Week in Review

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Week in Review

04/13/2013

For the week 4/8-4/12

[Posted 12:00 AM ET]

Washington and Wall Street

It’s pretty amazing how quickly economists have ratcheted up their expectations for the just completed first quarter. A survey of 69 economists by Bloomberg had them projecting Q1 GDP of 1.6% when they were asked back in December. Now it’s 3.0%.

But I wouldn’t be so sure. On April 5, we had the release of the employment numbers for March, just 88,000 with a three-month average of 168,000; not awful, but far from what’s needed...200,000+, month after month after month...

And Friday, we had a putrid March retail sales figure of -0.4%, worse than expected. A preliminary reading on consumer sentiment in April, granted, the second quarter, was also far worse than forecast and the lowest since July 2012.

The Federal Reserve released its Open Market Committee minutes from its March 19-20 meeting (I address the technical issue that came up surrounding the release down below) and the FOMC’s members “thought that if the outlook for labor market conditions improved as anticipated, it would probably be appropriate to slow purchases (through its quantitative easing program) later in the year and to stop them (the buying of $85 billion of mortgage-backed securities and Treasuries each month) by year-end.”

But, again, this was March 19-20 and then we had the release of the awful jobs report for the month on April 5. Add it all up and there is no threat of tapering, let alone ending, QE3 any time soon. Free money will continue. The stock market soared to new highs.

President Obama finally unveiled his budget, 65 days late. The $3.78 trillion spending plan contains the same set of policies Republicans rejected during the “fiscal cliff” negotiations. Obama said, “When it comes to deficit reduction, I’ve already met the Republicans more than halfway.” He challenged Republicans to demonstrate they are “as serious about the deficits and debt as they claim to be.”

I’m not going to waste my time or yours with many specifics over the coming weeks because this is all going to come to a head this summer. For now, understand that there are now three budget plans for the fiscal year beginning October 1st; the White House’s, the plan by House Republicans, and the Senate Democrats’ plan. It’s not even clear just when a conference committee will be put together and who the members will be, seeing as how, for example, House Speaker John Boehner and Senate Minority Leader Mitch McConnell have taken themselves out of the picture.

Senate leaders, in particular, are focused on the tighter gun laws debate, as well as on new immigration standards, both of which will occupy the entire spring, it would seem. The budget can wait, is the reasoning. The budget will also be tied with the summer debt ceiling issue, though few believe the latter will be as contentious as it has been in the past.

Bottom line: Republicans feel the president got his tax hikes in January, while they want to see real entitlement reform; though Speaker Boehner agrees the president deserves some credit for the “chained CPI” issue (more below)

I do have to say that when it comes to defense spending, the Obama budget proposes new fees for veterans in the military’s Tricare medical system, including an annual $140 fee for families in the standard fee-for-service program that would rise to $250 over five years. I totally agree with this, as well as for another proposed hike in Tricare’s HMO-style plan.

The cost of Tricare has grown from $19 billion in fiscal 2001 to $53 billion in fiscal 2012, and will soar from there.

At the same time, as I discussed the other week, the biggest line item in the Pentagon’s budget is the nearly $400 billion F-35 program, which is 70% over its initial cost estimate.

“The cards laid down by the White House are quite unimpressive. The 2014 budget is tax-and-spend as usual. The actual deficit reduction over a decade is a minuscule $0.6 trillion – out of total spending of $46.5 trillion. And every penny of this tiny reduction comes from tax hikes. Nothing from spending cuts, which all end up getting spent elsewhere.

“Moreover, where’s the compromise? The Obama budget calls for not only more spending than the GOP’s, but more than the Democratic Senate’s as well. For just fiscal 2014, it even contains $160 billion more spending, and $128 billion more deficit, than if the budget – that Obama purports to be cutting – were left untouched!

“True, President Obama has finally put on the table, in writing, an entitlement reform. This is good. But the spin, mindlessly echoed in the mainstream media, that this is some cosmic breakthrough is comical.

“First, the proposal – ‘chained CPI,’ a change in the way inflation is measured – is very small. It reduces Social Security by a quarter of a penny on the dollar – a $2,000 check reduced by a five-dollar bill.

“Second, the change is merely technical. The White House itself admits that the result is simply a more accurate measure of inflation. It’s not really cutting anything. It merely eliminates an unintended overpayment.

“Finally, the president made it clear that he doesn’t like this reform at all. It’s merely a gift to Republicans. This is odd. Why should a technical correction be a political favor to anyone? Is getting things right not a favor to the nation?”

The late Margaret Thatcher, in a 1987 magazine interview, summed up a philosophy that has been espoused by many Republicans since.

“I think we have gone through a period when too many children and people have been given to understand ‘I have a problem, it is the government’s job to cope with it!’ or ‘I have a problem, I will go and get a grant to cope with it!’; ‘I am homeless, the government must house me!’ and so they are casting their problems on society and who is society?

“There is no such thing! There are individual men and women and there are families, and no government can do anything except through people and people look to themselves first.

“It is our duty to look after ourselves and then also to help look after our neighbor and life is a reciprocal business and people have got the entitlements too much in mind without the obligations.”

Europe and China

IMF Managing Director Christine Lagarde warned of a three-speed global economy facing risks from a currency crisis in emerging markets or unsustainable debt in the U.S. and Japan.

The world, she said, was dividing into three groups – some countries doing well, some on the mend and some still in trouble.

“We do not expect global growth to be much higher this year than last. We are seeing new risks as well as old risks. In far too many countries, improvements in financial markets have not translated into improvements in the real economy.”

