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11/02/2013

For the week 10/28-11/1

[Posted 11:00 PM ET, Friday]

Washington and Wall Street

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Ah yes, the joys of ObamaCare. It was rather funny how the web site was down during Secretary Kathleen Sebelius’ testimony on Wednesday. And on Thursday we learned that a whopping six people...SIX...successfully enrolled on the HealthCare.gov website the first day, October 1, and only 248 had done so by the end of Oct. 2.

Jeffrey D. Zients, President Obama’s new chief troubleshooter, assures us the website will be fully functional, and reliable, by Nov. 30. Actually, he didn’t really go that far.

“By the end of November, HealthCare.gov will work smoothly for the vast majority of users.

“It will take a lot of work,” he said. “A lot of problems need to be addressed. But let me be clear: HealthCare.gov is fixable.”

No it isn’t. At least not to the vast majority’s satisfaction. I wrote in this space on Oct. 12, “Wait ‘til we hear the first extensive examples of identity theft.”

And so this week in the space of two hours I heard a CNN tech expert say: “The conversation we will be having is about security flaws in the system,” followed a few hours later by an NBC News story concerning the same topic, site security.

It’s over when you realize your personal information is subject to a system based on a Commodore 64. But as I also noted Oct. 19 in this space, the hacking community has nothing to hack yet! So few of us can actually register anything of value, let alone sign up for a plan, witness the early numbers.

Consumer Reports had the best advice about ten days ago: “Stay away from HealthCare.gov for at least another month, if you can.”

Meanwhile, we’re all hearing the stories of 119,000 individuals in California having their insurance canceled by Blue Shield, Kaiser Permanente tossing 160,000 in the state. Florida Blue terminating 300,000.

Expert Robert Laszewski, president of Health Policy and Strategy Associates, said, “Sixteen million people are now receiving letters from their carriers saying they are losing their current coverage.”

Others are seeing their premiums rise from 60% to 100%, according to the Manhattan Institute.

As for the Obama administration, there still hasn’t been an admission as to what exactly the bugs are, though as I noted in the first days, it was clear the late request made to the builders of the site for more personal data was a major cause of the problems, aside from the fact you had too many complicated systems, from corporate to state to federal, having to communicate with one another.

And NBC News first reported the White House knew about all the cancellations under the Affordable Care Act for about three years, but as recently as 2012, the president was still saying, “If you already have health insurance, you will keep your health insurance.”

Spokesman Jay Carney explained that the reason some Americans are losing their plans is that the policies are “substandard,” adding, “It’s true that there are existing health-care plans on the individual market that don’t meet those minimum standards and therefore do not qualify for the Affordable Care Act.”

On Wednesday, President Obama went to Boston to speak about the debacle and said the ACA was replacing “substandard plans” offered by “bad-apple insurers” with improved coverage that includes more benefits.

“So, if you’re getting one of these letters, just shop around in the new marketplace.” For most people, “you’re going to get a better deal.”

Oh brother. Of course the cancellation notices go out and then you can’t access the website to find out what your options are.

An NBC News/Wall Street Journal survey late this week had only 37% of the American people thinking ObamaCare was a good idea, 47% saying it was a bad one. Democrats, suddenly, are quivering over their prospects for 2014. What a difference a day makes in politics.

Editorial / The Economist...a review of the key issue...

“(What) if young healthy people meet so many glitches on the exchanges that they give up? People with illnesses that are costly to treat will presumably keep trying. That could leave insurers with a sick, expensive pool of patients. To cover their costs, they would have to raise prices. That would dissuade healthy patients from enrolling the next year, driving rates higher still. Such a death spiral could make ObamaCare collapse.

“For years Republicans have howled about theoretical problems with Mr. Obama’s ambitious reforms. Now they can rant about real ones.”

Edward Luce / Financial Times

“The problems with ObamaCare are a feature, not a bug, of his administration.

“The president’s biggest mistake was to withhold resources from the exchanges before the November 2012 election. Fearing bad publicity, the Obama campaign did not want to attract attention to the unpopular law before polling day. Given that the exchanges require seamless interface between several federal agencies at the front end and scores of private insurers at the back end, they needed all the time they could get to test the system. The White House took that away.

“But the political angst did not end with last year’s re-election. As recently as August, the Obama administration made the blunder of telling the exchange’s website to show visitors the price of subsidized insurance rather than the true cost of the premiums. This was to avoid the political fallout of ‘rate shock’ that would hit users when they saw the pre-subsidized cost of insurance. It meant the website had to verify each visitor’s identity before it could display the relevant prices. Changing such a big element of a huge system so late in the day inevitably contributed to its seizing up.”

Charles Krauthammer / Washington Post

“Every disaster has its moment of clarity. Physicist Richard Feynman dunks an O-ring into ice water and everyone understands instantly why the shuttle Challenger exploded. This week, the ObamaCare O-ring froze for all the world to see: Hundreds of thousands of cancellation letters went out to people who had been assured a dozen times by the president that ‘If you like your health-care plan, you’ll be able to keep your health-care plan. Period.’

“The cancellations lay bare three pillars of ObamaCare; (a) mendacity, (b) paternalism and (c) subterfuge.

“(a) Those letters are irrefutable evidence that President Obama’s repeated you-keep-your-coverage claim was false. Why were they sent out? Because ObamaCare renders illegal (with exceedingly narrow ‘grandfathered’ exceptions) the continuation of any insurance plan deemed by Washington regulators not to meet their arbitrary standards for adequacy. Example: No maternity care? You are terminated.

“So a law designed to cover the uninsured is now throwing far more people off their insurance than it can possibly be signing up on the nonfunctioning insurance exchanges. Indeed, most of the 19 million people with individual insurance will have to find new and likely more expensive coverage. And that doesn’t even include the additional millions who are sure to lose their employer-provided coverage. That’s a lot of people. That’s a pretty big lie.

