Week in Review

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Week in Review

04/20/2013

For the week 4/15-4/19

Wall Street...and the message of gold

Well that was one depressing week, I think you’d agree, albeit as I go to post late Friday evening, a better ending. None of us are really surprised at the terror attack on the Boston Marathon. I live a two-minute drive from one of the nation’s high-profile shopping malls and long before even the first attack on the World Trade Center, I wondered why The Mall at Short Hills hadn’t been targeted.

Equally depressing, though, was the fact that a single surviving individual could shut down the greater Boston area for an entire day, when all of us are told to “go about your business.” Kind of tough to do so when you’re given an order to stay indoors and the very sporting events that are supposed to provide some relief are canceled, as they were Friday night in Boston. You understand why such orders are made, but it’s distressing.

I thought Friday in watching the manhunt unfold that at least it’s a good dry-run for the day when Hizbullah’s sleeper cells, which everyone knows are in America, are activated as a result of an attack on Iran’s nuclear facilities or a war between Hizbullah and Israel.

The International Monetary Fund issued its twice-yearly World Economic Outlook, with chief economist Olivier Blanchard saying: “Given the strong interconnections between countries, an uneven recovery is also a dangerous one. Some tail risks have decreased, but it is not time for policy makers to relax.”

The IMF revised down its 2013 global growth forecast 0.2 percentage points to 3.3 percent and kept the 2014 forecast constant at 4 percent.

The latest Brookings Institution-Financial Times tracking index for the global economy shows it is “unable to achieve lift-off and (faces) the risk of stalling,” according to a senior fellow at Brookings.

Professor Eswar Prasad offered, “The best that can be said about the weak pace of economic activity is that it has bottomed out in some key economies.”

As for the United States, the IMF expects the U.S. to grow 1.9 percent this year and 3 percent next, as it would appear we have hit another springtime soft spot in the economy with the preponderance of recent economic data being on the disappointing side. We also remain in a surly mood, with a new AP-GfK survey revealing just 46 percent of Americans approving of President Obama’s handling of the economy, while 52 percent disapprove.

There was one bit of decent economic news, March housing starts came in at their highest annualized level since June 2008, but building permits fell 4%, not good.

March industrial production was up 0.4%, better than expected, but this was simply due to the colder than normal temperatures in the month driving the biggest gain in electricity and natural-gas use in six years. When you stripped this out, factory production actually fell in March.

Then you had a slew of corporate earnings reports and we continue to see the same trend, generally putrid top-line growth. Companies from Goldman Sachs, Morgan Stanley, Bank of America, Intel, Yahoo, General Electric and IBM all saw either falling revenues or just a slight increase.

Oh, there were companies that exceeded expectations, like Coca-Cola, PepsiCo, Google and Johnson & Johnson, but except for Google, not exactly the kinds of companies that excite the Street.

It also didn’t help when Richmond Fed President Jeffrey Lacker, in an interview with CNBC, talked of 2% growth being the trend for the foreseeable future. We need 3%, 3.5% growth quarter after quarter to finally get us out of our stupor.

And, of course, events in Boston didn’t help the mood any. Add it all up and it was the worst week of the year for stocks (see below).

On a different topic, in light of gold’s two-day slide of 14% between Friday, April 12 and Monday, April 15, what does this mean? PIMCO co-chief investment officer Mohamed El-Erian said the collapse in gold and other commodities is “signaling concerns about global growth. Commodities have been sending the signal on growth for a while, and now ever louder.”

The recent strength in the Treasury market is also signaling weakness.

Richard Bernstein, a long-time strategist, said, “Because the global economy is on the downside of a global credit bubble, it seems unreasonable to expect abnormal inflation.”

Economist Ed Yardeni: “Central banks can be opportunistic and proceed with quantitative easing now the gold market is surrendering with regards to its hyperinflation fears. They could also argue the weakness in commodity prices suggests a growth concern and so all the more reason to keep QE going.”

Jonathan Wright, a former Federal Reserve official, said, “With the recent signs of weakness, I don’t see any likelihood of monetary stimulus being even ramped down any time soon.”

Joseph Gagnon, a former Fed staffer now with the Peterson Institute for International Economics, said, “We haven’t recovered yet and we are not recovering fast. In no sense are we having an adequate recovery.”

Neil Mackinnon, a former Treasury official, now based in London: “Prior to this, markets were concerned that QE means inflation, but we’re having QE, not just at the Fed but at the Bank of Japan, and yet the global economy looks more uncertain than it did three to four months ago. Now, whether it’s wages or CPI inflation, the general picture is that inflation is still very subdued.” [Bloomberg]

And so if the above economists and experts are right, it’s not a great environment for gold.

Jeffrey Gundlach, head of money management firm DoubleLine Capital, has made some terrific market calls in recent years and this week he told USA TODAY that when it comes to the rout in gold, it’s headed lower still. Specifically, Gundlach can see gold hitting $1215, and if that falls, $1066, he says.

The current bear market in the precious metal has “smashed” the confidence of investors, Gundlach said. “That confidence will not be reversed quickly.” [But he does advocate holding some silver as a hedge.]