Countries on the mend, Lagarde said, included the U.S., Sweden and Switzerland, but she warned the U.S. was cutting its deficit too fast in the short term, harming growth, while tackling its long-run deficit too slowly (i.e., no movement on entitlements).

Countries that still had work to do included the euro area and Japan. The main problem is the banking system in the euro area, for example, Cyprus. In Japan, Lagarde warned that the public debt of 245 percent of GDP “looks increasingly unsustainable” and that a clear plan to tackle it was an “urgent priority.” But Japan also still has to deal with the “deflation trap” and it needed to “rely more on monetary policy to kick-start growth.”

The World Trade Organization lowered its forecast for global trade growth in 2013, noting, “Improved economic prospects for the United States...should only partly offset the continued weakness in the European Union, whose economy is expected to remain flat or even contract slightly this year.”

The WTO’s dimmer outlook follows a historically poor 2012.  Global trade expanded just 2%, down from 5.2% in 2011.

The organization is looking for 3.3% growth in 2013, down from its September forecast of 4.5%. The 20-year average has been 5.3%.

So with the above two items as backdrop, we have the continued crisis in Cyprus, where the cost of the bailout has increased from 17.5 billion euro to an estimated 23 billion, according to a draft document prepared by the country’s creditors.

The new total means Cyprus has to find 13 billion euro, not just 7.5 billion, in order to secure the 10 billion euros from the European Union and the IMF.

The winding up of the second-largest bank in Cyprus, Laiki, as well as the writing-off of a large portion of secured debt and uninsured deposits in the largest bank, Bank of Cyprus, should raise a total of 10.6 billion.

Cyprus then said it would sell a large portion of its gold reserves to raise another 400 million euro, still leaving it 2 billion short....ergo, more pain.

As to the gold, Cyprus’ move helped drive bullion down to its lowest level since July 2011 this week. Jonathan Spall, director of precious metals at Barclays Capital, told the Financial Times, “I think this could be a turning point. Central bank stocks of gold which had looked to be ringfenced in the bailout process could now seemingly come into play.”

Cyprus will be selling about 10 tons of the 13.9 tons held by the central bank.

But consider that the Italian central bank holds 2,451 tons of gold, over 70% of its total reserves, while Portugal’s holding of 383 tons accounts for 90%.

Euro finance ministers are meeting in Dublin this weekend, with Cyprus at the top of the agenda, and the bailout document cited above is painting a grim picture in terms of Cyprus’ economy; as in it forecasts a contraction on the order of 12.5%, 2013-2014.

And the Cyprus program still has to be passed by the German parliament in two stages, possibly April 16 and 18.

It was also a week that saw the European Commission issue stinging reports on the fiscal health of some of its members.

For example, the pressure was turned up on the French government to overhaul its moribund economy more quickly, with the EC report saying President Francois Hollande’s reform efforts thus far have been insufficient to restore the country’s competitiveness.

In addition, the EC warned that France’s sovereign debt levels, which are climbing above the 90 percent danger mark, are not only choking off growth but are threatening the country’s banking system, to which I would add you’re nuts to be scooping up French 10-year bonds that were yielding 1.85% this week...unless you believe euroland stands for La-La-Land. Finance Minister Pierre Moscovici slashed France’s growth outlook for 2013 from a whopping 0.8% to 0.1%. Back when he was running for election 11 months ago, President Hollande said the economy would grow 1.7% this year.

The EC’s report on Italy was scathing, seeing as there is little chance of a new government anytime soon even as its public sector debt is expected to hit a record 130 percent of GDP this year. Acting Prime Minister Mario Monti conceded, “With regards to public finances, credibility is acquired at high price and very slowly, yet can be lost very quickly.”

The European Commission also warned that Spain and Slovenia must tackle their imbalances quickly. The Commission said these two were the worst of the 13 European Union countries currently under review; arguing Spain must deliver a “decisive” reform program by end of the month.

Brussels said of Slovenia that when it comes to the country’s banks, “urgent policy action is needed.” For its part, the new government in Ljubljana said it doesn’t need a bailout.

Billionaire investor George Soros said of Germany that its economy would probably be in recession by this fall.

“Germany itself remains relatively unaffected by the deepening depression that is enveloping the eurozone,” said Soros. “I expect, however, that by the time of the elections, Germany will also be in recession.”

And then there is Portugal. After its high court ruled about ten days ago that some of the austerity measures demanded by the EU, European Central Bank and International Monetary Fund as part of a bailout package were illegal, Portugal’s creditors said they would delay payment of the country’s next slice of bailout aid until the government finds 1.3 billion euro in new spending cuts – a task that some economists say may be too big.

German finance minister Wolfgang Schauble said Portugal had no alternative but to look for new savings, which would mean further cuts to wages and pension spending. The government of Prime Minister Coelho is teetering. In what was described as a “grave” 15-minute television address, Coelho said that “the decision of the court has made the life of the Portuguese more difficult,” adding, “Portugal has still not overcome the situation of financial emergency.”

What Europe continues to desperately need is a credible banking union with a central supervisor. This was agreed to last summer, but nothing has been done on the proposal.

Retail sales in the 17-nation eurozone declined 0.3% in February over January; down 1.4% year over year. Factory production rose 0.4% in February over January.

Eurostats released data on euro area home prices and in the fourth quarter, Spain’s housing market saw price declines of 12.8% over Q4 2011.

Greece’s unemployment rate rose to a record in January, 27.2% from a revised 25.7% in December, while the youth unemployment rate hit a depressing 59.3%. The government hopes a solid tourism season will lead to improvement in the jobs picture and this is possible...as long as there aren’t massive demonstrations in the streets of Athens this spring that garner a lot of television coverage and scare prospective tourists away.