“But perhaps Obama didn’t know. Maybe the bystander president was as surprised by this as he claims to have been by the IRS scandal, the Associated Press and James Rosen phone logs, the failure of the ObamaCare website, the premeditation of the Benghazi attacks, the tapping of Angela Merkel’s phone – i.e., the workings of the federal government of which he is the nominal head.

“I’m skeptical.”

Wall Street

Turning to the markets and the economy, the S&P 500 rose a sterling 4.5% for the month of October despite the 16-day government shutdown, the threat of default, and a generally surly mood across America. It also seems from some key readings on manufacturing that the shutdown had little impact in this regard, with the Chicago Purchasing Managers Index coming in at a spectacular 65.9 for October, with a surge in new orders, and the national October ISM at 56.4, like the prior month the best since April 2011. [Reminder...50 is the dividing line between growth and contraction.]

But retail sales for September were down 0.1% when a gain was expected, though up 0.4% when you strip out autos, and pending home sales for September plunged 5.6%, the fourth straight month of declines and the worst in three years, not good.

September’s industrial production reading, up 0.6%, was deceiving because much of this increase was due to higher temperatures across the country, ergo, electricity production. Otherwise, the manufacturing component was up only 0.1%. But the October ISM data trumps this.

This coming Friday, Nov. 8, we receive the October employment report and the Federal Reserve will be looking at this one carefully.

This week the Fed held a two-day meeting and, as expected because of the uncertainty created by the shutdown, announced it would continue with its $85 billion a month bond-buying program ($40 billion in mortgage paper, $45 billion in Treasuries), but, it hinted it may finally begin tapering in December, not March as most expect.

[Ben Bernanke’s term ends January 31 and, assuming Janet Yellen is confirmed to be his successor, her first meeting is March 18-19.]

The Fed in its accompanying statement said in part, “The housing sector has slowed somewhat in recent months,” but all in all, the economy is expanding “at a moderate pace” and exhibits underlying growth.

But in the days after the meeting, a few of the Fed governors made hawkish statements that it was time to begin tapering, though the Fed is up against some key deadlines.

The December Fed Open Market Committee meeting is Dec. 17-18 and it will see the October and November jobs reports beforehand. But you also have the Dec. 13 deadline for the congressional budget conferees to issue a compromise budget plan and if there is renewed risk of a shutdown Jan. 15, the deadline for actual adoption of a budget, the Fed’s decision will be made for them; no tapering regardless of how the labor picture looks.

Looking ahead to the key holiday shopping season, it’s not a good thing that a Wall Street Journal/NBC News poll showed just 24% of Americans said they think the economy will improve over the next year. So with that kind of negativity, it’s no wonder that Morgan Stanley released a report this week calling for an increase in spending over November and December of just 1.7%, vs. an earlier prediction by the National Retail Federation that sales would be up 3.9%, as compared to a 3.5% increase in 2012.

Lastly, as the government data crunchers catch up, it was announced this week that the Fiscal Year 2013 (ending 9/30) budget deficit was $680.3 billion, the first time in five years the shortfall has been below $1 trillion but the fifth-largest in history.

To beat a dead horse, yes, the deficit is coming down further the next two years as well, barring a major military conflict, but then it is going to take off anew and just keep going and going and going....unless we attack entitlements immediately, and that is not in the cards.

Bottom line, the congressional budget negotiators are already targeting a small deal but if it prevents renewed fireworks, even I will probably just exhale and reach for a cold one. After a while you just give up...and move on.

The NSA

The chief of the National Security Agency, Gen. Keith Alexander, denied he discussed with President Obama an alleged foreign intelligence operation involving German Chancellor Angela Merkel, “nor has he ever discussed alleged operations involving Chancellor Merkel,” an NSA spokeswoman said in reply to a report in the German tabloid Bild that claimed Gen. Alexander had told the president about the bugging of her cellphone. The German magazine Der Spiegel said it has seen secret documents from the NSA showing Merkel’s number on a list dating from 2002 – before she became chancellor. Her number was still on a surveillance list from 2013. Merkel’s text messages were also monitored, according to Bild.

Gen. Alexander, in testimony to the House Intelligence Committee, said that NATO allies were actually sharing their own information with the United States, and that reports by French and Spanish newspapers that reported the NSA was conducting surveillance in their countries was misunderstood.

“This is not information that we collected on European citizens. It represents information that we and our NATO allies have collected in defense of our countries and in support of military operations.”

President Obama said this week the national security operations were being reassessed to ensure the NSA’s growing technological capability was kept under control. Secretary of State John Kerry said, “I assure you, innocent people are not being abused in the process, but there’s an effort to try to gather information. And yes, in some cases, it has reached too far inappropriately.”

David Sanger / New York Times

“Mr. Obama, like his predecessors, argues that the United States taps phones and hacks into computers only to protect the world, not to gain commercial advantage. But no one in the government has admitted that the NSA has been spying on Ms. Merkel, or the Mexican president, or the Brazilians, much less explained why. One thing is clear: The NSA’s cold-war-era argument, that everyone does it, seems unlikely to win the day.”

Editorial / Wall Street Journal

“The German case is more sensitive even if the details remain unclear. Nobody doubts Mrs. Merkel’s personal bona fides as a friend of the U.S. But there are good reasons the U.S. would want to eavesdrop on German chancellors, going back decades.

“In the 1970s, Gunter Guillaume, a top aide to then-Chancellor Willy Brandt, was exposed as a Stasi agent. The disclosure forced Brandt to resign. More recently, former German Chancellor Gerhard Schroder formed a de facto alliance with France’s Jacques Chirac and Russia’s Vladimir Putin to oppose the U.S. over Iraq....

“Such history is a good reason the Obama administration should resist calls from Berlin and Paris to adopt a ‘no spy’ agreement of the kind the U.S. has with Britain, Canada, Australia and New Zealand. American and European interests have frequently and sharply diverged and will inevitably do so again. President Obama should not tie the hands of successors who may not have someone as sympathetic as Mrs. Merkel as a Berlin counterpart.”