On the bull case for gold, hedge fund manager John Paulson, who has lost about $1.5 billion on his gold position, according to the Financial Times, is still bullish. John Reade, a partner of Paulson’s and a gold strategist, said, “Federal governments have been printing money at an unprecedented rate creating demand for gold as an alternative currency. It is this expectation of global paper currency debasement which makes gold an attractive long-term investment.”

Europe, China and Japan

The IMF sees the eurozone contracting 0.3 percent in 2013 and growing only 1.1 percent in 2014. In reporting first-quarter earnings on Friday, General Electric CEO Jeff Immelt, in talking about disappointing results in the power and water division, said, “While we anticipated significantly fewer wind and gas turbine shipments, we saw additional pressure in European power and water services.” [Revenues at the division fell a whopping 26 percent.]

The IMF also acknowledged a key issue of mine the past year or so; the credit crunch impacting small- and medium-sized companies in the periphery, where banks still face big difficulties in funding themselves at reasonable rates and passing on low interest rates to companies and households. “Many banks in the euro area periphery remain challenged by elevated funding costs, deteriorating asset quality, and weak profits,” the IMF said.

The eurozone was rocked this week by the figures on March car registrations (sales), down 10.3% from a year earlier, the 18th consecutive monthly decline.

Of particular concern was the 17% decline in Germany, with France’s auto sales declining 16%.

[Some of the leading manufacturers exhibited similar sales dips...Peugeot off 16%, Volkswagen 15%, Ford 16%, GM down 13%, Toyota 17%.]

You can’t have a key industry such as autos with these kinds of sickly numbers and expect to emerge from recession anytime soon.

In Italy, the process of electing a president to replace 87-year-old Giorgio Napolitano has been a mess, with 80-year-old Franco Marini a supposed consensus choice among the Democratic Party of Pier Luigi Bersani and the center-right People of Liberty party led by former Prime Minister Silvio Berlusconi, with the hope then that with Marini in place, Bersani and Berlusconi would finally form a grand coalition and, presto, Italy would have a government.

But Marini failed to get the two-thirds needed in the first two ballots on Thursday.

Speaking at a rally in northern Italy on Thursday, Berlusconi said if a strong government didn’t emerge “it would be better to hold elections in June.”

Bersani rival, Florence Mayor Matteo Renzi, said that the original choice of Marini “was disrespectful for the country.”

So on Friday, the Democratic-left put forward former prime minister Romano Prodi as their new candidate for head of state.

But a victory for Prodi, who twice defeated Berlusconi, would certainly lead to elections in June. For their part, Berlusconi’s supporters are now in favor of interior minister Anna Maria Cancellieri, who has received the endorsement of caretaker prime minister Mario Monti. She would become Italy’s first female president.

Beppe Grillo, leader of the activist Five-Star Movement, urged Bersani to give up his efforts, describing him as a “dead man talking.”

Late Friday, it was back to square one; efforts to elect Prodi having failed and Bersani announcing he would resign as Democratic party leader.

Germany’s parliament voted in favor of the aid package for Cyprus by a large majority, a win for Chancellor Angela Merkel as she heads to the fall elections. Cyprus is now one step closer to receiving the 10 billion euro bailout, in return for structural changes to the island’s two biggest banks as well as government finances.

U.K. retail sales in March fell 0.7% from February, owing to record-cold weather.

In Greece, about 30 migrant workers were injured in a shooting at a strawberry farm. 200 of them had gathered to request their unpaid salaries when at least one farm supervisor opened fire on the poor guys. It doesn’t seem that any were wounded critically.

IMF Chief Christine Lagarde has been summoned by a French court to answer questions over alleged abuse of power during her time as France’s finance minister. Investigators suspect Lagarde granted a sweetheart deal to businessman Bernard Tapie in 2008, who was awarded 400 million euros in a dispute with Credit Lyonnais in exchange for, according to prosecutors, his support of ex-President Nicolas Sarkozy, running for office in 2007.

The awarded sum was way out of whack with the facts of the case, but Lagarde has long denied any wrongdoing, though she said she would cooperate with the court.

I’m on record as saying Lagarde will be forced to step down from her IMF post over this case.

Turning to China, as of Friday, there were 87 confirmed cases of the deadly H7N9 bird flu in the country with 17 fatalities. A top mainland scientist said 40 percent of the people who have tested positive had no recent contact with poultry, and so it is still unclear how they contracted the virus.

Professor Xue Yu, a biologist at Huazhong University of Science and Technology in Wuhan, said researchers believed the deadly virus evolved after Chinese birds came in contact with birds from East Asian countries such as South Korea.

One case this week involved a 4-year-old who tested positive for the flu virus without showing any symptoms; leading the World Health Organization in Geneva to say the child might have caught it from “close and prolonged contact” with one of the other patients.

Peter Hotez, dean of the National School of Tropical Medicine at Baylor College of Medicine, said, “I think we’re in unknown territory. The risk is that the H7N9 virus mutates so that it no longer just jumps from birds to people, but starts to go from people to people as in all the big flu pandemics.” He added that “the likelihood of a true pandemic is still small – but not zero.”

Back in 2002, an epidemic of severe acute respiratory syndrome (SARS) broke out in Guangdong, but the Chinese government under then-president Jiang Zemin did not report it to the WHO until February 2003, after SARS was already widespread. 

