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For the week 10/14-10/18
Washington and Wall Street
“The only reason the Democrats don’t look terrible is because we look worse.”
--Missouri Republican Senator Roy Blount
“We didn’t get anything. This has been a total waste of time. I think they think they won somehow. Whatever echo chamber they live in, they’re only hearing good things.”
--New York Republican Congressman Peter King
The government reopened thanks to a deal brokered by Democratic Senate Majority Leader Harry Reid and Republican Senate Minority Leader Mitch McConnell that funds the government until January 15, while extending the $16.7 trillion, and growing, debt ceiling until Feb. 7. At the same time a 29-member joint House-Senate conference committee is to report back to Congress with a budget plan by Dec. 13, which would leave the House and Senate time to work through it by the Jan. 15 deadline.
The Senate voted 81-18 to approve the deal, the House 285-144, with 87 Republicans going along with the package. For the time being, sequestration (across-the-board spending cuts falling mainly on the Pentagon) remain in place.
But Republicans still want to see entitlement reform, particularly with regards to Medicare and Medicaid, as well as the rollback of Pentagon cuts in the sequester, while Democrats continue to seek tax increases and changes to the sequester pertaining to non-defense discretionary pet programs.
Most, such as President Barack Obama, said after the 16-day shutdown that it was an incredibly stupid exercise that inflicted needless pain on millions of Americans, including those whose businesses were tied tangentially to the government institutions that were closed.
Blackrock CEO Larry Fink said the “damage had already been done.”
Former jack-of-all-trades in various administrations, Leon Panetta, correctly summed up that there was a total “breakdown in trust” in Washington.
Republicans could have focused on the individual mandate of ObamaCare and instead, led by the Tea Party crusaders, went after defunding ObamaCare totally.
Before an agreement was reached, a Pew Research Center Poll had 74% of registered voters wanting to see most members of Congress defeated in 2014 (normally the percentage is about half in a similar point in the election cycle), though last year 90% of House members won re-election, 91% of senators. [Curiously, providing some hope for Republicans, the Pew poll did find 42% saying Republicans can better manage government vs. 39% who pick the Democrats.]
In an ABC News/Washington Post survey, a record 74% disapprove of the way Republicans in Congress handled the ongoing budget crisis, 61% disapproved of Democrats, 53% disapproved of President Obama’s work on the topic.
Among independents in this poll, 58% disapproved of Obama, 68% congressional Democrats, 76% congressional Republicans.
The morning after the late-night signing of the legislation reopening government, President Obama blamed Republicans who had “pushed for the shutdown,” creating a spectacle of poor governance that tarnished America’s credibility in the world.
“It’s encouraged our enemies, it’s emboldened our competitors, and it’s depressed our friends, who look to us for steady leadership,” he said.
I don’t disagree with the wording, just the messenger, witness the flip-flop on Syria, to cite one obvious recent example.
The president then correctly said the crisis had caused “completely unnecessary” damage to the economy, adding, “Let’s be clear. There are no winners here. The American people are completely fed up with Washington.”
Instead of a conciliatory tone, though, Obama pointed the finger at Tea Party Republicans.
“You don’t like a particular policy or a particular president? Then argue for your position. Go out there and win an election. Push to change it. But don’t break it. Don’t break what our predecessors spent over two centuries building. That’s not being faithful to what this country’s about.”
Ah, Mr. President? They (the Tea Party) did win elections. It’s just that their strategy could not have been worse.
And it was Leon Panetta who took a not so veiled shot at the president he once served for being so aloof during the whole crisis.
“You have to engage in the process,” said Panetta. “This is a town where it’s not enough to feel you have the right answers. You’ve got to roll up your sleeves and you’ve got to really engage in the process...that’s what governing is all about.”
So what now? The differences between the two sides are seemingly intractable, but I’m actually optimistic there will be a minimal compromise and another shutdown will be avoided.
As for the Cruzaders, I agree with New Hampshire Republican Senator Kelly Ayotte.
“If they’re saying the defunding issue is going to come up again in three months, then they’ve learned nothing from this. We’ve been asking from the beginning, what’s the end game? How do you achieve what you’re purporting to achieve on defunding ObamaCare? And I never got an answer to that and I don’t think there still is an answer to that. If we learned nothing else, I hope we learned that we shouldn’t get behind a strategy that cannot succeed.”
Those of us who call ourselves Republicans (until I can find a viable third party....then it’s ‘Adios, Amigos!’) want to win elections. Nothing that has transpired the past few weeks helps in that regard and while the House is more secure than some are saying, any opportunity at winning back the Senate may have just floated by.
No doubt, though, the rollout of ObamaCare has been an unmitigated disaster and as I said the other week, I’m going to ignore every single data point thrown at me by our government for months to come. For starters, just understand their figures on applications filled out is totally bogus as it undoubtedly includes the same person signing up, cancelling, signing up, cancelling....
Christopher Weaver and Louise Radnofsky / Wall Street Journal, Oct. 18
“Insurers say the federal health-care marketplace is generating flawed data that is straining their ability to handle even the trickle of enrollees who have gotten through so far, in a sign that technological problems extend further than the website traffic and software issues already identified.
“Emerging errors include duplicate enrollments, spouses reported as children, missing data fields and suspect eligibility determinations, say executives at more than a dozen health plans. Blue Cross & Blue Shield of Nebraska said it had to hire temporary workers to contact new customers directly to resolve inaccuracies in submissions. Medical Mutual of Ohio said one customer had successfully signed up for three of its plans.
“The flaws could do lasting damage to the law if customers are deterred from signing up or mistakenly believe they have obtained coverage.
“ ‘The longer this takes to resolve...the harder it will be to get people to [come back and] sign up,’ said Aetna Inc. Chief Executive Mark Bertolini. ‘It’s not off to a great start,’ he said, though he believes the marketplaces are ‘here to stay.’....
“Health-department officials have pressured insurers to refrain from commenting publicly about the problems, according to executives at four health plans, who asked not to be named. The HHS declined to comment.
“In prolonging the battles over the budget and debt ceiling, ‘all Republicans did was give [President Obama] great cover for the complete screw-up on the opening of the exchanges,’ said Gail Wilensky, a Medicare director in the administration of George H.W. Bush and UnitedHealth Group Inc. board member.”
To present the Tea Party angle, the following is from Jim DeMint’s op-ed in the Wall Street Journal; DeMint being the former South Carolina senator who is now president of the Heritage Foundation.
“Now that the government shutdown has ended and the president has preserved ObamaCare for the time being, it’s worth explaining why my organization, and other conservatives chose this moment to fight – and why we will continue to fight. The reason is simple: to protect the American people from the harmful effects of this law....
“Supporters of ObamaCare usually defend the law by insisting that they want to help people. I won’t question their motives. I do wonder, however, if they understand what they’re doing to the country.
“We know that premiums are going up due to ObamaCare... The hardest-hit states, such as Georgia, Arizona, Vermont and North Dakota, will see premium increases of up to 150%....
“We also know that, once established, the cost of ObamaCare’s new entitlements will not fall....
“(For example), government officials originally projected that Medicare Part B physician services would require ‘federal appropriations of about $500 million a year from general tax revenues.’ Last year, the federal outlay for that program was $163.8 billion – overshooting the original estimate by more than 4,400%.
“Given this track record, the Congressional Budget Office’s projection that ObamaCare will cost ‘only’ $250 billion (you read that right: a quarter-trillion dollars) a decade from now seems far-fetched....
“Yes, I can hear many conservative friends saying to me right around this point: ‘Jim, we agree with you that ObamaCare is going to wreck the country, but elections have consequences.’ I have three responses.
“The first is that ObamaCare was not the central fight in 2012, much to the disappointment of conservatives....
“Second, the lives of most Americans are not dominated by the electoral cycle. They shouldn’t have to wait three more years for Congress to give them relief from this law, especially when the president has so frequently given waivers to his friends....
“There’s a third reason not to stop fighting. Forget the consultants, the pundits and the pollsters; good policy is good politics.... (ObamaCare) and its failings have been front and center in the national debates. Its disastrous launch was spotlighted by our defund struggle, not overshadowed, as some contend. With a revived and engaged electorate, ObamaCare will now be the issue for the next few years.”
So it’s going to be another interesting few months coming up. Wall Street sloughed off the chaos in D.C. and rocketed to new highs (in the case of the S&P 500), in no small part because the Federal Reserve clearly won’t begin tapering its bond-buying program for the foreseeable future with all the renewed uncertainty created by Washington that only damages the economy, let alone consumer confidence heading into the critical holiday shopping season.