In Germany, February exports were down 1.5% from January, worse than expected. Exports were down 4.1% from a year ago to the euro area. Industrial production for February, however, was up 0.9% from January, and factory orders rose 2.3% in the month.

Finally, in China, renewed heavy capital inflows are fueling a surge in credit growth and adding to fears of government debt and inflation.

For March, though, consumer prices rose just 2.1% from a year earlier, down from the 3.2% pace in February, while food price inflation fell back to 2.7% after a 6% print the prior month.

Also in March, exports rose 10% from a year ago, while imports increased 14%.

But as Alistair Thornton, China economist at IHS Global Insight, put it:

“The 10% headline growth number [in exports] masks an uncomfortable reality – either the trade data are unreliable or if they are reliable then what are being booked as exports are not actually exports. The breakdown of exports by destination veers toward the absurd.”

“China’s exports to its separately administered territory of Hong Kong grew 93% in March from the same month a year earlier, the fastest growth since March 1995, even as exports to the EU fell 14% and exports to the U.S. dropped 6.5%.

“Total exports to Hong Kong of $48.4 billion in March were almost double the $26.8 billion in Chinese exports to the U.S. – China’s second-largest export market – last month.

“ ‘Given a lot of exports to Hong Kong are actually re-exported to the EU and U.S. as final destinations this seems a little incongruous to say the least,’ Mr. Thornton said....

“In the three months until the end of February, China’s customs reported $95 billion in exports to Hong Kong but the independently-administered customs authorities in Hong Kong reported less than $59 billion in imports from mainland China, almost all of it for re-export to other countries.” [Jamil Anderlini / Financial Times]

Me? I can’t argue with the preceding. I would have confidence in the inflation data, however. 

As for GDP figures, it’s the trend that is important, taken two to three quarters at a time.

Street Bytes

--The amazing rally continues, fueled by the Fed more than recent economic fundamentals, as the Dow Jones tacked on 2.1% to finish the week at 14865, up 13.4% for the year. The S&P 500 gained 2.3% and Nasdaq rose 2.8%.

JPMorgan Chase and Wells Fargo reported on Friday and their earnings were solid if unspectacular when you looked under the hood. First quarter reports start in earnest this coming week.

--U.S. Treasury Yields

6- mo. 0.09% 2-yr. 0.23% 10-yr. 1.75% 30-yr. 2.92%

Producer prices in the month of March fell 0.6%, ex-food and energy up 0.2%. Year over year, up 1.1% and 1.7%, respectively.

The Federal Reserve was forced to release the minutes of its March 19-20 meeting five hours early on Wednesday, before the market opened, after the Fed learned an employee had accidentally released the minutes Tuesday evening to 150 congressional staffers and lobbyists, some of the latter affiliated with investment banks such as Goldman Sachs, JPMorgan Chase and Citigroup.

While there was no evidence any of the recipients had traded ahead of the formal release at 9:00 a.m., Wednesday, it was a huge embarrassment for the Fed.

--Technology research company, IDC, released a study that showed the PC market shrank nearly 14% in the first quarter, its biggest recorded drop, as Windows 8 was blamed by analysts for making PCs “less attractive” to consumers.

Bob O’Donnell, an IDC analyst, said, “At this point, unfortunately, it seems clear that the Windows 8 launch not only failed to provide a positive boost to the PC market, but appears to have slowed it.”

People, both consumers and professionals, hate the user interface.

Another research outfit, Gartner, found that professional PC markets also are upgrading to Windows 7.

--China President Xi Jinping vowed to protect the interests of global companies amid rising concern among foreign businesses about discriminatory policies that hurt their operations on the mainland.

“We will protect the lawful rights and interests of foreign-invested companies in accordance with [the] law, and ensure their rights to equal participation in government procurement and independent innovation,” Xi said on Monday. “China will never close its door to the outside world.”

Xi also vowed to step up protection of intellectual property rights, this as global companies are subjected to pervasive corporate espionage and hacking aimed at stealing their business secrets.

Zein Abdalla, the president of PepsiCo, represented the view of U.S. businesses operating in China at a forum where Xi was speaking to corporate leaders.

“One thing many foreign companies do share is a rising concern about increasing restrictions on the types of investments we can make,” Abdalla told Xi.

“We hope the new Chinese government can continue to push forward opening up and encouraging foreign investment in more sectors, reform the administrative approval system so businesses will find it easier to enter markets and operate freely and build a more level playing field for foreign investors relative to domestic companies.” [Jami Anderlini / Financial Times]

--Australia’s unemployment rate unexpectedly jumped in March to the highest level in more than three years, 5.6 percent. [We should be so lucky.]

--For the 12 months ending March 31, car sales in India fell for the first time in a decade, off 6.7% from the previous year. That compares with the Society of Indian Automobile Manufacturers initial forecast of a 10-12% jump. [BBC News]

--KPMG partner Scott London was arrested on insider trading charges as he passed on information on two of London’s L.A.-area clients, nutritional products company Herbalife Ltd. and footwear maker Skechers USA Inc. 

London was photographed by the FBI accepting cash from a friend, jeweler Bryan Shaw, who allegedly profited from the scoops London provided him.

It’s really unbelievable London would do this, seeing as senior partners such as him earn more than enough (well into six figures) and he apparently received just $25,000 to $35,000 from Shaw over the years.

The improper trading in Shaw’s account was apparently detected by the brokerage firm he put his orders through.

--JCPenney fired CEO Ron Johnson, the former Apple exec, after a disastrous 17-month stint during which sales went into free fall. The thing is, Johnson was replaced by the retailer’s previous CEO, Mike Ullman, whose performance had been blasted by critics such as hedge-fund king Bill Ackman, Penney’s largest shareholder.