SARS not only ended up killing 775 in 37 countries, but the economic cost was at least $40 billion, with tourism and business travel getting hit hard the worst.

Since reports of the H7N9 virus have emerged, China’s poultry sector has suffered losses of at least $1.6 billion. Many small entrepreneurs who sell chickens each day are wondering how they will support their families.

At least the Chinese government seems to be much more open in sharing information, but some travel agencies are already seeing a major impact on business. Restaurant sales, as you can imagine, are also suffering as people eat their meals at home.

Meanwhile, the IMF said the rate of economic growth in China would come in at 8 percent this year, despite the slower 7.7 reported pace in the first quarter that the government reported this week. This is versus 7.9 percent in the fourth quarter and 7.8 for all of 2012.

But a senior Chinese auditor, Zhang Ke, said local government debt is “out of control” and could spark a bigger financial crisis than the U.S. housing market crash.

Lastly, in Japan, March exports rose 1.1% from a year earlier, better than expected, though exports to China were down 2.5%, while to the EU they declined 4.7%.

But Takeshi Fujimaki, a former adviser to George Soros had some interesting things to say concerning the Bank of Japan’s massive monetary stimulus program, as reported by Mariko Ishikawa and Yumi Ikeda of Bloomberg.

“By expanding the monetary base to 270 trillion yen, the BOJ is making a huge bet which I think it will ultimately lose. (Governor Haruhiko) Kuroda’s QE announcement is declaring double suicide with the government. The BOJ will have to share the country’s fate and default together....

“Japan’s finance is sinking into the ocean. There’s no escape from a market crash in the future when you have such enormous debt....

“Things may look rosy for now as stocks rise, but should we see hyper-inflation, JGBs (Japanese government bonds) will see a huge selloff, leading to a stock market crash.”

Kyle Bass, a noted hedge fund manager, says that while the Japanese government is looking to produce 2% inflation, “those wishing for inflation in Japan know not what they wish for.” Greater inflation would be accompanied by a big rise in interest rates, making it more expensive for Japan to fund its enormous debt.

Bass talks about Japan’s debt being 24 times basic annual tax revenues; the comparable multiple for the U.S. is about six. Japanese tax revenues cover only about half of government spending, so debt is increasing by more than $400 billion annually. 

While Bass has no timetable for the coming financial crisis, “It’s the most obvious scenario of my adult life. The question is when.” [Barron’s]

Street Bytes

--As noted above, it was the worst week of the year for stocks with the Dow Jones losing 2.1% to 14547, while the S&P 500 lost a like amount and Nasdaq declined 2.7%.

--U.S. Treasury Yields

6-mo. 0.09% 2-yr. 0.23% 10-yr. 1.70% 30-yr. 2.88%

Treasuries caught a bid on the flight to safety trade, while the consumer price index for March saw a decline of 0.2%, ex-food and energy up 0.1%; up 1.5%, ex-1.9% for the last 12 months.

--Boeing Co. won U.S. approval for the 787 Dreamliner’s redesigned battery. The FAA said it will issue a directive next week to let flights resume once the battery fixes are made. The 787 will be allowed to travel as far as 180 minutes from the nearest airport, enabling it to be used on over-ocean routes.

--Furloughs of air traffic controllers begin on Sunday and the head of the FAA said expect delays at the major airports, such as 50 minutes extra on average at O’Hare International, based on a computer simulation. Transportation Secretary Ray LaHood said, “This is not what we signed up for. Sequestration is a dumb idea. It’s a meat-ax approach. Congress needs to fix it.”

--Two Harvard economists, Carmen Reinhart and Kenneth Rogoff, circulated a paper, “Growth in a Time of Debt,” that identified a critical tipping point for government indebtedness, 90 percent of GDP.

But some had questioned their theory and Reinhart and Rogoff allowed researchers at the Univ. of Massachusetts to look at their original spreadsheet and it was found to be full of errors. Bottom line, yes, there is a correlation between high debt and slow growth, but there is no 90 percent “threshold.”

Reinhart and Rogoff are defending their work, and also saying they never specifically said 90 percent was the tipping point.

Economist Paul Krugman, writing from his New York Times perch, is in seventh heaven.

“What the Reinhart-Rogoff affair shows is the extent to which austerity has been sold on false pretenses. For three years, the turn to austerity has been presented not as a choice but as a necessity. Economic research, austerity advocates insisted, showed that terrible things happen once debt exceeds 90 percent of GDP. But ‘economic research’ showed no such thing; a couple of economists made that assertion, while many others disagreed. Policy makers abandoned the unemployed and turned to austerity because they wanted to, not because they had to.”

--Ali Elkin of Crain’s New York Business had an interesting piece titled “Feeling the squeeze: Not just paid sick days. Rash of regs jacks up costs, stifles growth.”

“Stephen Werther woke up March 29 to discover the cost of doing business in New York had risen again. Next year, the owner of Wink fashion boutiques will shell out around $220,000 before he sells a single sundress.

“The night before, City Council Speaker Christine Quinn and labor leaders had hammered out a deal that would require thousands of small businesses to offer workers five paid days off a year. For Mr. Werther, that means an additional $80,000 after he’d already budgeted an extra $140,000 to comply with the new federal health insurance mandate.”