But going back to last February and May, in particular, related to the release of various Congressional Budget Office reports on the projected budget deficit going forward, I have warned that on the fiscal front this is a very dangerous time for America.
Yes, the deficits are coming down and will continue to do so the next two years. While on the surface this is good, it provides cover for the likes of President Obama, who disingenuously spews certain figures on how the deficit is being reduced without putting it in any kind of context.
So I’ll once again provide the context that matters... pertaining to one not so small item, my favorite...interest expense.
We will not be in this current zero interest rate environment forever, as I would hope you are all aware.
Interest expense, I remind you, will come in for fiscal 2013 (which ended Sept. 30 and I’m not sure when the official numbers will come out with the shutdown and all, but soon) around $230 billion.
The CBO projects that when rates normalize, somewhere between 2019-2022, by F2022, interest expense will shoot up to $760 billion.
Just as I’ve written constantly that if you want to know Iran’s true intentions on its nuclear weapons program you need look no further than how they have denied the International Atomic Energy Agency’s inspectors access to the Parchin military site, that they have now paved over, when it comes to understanding the implications of what will be an exploding budget deficit as Baby Boomers retire (after this brief break), you need to understand just one figure, interest expense, to see the crisis we’re hurtling towards. That is $760 billion (maybe $650 billion if we’re lucky, $850 billion if we’re not) that can’t be used for discretionary pet projects. Universal pre-K? I don’t think so.
It’s a dangerous time in America on the fiscal front because the entitlement issue must be addressed today. Not 2015, when it will be even easier to kick the can down the road, or 2017.
Today. Moves made now have a multiplier effect. We’ve seen this in the past when Social Security has been reformed.
I understand what the Tea Party is trying to accomplish, I just vehemently disagree with the methods. Hopefully, at some point next year ObamaCare is so onerous, yes, some Democrats, fearful of the backlash at the voting booth, will switch sides.
But the votes aren’t remotely there today, never were. I got a kick out of those who also never brought up what was required to overturn the inevitable presidential veto, were they to have been lucky enough to peel away five Democratic senators.
Lastly, again, President Obama was correct in talking of the damage done to our credibility overseas.
Many a time, such as during the Abu Ghraib debacle, I have said America has to be perfect. Of course this is impossible, but as the lone superpower we have to strive for that. When you command respect, you often don’t need to draw a gun as well.
We can, however, over time get our mojo back. We will. I just can’t imagine it will be under the leadership of the current occupant of the White House.
“On an October morning in the Crimea, 1854, British Lord Cardigan led his 600-strong cavalry force into a frontal assault of a fully dug-in and alerted Russian artillery battery. The charge was courageous. And it was suicidal.
“The Light Brigade was ripped apart in the Valley of Death....
“The Republican Party is in a disorderly retreat from its own Valley of Death, having been led there by Sens. Ted Cruz and Mike Lee, flanked by drummers Heritage Action, FreedomWorks, Senate Conservatives Fund, and Club for Growth. Their cause was just, their charge courageous. And it was utterly suicidal. They were mowed down by a Democratic Party that was dug in, fully alerted and had every advantage.
“Conservatives are now left to survey the carnage. And where to begin? The generals chose to turn their Defund ObamaCare operation into a litmus test of party purity, browbeating Republicans into issuing the one threat that Democrats understood was no threat at all: a government shutdown.
“Mr. Obama and his team spent two weeks gleefully shelling Republicans for the government furloughs, the risk to the economy, their own confusion. The shutdown did unite one side: the Democratic Party, which hardened its resolve to do whatever necessary to protect the president’s signature initiative.
“The GOP’s approval ratings tanked – to the lowest in Gallup history. (Didn’t Heritage claim America supported this action?) Not long ago, Republicans were positioning themselves to employ a tough stance over the debt limit and the sequester to extract further budget concessions. By this week, weakened, divided, at risk of shouldering blame for default on top of the shutdown, they were forced to settle. They got little from this deal, save the right to do it all again....
“The defunders managed one thing: to turn the Republican Party upon itself. Millions of frustrated conservatives who were told this fight was winnable are now furious at Republicans for not doing the impossible. This fury risks undermining what is in fact the GOP’s best shot at taking down ObamaCare: winning next year’s midterm elections....
“The Americans who supported the defund mission did so for the right reasons. They are correct the law is a disaster....
“But none of that changes the fact that Defund ObamaCare was the wrong fight, at the wrong time, facing impossible odds, and conducted by generals who lacked an endgame. Being right isn’t always enough.”
“When the history is written, I suspect the brutal budget battle transfixing the nation will be seen as much more than a spectacular partisan showdown. Careful historians will, I think, cast it as a symbolic turning point for post-World War II institutions – mainly the welfare state and the consumer credit complex – that depended on strong economic growth that has now, sadly, gone missing. The story behind the story is that prolonged slow growth threatens to upend our political and social order.
“Economic growth is a wondrous potion. It encourages lending because borrowers can repay debts from rising incomes. It supports bigger government because a growing economy expands the tax base and makes modest deficits bearable. Despite recessions, it buoys public optimism because people are getting ahead. The presumption of strong economic growth supported the spirit and organizational structures of postwar America.
“Everyday life was transformed. Credit cards, home equity loans, 30-year mortgages, student loans and long-term auto loans (more than 2 years) became common. In 1955, household debt was 49 percent of Americans’ disposable income; by 2007, it was 137 percent. Government moved from the military-industrial complex to the welfare state. In 1955, defense spending was 62 percent of federal outlays, and spending on ‘human resources’ (the welfare state) was 22 percent. By 2012, the figures were reversed; welfare was 66 percent, defense 19 percent. Medicare, Medicaid, food stamps, Pell grants and Social Security’s disability program are all postwar creations.
“Slow economic growth now imperils this postwar order. Credit standards have tightened, and more Americans are leery of borrowing. Government spending – boosted by an aging population eligible for Social Security and Medicare – has outrun our willingness to be taxed. The mismatch is the basic cause of ‘structural’ budget deficits and, by extension, today’s strife over the debt ceiling and the government ‘shutdown.’....
“What looms – it’s already occurred in Europe – is a more contentious future. Economic growth serves as social glue that neutralizes other differences. Without it, economic and political competition becomes a game of musical chairs, where ‘one person’s gain is another’s loss,’ (as economist Stephen D.) King writes. There’s a ‘breakdown of trust,’ as expectations are continually disappointed. It’s an often-ugly process that is convincingly confirmed by Washington’s current political firestorm.”
“The debt drama in Washington stirred a jumble of emotions in Europe. Cold fear that a U.S. default could tip the world back into a slump jostled with Schadenfreude as Europeans recalled the stern American lectures on their handling of the euro crisis. The eurozone may be dysfunctional, but so too is the U.S. Humility is called for: the eurozone has danced the edge of the economic precipice for three years. The latest episode in America’s fiscal tragicomedy ran for three weeks.
“By the end, a last-minute deal looked as inevitable as have been Germany’s 11th-hour decisions to underwrite the single currency. If the U.S. economy had fallen over the cliff, the Republicans would have gone with it. Some of the Tea Party crowd were ready to take the leap, but enough Republicans recoiled from the idea of collective suicide.
“As with the myriad euro fixes, the debt ceiling deal is temporary and conditional. The eurozone no longer faces existential crisis, but a recent spluttering of economic growth cannot be counted a recovery. The eurozone still lacks a scheme that melds national responsibility with mutual solidarity. In Washington, likewise, disaster has been averted, but President Barack Obama and congressional Republicans will soon return to the fight.
“I used to think Republicans had been blinded by ideology. Now I see the method in the madness. The obsessive effort to derail ‘ObamaCare’ speaks to an explicable fear. They judge that, once bedded down, universal health provision will be popular and irreversible. So it is now or never. They are right. When last did a government take away its voters’ access to medical care?....
“Shared adversity looks unlikely to bring Europe and the U.S. closer together. Even as Washington and Brussels negotiate an Atlantic trade and investment agreement, the pervasive sense is of old friends and allies talking past each other. Europeans cannot accept that the U.S. is no longer run by familiar east coast elites; Americans ask what an introspective Europe has to offer in managing the rise of Asia....