Ullman is expected to quickly restore coupons and sales events to win back customers after Johnson adopted a flat pricing strategy early last year.

--Bird flu has claimed 10 lives in China, while sickening at least 38 in the eastern part of the country. The H7N9 virus is troublesome. There are no reported human-to-human transmissions as yet, but there is also no vaccine for this new strain.

--Yum Brands, parent of KFC, warned that the new bird flu outbreak badly hit its restaurant sales in China this month, this as the company is still dealing with the lingering impact of a separate food safety scare there.

Yum reaps more than half of its overall sales in China, where most of its 5,300 restaurants are KFCs. The earlier scare involved reports of chemical residue found in a small portion of its chicken supply. Sales fell 13% for the month, which included a 16% drop at KFC.

--McDonald’s executives have a new corporate-wide push to get their workers to be more customer-friendly. In a webcast, McDonald’s identified the top complaint as “rude or unprofessional employees,” with complaints about speed of service increasing significantly over the past six months. “Service is broken,” read one slide in the presentation.

I have to admit the McDonald’s employees I’ve dealt with around the country are generally less than friendly, though not quite as bad as the employee from hell at the CVS pharmacy I shop at.

--The U.S. Postal Service is backing away from its plan to end Saturday mail delivery in August, bowing to bipartisan congressional pressure.

Of course this is absurd as the USPS now must find other ways to stem massive losses that hit $15.9 billion last year. The labor unions will be asked for give-backs and rates will rise again, and I’m guessing by more than a penny. The agency said in a statement:

“It is not possible for the Postal Service to meet significant cost reduction goals without changing its delivery schedule. Any rational analysis of our current financial condition and business options leads to this conclusion.”

Labor leaders had opposed five-day delivery as a ploy to kill up to 25,000 jobs, so they praised the decision to backtrack, but at the same time opposed any effort to reopen contracts. However, to be fair, they had just settled new contracts last January.

--Caterpillar Inc. plans to lay off 460 workers from its Decatur, Illinois plant that produces big mining trucks, 11% of the workforce at the facility. It’s about a drop in demand caused by falling commodities prices and mining companies’ shelving of expansion plans.

And as the Financial Times pointed out, “The U.S. shale gas boom has driven down natural gas prices, which has caused many power producers to switch from coal to natural gas, while the industrial slowdown in China has also slowed demand for resources in the world’s largest consumer of mined commodities.”

Additionally, Caterpillar is cutting 300 jobs at a facility in South Milwaukee, and in February announced it would slash 1,400 jobs in Belgium, citing the abysmal state of the European economy.

--China’s controversial Huawei Technologies, the world’s No. 2 telecom equipment maker, said on Monday it expects a compound growth rate of 10% in annual sales over the next five years, lifted by cloud computing and smartphone sales.

Huawei is reporting strong sales in all parts of the world, though in the United States and Australia it has run into problems due to national security and cyber espionage concerns.

--Russia’s Economic Development Ministry cut its growth forecast for this year to 2.4% from a previously forecast 3.6%. Car sales fell 4% last month.

--Eli Lilly & Co. is laying off about 1,000 sales representatives in the U.S. Lilly is cutting costs ahead of generic competition the drug maker faces with two of its biggest-selling products, Cymbalta, an antidepressant, and Evista, an osteoporosis treatment, coming off patent protection over the coming 12 months. Together the two accounted for 43% of Lilly’s $11.8 billion U.S. sales last year.

--A survey of teens by PiperJaffray found that 48% of the respondents said they owned an iPhone, up from last fall’s 40%. The percentage of those owning an Apple iPad slipped from 72% to 68%.

Last fall, 42% of the surveyed teens said Facebook was the most important social network, but that number has fallen to 33%. 30% now say Twitter is most important, up from 27%. Instagram has moved to 17% from 12%. [L.A. Times]

--Tara Siegel Bernard of the New York Times had an extensive piece the other day on Dollar Rent a Car, which seems to be charging customers for the “loss damage waiver, an option that isn’t technically insurance, but that generally ‘waives’ the renter’s responsibility for loss or damage to the vehicle.” Of course most auto insurance policies, and/or your credit card, provide for this kind of coverage already.

Customers nationwide are finding they unwittingly signed for the coverage even though they had verbally declined it. Dollar denies it sold customers products they didn’t want.

So make sure when you sign electronically that you double check whether or not you are signing off on the waiver.

--Leonard Lauder, heir to the Estee Lauder fortune, donated $1 billion in art to New York’s Metropolitan Museum of Art...78 works that are considered to be one of the foremost collections of Cubism. We’re talkin’ your Picassos and a bunch of stuff even an art lover like me never heard of...because I’m just not a Cubism guy.

But that’s nice of Mr. Lauder, who said his gift was for “the people who live and work in New York and those from around the world who come to visit our great arts institutions.”

Next time you’re at the Met, though, remember you do not have to pay the $25 suggested entry fee. You can pay whatever you want. [That’s been a well-publicized story in these parts the last year or so.]

--A UN report revealed that Chinese tourists spend more than any other nation, overtaking Americans and Germans.

China ranked just seventh in terms of international tourism expenditure in 2005, but by 2011 had leapfrogged Italy, Japan, France and Britain. Then last year Chinese spending soared 40%, while there was only modest growth in U.S. tourist spending and a decline in German spending.

Spending among Russians and Brazilians is soaring as well, according to the UN.

But while the Chinese spend a lot, their behavior is often found lacking. “There have been many reports by mainland media in recent years about compatriots taking mountains of food from buffets and pilfering blankets, headphones, forks and spoons from aircraft.” [South China Morning Post]

Heck, you had that story the other week of the two Chinese businessmen on an Air France flight who blatantly stole bottles of wine, and then when a Chinese female passenger admonished them, one of the dirtballs threatened to kill her when they landed.