--The pace of growth in Russia slowed considerably in the first quarter, just 1.1% compared with 4.9% in Q1 2012. The Russian government now expects overall growth of just 2.4% in 2013. The economy is being hit by weaker oil prices, with oil and gas accounting for 60% of total exports.

--Global same-store sales at McDonald’s fell 1 percent during the quarter, while they were up 6.7 percent during the same period last year during an unseasonably warm winter.

U.S. same-store sales declined 1.2 percent in the quarter. European same-store sales fell 1.1 percent.

--IBM missed on earnings, while total revenues fell 5 percent from the same period last year to $23.4 billion, far short of the Street’s estimate of $24.7 billion. The earnings miss is only IBM’s second in the past decade. The company said a number of deals they expected to close in the first quarter will be wrapped up in the second instead.

Sales in IBM’s services business, its largest source of revenue, fell 4 percent. Hardware revenues tumbled 17 percent.

IBM’s shares plunged $17 following the news, the biggest dollar decline in 8 years.

--Google reported profit that beat estimates as advertisers increased spending on mobile and video promotions, though while revenue rose, it fell a little short of expectations. Also, the average amount that advertisers paid each time a user clicks on a promotion decreased 4 percent, though the total number of clicks rose 20 percent.

The shares, recently beaten down, rallied back $34 to $799.

--Apple sales have soared from $24.6 billion in 2007 to $156.5 billion in revenue last year and the company supports an ecosystem of at least 247 suppliers across the globe, as reported by Bloomberg. “They relied on Apple to deliver $30.1 billion in orders in the latest reported quarter...As a result, many are now vulnerable after building up inventory in anticipation of continued growth.”

Such was the case with audio-chip supplier Cirrus Logic Inc., which gets 91 percent of its sales from Apple. This week the company reported an inventory glut that suggested slowing iPhone sales and Cirrus’ shares plummeted in response.

As for Apple shares, the Cirrus news led to a decline in price to below $400 from the intraday all-time high of $705 on Sept. 21, closing at $390.

--Nokia, the Finnish mobile-phone maker seeking a comeback, reported its smallest quarterly revenue in 13 years as competition from Google’s Android software is hurting demand for Nokia’s basic handsets. First-quarter sales of 5.85 billion euros vs. analyst expectations of 6.52 billion.

--Shares in eBay fell after the company missed on revenues for the first quarter, with the company blaming macroeconomic conditions in Europe. Gee, where have you heard that before?

--Yahoo’s Internet advertising revenue cratered in the first quarter, down 11 percent, though earnings handily beat expectations. Overall revenues were off 7 percent.

--Investment firm Blackstone abandoned its bid for Dell after weeks of due diligence, citing the declining PC business, which Dell still believes will grow modestly. Investor Carl Icahn still has an offer for 58 percent of the company at $15 a share.

--Goldman Sachs reported revenues rose just 1 percent in the first quarter. Goldman said January and February were strong, but March was decidedly weak and executives sounded a note of caution going forward.

--Citigroup had a very solid first quarter, the first full one under new CEO Mike Corbat (the Financial Times calls him ‘Mike’). The bank beat on both earnings and revenues.

--The median home price in Southern California rose about $25,000 in March alone to hit $345,500, according to real estate firm DataQuick. This represents an 8% increase from February and a 23.4% jump from a year earlier.

--General Motors Co.’s global sales were up 3.6% in the first quarter, narrowly topping Violkswagen for the No. 2 slot in worldwide car sales. Toyota, which reports next week, is expected to remain No. 1.

--According to Institutional Investor’s Alpha, hedge fund manager David Tepper, who oversees $15 billion of assets at Appaloosa Management, earned $2.2 billion last year, most in the industry. Bridgewater Associates’ Ray Dalio ended the year $1.7 billion richer.

--An important but undercovered story is the port strike in Hong Kong that is in its fourth week. Contract workers were offered a 7 percent raise this week but they are demanding a 23 percent increase.

Now 23 percent may seem like an outrageous demand, but it hardly is so when you consider the cost of living in Hong Kong, which is sky high. The dockworkers currently earn $7 an hour.

For Hong Kong commerce, though, the strike is critical because it is the world’s third-largest container port behind Shanghai and Singapore and companies can easily opt to move their business elsewhere.

--The World Customs Organization issued a report on Tuesday that revealed a staggering 75 percent of all fake goods seized worldwide from 2008 to 2010 were primarily from China. Counterfeit goods also account for 2 percent of all world trade.

Transnational organized crime groups dealing in fake goods, drugs, human trafficking and illicit wildlife trade earn nearly $90 billion annually in East Asia and the Pacific, according to a separate UN report. [South China Morning Post]

And this is disturbing. According to the UN Office on Drugs and Crime, “Between one-third to 90 percent of anti-malarial drugs tested in Southeast Asia are fraudulent,” as noted by the UNODC.

--Congress’ failure for over a year to act on legislation to properly fund the U.S. Postal Service is costing us $25 million every day. Last year, the Postal Service lost $15.9 billion, seven times its deficit in fiscal 2008.

--You’ve gotta respect Mattel, the shares of which hit a nearly 15-year high this week as the company’s earnings results beat expectations. Sales of Monster High and American Girl dolls soared and Mattel has been able to increase the price of its toys around the world.