R. James Woolsey (former CIA director) / Wall Street Journal

“(In) targeting Chancellor Angela Merkel, the U.S. picked someone who grew up dodging East Germany’s Stasi secret police in order to talk honestly to friends. The U.S. has not denied that the monitoring occurred in the past and some media reports say it went on for a decade. If so, we have been sitting on a powder keg for years....

“Some critics have waxed indignant over the possibility that the U.S. has collected intelligence on some 35 national leaders. But the intelligence business is not a competition to avoid collecting intelligence. In particular, we should be getting the lowdown on hostile regimes and the governments that deal with them. Keeping an eye on allies has always been part of the effort as well. Yet there is no doubt that the U.S. has taken a heavy blow regarding our part in this wild dance of spies – especially from the monitoring of Chancellor Merkel’s phone.

“The episode poses its greatest danger if it seriously damages America’s ability to obtain badly needed allied intelligence and allied help in dealing with terrorism and terrorist-backing states. [Ed. My point last week.] We are doubly at risk of losing that sort of cooperation because our allies are already wary of the U.S., having seen less American leadership in recent years on a number of important issues. [Ed. see Syria, for one.]....

“Because of this history, the U.S. must take steps to bolster a spirit of trust and cooperation with its allies. A restoration of American leadership would do much to help on that front, as it did during the Cold War, when the U.S. would show initiative and assumed, rightly, that its allies would follow. With America and its allies battling the global terror threat, no less sense of direction from Washington is needed.

“But even in the absence of such leadership, the U.S. can take another step to build necessary bridges with its allies. America already is part of the decades-old ‘Five Eyes’ pact with Britain, Australia, Canada and New Zealand, agreeing to share intelligence and not to spy on each other. The U.S. should accede to recent requests from Germany and France to join the group.

“Taking such a step would not be popular in some corners of the intelligence community. But if the U.S. is already going to stand down on intelligence efforts and military capability because of the costs imposed by sequestration, world-weariness, or other reasons, then we must stop and take stock of where intelligence now fits in the nation’s interests....

“Chancellor Merkel should be able to use her phone with the confidence that at least the Americans are not among those listening in.”

Richard Cohen / Washington Post

“Where is Casey Stengel when we need him? In 1962, as the manager of the brand new and determinedly hapless New York Mets – 40 wins, 120 losses – he looked up and down his bench one dismal day and wondered, ‘Can’t anybody here play this game?’ That phrase kept coming at me recently as I watched the impressively inept performance of the Obama administration in both foreign and domestic policy. On a given day, this administration makes the ’62 Mets looks good.

“This is a surprise – at least to me. If Barack Obama has an image, it is of the infinitely cool, cerebral leader. The man can give a rousing speech, but he is, at heart, a planner and a plodder. Both of his presidential campaigns were exercises in micromanagement – digital all the way....

“Yet this same man has lately so mishandled both domestic and foreign policy that he is in mortal peril of altering his image. This unsettling and uncharacteristic incompetence became shockingly clear when Obama failed to come to grips with the Syrian civil war. I did not agree with the president’s do-nothing policy, but at least it was both a policy and intellectually coherent. What followed, though, was both intellectually incoherent and pathetically inconsistent – a ‘red line’ that came out of nowhere and then mysteriously evaporated and a missile strike that was threatened and then abandoned. It was a policy so wavering that if Obama were driving, he would be forced to take a breathalyzer.

“The debacle of the Affordable Care Act’s Web site raised similar questions about confidence. This was supposed to be Obama’s Big Deal....

“Something went wrong. People could not sign up. Why? Not sure. Who’s at fault? Apparently no one. An act of God....

“Here, I must mention that bit of theater in which various world leaders wax indignant about their telephone conversations being bugged by the National Security Agency. This is not Obama’s doing since the program predated his time in office. But the decibel level of the outrage does suggest that in Germany, France, Brazil and elsewhere, Obama’s standing is not what it once was. He and America are no longer held in either awe or respect, and the bugging program, instead of seeming a necessary evil, looks both clumsy and silly.”

[In a further sign of strain in relations between Washington and Berlin, the German government said on Friday it was willing to speak to Edward Snowden about the NSA’s activities.]

Europe

I have been writing all year that any economic recovery in Europe was not only going to be tepid, but there were real reasons for concern that a recovery would even last. European Central Bank President Mario Draghi clearly issued a warning of his own a few weeks ago and the past few days some of the economic data bore this out.

It’s also clear the recent strength in the euro currency was unwarranted, considering the punk economy and the fact a stronger currency hurts exports, plus demand from many of the emerging markets has been weak.

And despite an ECB survey this week that the banks are ready to ease lending standards, the evidence is lacking. Some $1.7 trillion of non-performing loans is sitting on European banks’ balance sheets, as a story from CNBC.com noted this week, and you have the looming ECB bank stress tests I discussed last time.

So eurozone retail sales hit a five-month low in October, while on Thursday, we had the release from Eurostat of the September labor picture and there will be no lasting recovery until the jobless rate in euroland goes down and currently it remains at a record 12.2%, this after the August figure was revised up to the 12.2 mark. While Austria (4.9%) and Germany (5.2%) are in solid shape when it comes to the job market, Greece’s unemployment rate is 27.6% (July, latest reporting period), 26.6% in Spain, 16.3% in Portugal, 13.6% in Ireland, 12.5% in Italy and 11.1% in France.

The youth rate remains sickeningly high as well. 56.5% in Spain, 57.3% in Greece, 52.8% in Croatia (the newest eurozone member), 40.4% in Italy.

You also had the release of the latest inflation data, with consumer prices up just 0.7% in October, year over year, vs. a 1.1% rise in September. The ECB’s target is 2% and Europe is dangerously close to outright deflation. Consumers will begin deferring purchases, potentially, at the worst possible time when the continent needs growth. Inflation is at the lowest level in four years for the eurozone.