--Thanks to “Fifty Shades of Grey” and “The Hunger Games,” the book publishing industry posted net revenue of $7.1 billion in 2012, up 6.2% from the prior year.

E-book sales rose 33% to $1.25 billion, while hardcover book sales fell 6.7% to $1.38 billion.

--Former British Prime Minister Tony Blair acknowledged this week that aides were the ones posting tweets on his main handle.

“I’m technologically challenged, is the absolute truth,” he said.

“I believe social media is a revolutionary phenomenon, but I’m also a little bit of a skeptic on social media. ...I think it’s very important for politicians today to pay attention to social media but not be driven by it, because you can end up believing that what is on social media is the public. It’s a section of a section of the public.”

Now discuss amongst yourselves.

Foreign Affairs

North Korea: I thought South Carolina Republican Sen. Lindsey Graham nailed it last Sunday in an appearance on “Meet the Press.”

“I could see a major war happening if the North Koreans overplay their hand this time, because the public in South Korea, the United States, and I think the whole region, is fed up with this guy.”

For the first time, officially, the Pentagon’s intelligence arm announced that North Korea likely has a nuclear warhead small enough to fit on a ballistic missile.

The Defense Intelligence Agency said the weapon would have “low reliability,” but the disclosure during a congressional hearing on Thursday is a potential game-changer.

DIA concluded “with moderate confidence” that Pyongyang “has nuclear weapons capable of delivery by ballistic missiles.”

The Pentagon, though, sought to play down the report. Spokesman George Little said “it would be inaccurate to suggest that the North Korean regime has fully tested, developed, or demonstrated the kinds of nuclear capabilities referenced in” the intelligence report.

James Clapper, the director of national intelligence, told the House Intelligence Committee. “Much of the rhetoric – in fact, all of the belligerent rhetoric of late, I think, is designed for both an internal and an external audience.”

Meanwhile, foreign ministers from the G8 group of nations condemned in the “strongest possible terms” North Korea’s nuclear weapons and ballistic missile programs.

In a news conference after talks in London, UK Foreign Secretary William Hague said that “if the DPRK [North Korea] conducts another missile launch or nuclear test, we have committed ourselves to take further significant measures.”

South Korean intelligence claims launch preparations are complete for three missiles; a short-range Scud in addition to a Musudan, which has a range of 4,000km, as well as a Rodong, with a range of 1,300km, that is ready to launch from a location different from where the first two are.

A top U.S. official traveling with Secretary of State John Kerry told Agence France-Presse this week that Washington has noticed a change from the Chinese leadership.

“We all hear a growing tone of frustration and urgency in the official statements from the Chinese.

“China is increasingly concerned about the downstream effects of North Korea’s reckless pursuit of a nuclear missile capability, and the implications for China’s own strategic environment.

“In a Marxist system like North Korea, particularly one that is so heavily dependent on China for resources, for access to the international system, those signals carry a great deal of weight.”

Chinese President Xi Jinping told a conference last Sunday: “No one should be allowed to throw a region and even the whole world into chaos for selfish gains.” Xi added: “Stability in Asia now faces new challenges, as hotspot issues keep emerging.”

And then Xi said: “On the basis of firmly upholding its sovereignty, security and territorial integrity, China will maintain good relations with its neighbors and overall peace and stability in our region.”

[Focus on ‘firmly upholding its sovereignty’ and think disputed islands in the South and East China Seas.]

This week, North Korea said the peninsula was headed for “thermo-nuclear” war and advised foreigners in South Korea to consider evacuation, in the latest in a series of apocalyptic threats.

That same day, Tuesday, North Korean workers followed Pyongyang’s order to boycott the Kaesong joint industrial zone with South Korea, which could kill the venture first established in 2004 as a symbol of cross-border reconciliation.

Some 53,000 North Koreans are employed at the complex, with 123 South Korean companies operating there, and Kaesong provides $90 million in annual wages to North Korean workers.

This is financial suicide for Pyongyang. If operations aren’t normalized rapidly, the South Korean companies face bankruptcy.

“One unlikely benefit of the North Korea crisis is that the world may be getting fed up with the country’s pugnacious young leader, Kim Jong Un. In his belligerent talk of war, Kim appears to have crossed a line, upsetting traditional allies such as China and Russia as well as the United States and South Korea.

“U.S. analysts doubt that Kim actually intends to attack. Instead, they predict he will seek some ‘culminating event,’ such as another missile test, after which he will declare victory and step back from the brink. But because Kim has never managed one of these cycles of threat and de-escalation before, officials fear he may not find the exit ramp....

“Kim’s biggest miscalculation may have been in assuming that Beijing and Moscow would indulge his rhetoric. That has usually been the case for North Korea. But this time ‘the little upstart,’ as some Chinese officials are said to describe Kim, appears to have gone too far.

“China’s new president, Xi Jinping, warned last weekend that no Asian country should be allowed to create ‘chaos for selfish gain.’ Russian President Vladimir Putin told a news conference Monday: ‘I would make no secret about it: We are worried about the escalation on the Korean Peninsula.’ Russian Foreign Minister Sergei Lavrov said his country has ‘no differences’ with the United States over the situation....

“Is it really possible that Kim and the North Korean military could lead their country toward what would amount to national suicide? Analysts often reject this as an irrational and improbable outcome. But consider this: There was a northeast Asian nation led by a ruler with quasi-divine status, who in league with his military led his country into a reckless and self-destructive war against the United States. That nation was imperial Japan.”