“Mr. Obama’s European honeymoon was short-lived. He had been blessed by his predecessor, but the simple fact of not being George W. Bush bestowed only so much credit. Subsequent stumbles and missteps have punctured expectations that had been set way too high.
“For all that, the present level of pessimism is striking. When the White House backed away from air strikes against Syria, France felt it had been left high and dry. President Francois Hollande was within hours of ordering French forces into action. There had been no hint of an imminent American volte-face. France had taken Britain’s place at the feet of the U.S. and, in the wry words of a British official: ‘Now they (the French) know how it works.’....
“The bundle of contradictions in the relationship says as much about an insecure Europe as it does about a selfish U.S. Battered by economic troubles and deeply uncertain about the future of their own continent, Europeans have lost confidence as the U.S. has lost interest. They would prefer it if the world went away. Failing that, they are left with grumbling about the Americans.”
Europe and China
First, some economic data on the eurozone and Europe, overall. In the former, industrial production rose 1% in August over the prior month (up 8.2% in Portugal, up 1.8% in Germany, 0.2% in France, and down 0.3% in Italy).
September new car sales (or ‘registrations’ as it is known over there) rose the most in two years, 5.5% from a year earlier, narrowing the nine-month decline for the year to 4%. Spain’s sales soared 29%, thanks to a government incentive program. Dealer rebates in Germany were the highest in months yet sales declined 1.2% in the Land of Merkel. Registrations were also down in Italy, 2.9%, again, year-over-year. General Motors’ sales were up 5.4% in Europe for September over Sept. 2012, while Ford’s rose 5%.
As for the politics of Germany, Chancellor Angela Merkel and her Christian Democratic Union (CDU) reached an agreement to hold coalition talks with the 2005-09 grand coalition partners, the Social Democrats (SPD), assuming the SPD’s party convention okays it this weekend. Talks will then go on for weeks and culminate in a SPD party referendum before the two sides sign a coalition treaty.
If the referendum does not go well (and this is no slam dunk), then snap elections would have to be called. The whole process will be wrapped up by late November or December, according to the current timetable. Ergo, this could be a negative surprise down the road. But I’ll be keeping you informed, sports fans!
Meanwhile, the Green Party said no to Merkel’s coalition invite, as expected, though talks were amicable. [The Greens want a mandatory minimum wage and to raise taxes on the rich.]
In Spain, while there is talk of a recovery, at least from government officials, the nation’s banks remain a mess, still crippled by the 2008 real estate market crash. Some of the institutions refuse to acknowledge the bad loans on their books, at least to the extent that it would be real data. Spanish banks (like Italy’s) also hold a disproportionate share of government bonds, like about 10% of total assets for both, which leaves the banks and governments exposed to another round of shocks, such as a credit rating downgrade.
And you have this, from the Oct. 12 issue of The Economist:
“The Prado museum, lined with works by Goya, Velazquez and El Greco, is a sanctuary of peace in busy central Madrid. When the museum advertised for eleven gallery attendants recently, it also seemed the perfect refuge from Spain’s job-starved economy: 18,700 people applied....
“Civil-service pay is being frozen for a fourth year in a row and pensions will not keep up with inflation, yet the public debt will still reach almost 100% of GDP.”
But car plants are humming, “taking work from less competitive factories in Europe. Retail sales figures are improving elsewhere. Even consumer credit has crept up in recent months.”
Then again, you keep going back to housing. Prices are down 30% but could easily fall another 20%.
Meanwhile, a bright spot for the eurozone is Ireland...maybe.
You see, the Emerald Isle will become the first eurozone country to exit an international bailout in mid-December when it hits the bond market without a financing backstop from its European partners. Prime Minister Enda Kenny said last weekend at a gathering of his Fine Gael party that “the economic emergency will be over” as IRL exits its 85 billion bailout.
“There’s still a long way to go. But at last, the era of the bailout will be no more,” he said.
But I read a lot from Ireland and the economic recovery is still extremely fragile, and, it seems to me, focused almost solely on Dublin. I’ve seen lots of stories that major towns, such as Sligo in the west, are still basically in depression, with some commercial streets virtually empty of merchants.
Also, to reassure future bond investors that Ireland is really on the right track and can meet its obligations, the government had to enact another austerity budget for 2014, the seventh in a row, with Kenny vowing it would be the last. While the government is committed to reducing its budget deficit to 3% of GDP by 2015, total government debt stands at 124% of GDP. And unemployment, which peaked at 15.1% last year, is still 13.3% today; this after thousands have left the country in search of work.
Turning to China, lots of data this week, topped off by the report the economy grew 7.8% in the third quarter, up from 7.5% in the second and a little better than expected. Growth was helped by a mini-stimulus program on railway construction and other public works, but it is feared the pop in GDP will be short-lived. Consumer demand needs to pick up more, for starters. This November, the central committee holds an important meeting at which time many hope a series of broad based economic reforms will be announced.
For one thing, China continues to tackle the issue of chronic overcapacity in areas such as steel and cement by strengthening environmental, safety and energy standards.
In other economic news, industrial output for September rose 10.2% and retail sales were up 13.3%, but exports for the month were down 0.3% when a 5.5% gain was expected.
Now understand the export data is probably good news in one respect. China’s official statistics bureau is trying to clean up the numbers and the year-over-year comparison was a tough one when going up against fraudulent data. At least investors and economists should get a more accurate reading down the road when the figures smooth out. Exports to the U.S. rose 4.2%, but were down 6.5% to Germany. Imports rose 7.4% from a year earlier.
The consumer price index rose 3.1% in September vs. 2.6% in August, owing to rising food prices, up 6.1%, with fresh veggies up 19%. The government’s target for the CPI is 3.5%.
Back to GDP, many economists are looking at just 7% growth in 2014 and my guess is the government would accept this if the reform agenda is in place.
--The market soared anew with Washington settling its issues, at least for the short term, as the Dow Jones rose 1.1% to 15399, and the S&P 500 gained 2.3% to a new all-time high of 1744. Nasdaq tacked on 3.2% and is up 30% for the year. Goodness gracious.
Corporate earnings were a little better than expected. IBM, eBay, and Goldman Sachs missed, but Johnson & Johnson, American Express, Google, and Morgan Stanley were among those beating expectations. Far more details below and I’ll have a fuller market commentary next time now that it appears we get a week or two off from intense congressional talk.
One thing is for sure for now, though. The Federal Reserve is staying put when they gather October 29-30. For starters, we will finally begin to see some important data, held up by the shutdown, come Tuesday with September’s delayed employment report. October’s labor picture will now be released Nov. 8, rather than Nov. 1. But with all the uncertainty generated by Washington’s shenanigans, the Fed has to stay put.
And, yes, as many are calling it, this has been the ‘Teflon Bull Market.’
But I do have to give a shout out to an old friend of mine, Tony Dwyer, chief strategist at Canaccord Genuity. Tony and I worked together briefly back in 1990/91 and I admire his success. Plus, frankly, he was a blast to work with. For you Street old timers out there, the two of us worked next to the legendary Larry Wachtel of Prudential. [I worked there after Pru acquired the brokerage assets of Thomson McKinnon Securities.]
Tony will forever be the “Tonester” and let’s just say he made the best market call of any strategist on the Street this year, bar none, when on CNBC long ago he called for 1760 on the S&P. Doesn’t matter what happens next week, he nailed it.
This week Tony called for 1955 on the S&P in 2014. Way to go, Tonester, and David P. and I will never forget the time the three of us had at the Andrew Dice Clay concert. [This was right after Dice’s appearance on Saturday Night Live. He was never hotter and proceeded to sell out Madison Square Garden...a comic! Frankly, it was downhill for him from there.]
--U.S. Treasury Yields
6-mo. 0.07% 2-yr. 0.31% 10-yr. 2.58% 30-yr. 3.64%
Bonds rallied following the deal in Congress. Earlier, ratings agency Fitch warned it could cut the sovereign credit rating of the United States from AAA, citing the political brinkmanship over raising the federal debt ceiling. So it placed the U.S. on Ratings Watch Negative, which is kind of like double-secret probation. But for now it just doesn’t matter.
And with little economic news to report on, the Federal Reserve did issue its latest Beige Book on regional economic activity and once again it spoke of “moderate to modest” growth, though 4 of 12 districts reported slower growth while the other 8 labeled it steady.