Regarding Germany, the U.S. Treasury Department blasted Germany’s export-led growth model in language normally reserved for America’s prime target, China, and another recently perceived problem nation, Japan.

Treasury’s report read: “Germany’s anemic pace of domestic demand growth and dependence on exports have hampered rebalancing at a time when many other euro area countries have been under severe pressure to curb demand and compress imports in order to promote adjustment. The net result has been a deflationary bias for the euro area as well as for the world economy.”

Germany was furious, saying the global appetite for German cars and machinery was driven by nothing more than market factors.

“The trade surpluses reflect the strong competitiveness of the German economy and the international demand for quality products from Germany,” the Economics Ministry said. It was “incomprehensible” Washington could be so critical.

But on this one, the United States was right. 24 hours after Treasury’s report, the deflationary price data came out, along with a report Germany’s retail sales had fallen in September.

There was some good news, however. Spain reported the number of overseas tourists the first nine months of the year was at the highest level since at least 2000.

But in France, President Francois Hollande said he would not repeal the 75% income tax bracket on salaries above 1 million euro as France’s top football clubs had called for. The clubs protested that the “unfair and discriminatory” levy threatened “the death of French football,” cancelling all games the last weekend in November in an unprecedented strike by the owners, not players. I mean why would you play in France if you were a star, even though the constitutional court ruled out applying the tax to individuals? Why take the chance the ruling is reversed later? [The tax is now applied to the employers instead.]

Roger Boyes / London Times

“For one thing, the eurozone crisis is far from over. Spain may be growing again but its youth unemployment rate is still a terrifying 50 percent. Greece has cut its budget deficit but at a huge social and political cost. The acute economic crisis may have passed but the chronic challenges remain. The social welfare state – once Europe’s pride and joy, its answer to American capitalism – is becoming unaffordable. Health services and the pension sector are having to cope with an aging population and a heavily taxed young generation is wondering whether emigration might represent a better future....

“Jan Techau, a shrewd analyst at the Carnegie Europe think-tank, concludes that ‘Europe is drowning in its own culture of impossibility.’ Brussels bursts with generously sponsored symposiums asking the right questions... Why not use the Lisbon agenda to make Europe more competitive? Propel European universities into world top league? Give more muscle to Baroness Ashton’s EU foreign policy arm? Create an EU seat on the UN Security Council? Forge more cooperation between NATO and the EU? The answer is always a variant of: impossible.

“The logjam can only be broken with imaginative leadership. Her phone may be worth bugging (actually I doubt this) but Angela Merkel is only ‘leader of Europe’ by default. The governing coalition with the Social Democrats that is cautiously emerging in Berlin will if anything play to her low-intensity, non-interventionist instincts. She is already taking her country out of nuclear power, has become a pacifist in all but name and is borrowing the rhetoric of the menacing surveillance state. In harness with the Social Democrats she is likely to shift even further leftwards. Nobody, not David Cameron, not Barack Obama, should count on Chancellor Merkel delivering the kind of competitive, outward-looking Europe that they would like to see.

“Leadership in Europe signifies something more than a Merkel-style moderator, more than an individual with presidential swagger. A well-led continent has to adopt some form of co-management....

“Chiefly, though, Europeans have to be steered out of the backwaters and into a position of global significance. Staying out of the fray is a sure recipe for an accelerating European decline.”

Just a few notes on Asia, where the news was respectable. 

In China, the October PMI on manufacturing was 51.4 vs. 51.1 in September, according to the government, a 15-month high, while home prices rose 10.7% for the month over October 2012. Industrial profits for the first nine months of the year rose 13.5% from the same period a year earlier.

On the housing front, President Xi called for more housing and suggested that further price controls are unlikely. Xi said the government must focus on ensuring that needy people have adequate housing.

But the big news in China could come over the coming ten days as a key meeting of senior Communist Party officials begins Nov. 9 and this week the fourth-ranked member in the elite Politburo Standing Committee, Yu Zhengsheng, said the closed-door meeting would “principally explore the issue of deep and comprehensive reforms.”

“The reforms this time will be broad, with major strength, and will be unprecedented,” he said, according to Xinhua. “Inevitably they will strongly push forward profound transformations in the economy, society and other spheres.”

The party plenum will be the third for the 200-member Central Committee since last year’s leadership transition.

Elsewhere, the manufacturing PMI in South Korea hit 50.2 in October, the best in months, while exports there rose a stronger than expected 7.3% over a year earlier. In Taiwan, its PMI came in at a solid 53.0, the best since March 2012.

Street Bytes

--The Dow Jones rose for a fourth straight week, 0.3% to 15615, after earlier hitting a new closing high of 15680 on Tuesday. The S&P 500 eked out a gain of 0.1% to 1761, with its all-time closing high of 1771 set on Tuesday as well. Nasdaq lost 0.5% on the week.

With over 300 of the S&P 500 companies having reported third-quarter earnings, it appears they will end the reporting season with a gain of around 5% for EPS, with revenues up 3%; slightly better than expected on both.

--U.S. Treasury Yields

6-mo. 0.08% 2-yr. 0.31% 10-yr. 2.62% 30-yr. 3.69%

The long end of the curve rose (in yield) on the strong manufacturing data and renewed talk of Fed tapering. Plus, as many experts pointed out, 2.47% on the 10-year was a key technical level and bonds bounced off it.

The September inflation data was finally released. Producer prices fell 0.1%, up 0.1% ex-food and energy. For the year, the PPI was up 0.3%, 1.2% on the core. Consumer prices rose 0.2%, up 0.1% on core, and for the 12 months were up 1.2%, 1.7% ex-the stuff we use. Like in the case of the ECB, the Fed’s inflation target is 2% but for now 1.2% isn’t a huge issue.

--One-time billionaire Eike Batista of Brazil used to brag he would one day be the richest man in the world and how the various companies he had assembled, including his flagship oil company OGX, had some $2 trillion in untapped natural resources.