Iran: It’s getting lost in the pile of news, but the recent failed nuclear talks in Kazakhstan between the P5+1 and Iran are very much tied to the Korean crisis as the two share missile and nuclear technology, and one wonders if Iran has been testing some of its weaponry in North Korea and vice versa.

What is clear is that Iran is now swept up in its June 14 presidential election and there is going to be zero progress on the negotiating front, if you believed there ever would be, until after the vote, which pits allies of outgoing President Ahmadinejad against those favored by Supreme Leader Ayatollah Khamenei. [Candidates must declare their intentions to run by May 7, after which the hardline Guardian Council, allied with Khamenei, issues a thumbs up or down on each one.]

As for the talks, the European Union’s head of foreign policy, Catherine Ashton, made clear that the two sides failed to make enough headway to qualify the meeting as a success.

“What matters in the end is substance, and...we are still a considerable distance apart.”

It’s the same deal. The P5+1 is asking Tehran to greatly limit its production and stockpiling of uranium enriched to 20 percent, which is just a technical step from weapons-grade uranium; the goal being to keep Iran’s supply below the amount needed for further processing into a weapon.

But Iran wants greater sanctions relief for any concessions than the six are prepared to give. Specifically, Iran seeks an end to international penalties crippling its oil trade and financial transactions.

Yuval Steinitz, Israel’s minister of strategic affairs, said in a statement: “This failure was predictable. Israel has already warned that the Iranians are exploiting the talks in order to play for time while making additional progress in enriching uranium for an atomic bomb.” He added, “The time has come for the world to take a more assertive stand and make it unequivocally clear to the Iranians that the negotiations games have run their course.”

For his part, Israeli Prime Minister Benjamin Netanyahu has been largely silent the past few weeks, since his meetings with President Obama and the latter’s trip to Israel.

“President Obama came to office in 2009 promising to negotiate with America’s enemies and create a world without nuclear weapons. Four years later, North Korea is threatening America with nuclear attack, Iran is closer to its own atomic arsenal, and the world is edging ever closer to a dangerous new era of nuclear proliferation. The promises and the reality are connected.

“The latest talks between the West and Iran failed this weekend, with no immediate plans for another round. The negotiations by now follow a pattern in which the U.S. makes concessions that Iran rejects, followed by more concessions that Iran also rejects, and so on as Tehran plays for time....

“This anti-proliferation failure, in turn, has friends and allies increasingly wondering if they need their own nuclear deterrent....

“The South Korean government says it has no such plans, but it’s no coincidence that it is now pressing the U.S. for permission to produce its own nuclear fuel. While the supposed rationale is civilian use, the ability to enrich uranium and reprocess spent fuel is also a step toward making a bomb if South Korea ever chooses to.

“That kind of talk is watched closely in Japan, which has refrained from getting its own bomb under the U.S. umbrella and the legacy of World War II. Few politicians are making the case for a Japanese bomb other than the nationalist Shintaro Ishihara, but that will change if the North keeps expanding its arsenal or the South goes nuclear. Japan already has a reprocessing facility that will soon be producing tons of weapons-usable plutonium.

“Likewise in the Middle East, Iran’s march to the bomb has other countries preparing the ground for their own nuclear breakout. Saudi Arabia has announced plans to build 16 reactors – precisely the number that nuclear inspectors say it would need for both civilian and military use. The world’s largest oil exporter does not need nuclear power for electricity.

“Neither does the United Arab Emirates, which is nonetheless building a nuclear power plant only a few hundred miles from Iran. The UAE has promised not to enrich uranium or reprocess spent fuel, and in return the U.S. is providing technical advice on the plant. But few expect that promise to stand if Iran gets the bomb....

“Above all, the world can hear Mr. Obama declare for domestic American audiences that ‘the tide of war is receding’ despite the growing evidence to the contrary. On present trend, the president who promised to rid the world of nuclear weapons is setting the stage for their greatest proliferation since the dawn of the atomic age.”

Lebanon: With surprising speed, Tammam Salam was named the new prime minister after the resignation of Prime Minister Najib Mikati. Salam, a Sunni whose father, Saeb Salam, served six times as prime minister between 1952 and 1973, won the support of both Sunnis and Shiites (read also Saudi Arabia and Iran).

Lebanon still operates under its archaic system whereby the president has to be a Maronite Christian, the prime minister a Sunni Muslim and the Parliament speaker a Shiite.

Salam must now form a government and parliamentary elections, slated for June, are likely to be pushed back a month or two.

In an interview with the Daily Star, Salam defended Hizbullah’s armed resistance against Israel, but said the decision to go to war or make peace should be “a national decision.”

Meanwhile, the two main factions, the March 14 group led by former Prime Minister Saad Hariri, and March 8, the Hizbullah faction, continue to go up against each other in Syria; the March 14 Sunnis supporting the rebels, while Shia Hizbullah backs President Bashar Assad.

Egypt: President Mohamed Morsi’s job approval rating hit an all-time low in March, according to the Egyptian Center for Public Opinion Research; just 47% vs. 78% for his first 100 days in power. But there is also no viable alternative to Morsi these days.

Last weekend, at least eight people were killed in sectarian violence between Coptic Christians and Muslims in and around Cairo.

Afghanistan: Three American civilians and three U.S. troops were killed in two attacks. Among the dead was the first State Department diplomat to be killed in the country since the war began, Anne Smedinghoff.

China: Tourism cruises are to begin to a chain of disputed islands in the South China Sea by May, according to state media. The tourists will live on board ships, as the largest island in the Paracels has only one hotel and no fresh water.

The thing is, the Paracels are also claimed by Vietnam and Taiwan, though China has controlled them since a short war with South Vietnam in 1974.