--Shares in Google soared a stupendous $124 on Friday to $1,013 after the company reported a 23% rise in revenue from its internet business. Paid clicks increased 26% year-on-year for the third quarter, as Google earned $2.97 billion, $10.74 per share, ex-certain items, far ahead of Street estimates of $10.34. Overall revenues also beat the Street, even as the operating loss at Motorola, Google’s mobile phone business, totaled $248 million during the quarter, greater than the $192 million loss for Q3 2012.
Google commented that 40% of users reached its YouTube channel through their mobile phones compared to just 6% two years earlier.
--Blaming stalling sales in China, IBM beat expectations on the bottom line but fell far short on the top line, revenues, and its shares cratered. Sales fell 9% in the quarter as company officials said Chinese state-owned enterprises pulled back from buying computer hardware as they awaited the government’s economic reform plan. IBM said it suffered “enormous reductions on a year-to-year basis in a geography we tend to see [high] growth rates,” according to the CFO.
This was the sixth quarterly decline in IBM’s revenues in a row; not a good sign for those still using IBM as a barometer for tech spending in general.
Shares in Big Blue closed the week at $173.75....down from $186 the prior Friday, and a March 15 high of $215.
--Goldman Sachs reported third-quarter profit that was flat (though ahead of expectations) while revenue fell a whopping 20% to $6.72 billion from $8.35 billion in the prior year (and far below expectations), with fixed-income trading being the culprit. Expenses were pared 25% in the quarter, including a 35% reduction in compensation.
Fixed-income revenue of $1.29 billion compares with JPMorgan Chase & Co.’s $3.44 billion and Citigroup’s $2.78 billion.
--Bank of America saw its revenue rise 4.8% in the third quarter, in-line with expectations. CEO Brian Moynihan deserves credit for making progress on cleansing the bank’s portfolio of bad loans related in large part to its ill-fated acquisition of Countrywide, the mortgage originator, in 2008. Moynihan also said: “The economy and business climate will improve even more quickly as conditions normalize.”
-Citigroup reported earnings below year ago levels, with revenue dropping 4.9%, both below expectations. Mortgage-banking revenue plunged 76% from a year earlier and 72% from the previous quarter. Citigroup’s fixed-income trading revenue fell 26%.
--Morgan Stanley handily beat expectations on both earnings and revenues, with the shares now rising over 50% for the year, outperforming the other four big Wall Street banks. Fixed-income trading revenues, however, fell 43%. Equity trading revenues, though, rose from $1.3 billion to $1.7 billion.
--Bank of New York, which beat expectations for the quarter, saw its balance sheet balloon by about $10 billion since the start of October as customers liquidated assets and moved into cash ahead of the potential government default. The bank safeguards $trillions worth of assets on behalf of its clients.
--JPMorgan Chase & Co. reportedly reached a $4 billion settlement with the Federal Housing Finance Agency over the bank’s sale of mortgage-backed securities. This could be part of a broader deal the bank is seeking with federal and state authorities.
--Wells Fargo announced it was laying off another 925 employees in its home loan unit as rising interest rates continue to cut into demand for refinancing. The bank made $80 billion in home loans in the third quarter, down 42% from the same quarter last year.
--Billionaire hedge-fund manager Steven Cohen, SAC Capital, is close to settling with the government, specifically U.S. Attorney Preet Bharara, for $1.2 billion to $1.4 billion over insider trading charges, which would be only about 15% of his personal fortune. Nonetheless the largest-ever insider trading settlement. Prosecutors and Cohen are still negotiating how long he would be barred from managing outside money and what charges SAC would plead guilty to.
--For the third straight month, the median home price in the six-county Southern California housing market stayed essentially flat, at $382,000. Prices peaked in June – a 28% year-over-year increase.
Sales also fell a whopping 17% in September over August. [Andrew Khouri / Los Angeles Times]
--Shares in eBay fell sharply as the company delivered lower-than-expected sales and cut its forecast for the fourth quarter, blaming slowing growth in online shopping in the U.S.
“U.S. e-commerce softened considerably and we have a cautious outlook for the holiday season,” said the CFO in a conference call.
--Yahoo’s third-quarter profit fell 13%, ex- a gain from the sale of some of its stake in Chinese e-commerce giant Alibaba. Revenue declined 1%. So despite a big rebound in Yahoo’s share price since CEO Marissa Mayer took over more than a year ago, the overall company results have been lackluster. The company also lowered its outlook for the rest of the year for a second time.
Back to Alibaba, Yahoo said it will retain half its stake (currently 24%) when Alibaba goes public.
--Intel reported profits that beat the Street’s expectations, though both revenues and earnings were unchanged from the prior year. The chipmaker also issued a downbeat fourth-quarter forecast and trimmed its capital spending plans amid the ongoing slump in the PC market.
--Twitter selected the New York Stock Exchange for its initial public offering, slated to be priced on the night of Nov. 14, with trading to commence the next day. Twitter’s road show starts Oct. 25.
In a filing, the company said its revenue was $168.6 million in the third quarter, up from $82.3 million a year ago. The net loss expanded to $64.6 million from $21.6 million.
--Apple told two of its assemblers of the new low-cost iPhone 5C to reduce production as orders for the smartphone are not as strong as expected. Customers’ attention is clearly focused on the high-end iPhone 5S.
Meanwhile, Apple announced it had hired Burberry CEO Angela Ahrendts. She will become senior vice-president of retail and online stores, after successfully turning around Burberry, which she joined in 2006. In the past five years, Burberry shares rose 460%.
--General Electric’s third-quarter earnings fell 8.6%, though ex-charges came in higher than expected. Revenue, however, was down 1.5%. But shares rose on hopeful signs from its industrial businesses, which include energy infrastructure and aviation.
--Honeywell International beat earnings estimates for the third-quarter, but came in short on revenues vs. the Street. Total sales, though, grew 3.3% year-over-year at the industrial conglomerate. It also slightly lowered its revenue estimates for the full year, but Honeywell is beginning to see stronger results in Europe and China.
--Four of OPEC’s top oil producers, Saudi Arabia, Kuwait, the United Arab Emirates and Qatar, all set production records in each of the last three months, according to the International Energy Agency. In September they accounted for 18% of global demand – a level matched only twice in IEA data going back to the 1980s.
As the IEA’s chief economist put it, “Despite the shale revolution, the Middle East is and will remain the heart of the global oil industry for some time to come.”
The Gulf states are capturing more of the Asia market. India is now importing 44% of its crude from the above four, for example. China receives a quarter of its imports from them. [Financial Times]
--The U.S. has shipped 40% more wheat abroad this season than last, according to the U.S. Department of Agriculture, fueled by surging demand from Brazil and China. Wheat prices have been climbing as Australia, the world’s third-largest exporter after the U.S. and Canada, suffers from dry weather, while Russia and Ukraine have seen plantings hindered by heavy rains.
China, by the way, has booked orders for nearly four times as much as it bought last year. [Wall Street Journal]
--South Dakota’s cattle ranchers are reeling after the recent early October blizzard that dumped up to four feet of snow in the Black Hills. As many as 6,000 ranching operations were impacted with at least 20,000 head of cattle lost (though estimates range to above 80,000). Nearly a third of the state’s 3.7 million cattle and calves reside in the western part of the state that was heavily impacted.
The problem was the storm hit before many ranchers had moved their cattle from summer grazing grounds. By month’s end they would have been headed to slaughter.
--Sugar prices soared 6% on Friday after a large fire in Brazil destroyed three storage areas at the port of Santos, a key staging ground for the world’s sugar. The warehouses (a fourth may have been destroyed as well) are owned by Copersucar SA, Brazil’s biggest sugar and ethanol producer.
--I normally couldn’t care less who wins the Nobel prize for economics, but I was psyched to see Robert Shiller share this year’s award with Eugene Fama and Lars Peter Hansen. Shiller has long warned, correctly, of bubbles in the economy and his 2000 book, “Irrational Exuberance,” is a Wall Street classic.
--Sign of the Apocalypse: Macy’s is opening its stores at 8:00 PM on Thanksgiving night for the first time in its 155-year history. The retailer felt it was losing too much to the competition by remaining closed while they have been opening earlier.
Iran: But for the goings on in Washington this week, Iran would have been topic No. 1 as talks on its nuclear program with the P5 + 1 (for the last time, the five permanent members of the U.N. Security Council – Russia, China, the U.S., U.K. and France – plus Germany) commenced in Geneva after a long hiatus.