But on Tuesday OGX filed for bankruptcy protection against its creditors in one of the largest corporate busts in Latin America, which begs the question just how far the debacle will spread across the region, specifically the bond market.

Then again, Batista’s problems have been well-telegraphed, the bond market already hit hard, and some speculators could move in.

Batista’s biggest problem was his oil wells never generated any significant production.

--A story in Bloomberg about U.S. companies in China was rather distressing. The other week, IBM reported revenue plunged 22% in the third quarter there, while others such as Starbucks are struggling. As a managing director at China Market Research Group in Shanghai, Shaun Rein, put it, “The operating environment for foreign firms has deteriorated in the last year in a serious way. In my 16 years in China, it’s some of the worst business sentiment among foreign executives. They don’t feel as welcome as they used to.” In a survey of more than 100 U.S. firms, only 39% are optimistic about the next five years in China; 58% felt that way in 2011.

There are some companies doing very well...General Electric, General Motors and Coach Inc., to cite a few examples.

But everyone is looking to see what message emerges from the aforementioned meeting of the Central Committee. Sometimes such gatherings open the economy to foreign investment through new reforms.

--In a different vein, McDonald’s and Yum Brands (KFC) are getting their clocks cleaned in China by new, home-grown rivals with healthier, cheaper fare tailored to local tastes, as well as a fresh look in their stores. Both McDonald’s and Yum have also been hit by food scares and bad publicity.

--The Chinese government is extremely upset with their Australian counterparts as the new Aussie government has decided to uphold a ban on Chinese networking giant Huawei’s participation in the Australian national broadband network. Earlier, various Aussie cabinet ministers had sent out positive signals, with the Trade and Investment Manager saying Huawei had a “big future in Australia” during a recent visit to China.

The whole deal with Huawei, globally, is the concern it has close links to the Chinese government and that the company, if allowed to provide equipment for something like the broadband project, could compromise Australia’s national security.

So as a Chinese diplomat told the Sydney Morning Herald, “Why should we allow Australian companies better access to China when Australia stops one of the most respected Chinese companies from doing business here?”

This anonymous diplomat added American intelligence services might be behind the Aussie government’s new policy. [Just stating China’s opinion...not mine.]

--On a related issue, European officials are warning that any attempt by AT&T to acquire a major wireless carrier would face intense scrutiny, given the company’s relationship with the National Security Agency. AT&T has long said it wants to take advantage of the growth opportunity on the continent, with a likely target being Vodafone Group PLC, which owns cellphone networks across Europe.

AT&T provides calling data to the NSA. Any AT&T bid, to be fair, would face intense scrutiny regardless given the proclivity for national governments in Europe to block takeovers by foreign companies.

--There is a serious water shortage in Dublin, Ireland, and some neighboring communities, due to serious problems at the country’s biggest treatment plant. “Dublin and Leinster are literally running out of water,” warned Senator John Whelan.

“Housing estate upon housing estate” was built in the boom, but the government did not match the boom with the infrastructure, namely a strategy on water supply.

Water to the area has been cut off for up to 13 hours at times; this as 9,000 of the world’s top IT entrepreneurs descended on the city for a major summit.

The issue has to do with the lake water flowing into the treatment plant and an as yet unidentified issue with the quality of the water.

Many of the city’s hotels have large water-storage facilities on site so it’s expected their operations will be fairly normal. But businesses are different.

Of course you all are thinking, gee, Editor....it’s not like there is a shortage of water in Ireland!

Yup, so imagine what the locals are saying, especially as their utility bills keep going up.

--India’s main stock index hit a record high on Friday, propelled by an inflow of foreign capital just two months after the same investors were pulling out! Ergo, ‘short’ India in a big way. This is totally nonsensical. The economy’s fundamentals suck.

--Claire Cain Miller / New York Times

“Google has spent months and millions of dollars encrypting email, search queries and other information flowing among its data centers worldwide. Facebook’s chief executive said at a conference this fall that the government ‘blew it.’ And though it has not been announced publicly, Twitter plans to set up new types of encryption to protect messages from snoops.

“It is all reaction to reports of how far the government has gone in spying on Internet users, sneaking around tech companies to tap into their systems without their knowledge or cooperation.

“What began as a public relations predicament for America’s technology companies has evolved into a moral and business crisis that threatens the foundation of their businesses, which rests on consumers and companies trusting them with their digital lives.”

It’s about the image many will have of the likes of Google and Yahoo being seen as enablers of the surveillance.

Google’s chief legal officer, David Drummond, issued a statement this week. “We are outraged at the lengths to which the government seems to have gone.”

And as Jason Healey, a former NSA official who is now the director of the Cyber Statecraft Initiative at the Atlantic Council think-tank, said of the latest revelations:

“If true, then it is a stunningly bad idea. It shows that our intelligence leaders have adopted a purely short-term view of what is acceptable, which is only going to encourage the trend towards the Balkanization of the internet and the imposition of national boundaries.”

Another, Milton Mueller, professor at Syracuse University’s school of information studies, said, “U.S. credibility as a neutral steward of the internet has been severely damaged by the NSA revelations.” [Geoff Dyer and Richard Waters / Financial Times]

--Apple Inc. reported sales of $37.5 billion for its fiscal fourth quarter and projected revenue in the current period would be $55 billion to $58 billion, not up significantly from a year earlier, which caused concerns among some about the holiday season, though Apple often sandbags and CEO Tim Cook expressed optimism. Profit fell 8.6% to $7.51 billion, or $8.26 a share, above the projected $7.92.

IPhone sales, including about a week of the new 5s and 5c models on store shelves, were 33.8 million, better than expected, while 14.1 million iPads were sold, a little less than forecast by analysts.

The new iPad Air went on sale Friday.

Meanwhile, Carl Icahn continues with his campaign to get Apple to initiate a $150 billion buyback to boost the share price.

--JPMorgan Chase’s $13 billion settlement with the Department of Justice is in jeopardy as JPM seeks to offset some of the settlement with a reimbursement from the FDIC related to Washington Mutual, which JPM bought in 2008. The bank believes it has claims of $4 billion against the FDIC – representing bad assets JPM inherited when it acquired WaMu.