--Carnival Cruise Lines plans to spend at least $300 million to add an extra generator in each ship and upgrade fire-suppression systems in response to the high-profile malfunctions on the Carnival Triumph this year as well as other Carnival ships.

I’m assuming the upgrades include extra port-a-johns (though the added generator is supposedly to ensure toilets work at all times), as well as two tug boats lashed to each side.

--Europe-wide tests of “beef” products have found that nearly 5% were contaminated with horse meat. Nearly a quarter of all the positive tests were in France.

This doesn’t mean there is a food safety issue, but certainly it is a matter of food fraud. Like when you think you are eating Chilean Sea Bass, it’s really crappie.

Foreign Affairs

Syria: Britain and France informed the United Nations of credible evidence Syria used chemical weapons on more than one occasion since December. The two said soil samples and interviews support charges nerve agents were used in the cities of Aleppo, Homs and possibly Damascus. The Syrian government claims the opposition is using them.

James R. Clapper Jr., director of national intelligence, told a Senate panel the United States isn’t sure as yet.

Some in Europe’s intelligence community believe Bashar Assad may be using these agents in small amounts to test the West’s intentions, as well as its detection capabilities. As one senior European defense official told the Wall Street Journal, “They have a very strong feeling that Washington isn’t so eager to use the words: ‘You’ve crossed the red line.’”

Meanwhile, President Assad warned in a television interview that the war against his government risked spreading to neighboring Jordan, owing to U.S. and European support for the opposition.

“They fight al-Qaeda in Mali and they support it in Syria and in Libya, but the West doesn’t know – or perhaps it knows but is not now aware – that this terrorism will return to it and they will pay the price later in Europe and the United States.”

“Senior Obama administration officials offered a stark and even frightening picture of developments in Syria in testimony to Congress on Thursday. March, they said, was the deadliest month yet for that country’s civil war, with more than 6,000 people killed; almost one-quarter of Syria’s 22 million people have been driven from their homes....

“Worse, the intelligence community’s assessment is that the war will not end even if the regime of Bashar al-Assad falls. ‘The most likely scenario,’ said Director of National Intelligence James R. Clapper Jr., is that for ‘at least a year, a year and a half, there would be continued inter-sectoral competition and fighting.’ It will matter greatly who wins, since, as Robert S. Ford, the U.S. ambassador to Syria, put it, ‘there is a real competition under way now between extremists and moderates.’....

“CIA Director John O. Brennan summed it up: ‘I’m concerned about this fracturing of the country that is allowing certain groups such as al-Nusra to gain strength, because they have agendas inside of Syria and potentially outside that I think are contrary to U.S. national security interests.’ Among the gravest threats is that al-Qaeda or Hizbullah will gain control over Syria’s large arsenal of deadly chemical and biological weapons.”

But Army Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, told the Senate Armed Services Committee that he was not certain U.S. military forces could secure all of Syria’s chemical weapons depots.

“Senators from both parties expressed exasperation...but not as much exasperation as President Obama’s stubborn passivity deserves.”

At week’s end, though, the Pentagon announced it is sending about 200 troops to Jordan, with the possibility this is just the lead for what could be as many as 20,000 if the Obama administration decides it needs to secure Syria’s chemical weapons. 

Initially, the 200 will help deliver humanitarian aid to the refugees on the border. Defense Secretary Chuck Hagel is going to be in the region next week, visiting Israel, Jordan, Egypt, Saudi Arabia and UAE with the focus being Syria.

One side note: The Syrian Network for Human Rights (from whom U.S. intelligence got the 6,000 dead in March figure...because U.S. intelligence is incapable of doing the work themselves) reported that at least 2,300 people have died under torture in Syria’s prisons since the outbreak of the war. It added the real number could be far higher, as “there are prisons torturing people to death and then throwing away the bodies...in vacant land or rivers.”

Iran: According to sources inside the International Atomic Energy Agency, Iran has increased the number of higher-speed uranium enrichment centrifuges at its Natanz complex to in excess of 600, a rapid boost from the 180 the IAEA reported in February.

Iran has indicated it intends to eventually deploy 3,000 of the newer centrifuges at Natanz.

Iranian Atomic Energy Organization head Fereidoun Abbasi said, “At present, we have no enrichment plan for purity levels above 20 percent, but when it comes to certain needs, for example, for some ships and submarines, if our researchers need to have a stronger underwater presence, we will have to make small engines which should be fueled by 45 to 56 percent enriched uranium. In that case, we might need this fuel.”

Understanding weapons-grade uranium requires an enrichment level of about 90 percent, the time it takes to go from 20 to 90 percent is relatively short....and that would be the definition of “break out” that Israel, for one, will not allow (also assuming Iran has close to the 3,000 centrifuges at Natanz...let alone what Iran might be doing at Fordow).

This week, Israeli Prime Minister Benjamin Netanyahu, in London to attend the funeral of Margaret Thatcher, also held talks with Prime Minister David Cameron.

Netanyahu reiterated to the BBC that Iran and its nuclear program posed a direct threat to world peace, which could only be stopped by a “direct military threat,” not sanctions or tough diplomacy.