But there actually isn’t much to say, in relative terms, as the parties involved did a pretty good job of keeping details secret, with Iran demanding its proposal be kept confidential, even as the tone was said to be upbeat. [It helped that Iran’s lead representative, foreign minister Mohammed Javad Zarif, spoke in English, thus cutting the time taken in half.]
Iran put forward in a Powerpoint presentation a three-stage process beginning with confidence-building measures over the next six months:
Iran would place unspecified curbs on its uranium enrichment program in exchange for limited sanctions relief.
Iran’s right to continue enriching uranium for civil purposes would be recognized and then sanctions lifted in full by the West.
Phase three, Iran would sign an additional nuclear Non-Proliferation Treaty protocol allowing for snap inspections of its nuclear sites as part of a deal to allay Western concerns it is developing nuclear weapons.
But it is far from this simple. For one thing, according to a report in the Los Angeles Times, Tehran has no plans to stop enriching uranium at its Qom and Natanz sites, nor is it ready to shut down its light-water reactor at Arak that will be capable of producing plutonium, as the West will demand as part of any negotiations.
Plus Iran must agree to suspend enriching uranium to 20% before sanctions are eased; 20% being the level from which it is easy to “break out” to bomb grade material.
And before the talks even started, Iran made it clear it would not allow its current stockpiles of more highly enriched uranium to be removed from the country. Abbas Araghchi, deputy foreign minister, called this “our red line.”
Then you have the U.S. Congress, which is anxious to strengthen, not lessen, existing sanctions by year end.
As you can imagine, Israel is not happy. Yuval Steinitz, Israel’s International Relations Minister, compared the Geneva talks to Britain’s appeasement of Nazi Germany before the Second World War. “We view the nuclear talks in Geneva with hope and with concern. We see the worrying signs and we don’t want Geneva 2013 to turn into Munich 1938,” he told Israel’s army radio.
“It would be a historic mistake to reduce pressure on Iran now, a moment before sanctions achieve their goal. We need to remember that international pressure is what is bringing results inside Iran, bringing them to the negotiating table, and will bring them to concede.”
“In Geneva this week, an Iranian delegation has been holding talks with six other nations about its country’s nuclear program. These negotiations – the first to take place under the auspices of Iran’s new president, Hasan Rohani – inspired little bursts of positive rhetoric. The BBC reported an ‘upbeat mood’ in Geneva. A European diplomat spoke of ‘cautious optimism.’ Rohani himself had pledged to ‘resolve’ the nuclear problem within the next six months.
“After years of no progress with Iran, why the sudden good cheer? It’s certainly not because Rohani represents a radical new strand of Iranian thinking about nuclear power. After all, he was Iran’s nuclear negotiator from 2003 to 2005. Parts of the nuclear program were temporarily suspended during that time, but it was never eliminated....
“Rohani’s team...has not gone to Geneva after a process of profound internal transformation. On the contrary, Iran has returned to negotiations for only one reason: The new president wants economic sanctions lifted because they have taken a powerful toll on the Iranian economy....
“If Iran is able to make concrete, verifiable nuclear proposals, of course some changes could be made to the sanctions regime. Some have suggested unfreezing Iranian assets held abroad as an option. But while negotiations continue, let’s be clear about why the world cares about Iran’s nuclear program in the first place....
“(We) oppose Iran’s nuclear ambitions for one reason: because we object to the Islamic Republic of Iran, a quasi-totalitarian state that since 1979 has been led by brutal, volatile men with no respect for the rule of law. Their regime is a ‘domestic’ problem for many Iranians, and it’s a major problem for Iran’s neighbors and the rest of the world....
“Netanyahu has implored President Obama to return to the red line he drew during the presidential debate before Iran closes in on ‘critical capability.’ That’s the point at which it could make a dash to produce enough weapons-grade uranium for one or more bombs before the International Atomic Energy Agency or Western intelligence knows that it has done so.
“We have major economic interests at stake. A nuclear Iran could well raise oil prices...by 10% to 25% in the first year and by as much as 50% within three years, causing gas prices to jump so dramatically that unemployment in the U.S. would rise by as many as 1.5 million people.
“So neutering Iran’s nuclear menace is deeply in the interest of this country. President Obama has unequivocally ruled out living with a nuclear-armed Iran, but few in the world believe he has the will to stand firm, in part because of his waffling over Syria. Meanwhile Iran basks in domestic stability and feels empowered by its crucial role in Syria....
“To resolve the crisis, it is critical that the president and Congress convey that they mean business. As the ancient Romans knew, he who wants peace must prepare for war.”
Oh, and the “Death to the U.S.A.” chant returned to Tehran this week, after a week in which it was muted.
Negotiations resume in Geneva in three weeks’ time, Nov. 7. We will then learn a lot more about Iran’s intentions. The U.S. Senate is ready to block any signs President Obama will cave too early.
Syria: Inspectors from the Organization for the Prohibition of Chemical Weapons have reached 11 of Syria’s suspected 20 sites and begun destroying equipment at six. Ironically, after President Obama had called on a number of occasions for the removal of President Bashar Assad, now the last thing the U.S. wants is his removal since he is so key to the effort to wipe out Syria’s chemical weapons stockpile and capability. And while the U.S.-backed opposition says it will cooperate with the U.N.’s OPCW, al-Qaeda has offered no such promises.
Meanwhile, the war continues. A car bomb took out 27 in northwestern Syria, while suspected jihadists freed four out of seven aid workers with the Red Cross who had been kidnapped. Elsewhere, rebel snipers killed a top-ranking general, Jama’a Jama’a, a member of President Assad’s inner circle. The general was taken out in the midst of a battle with rebel units said to include al-Qaeda elements. Jama’a was investigated for a suspected role in the assassination of former Lebanese prime minister Rafik Hariri in 2005.
Back to the Red Cross, what an incredibly brave group. They are one of just a handful of aid groups attempting to bring some relief to war-torn Syria amid all the danger.
And this late story I’ll have more on next time. As I go to post, the London Times is reporting that Assad’s snipers are responsible for the following.
“David Nott, a surgeon at Chelsea and Westminster Hospital, has recently returned from providing emergency volunteer services in Syria. He reports that pregnant women are being deliberately targeted by snipers.” Target practice....because they stand out.
Afghanistan: Editorial / Washington Post
“Credit goes to Secretary of State John F. Kerry for a marathon negotiating effort in Kabul over the weekend that may have rescued a vital security agreement between the United States and Afghanistan. Mr. Kerry and Afghan President Hamid Karzai said they settled two contentious issues that were blocking an accord, under which the United States and its NATO allies would station training and counterterrorism forces in Afghanistan after 2014. There now seems to be a decent chance the deal will be finalized before an Oct. 31 deadline set by President Obama, who had threatened to cancel plans for a post-2014 deployment if an agreement was not reached.
“Mr. Kerry may have saved both governments from a self-inflicted disaster. Without U.S. or NATO forces to back them up, Afghanistan’s army and government would be in danger of collapse after next year, risking everything that Mr. Karzai, two U.S. presidents and the NATO alliance have built in the past dozen years, at a dear cost in lives....
“Mr. Obama and his advisers...seemed ready to repeat the mistake they made with Iraq in 2011. There they convinced themselves that a U.S. residual force was unnecessary and so did not aggressively pursue an agreement with the Iraqi government. Iraq has now relapsed into sectarian warfare. Yet White House officials have been talking up a similar conclusion about Afghanistan, saying the al-Qaeda threat is located elsewhere and the cost of a continued presence is unjustified – a view that discounts the dangers of a renewed Afghan civil war....
“For all the disappointments, Afghanistan has made enormous progress since 2001, and its armed forces are capable of defending those gains with U.S. and NATO help. It would be foolish for either government to sabotage the alliance, and the consequences would be tragic.”
Egypt: A leaked recording reveals Gen. Abdel Fattah al-Sisi, the defense minister, touting his presidential ambitions to the editor of a private newspaper, even though al-Sisi has insisted he is above politics. He is the most popular figure in the land these days so if he wanted to run, he’d probably win.
But first a new constitution has to be drafted, the process for which is underway, and then parliamentary and presidential elections would be held next year.
But a week after Washington curtailed some military aid to Cairo, Foreign Minister Nabil Fahmy told the state-run Al-Ahram newspaper that the White House was wrong to assume Egypt would always follow its line, with Fahmy talking of the “turmoil in the relationship.” [Daily Star]
Iraq: Another week of attacks throughout the country, including a barrage of car-bombs and suicide bombings on Thursday that killed at least 61. The death toll this year from mostly a resurgent al-Qaeda is beyond numbing.