--Greg David of Crain’s New York Business has a stark piece in the current issue of how some, such as the New York state comptroller, appear to be too optimistic concerning the seeming recovery on Wall Street and the impact on city and state tax revenues. To wit.

“Revenue (on the Street) last year, $161 billion, was less than half the revenue for the peak year of 2007, $352 billion. This year may be worse: Goldman Sachs’ third-quarter revenue fell by 20% - and we’re talking about the industry’s best-run name.

“If that happens, securities firms will shed employees by the tens of thousands and finally take an ax to pay. With revenue at 1990s levels, bonuses will return to that decade’s norms, too. There goes the Street as a driving force in the economy.

“City and state budgets will be engulfed in red ink, too. At its peak, Wall Street provided 24% of all the revenue for the state and 13% for the city. Last year, the figures were 16% and 8.5%, respectively....

“The city’s economy is more diversified today, but not enough to avoid trouble if this doomsday scenario comes to pass.”

--The S&P/Case-Shiller 20-city home price index for August rose 1.3% from July, up 12.8% from year ago levels, but the rate of increase is beginning to slow, as reflected in other housing data. Home prices are up 29.2% in Las Vegas over this period (institutions buying up properties to flip for the most part), San Francisco saw a 25.4% rise, Los Angeles 21.7% and San Diego 21.5%. [Go Josh P.]

--The Federal Aviation Administration finally changed its policy restricting use of electronic devices in flight and by year-end, most airline passengers will be able to use their tablets, e-readers and other gadgets during the entire flight, including below 10,000 feet.

Phone calls and e-mails will still be banned.

A recent survey showed that 34% of business travelers said being able to use electronic devices is very important – but an equal number said it isn’t important at all. Put me in the latter category. I save up hard copy reading material for flights.

--Facebook Inc. handily beat on both the top and bottom line for the third quarter and initially the shares soared $7 to $57 in Wednesday’s after hours trading. But then shortly thereafter the stock gave up all its gains when executives told analysts they won’t be adding more ads into users’ news feeds (the company not wanting to irritate its users), and that U.S. teens are spending less time on the site.

Meanwhile, Facebook said 49% of its advertising revenue - $880 million – came from mobile devices, up from 14% of revenue a year earlier. Overall advertising revenue jumped 66%.

Facebook had 1.19 billion users during the quarter, up from about 1.15 billion in the second quarter. The number of mobile users rose 6.7% to 874 million from the prior period.

--LinkedIn shares cratered after the company issued a conservative revenue forecast for the fourth quarter and, perhaps, investors began to think twice about the absurd valuation, like 150 times forward earnings.

That said, revenue was up 56% in the third quarter from a year ago,   Monthly users rose to 259 million during the quarter, a 38% rise from a year ago.

But CEO Jeff Weiner signaled in recent months that LinkedIn could reach a saturation point among white-collar workers, particularly in the U.S.

--General Motors reported strong earnings, up 15% over last year’s pace, to $2.64 billion, with sales up 3.7% to $39 billion, though they fell in September.

Losses in Europe narrowed from $487 million to $214 million. Sales on the continent were up 3.3%, echoing Ford’s experience there, as reported a week earlier.

--Struggling Fiat slashed its full-year profit guidance, despite strong results at US subsidiary Chrysler. Fiat continues to suffer in Europe and South America, in particular. Ironically, it’s Chrysler’s pile of cash ($11.5 billion) and strong earnings generation that are crucial to Fiat’s survival. CEO Sergio Marchionne is attempting to combine the two operations to form a true rival to GM and the other bigs, including Volkswagen, but he’s been blocked by a healthcare trust that owns 40.5% of Chrysler not held by Fiat.

--Consumer Reports dealt a blow to Toyota when it removed the Camry, RAV4 and the Prius V from its “recommended” list because of bad crash test scores, though at the same time CR lauded Toyota for its lineup’s reliability.

[Toyota’s global sales for the first nine months of the year reached 7.41 million vehicles, ahead of No. 2 GM’s 7.25 million. Volkswagen AG sold a little over 7 million for third.]

--Domestic auto sales for October were up 13% over last year after a poor September. GM posted a 16% gain, Ford’s were up 14%, and Chrysler’s up 11%. 

Nissan’s sales rose 14%, but Toyota’s increased only 9% and Honda’s were up 7%, while Volkswagen’s fell 18%. VW desperately needs new models. 

--Merck & Co. reported a 35% decline in third-quarter earnings as the drugmaker said it may shed assets and focus on priorities such as vaccines, diabetes treatments, and oncology products; this as Merck previously said it would cut its workforce by 20% over the next two years, including at the location across the street from moi. Merck’s sales declined 4% year over year.

--Starbucks Corp. reported a 34% jump in quarterly profit, as global sales at Starbucks cafes open at least 13 months jumped a very solid 7%.

--Boeing announced it will be increasing production of its popular single-aisle 737 jets to 47 a month by 2017, from 38 now, as the demand for fuel-efficient planes grows.

Airbus now builds 42 of its competing A320 each month.

--Airlines worldwide are expected to collect $42.6 billion from passenger fees, the sale of frequent flier miles and other sources in 2013, an 18% increase from last year, according to a consultant for the airline industry, IdeaWorksCompany. This would represent about 6% of all revenues for airlines worldwide. $23.7 billion of the $42.6 billion is projected to come from onboard sales of food, drinks and seat upgrades and revenue from check bag fees. [Hugo Martin / Los Angeles Times]

--Alcatel-Lucent reported a narrower loss in the third quarter on both lower costs and slightly better revenue, and the network-gear maker was positive in its guidance.

The company is eliminating 15% of its workers and pursuing $1.4 billion in asset sales to fund restructuring, as well as pay emergency loans taken out earlier this year.