“Other countries, once they see Iran getting nuclear weapons, will rush to get their own nuclear weapons and then the Middle East will become a tinderbox,” he said.

Netanyahu added that the current North Korea crisis has shown world leaders what could happen when a rogue state acquired nukes.

Iraq: A resurgent al-Qaeda in Iraq launched a wave of bombing attacks in the country that killed at least 55 on Monday ahead of Saturday’s local elections that are a test of strength for Prime Minister Nouri al-Maliki; the first elections since U.S. troops withdrew.

Al-Qaeda in Iraq recently announced it was aligned with the Syrian militant group, the Nusra Front, and violence has intensified since the two hooked up.

At least 15 candidates have been killed in recent weeks.

Israel: Salam Fayyad resigned as prime minister of the Palestinian Authority, a blow to any peace efforts as he is the most respected leader among the group. Fayyad has had major differences with PA President Mahmoud Abbas. It’s a blow to the White House because the topic of Fayyad staying on was part of President Obama’s discussions with Abbas in Ramallah last month.

China: The military issued its eighth defense white paper in 15 years, warning the country faces “multiple and complicated” security threats.

The Ministry of National Defense document pledged to build a strong military “commensurate with China’s international standing, and to meet the needs of its security and development interests.”

It also made veiled criticism of America’s so-called pivot to Asia-Pacific, implying that Washington’s rebalancing of its military forces towards the region had worsened tensions.

“Some countries are strengthening their Asia-Pacific military alliances and expanding their military presence in the region, frequently making the situation there more tense,” it said, without naming any state.

But it did add, “the United States is adjusting its Asia-Pacific security strategy, and the regional landscape is undergoing profound changes.”

The white paper also made a special mention of Japan, accusing it of “making trouble” over the Diaoyu Islands in the East China Sea.

And the document cites the U.S.-Japan military alliance as being among China’s greatest challenges. [Minnie Chan / South China Morning Post]

North Korea: Last weekend, with U.S. Secretary of State John Kerry in the region, Chinese Premier LI Keqiang warned Pyongyang to stop being provocative.

“Provocations on the Korean Peninsula will harm the interests of all sides and it is the same as picking up a rock to drop it on one’s feet.”

Sec. of State Kerry said of his meetings in Beijing, “China is firmly committed to upholding peace and stability and advancing the denuclearization process on the Korean peninsula.”

For its part, the United States, said Kerry, was “prepared to reach out (to Pyongyang) but we need the appropriate moment, appropriate circumstance....They have to take some actions.”

But at the end of the day, nothing happened, no missile launch as feared on Kim Il Sung’s birthday, Monday. And on Thursday, the North’s National Defense Commission issued a statement that “If the U.S. and the South enemies...genuinely want dialogue and negotiation, they should take these steps.

“The first step will be withdrawing the UN Security Council resolutions cooked up on ridiculous grounds.

“Second, you need to tell the whole world that you will not get involved in any rehearsal for a nuclear war that threatens our nation. Dialogues and war games can never go together.”

“For two decades U.S. officials have pretended that Pyongyang will give up its weapons and that its technological progress is too slow to pose a real threat. Now we’re learning the opposite is closer to the truth. A wiser policy begins by recognizing that no negotiation is going to end what will sooner or later become the North’s ability to kill millions of Americans. The only way to end the threat is a new policy aimed at ending the regime.”

Russia: Kind of ironic, after all the talk of Chechnya at week’s end, that the Washington Post had issued an editorial concerning its leader the day before the Boston bombing suspects were identified.

“According to the State Department, the government of the Russian republic of Chechnya under Ramzan Kadyrov ‘has committed and continues to commit such serious human rights violations and abuses as extrajudicial killing, torture, disappearances and rape.’ Mr. Kadyrov, State added in an August 2011 letter, ‘has been implicated personally’ in ‘the killing of U.S. citizen Anna Politkovskaya, a journalist who had reported widely on human rights abuses in Chechnya.’

“Yet when the Obama administration released on Friday a list of Russian officials who are to be subject to a visa ban and an asset freeze because of their complicity in human rights crimes, Mr. Kadyrov was not on it. The list of names – mandated by Congress in legislation that the administration strongly resisted – is a step toward holding the regime of Vladimir Putin accountable for its abuses, but it also is another example of President Obama’s questionable catering to the Kremlin.

“Sixteen of the 18 names on the sanctions list are connected to Sergei Magnitsky, a whistleblowing Russian lawyer who died after being imprisoned and abused; it was his case that prompted Congress to pass the law last year....

“Administration officials concede, however, that some names were left off the list for political reasons. One is Mr. Kadyrov.”

And here’s an unsettling tidbit. Russia intends to load 16 Bulava ballistic missiles on each of its new Bori-class submarines, as reported by Interfax.

“Sixteen missiles are enough to deliver a nuclear strike,” according to one unidentified private defense sector insider. “What is more important is to be able to clandestinely reach an attack position and launch missiles on designated targets.”

The Bulava missile is designed to fly 5,000 miles and carry as many as 10 warheads.

Finally, the trial of Russia opposition leader Alexei Navalny, the 36-year-old accused of leading an organized criminal group that embezzled $500,000 worth of timber from a state-owned company, was adjourned for a week to allow the defense more time to prepare.