Russia: There was a major riot in a Moscow district last Sunday, spurred on by a video of a man being fatally stabbed, allegedly by a migrant. The riot took place as thousands demanded police detain the suspect while calling for tighter migration laws.
So the next day, Moscow police arrested 1,200 at a produce market in the district to check their criminal connections.
Opposition leader Alexei Navalny launched an effort to collect 100,000 signatures, the minimum threshold for a legislative initiative to be considered by the Duma, for a bill mandating visas with Central Asian countries.
But Navalny wrote on his blog: “The more of a nightmare the migrant ghetto creates for residents, the more law enforcement officials and local authorities can earn. People get away with committing crimes because they bribe the authorities. The government supports them and is against us.” [The Moscow Times]
Speaking of Navalny, a Kirov court Wednesday issued suspended sentences to both him and his business partner, in a clear sign the Kremlin does not want to risk another wave of protests ahead of the 2014 Sochi Olympics. The court thus overturned a July verdict, which sentenced Navalny and his partner to five and four years in prison, respectively, for allegedly stealing $500,000 worth of timber from a state-owned company in 2009; a totally trumped up charge.
But recall the Kremlin then allowed Navalny to appeal, which gave him the right to run for mayor of Moscow, whereupon he received a surprisingly strong 27%.
So, like in the case of Washington and kicking the can down the road, the Kremlin will wait until after Sochi to decide just how to treat Navalny.
China: The Commies were their usual a-hole selves this week with some of their comments on the dual crises in Washington. Granted, they hold $1.3 trillion in Treasuries, but some of the language used in official commentary was a little over the top.
No, not the use of the term that the specter of default in the U.S. was forcing some to consider a “de-Americanized world,” which many will be legitimately thinking of when investing their hard-earned money (or government reserves).
But rather when an editorial in Xinhua said that the Obama administration claimed “the moral high ground” while covertly “torturing prisoners of war, slaying civilians in drone attacks and spying on world leaders,” that’s hardly helpful.
On a different matter, the October 12 issue of The Economist had some stories on China’s water crisis. To wit:
“China has 20% of the world’s population but only 7% of its fresh waters. A former prime minister, Wen Jiabao, once said water shortages threaten ‘the very survival of the Chinese nation.’
“The shortage is worsening because China’s water is disappearing. In the 1950s the country had 50,000 rivers with catchment areas of 100 square kilometers or more. Now the number is down to 23,000. China has lost 27,000 rivers, mostly as a result of over-exploitation by farms or factories.
“Water shortages impose big costs. China is hoping for a shale-gas revolution but does not have enough water for it since most of the gas reserves are in the driest parts of the country. The World Bank puts the cost of China’s water problems – mostly damage to health – at 2.3% of a year’s GDP.”
And of course China is polluting the water it has left.
On a different issue, police in China have continued their crackdown on online “rumor-mongoring,” arresting an influential blogger and cartoonist. Hundreds have been detained since August, with most then released though others are being held on criminal charges.
Separately, Barbara Demick of the Los Angeles Times had a piece on China’s cockroach farms. Yes, it can be profitable...when dried they go for up to $20 a pound.
North Korea: Speaking of cockroaches, North Korea has the capacity to carry out a fourth nuclear test at a time of its choosing, according to a South Korean official.
Nuclear envoy Cho Tae-yong told an audience in Seoul “the assessment of North Korea’s nuclear capabilities is very grave, and we see it has the ability to carry out another round of nuclear tests whenever it wants in technological terms,” the Yonhap News Agency reported.
Experts believe a fourth test is necessary to figure out how to miniaturize nuclear weapons for loading onto missiles.
Yukiya Amano, director general of the International Atomic Energy Agency, said the “threat of another test is very disturbing.” [Global Security Newswire]
France: Last week I noted the comments of Interior Minister Manuel Valls, the most popular politician in France these days, who warned of the rise of the far right Front National headed by Marine Le Pen.
Valls’ fears proved correct as the Front National swept to victory on Sunday in a closely watched local election that, as Valls has further predicted, could lead to real gains in upcoming elections for Europe’s parliament. In the local vote, the FN candidate won 54-46.
Marine Le Pen called it “a great victory,” and while cautioning it was but a local affair, “This shows a desire for change among the French people, who are making their voices heard, who are mobilizing.”
Last week an opinion poll for the first time put the FN ahead in the running for the European parliament vote with 24%. [In the last European election in 2009, the FN won just over 6%.]
Le Pen is taking advantage of the fact French President Francois Hollande’s approval rating is but 26%.
It was May Day 2011 that I witnessed Le Pen’s annual speech in Paris. The 45-year-old mother, and daughter of FN founder Jean-Marie Le Pen, an avowed racist, has softened the party’s tone, plus she’s got the charisma gene, that’s for sure. No doubt Marine is also going to be on every major U.S. news program between now and the May European parliament elections.
From what I know, however, her party platform is a mess; a mixture of far left on economic policy, coupled with far right stances on things such as immigration. It’s the anti-immigrant fervor sweeping the Continent that she can best profit from, and she has begun looking for partnerships with the likes of Geert Wilders, the leader of the Dutch Freedom Party. Their goal, said Le Pen this week, “was to be at the core of a pan-EU, anti-euro, anti-immigration movement embracing disparate skeptic groups.” [Charles Bremner / London Times]
Le Pen, in a joint appearance with Wilders, said: “We should perhaps campaign together. It is important that voters see...that comparable patriotic movements are active in all European countries. We are fighting against stifling immigration and against Islamification. We are proud of our culture and we are acting against a Europe which dictates rules that nobody wants.”
Le Pen is also cultivating links with Austria’s far right Freedom Party, which won 21% in that country’s recent general election, as well as other similar euro parties.
Kenya: I saw the videos from the Westgate Mall attack, taken off mall security cameras, and it is terrifying, even as the tapes shown are heavily edited.
But the thing is, everyone watching the extensive footage can identify only four actual terrorists. It’s also now known that officials were keeping up on activity in the mall during the four-day siege by viewing the cameras in real time.
So why did it take all that time to overwhelm them? Especially if it was just four instead of 10 to 15 attackers? [One of the terrorists has been positively identified as a Norwegian-Somali.]
Brazil: Well I’ve said you’re nuts if you’re thinking of attending the World Cup here next year, let alone the 2016 Olympics (just as you are if you go to Sochi this February for the Winter Games), but Brazil is going to be a special case because the people really are furious about the cost and President Dilma Rousseff is scrambling for scapegoats...so she came up with the United States when Edward Snowden released NSA documents showing the U.S. was spying on the Brazilian government (as well as some business interests there).
But the people are smarter than that and they’ve been protesting virtually non-stop over the holding of the WC.
So now this group called the Black Bloc, anarchists, is threatening major mayhem at the World Cup.
My brother reminded me that when the Formula One race is held in Brazil each year, the drivers and their crews often don’t leave the paddock area for the duration of their stay because of the rampant crime.
Oh, and this week Brazil’s biggest drug cartel promised a “World Cup of terror.”
“In the most widely mocked comment of the day, Mark Needham, head of Heritage Action, the group that did more to send the GOP on a suicidal mission to defund ObamaCare than any other, declared on Fox News: ‘Well, everybody understands that we’re not going to be able to repeal this law until 2017 and that we have to win the Senate and win the White House.’ Hmm.
“Sen. Ted Cruz (R-Tex.) was deceiving voters by saying the GOP could accomplish this by ‘not blinking.’
“Under false pretenses, Heritage Action was raising money and harassing the offices of Republicans who resisted the phony plan.
“Talk-show hosts and print editors who defended Cruz and Heritage Action were either complicit in the scam or very gullible.
“The Senate dealmakers who rescued the GOP from itself were not ‘sellouts’ but heroes.
“Heritage Action, Cruz and Sen. Mike Lee (R-Utah) are not ‘true conservatives’ but opportunists.....
“A Senate Republican, disgusted with the whole charade, told (Rubin’s) Right Turn, ‘It’s pretty clear that Heritage Action and other special interests own the votes of some Republican members of Congress. We saw it on full display yesterday. It’s shameful and embarrassing and, unfortunately, it only makes it more difficult for the many Republicans who want to do the right thing.’....
“Some who indulged the right wing or actively supported the shutdown are lamely trying to spin this as a victory in ‘focusing the country’ on ObamaCare. Baloney. The country could have been more focused if the only narrative these past weeks had been the disastrous roll-out, abysmal enrollment and design defects in ObamaCare.”