Yes, it’s just the latest move by China to show it controls the entire South and East China Sea, parts of which are potentially oil and natural gas rich.

Germany: In the latest polls ahead of September’s federal election, Chancellor Angela Merkel is seeing support for her coalition climb to 47% in a Forsa survey, the highest level since January 2010, projecting a clear majority for the first time in more than three years. The Social Democratic Party (SPD) and Greens dropped two percentage points to a combined 37%.

Merkel’s CDU/CSU bloc leads the SPD by 41 to 23 percent. But what is just as important is that Merkel’s coalition partner, the FDP, is back to six percent, or above the five threshold needed to win parliamentary seats.

Which means, sports fans, that were these results to hold, Merkel wouldn’t have to form a grand coalition with the SPD.

France: Foreign Minister Laurent Fabius has proposed keeping a permanent force of 1,000 French troops in Mali to fight Islamist militants. France will be reducing its current force of 4,000 to the support force that would back up a future UN peacekeeping mission.

“As if French President Francois Hollande did not have enough trouble with a stagnant economy and a scandal over his former budget minister’s secret overseas bank accounts, now his camel has been eaten.

“Grateful Malian authorities gave the baby camel to Mr. Hollande during a triumphant visit to Mali in early February, after French troops intervened to drive back Islamist rebels who had seized the north of the country.”

At the time it wasn’t possible for Hollande to take the camel home, so it was left “in the care of a family in Timbuktu.

“The family, evidently misunderstanding the purpose of the custody arrangement, proceeded to slaughter the camel and feast on it. According to local reports, it was fashioned into a tasty tagine.

“Embarrassed Malian authorities on Tuesday said they would give Mr. Hollande a replacement camel, and they would deliver it to him in France.”

Said an official in Timbuktu, “We are ashamed of what happened to the camel. The new camel will be sent to Paris. It was a present that did not deserve this fate.”

Britain: Security officials are very concerned over the ceremonial funeral for Margaret Thatcher next Wednesday. Police are expecting the procession will be targeted by protesters. “Celebrations” are being planned around the country on the same day.

Venezuela: Hugo Chavez’ hand-picked successor, Nicolas Maduro, should win comfortably in Sunday’s presidential election, with the last two polls showing him with leads of 7 and 10 points over Capriles. But then Maduro has to face all the problems Chavez left him. 

Random Musings

--In a new Wall Street Journal/NBC News poll, President Obama’s job approval was down to 47%, with 48% disapproving, the first time in this survey he was below 50% since October.

--Margaret Thatcher was a towering figure of the 20th century. I was a big fan, but I understand why others weren’t, especially the Irish. 

So herewith is some opinion on her passing this week.

“Seldom does the emergence of a single individual undeniably change the course of history. It was true of Winston Churchill becoming prime minister in May 1940, of course, but normally one person’s efforts cannot significantly alter the tide of human events. Yet undoubtedly such a person was Margaret Thatcher, for it is no exaggeration to say that she saved Great Britain from bankruptcy, made it great again, won a war and with Ronald Reagan helped sound the death knell of Soviet communism.

“Yet her obituaries on both the left and the right hint that her battles were all in the past, that she was solely a figure from an earlier era, whose struggles bear no relation to today’s politics. Nothing could be further from the truth. The principles that she established – which together form the coherent political program called Thatcherism – have perhaps more relevance now than at any time since the 1980s. To write her off as a historical figure is to discard the timelessness, and thus the most important aspect, of her political thought.

“With the UN Security Council plus Germany (the so-called P5+1) nowadays adopting what she once described in another context as ‘the politics of the pre-emptive cringe’ toward Iran’s development of a nuclear bomb, we could do with the late Lady Thatcher’s clear-sighted and full-throated denunciation of pusillanimity in international affairs. When she was in power, her attitude toward dictatorships’ threats and bullying – be it the Argentine junta over the Falkland Islands or Saddam Hussein before the Gulf War – was precisely the tough and uncompromising stance from which the P5+1 group constantly shrinks. The advice she gave to President George H.W. Bush in 1990 – ‘This is no time to go wobbly, George’ – is desperately needed today....

“Margaret Thatcher hated deficits with all the power that a grocer’s daughter might be expected to hate indebtedness. Despite inheriting a disastrous economy from the Labour Party in 1979 – the top income-tax rate was 98% and public-sector strikes were crippling British industry – she managed to increase growth and productivity to such an extent that she could leave office with a top tax rate of 40% and growth rates mirroring those of her beloved America....

“Similarly, it would be marvelous to hear her assess the state of the European Union today, as every one of her predictions of the dangers of economic and monetary union have been shown to be correct. Lord Salisbury once said that the four cruelest words in the English language are ‘I told you so.’ How often did Margaret Thatcher tell Brussels and Europhiles that a system in which all European economics of whatever size, shape and type were strait-jacketed into uniform interest and exchange rates would inevitably fail? She saw the danger. Perhaps she could point the way out.

“When it was proposed that the British pound should give way to the euro, she memorably cried out in the House of Commons, ‘No! No! No!’ Britons should look at Cyprus, Greece, Spain, Portugal and Italy today and laud her for her foresight....

“ ‘Democracy isn’t just about deducing what the people want,’ she once said. ‘Democracy is leading the people as well.’....

“As someone who knew her well, I can attest that there was plenty to like as well as to admire in Margaret Thatcher, but she never put likability high on her list. She had a job to do....

“Now that Lady Thatcher is dead, we must not turn her into a mere cozy historical figure, shorn of the ideological convictions that are for the ages. Thatcherism will always remain, and the world is better for it.”