Navalny insists the charges are intended to silence him.

Pakistan: Former military ruler Pervez Musharraf came home after years in exile last month, expecting to make a political comeback and instead he is under arrest.

On Thursday, Musharraf fled the halls of the High Court after a judge ordered his arrest. He then fled to his fortress compound and was placed under house arrest.

Then on Friday, he was escorted out and was formally charged in an Islamabad court. He then returned to his compound. He is expected back in court in a day or two. Totally bizarre.

But also a show of force on behalf of the courts that the military can’t take too kindly to, while at the same time, with a general election slated for May 11, not only was Musharraf disqualified as a candidate by the election commission, the favorite to win, Nawaz Sharif, is the onetime prime minister whom Musharraf overthrew to seize power in 1999.

Venezuela: Socialist Nicolas Maduro, the hand-picked successor of the late Hugo Chavez, won a surprisingly narrow victory in the country’s presidential poll, 50.7% to 49.1% for opposition leader Henrique Capriles. Capriles, who lost to Chavez by ten points in October, demanded a recount. At least seven died in post-election violence, but demonstrations slated for Wednesday by supporters of Capriles were postponed at his request.

At first, Maduro acted like he had no problem with a recount, but then he hardened his position and the National Electoral Council ruled him the leader.

Election officials then agreed days later to conduct an audit of the results, which they said would take a month to complete. The five-member electoral council are viewed as supporters of the government so the decision to proceed with an audit is a bit surprising.

As for the margin of victory, this is hardly a good sign for Maduro, who is weak and no Chavez. I suspect, as the economy continues to crater, with food shortages already a fact of life, that the military will remove him.

The military is also tired of Venezuela’s ties to Cuba, including in giving massive energy aid to the Castro regime to the tune of $4 billion, which saves the Cuban economy from total collapse.

Maduro was inaugurated on Friday and during his speech, a man grabbed the microphone and was dragged away, after which Maduro criticized security saying he could have been shot. Unreal. 

Random Musings

--President Obama’s key legislative effort to overhaul the nation’s gun laws in response to the Newtown, Conn., massacre, suffered a resounding defeat on Wednesday; the defeat of a measure to expand background checks to most gun sales.

Nine in 10 Americans support the idea, but the vote to support the Manchin-Toomey proposal, 54-46, was short of the 60-vote threshold required for approval.

In other votes, just 40 senators supported the assault-weapons ban and 46 supported limiting the size of magazine clips.

“Startlingly, more senators, 57, voted for a provision that would greatly expand gun rights – allowing people with permits to carry concealed weapons in their states to carry them nationwide – than supported expanding background checks.” [Ed O’Keefe and Philip Rucker / Washington Post]

By the way, New Jersey Dem. Sen. Frank Lautenberg, who I wrote last week was incapacitated, showed up to cast his “aye” vote. Whatever.

“A cowardly minority of senators blocked a gun background-check proposal on Wednesday, in one vote betraying both the will of the American people and the charge voters gave them to work in their interest. But at least those senators avoided a rebuke from the National Rifle Association.

“Expanding background checks on would-be gun buyers is an idea that almost everyone endorses, because it’s an obvious thing to do. It doesn’t infringe on Second Amendment rights. It doesn’t restrict what weapons people can buy, as an assault-weapons ban or restriction on large-capacity magazines would. It closes some glaring loopholes in the system that are more than a decade old, loopholes that allow people to buy vast quantities of deadly weapons at gun shows and on the Internet without having their names checked against mental health and criminal records. Ninety percent of Americans support this reform.

“The proposal before the Senate on Wednesday would not even have required a background check before every gun transfer. Sen. Joe Manchin III (D-W. Va.) and Sen. Patrick J. Toomey (R-Pa.) had worked out a compromise that would have allowed person-to-person gun transfers in non-commercial settings to occur without scrutiny. But, along with new measures to crack down on ‘straw purchases,’ the plan would have helped keep guns from those who should not have them. The proposal was, in other words, the very least - the bare minimum – that lawmakers could do to prevent more guns from ending up in the wrong hands...

“Perhaps most insulting was the bizarre conspiracy theories on which many of the opponents grounded their disapproval. Sen. Ted Cruz (R-Tex.), for example, claimed that passing the Manchin-Toomey plan would put the country ‘inexorably on the path to a push for a federal registry.’ Yet the proposal specifically outlawed any national gun registration scheme – and federal authorities wouldn’t have been allowed to keep background-check records.”

--John McCain and Charles E. Schumer / Wall Street Journal

“This week, we join a bipartisan group of six senators to introduce comprehensive immigration-reform legislation. This is the first step in what will be a very difficult but achievable process to fix the nation’s broken immigration system once and for all. The legislation’s approach is balanced: It is firm in cracking down on illegal immigration but sensible when it comes to legal immigrants...

“This legislation is truly comprehensive. It would provide a credible way for undocumented immigrants to apply for legalization and eventually citizenship – but only after specific, achievable steps have been taken, including securing our southern border with the deployment of unmanned aerial vehicles and other proven surveillance capabilities. We believe that Americans will accept a common-sense approach to the 11 million undocumented immigrants who are here now, and to prospective legal immigrants, provided that there will be no future waves of illegal immigration...