Revenue in North America, though, was up 14% as the company benefited from spending on 4G wireless networks, such as was the case with Sprint which selected Alcatel.

I drive by the North American headquarters in Murray Hill, N.J., once a week these days and I was struck the last time how jammed the parking lots seemed (relative to the pathetic emptiness I normally espy). I’ll be taking a closer look at this in the future.

--Sony Corp. surprised the Street in cutting its full-year profit forecast amid lousy demand for its televisions and digital cameras, as well as poor box office receipts because its movies have sucked. [And if you want me to personalize your earnings release statements, just drop me a line.]

The television market is saturated and of course consumers are using their smartphones in lieu of digital cameras and camcorders.

Actually, Sony’s movies topped the global box office for the quarter, but gross sales were far below the pace of a year earlier.

Sony cut its net income forecast for the year ending in March 2014 from about $500 million to $300 million. The shares tanked 11% on the news.

--Interesting piece in The Record (New Jersey), via The Star-Ledger, on how students are living off campus to save money. As in some of New Jersey’s commuter public colleges and universities had made a concerted push to upgrade on-campus residences but in the case of Ramapo College and Williams Paterson University, over 10% of the dorm rooms are vacant.

--Thomson Reuters, the provider of news and information services, said it plans to cut another 3,000 jobs as it struggles with weak demand from bank clients, which have been reducing head count themselves since the financial crisis hit. Earlier this year, the company eliminated 2,500 jobs. Third quarter earnings for Thomson Reuters fell 38% as revenue fell 3%.

--According to the Alliance for Audited Media, using a new metric that combines print and digital apps, USA TODAY has the highest daily circulation of any U.S. newspaper for the six months ended Sept. 30. It’s the first time digital has been included and it gives USA TODAY an average circulation of 2.9 million for the period, vs. the Wall Street Journal’s 2.27 million. The Journal’s paid digital circulation rose 14.3 % to 903,000 in the same period.

The New York Times is third with an average weekly circulation of 1.9 million, including 1.2 million in digital subscribers (727,000 of which are paying subs). Separately, the Times reported total ad revenue fell 2% in the third quarter.

--Chinese scientists announced they have a vaccine for the H7N9 bird flu virus and could have it ready to launch in six months. This would be a nice surprise.

--Customers buying Dell Latitude 6430u laptops are complaining their new computers are emitting a smell similar to cat urine. The smell is coming from the keyboard or palm rest. A company spokesman said the odor isn’t related to a “biological contamination” and doesn’t present a health hazard.

Don’t trust anyone these days. It’s a WMD.

--The Herald Scotland reported this week on a half-decade of thefts from British atomic-powered submarines, as well as from air force installations and army bases in Scotland, citing documents obtained through ‘open-record laws,’ as they put it across the pond.

Among the items taken were 55 pounds of bacon, 33 pounds of shrimp and 12 sacks of sausages taken from a marine base. I’m drooling....

[I know the above isn’t a Street Byte, but it’s a Street Bite.]

--PIMCO’s Bill Gross tweeted that Carl Icahn should stop pushing Apple to launch a massive share buyback program as a way of juicing the share price and instead spend more time on philanthropy like Bill and Melinda Gates. Icahn fired back that Gross should join him in signing the Giving Pledge, a group headed by Gates and Warren Buffett to encourage the world’s richest to give the majority of their wealth to charity.

Gross then said he and his wife pledged to give their wealth all away via the Andrew Carnegie pledge; Carnegie having said the wealthy have an obligation to improve society.

I’m leaving out some details but the whole exchange between the two titans was stupid and needlessly nasty.

--A report by Morgan Stanley on the wine industry finds that prices are likely to rise owing to steadily rising demand, especially from the U.S. and China, while there is an undersupply of the product, ostensibly because of poor weather in the likes of France and Argentina. Morgan Stanley says 2.8 billion cases of wine were produced last year, but there was an undersupply of 300 million cases. [Each case contains 12 bottles.]

Another issue is the French are consuming more again, after decades of falling consumption, leaving less for export. France remains the biggest wine-drinking country in the world but the U.S. is catching up fast. And the Chinese have doubled their consumption twice in the past five years.

Morgan Stanley notes, “The global wine industry has seen an excess of 600 million cases in 2004 reduced to just one million in 2012, largely through an on-going reduction in structural capacity.

“After adjusting for non-wine uses, demand for wine exceeded supply by 300 million cases in 2012, the steepest shortfall in over 40 years of records.” [David Charter / London Times]

Foreign Affairs

Iran: The next round of talks on Tehran’s nuclear program is taking place Nov. 7-8 in Geneva, but in talks between technical experts from Iran and the P5+1 group in Vienna this week, there are reports Iran is prepared to make it easier for U.N. inspectors to visit its contested facilities. Separate talks with the International Atomic Energy Agency, which would conduct the inspections, also were “very productive,” according to a rare joint statement.

In Washington, though, President Obama continued to press the Senate to hold off on expanding sanctions against Iran as talks continue, while for his part, Israeli Prime Minister Benjamin Netanyahu said:

“I heard Iranian officials define the last round of talks as ‘useful and constructive.’ Well, I am sure that for the Iranians they were useful and constructive, because they just win time to continue their enrichment program to create fissile material for nuclear weapons.”

Last weekend an Iranian lawmaker said his country continues to enrich uranium to 20% purity, knocking down reports Iran had halted the enrichment of near-weapons-grade uranium.

Netanyahu said this week that talk about 20% purity was not the key; rather, because of Iran’s new centrifuges, the ability to go from 3.5% enriched uranium to 90% weapons-grade material would take just 8-10 weeks.

But at the end of the day there could be a bigger issue impacting Iran’s future direction. As Hugh Tomlinson of the London Times put it, there are growing concerns about the health of Supreme Leader Ayatollah Ali Khamenei. He has not been seen in public for over three weeks and “reports suggest that he has had a relapse of a chronic illness.”

“His death, or even a prolonged absence, could prompt a power struggle as negotiations with the West over Iran’s nuclear program reach a critical stage.”

