02

Returns for the week 4/1-4/5

Dow Jones -0.1% [14565]
S&P 500 -1.0% [1553]
S&P MidCap -2.6%
Russell 2000 -3.0%
Nasdaq -1.9% [3203]

Returns for the period 1/1/13-4/5/13

Dow Jones +11.1%
S&P 500 +8.9%
S&P MidCap +10.1%
Russell 2000 +8.7%
Nasdaq +6.1%

Bulls 52.0
Bears 19.4 [Source: Investors Intelligence]

Dr. Bortrum posted a great piece on Bell Labs history.

Nightly Review video schedule, Mon.-Thurs., posted around 5:30 PM ET...subject to the vagaries of YouTube.

S&N has an iPad app....for new readers out there.

Have a great week. I appreciate your support.

Brian Trumbore