“A healthy, functioning immigration system is vital to securing the integrity of America’s sovereign borders, advancing our economic growth, and protecting human dignity. We believe our legislation represents a responsible, humane and enduring solution to the problem of the millions who are here illegally while continuing to attract and assimilate some of the most skilled talent the world has to offer – but only if we also make good on broken promises to secure U.S. borders and enforce the law.”

--President Obama’s overall job approval remains stuck at 50 percent in the latest Washington Post / ABC News poll. Actually, among registered voters it is just 47 percent (49 percent disapprove). 

“Traditional, proud, patriotic, martial and uncompromisingly British: this was the funeral Margaret Thatcher wanted; and in death, as in life, what she wanted, she got.

“Every bar of music, every soaring hymn, every prayer, every guest, and every shaft of sunlight pouring through the windows of St. Paul’s Cathedral, seemed to have been summoned in testament to a woman who, as the Bishop of London observed in his funeral address, had become ‘mythological’ long before she died....

“Margaret Thatcher’s ways were not always gentle, her path was seldom peaceful, and her funeral will not end the debate about her life and legacy – but that, too, was exactly how she would have wanted it.”

--It just sucks when someone is falsely identified as a suspect in a crime, none more so than in the case of Salah Barhoum, whose photo was splashed on the cover of the New York Post as being a suspect in the Boston Marathon bombing. Barhoum and a friend were labeled by the Post as “Bag Men.” The poor 17-year-old is Moroccan and a high school track star. The kid also works at Subway and he and his parents called a press conference to clear his name.

His father asked, “Who will pay for the mistake? It is us. I can’t send my kid to school!”

We wish him the best going forward. Needless to say, the New York Post was beyond being irresponsible...wait 24 hours, jerks.

--While it’s easy to say, “We won’t let the terrorists win,” the fact is marathons and other big races can’t be secured the entire route. And runners carry bags. It’s just impossible to screen everyone lining a 26.2 mile course, as opposed to securing a stadium. 

Some marathons, such as the Marine Corps Marathon, have long had strict security in place, at least for runners, but more local events just don’t have the resources (without pricing themselves out).

Then again, you have to secure shopping malls and big tourist attractions. Everyone has been pointing this week to the case of Faisal Shahzad, the man who tried to explode a car bomb in Times Square in New York City, May 2010. We just caught a break in that one.

But as an editorial in the Wall Street Journal concluded:

“In particular an anti-antiterror media and legal industry has developed in recent years claiming that police tactics like pre-emptive surveillance are no longer necessary. Al Qaeda is all but defeated, they say, so we can relax. But as New York Police Commissioner Ray Kelly points out, the NYPD has helped to foil 16 plots against the city. Many of them involved homegrown terrorists like Shahzad, who often won’t be detected without surveillance or informants in communities that might produce killers.

“Boston shows that the terror threat continues to be real, and that the price of even a peaceful marathon is constant vigilance.”

--Pope Francis named eight cardinals from around the globe to a permanent advisory group to counsel him on running the Catholic Church and reforming the Vatican bureaucracy...one cardinal from each part of the world, an extraordinary move. Francis got the idea from the pre-conclave meetings where complaints were aired about the Vatican being unresponsive to the needs of those in other parts of the world.

--We note the passing of USA TODAY founder Al Neuharth, 89. Yes, when McPaper first came out it was criticized, but it was a lifesaver for travelers, pre-Internet days in particular.

And wouldn’t you know...Neuharth turned it into an outstanding paper over the years, with excellent national, business and, of course, some of the best sports coverage around.

--NASA’s planet-hunting telescope discovered three planets that could support some sort of life, i.e., they contain water. These are Earth-sized bodies orbiting nearby stars; “Goldilocks” worlds, as NASA put it; not too hot and not too cold for water.

The discoveries were made by the Kepler space telescope and reported in the journal Science. One, Kepler-62, is the closest, but still 1,200 light years away (708,000 trillion miles). One of the two ocean-friendly planets has a “year” of 122 days, so similar to the NHL strike-shortened season, just to break it down further; not that NASA thinks in these terms.

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

Pray for the victims of the terror spree in Boston. 

Gold closed at $1395 [Last week I said gold closed at $1476...there were a number of different closing prices that day....ranging from $1476 to $1488 and $1501. I’m going to change the figure on my long-running handwritten tally to $1501. But I’m not changing the site data. And, of course, in terms of key numbers, the $1476 isn’t real important after setting a new cycle low beyond that of $1360.]
Oil, $88.01

Returns for the week 4/15-4/19

Dow Jones -2.1% [14547]
S&P 500 -2.1% [1555]
S&P MidCap -2.4%
Russell 2000 -3.2%
Nasdaq -2.7% [3206]

Returns for the period 1/1/13-4/19/13

Dow Jones +11.0%
S&P 500 +9.0%
S&P MidCap +9.9%
Russell 2000 +7.4%
Nasdaq +6.2%

Bulls 47.4
Bears 20.6 [Source: Investors Intelligence]

Nightly Review video schedule, Mon. thru Thurs., approx.. 5:30 PM ET. I had a major issue on Thurs. and I need to work some things out....so hopefully 5:30 it is.

Hopefully the coming week is better than the last one.

Brian Trumbore

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