“If Harvard Business School did case studies on political incompetence, it should start with the Republican Party’s recent default brinkmanship. In the space of the 16-day government shutdown, the party’s Gallup approval rating dropped by 10 points to 28 percent – its lowest to date. It was among the sharpest slaps in polling history. Little wonder Republican leaders dropped all conditions to reopen government and extend the debt ceiling on Wednesday night. It is hard to think of another instance of a party squandering so much in such a short time and achieving nothing.
“But the self-harm was worse than that. The U.S. public’s approval of the unpopular ‘ObamaCare’ law actually rose during the crisis. It should have been the other way round. The key ObamaCare exchanges were launched on October 1 – the day that Washington was shuttered. Ever since, they have been plagued by technical breakdowns and have enrolled a fraction of the expected new customers. The IT seizures, which were unrelated to the shutdown, would ordinarily have been a public relations disaster for President Barack Obama. Instead, they were eclipsed by the budget crisis – one that, ironically, had begun with the Republican demand to defund ObamaCare. In soccer terms the Republicans scored repeated own goals and missed a wide open one....
“As the clearest beneficiary of the crisis, (Sen. Ted) Cruz personifies the tough road ahead for Republican leaders. Many of the freshman senator’s Republican colleagues now openly detest him. Yet he is celebrated by the party’s base as a man of unshakeable principle. It is hard to stitch a party out of such violently contrasting instincts. Moreover, the fiscal schedule ahead is merciless....
“As reprieves go, Wednesday night’s vote was timely – another day or two and the markets could have really panicked. But the Republican party’s increasingly bitter internal ructions are likely to persist. The expiry date for those could be as far away as 2016. Having had a glimpse of the mountaintop, Mr. Cruz is not about to walk away.”
“At the end of that seminal American comedy about a rowdy fraternity, the charismatic Otter makes an impassioned speech to his fellows about their enemies on campus:
“ ‘We gotta take these bastards. Now we could do it with conventional weapons, but that could take years and cost millions of lives. No, I think we have to go all out. I think that this situation absolutely requires a really futile and stupid gesture be done on somebody’s part!’
“To which his friend Bluto replies, ‘We’re just the guys to do it.’
“Congratulations, Ted Cruz and Mike Lee, the two conservative senators who conceived the shutdown strategy. You are now the Otter and Bluto of American politics.
“Like them, you are able and clever. Unlike them, you were, and are, apparently unaware that your shutdown gesture was ‘really futile and stupid.’....
“Over the 16 days of the shutdown, absolutely nothing was accomplished when it comes to public policy, except, perhaps, the further degradation of the Republican Party’s brand.
“Apologists for Cruz and Lee say they drew attention to ObamaCare. This is nothing short of demented. ObamaCare has been pretty much the sole subject of Republican domestic-policy politics over the past three years. It didn’t need them to call attention to it.
“If anything, as it turns out, they drew attention away from it.
“Had they not created the shutdown, the political discussion in the United States these past two weeks would have been entirely dedicated to the disastrous launch of ObamaCare – something so disastrous, in fact, that liberal journalists have been unable to avoid the subject and have instead taken to whining about it.
“But no. Instead, we spent the two weeks before the launch watching Ted Cruz rally the Republican faithful with a fantasy scenario in which the public would stage an uprising against ObamaCare and force a bunch of Democratic senators to vote to defund it.
“Listen: Not enough people are voting for Republicans. That’s why the GPO has lost the popular vote in five out of the last six national elections. What happened over the past two weeks will only harm the effort to convince those who can be convinced to vote Republican that doing so is wise and prudent.”
“One of the more compelling finds in the opinion-polling swamps is that most people would like to see the entire Congress replaced. A more modest proposal: Let’s replace all the Republicans in Congress with their children or grandchildren. Bring in the 15-year-olds. How could it get worse?
“From the House to the Senate, the Republicans look dazed and confused. Three weeks ago, Ted Cruz stood in the Senate chamber for nearly a day, looking like a hero. Today, with the GOP brand in a vertical dive, he looks like a Bozo balloon....
“Wind back to the 2012 presidential election. Recall how after it was over, the GOP promised that it would duplicate the incredible modern messaging machine the Obama team created across every available new-information platform. That delivery system was why across four years Barack Obama kept hammering ‘the 1%’ and ‘the wealthiest.’ He was feeding the machine that was emailing, texting and tweeting this propaganda to targeted audiences.
“Now suddenly comes a marketing ploy from the GOP’s backbenchers: ‘Defund ObamaCare.’ This idea was supposed to rally the nation against the Affordable Care Act.... Defund ObamaCare is now the Republicans’ New Coke....
“Everyone recalls the 2012 campaign’s carpet bombing of ‘the wealthiest,’ even after they’d been shelled with a tax increase. Barack Obama has found – actually, it was handed to him – a scapegoat analogous to ‘the wealthiest’ and ‘the banks’ for his campaign to suppress votes for GOP candidates in the 2014 elections. It’s ‘tea party Republicans.’....
“Virtually every Obama tweet demonizes the tea party. Last week, within minutes of the collapse of the Obama-Boehner talks, the tweeting robot called ‘Barack Obama’ had hung the collapse on the ‘tea party.’....
“A month ago, before the congressional Republicans’ General Custer Caucus used ‘Defund ObamaCare’ to vote themselves into their current, bullet-riddled fort, the Obama characterization of the entire GOP as ‘tea party Republicans’ would have been a pathetic stretch. He was the one being laughed at by the whole world for his vanishing red lines in Syria and a foreign policy that even his own defense secretary described as ‘swinging from vine to vine.’
“Not anymore. Barack Obama is Romneyizing the Republicans. He’s doing to Ted Cruz and the House Republicans what he did to Mitt Romney and the 1%. It may be voter brainwashing, but in the expanded media age in which we all marinate, it works.”
“There’s plenty of blame to go around for the chaos in Washington, but at the top of the list is the absence of presidential leadership. When Congress is close to agreement but still divided, the country rightly counts on its chief executive to bridge the gaps, make the compromises, and smooth the way to passage.
“Instead, President Obama deliberately withdrew from negotiations over the debt ceiling and government shutdown. According to a Bloomberg report on Wednesday, the White House was concerned his personal involvement would be ‘a mistake that damaged the president’s ability to advance his agenda.’
“Perhaps it was for the best. Mr. Obama’s skill is not in bringing Americans together; it is turning them against one another. This latest crisis over the debt ceiling and shutdown is a case in point. Having voted against an increase in the debt ceiling in 2006 as the junior senator from Illinois, the president now characterizes those opposed to one today as reckless and crazed. Hypocrisy makes for clever politics but bad governing....
“This all fits into the White House’s desire to use the continuing resolution and debt-ceiling fights to punish the GOP House majority in order to flip the House in the 2014 midterm election. That’s a long shot, but the Obama-Reid-Pelosi cause was helped by a minority of House Republicans who persisted in a failed tactic....
“Barack Obama set the trap. Some congressional Republicans walked into it. As a result, the president is stronger, the GOP is weaker, and ObamaCare is marginally more popular. The battles over spending, taxes and debt have not been resolved, only postponed. It’s time Republicans remembered that bad tactics produce bad outcomes.”
“Tea party warriors may prefer to perish on principle, but perish they will. And, if something doesn’t change fast and soon, the fear is that they’ll take down GOP control of the House with them. Forget the Senate in 2014. And forget the White House for the foreseeable future.
“Unless, that is, the hard-right suicide flame-throwers can be neutralized or converted. The latter isn’t likely when the echo chamber cheers them on, and while organizations such as Heritage Action are grading legislators on their ‘conservative’ performance. The threat of facing a primary challenge in their districts from someone even loonier keeps many in lockstep with Sonny [Corleone...part of Ms. Parker’s initial set-up.]
“Thus, the only alternative is a systematic, strategic purge of the GOP’s Sonny side..... Rational conservatives who understand that governing requires compromise, not just ‘winning,’ need to form their own groups to first protect their reasonable legislators and then actively recruit and elect strong, likable candidates who can win general elections. They need to create their own scorecards to grade the obstructionists.
“If Republicans can pull this off, then they can (maybe) keep the House and (just maybe) take the Senate. Then, with a clear mandate from the people, they can have their way with ObamaCare. Theoretically, they could repeal it – or use their strength in numbers to improve it and also move forward on entitlements and tax reform in ways that most sensible Americans would support.