“Born in 1925 in Grantham, Lincolnshire, Margaret Hilda Roberts was the youngest daughter of a corner shop grocer, Alfred Roberts, and his wife Beatrice. He was a self-made man, a Liberal alderman and a father whose tenets of integrity, hard work and self-reliance were strong influences throughout her career. His younger daughter’s self-belief manifested itself early. Told by a teacher how lucky she was to have won a poetry reading contest, the 10-year-old Margaret replied: ‘I was not lucky. I deserved it.’”

Tony Blair, in a statement upon hearing of Thatcher’s passing:

“Her global impact was vast. And some of the changes she made in Britain were, in certain respects at least, retained by the 1997 Labour Government, and came to be implemented by governments around the world.

“As a person she was kind and generous spirited and was always immensely supportive to me as Prime Minister although we came from opposite sides of politics.

“Even if you disagreed with her as I did on certain issues and occasionally strongly, you could not disrespect her character or her contributions to Britain’s national life. She will be sadly missed.”

“Margaret Thatcher had more impact on the world than any woman ruler since Catherine the Great of Russia. Not only did she turn around – decisively – the British economy in the 1980s, she also saw her methods copied in more than 50 countries. ‘Thatcherism’ was the most popular and successful way of running a country in the last quarter of the 20th century and into the 21st....

“Thatcher’s strongest characteristic was her courage, both physical and moral. She displayed this again and again, notably when the IRA tried to murder her during the Tory Party Conference in 1984, and nearly succeeded, blowing up her hotel in the middle of the night. She insisted on opening the next morning’s session right on time and in grand style. Immediately after courage came industry. She must have been the hardest-working prime minister in history, often working a 16-hour day and sitting up all night to write a speech. Her much-tried husband complained, ‘You’re not writing the Bible, you know.’...

“Among the British public she aroused fervent admiration and intense dislike in almost equal proportions, but in the world beyond she was recognized for what she was: a great, creative stateswoman who left the world a better and more prosperous place, and whose influence will reverberate well into the 21st century.” 

--Paris’ Louvre museum closed on Wednesday due to a walk out by staff over the swarms of aggressive pickpockets, including children, sometimes working in gangs of up to 30.

The problem is the Roma....the gypsies...from Romania, for the most part. I’ve commented on these incredible dirtballs before in my trips to Paris. They should be booted out of the country. And the kids are the worst. You can be walking on the Champs-Elysees and they just suddenly surround you.

Good for the Louvre staff. Now it’s up to Paris officials to toss these folks in the sewer.

--Rather disturbing news for meat lovers, of which I’m one. According to a study in Nature Medicine, researchers have identified a substance in red meat that can clog the arteries, aside from fat and cholesterol found in a steak or White Castle hamburger.

It’s called carnitine, “and as bacteria in the gut breaks it down, it turns into a compound known to harden arteries,” as reported by Elizabeth Lopatto of the Washington Post.

“What’s more, people who eat a lot of meat allow more of the bacteria that convert carnitine to the harmful compound to grow, increasing its effect.

“Previous research has shown that high levels of meat-eating are linked to cardiovascular risk, partly because of the saturated fats and cholesterol in meat. However, the higher levels of these ingredients aren’t enough to explain the difference in heart disease between meat eaters and vegans or vegetarians. The study...may begin to explain the difference.”

Stanley Hazen of the Cleveland Clinic said: “The bacteria living in our digestive tracts are dictated by our long-term dietary patterns. A diet high in carnitine actually shifts our gut microbe composition to those that like carnitine, making meat eaters even more susceptible.”

--Speaking of health concerns, just a little while ago, 89-year-old New Jersey Democratic Senator Frank Lautenberg got all huffy when it was suggested he not run for re-election in 2014, as Newark Mayor Cory Booker’s name was floated to replace him on the ballot.

Now us New Jerseyans have learned that Lautenberg has been absent from the Senate for more than a month.

Lautenberg, in a statement, said in part, “I continue treatment for, and recuperate from, muscle weakness and fatigue. My physician continues to advise me to work from home and not travel at this time.”

Of course Lautenberg won’t do that because Republican Gov. Chris Christie could replace him with a Republican, which for a while we thought would be the case with our other esteemed senator, Democrat Robert Menendez. Alas, Menendez has survived a scandal involving a large donor...at least thus far.

“An emergency medical helicopter pilot flying over Missouri was sending and receiving text messages before crashing in 2011, the first time such distractions have been implicated in a fatal commercial aviation accident.”

Four people, including a patient, were killed. The National Transportation Safety Board documented seven texts sent and received by the pilot, according to agency records.

--Time to give President Obama credit for requesting $105 million in NASA’s 2014 budget for a mission that would capture a small asteroid, tug it near the moon, and later send astronauts to study it and grab samples.

An asteroid-capturing robot could launch by 2017, with astronauts flying to it by 2021.

But we still need to go to Mars, though it increasingly looks like the private sector may handle that one.

--Finally, we note the passing of the brilliant comedian Jonathan Winters, 87; simply the funniest man I ever saw.

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

Gold closed at $1476...down $100 on the week.
Oil, $90.66

Returns for the week 4/8-4/12

Dow Jones +2.1% [14865]
S&P 500 +2.3% [1588]
S&P MidCap +2.2%
Russell 2000 +2.1%
Nasdaq +2.8% [3294]

Returns for the period 1/1/13-4/12/13

Dow Jones +13.4%
S&P 500 +11.4%
S&P MidCap +12.6%
Russell 2000 +11.0%
Nasdaq +9.1%

Bulls 50.5
Bears 20.6 [Source: Investors Intelligence]

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

Have a great week. I appreciate your support.

Brian Trumbore

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