“Storming the barricades may be fine at times, but it’s helpful also to have a plan. Remember the day after shock and awe? Now what? This is essentially where the GOP finds itself today. It shut down the government – and now what? It tried to defund the un-defundable (ObamaCare was already funded), and now people are gravitating toward the train wreck. The GOP’s delaying tactic, though justifiable, came too late in the game. Finally, Republicans failed to capitalize on ObamaCare’s own embarrassing launch.
“Painful though it may be to witness, it may be time for Sonny to take a drive through the toll plaza. Maybe he could give Ted bin Laden a lift.
“Sometime after breakfast, John Boehner blinked. The Republican majority leader in the U.S. House of Representatives let it be known he would allow a vote on a compromise thrashed out in the Senate to lift America’s debt limit and reopen its federal government.
“Even if arguments about the small-print drag on for days, there is a deal. There will not be a default. Uncle Sam will continue to service his debts and pay his bills. To obtain this deal, President Obama chose a strategy of refusing to negotiate and stuck to it. He made no significant changes to the healthcare reforms that his enemies wanted to derail, and offered Mr. Boehner only a vague promise of future talks on reforming the country’s most expensive welfare schemes.
“Mr. Obama has won a political victory, but he would be foolish to gloat. As the Republicans’ Tea Party radicals like to point out, he presides over a government spending vastly more than it receives, is dependent on its creditors and is storing up liabilities with no clear way of meeting them. His pledge to open serious negotiations on welfare reform [Ed. entitlement reform] must be honored. If it is not, America will be back at the brink of another federal shutdown in three months flat. Another debt crunch will loom a month after that. The damage to the country’s prestige and financial standing will be serious at best and could make the previous two fiscal crises look trivial by comparison. It will certainly be harder for the White House to blame on recalcitrant Republicans. Another showdown is avoidable, but this time Mr. Obama must do some of the avoiding.”
As for Ted Cruz, he has emerged unscathed, if you look at poll #s and fundraising. According to a Pew Research Center survey released on Wednesday, among Tea Partiers, his popularity has soared to 74% from 47% in July. Among non-Tea Party Republicans, he is viewed unfavorably by 31% - a 15-point increase since the July survey. He’s also raised about $1.2 million each of the last two quarters. [Bloomberg]
--Newark Mayor Cory Booker became the first African-American to be elected to the U.S. Senate from New Jersey, defeating Tea Party favorite Steve Lonegan, 55% to 44%, in a race that ended up being far tighter than expected. Booker will fill out the remaining 15 months in the late Sen. Frank Lautenberg’s term.
As you know I love polls so for the record, three were released on the race the two days before the vote.
And a Quinnipiac University survey had Booker winning 54-40.
So the award goes to Monmouth University! Free beer for them. As for the good folks at Rutgers-Eagleton, good lord, what a miss.
--In the latest Quinnipiac poll, New Jersey Gov. Chris Christie leads Democratic challenger Barbara Buono 62-33 (57-37 among women; 71-23 among independents). Monmouth’s most recent survey has it 59-35.
--It got little press this week, what with all the political news, but another trove of documents provided by former NSA contractor Edward Snowden, in this case released to the Washington Post, showed the NSA “harvesting hundreds of millions of contact lists from personal e-mail and instant messaging accounts around the world, many of them belong to Americans, according to senior intelligence officials....
“The collection program, which has not been disclosed before, intercepts e-mail address books and ‘buddy lists’ from instant messaging services as they move across global data links. Online services often transmit those contacts when a user logs on, composes a message, or synchronizes a computer or mobile device with information stored on remote servers....
“During a single day last year, the NSA’s Special Source Operations branch collected 444,743 e-mail address books from Yahoo, 105,068 from Hotmail, 82,857 from Facebook, 33,697 from Gmail and 22,881 from unspecified other providers.... Those figures, described as a typical daily intake on (a document from an NSA PowerPoint presentation) correspond to a rate of more than 250 million a year.” [Barton Gellman and Ashkan Soltani / Washington Post]
If the service providers don’t already do so, it would appear that within months they will all be encrypting their e-mail connections.
Speaking of Edward Snowden, he told the New York Times on Thursday that he left all classified documents in Hong Kong and took none to Russia after fleeing from his job at the NSA. He said he also protected the files from China’s intelligence agents.
“There’s a zero percent chance the Russians or Chinese have received any documents,” he told the paper.
Snowden said he left all the sensitive files with journalists in Hong Kong and that it would not “serve the public interest” to have taken the documents to Russia.
--You’ve gotta love it....I didn’t know this story in time to post it last Friday night, but that day, 16-year-old Pakistani student Malala, who we all know should have won the Nobel Peace Prize, was granted an audience at the White House with President Obama and the first family.
Afterwards, Malala issued a statement that read in part:
“I thanked President Obama for the United States’ work in supporting education in Pakistan and Afghanistan and for Syrian refugees. I also expressed my concerns that drone attacks are fueling terrorism. Innocent victims are killed in these acts, and they lead to resentment among the Pakistani people.”
Forget whether you agree or disagree with this statement, you can’t help but admire this kid’s guts.
Yup, your future prime minister of Pakistan, ladies and gentlemen. Keep her alive. She’s a difference maker.
[The New York Times did a piece on those who resent Malala in her native land. Yes, many in Pakistan resent her for all the attention she’s receiving, but they are losers, pure and simple. At least the Times pointed out that popular politician Imran Khan said Malala represented “the struggle of girls and women everywhere against tyranny and oppression.”]
--Special kudos to Polk County (Florida) Sheriff Grady Judd for giving the names of two girls arrested in the tragic bullying turned suicide of 12-year-old Rebecca Sedwick. Sheriff Judd also showed photos of the accused. Again, good!
The sheriff quoted from a Facebook posting this past Saturday from the 14-year-old.
“ ‘Yes, I bullied Rebecca and she killed herself but I don’t give a ...’ and you can add the last word yourself,” the sheriff said.
Police in central Florida said Rebecca was tormented by as many as 15 girls before she took her own life on September 9; one of at least a dozen suicides nationwide in the past three years linked to cyberbullying.
Sheriff Judd is looking into arresting the parents. When reached at the 14-year-old girl’s home, her father told the Associated Press, “My daughter’s a good girl and I’m 100 percent sure that whatever they’re saying about my daughter is not true.”
I’m not a parent, but nothing sickens me more than thinking about the cyberbullying that goes on these days.
In August, I happened to be doing my daily jogs through a local park at the same time as the boys and girls cross country teams were beginning their training for the fall season. I observed them assembling in the parking lot and they were all talking to one another, normally...the camaraderie I enjoyed when I ran high school cross country.
But then I’d finish my run about the same time as they did and there was no talking. They all rushed to their cars to read messages on their cellphones. I’m sure more than a few were making sure no one had posted something nasty about them. What a waste. What a screwed up world.
--In Conde Nast Traveler’s 2013 Readers’ Choice Awards, voters named San Miguel de Allende in Mexico as the world’s top city, taking the title from last year’s winner, Charleston, South Carolina, which this year tied for fifth with Spain’s San Sebastian.
Budapest and Florence tied for second place, while Salzburg came in fourth.
--Finally, former Army captain William D. Swenson was awarded the Medal of Honor this week for his heroism in a battle against the Taliban in Afghanistan, 2009, that killed five Americans, 10 Afghan army troops and an interpreter. By some accounts, Swenson saved as many as 12 lives, much of his action captured from cameras mounted on the helmets of evacuation-helicopter pilots.
Thankfully, Swenson is the sixth living recipient to be awarded the MoH for actions in Iraq or Afghanistan. After retiring from the military in February 2011, he is returning to active duty shortly.
It’s been such an awful time for our country, on so many different levels, but we praise God there are men like William Swenson...the best of America.
And so we also pray for the men and women of our armed forces...and all the fallen.
God bless America.
Gold closed at $1314
Returns for the week 10/14-10/18
Dow Jones +1.1% 
S&P 500 +2.4% 
S&P MidCap +2.3%
Russell 2000 +2.8%
Nasdaq +3.2% 
Returns for the period 1/1/13-10/18/13
Dow Jones +17.5%
S&P 500 +22.3%
S&P MidCap +26.5%
Russell 2000 +31.2%
Bears 21.6 [Source: Investors Intelligence]
Have a great week. I appreciate your support.