A Khamenei loyalist wrote on Facebook, “It is not good news coming our way from our master...Pray deeply for him.”

But there are rumors that if Khamenei dies or is forced to step down, former president Rafsanjani would succeed him and conservatives in Iran loathe the fact Rafsanjani is viewed as a reformer. If you’re a long-time reader of this column, you know how I would feel. I’d be thrilled, at least in the short term.

One Khamenei loyalist told the London Times, “Rafsanjani has been scheming for 30 years to turn Iran into Saudi Arabia – a dictatorship backed by the West.”

Then again, there have been rumors of Khamenei’s bad health for years and he always comes back.

Separately, Iran hanged 16 “rebels” of an unspecified militant group in retaliation for an ambush that resulted in the deaths of 14 Iranian border guards last weekend, near the border with Pakistan. It’s not known whether the attackers were drug smugglers or an armed opposition group.

Syria: Israel’s air force attacked two military sites inside Syria on Wednesday; one near the port city of Latakia, an Assad regime stronghold, and the other in Damascus. While Israel doesn’t confirm or deny such talk, at least 11 Israeli jets were seen flying over Lebanon the same day. An Obama administration source told CNN that Israel was targeting Russian-made missiles potentially heading to Hizbullah.

Meanwhile, there are conflicting reports on just who has the upper hand in recent fighting. The Wall Street Journal reported on Friday that Islamist rebels are entrenched in some Damascus suburbs, from which they have been launching terror attacks against the regime, including blowing up a gas pipeline that caused an hours-long power failure in the capital.

But President Assad is using the presence of the Islamists to his advantage in his public relations war, saying he will not participate in a proposed peace conference in Geneva unless Western and Arab states stop funding rebels he calls terrorists.  [Of course the opposition says it won’t attend if Assad is there. And 19 Islamist groups issued a statement saying the Geneva conference “is not, nor will it ever be our people’s choice or our revolution’s demand.”]

The situation is so dire in the Damascus suburbs that clerics have issued edicts that permit the eating of cats and dogs to fend off starvation.

On the chemical weapons front, Syria has completed the functional destruction of all equipment related to production, though inspectors could not visit two sites due to the war. Assad’s forces would thus appear to have complied with a Nov. 1 deadline, according to the Organization for the Prohibition of Chemical Weapons and the United Nations, which is overseeing the disarmament activities.

But there are major questions as to whether the Assad government disclosed all of the locations and U.S. security officials say their estimates of sites are higher than what Syria declared.

And now comes the huge task of actually eliminating Syria’s 1,000-plus metric tons of toxic agents and munitions. Last week I reported that Norway said it would help in the destruction effort, but then it backed off. Now Albania is a contender. The deadline to complete the task is mid-2014.

As for the opposition rebels, they say this whole game of Assad dismantling his WMD capability does nothing more than legitimize his regime and is an insult to those who died in the big attack on a Damascus suburb on Aug. 21, which killed 1,400.

Michael Gerson / Washington Post

“While chemical weapons disarmament proceeds in Syria, so do mass attacks on civilians. In the eastern suburbs of Damascus, where the regime used sarin, it now conducts a siege, blocking the entrance of food and the exit of refugees. This technique involves less sophisticated chemistry, but it is still effective. Aid workers report hunger and malnutrition.

“Through trial and error, Syrian President Bashar al-Assad is finding ways to attack women and children that the world finds more acceptable.

“Events in Syria strain recent historical comparisons. Only Syria and Afghanistan have experienced the displacement of more than 6 million people. Only the violence in Syria and Rwanda has displaced tens of thousands in a single day. A third of the Syrian population has been forced from their homes; perhaps 100,000 are dead.

“As the conflict grows more chaotic, it becomes more opaque. Fewer journalists are willing to risk the growing anarchy, banditry and kidnapping. And the proliferation of rebel groups, some disturbingly radical, have left many confused about whom to pull for. The result is a vast tragedy within Syria and a vast emotional numbing outside it.”

Editorial / Washington Post

“According to Secretary of State John F. Kerry, Syrian ruler Bashar al-Assad now is waging ‘a war of starvation’ against his own people. In a robustly worded op-ed column posted Friday (10/25) on ForeignPolicy.com, Mr. Kerry denounced what he said was ‘the systematic denial of medical assistance, food supplies and other humanitarian aid to huge proportions of the population.’ The regime’s tactics, he said, ‘threaten to take a humanitarian disaster into the abyss.’ They are ‘intolerable,’ and ‘the world must act quickly.’

“So what does the Obama administration propose to do to stop this barbarism? The simple answer is: nothing, other than issue strongly worded statements....

“Mr. Kerry’s feckless op-ed offensive is a direct consequence of President Obama’s radical retrenchment of U.S. policy in the Middle East this fall....

“ ‘The world cannot sit by watching innocents die,’ declares Mr. Kerry. But, apparently, the Obama administration can.”

John McCain and Lindsey Graham / Washington Post

“What’s worse, the administration’s failure on Syria is part of a broader collapse of U.S. credibility in the Middle East. As recent reports make clear, Israel and our Gulf Arab partners are losing all confidence in the competence, capability and wisdom of the administration’s diplomacy in the region. America’s relationship with Saudi Arabia, in particular, is deteriorating rapidly, to the detriment of U.S. national security interests....

“We further share the concerns expressed by our Israeli and Arab partners about the risks of being drawn into protracted negotiations with Iran’s rulers that become a stalling tactic for Tehran. We should be prepared to suspend the implementation of new sanctions, but only if Iran suspends its enrichment activities. We should not accept that the centrifuges spin while the diplomats talk.

“The United States is experiencing a serious failure of policy and loss of credibility in the Middle East. Events in the region are headed in a perilous direction, and there is little reason to feel confident that the Obama administration has a strategy to secure U.S. interests and values in this vitally important part of the world.”

And now the UN’s World Health Organization has confirmed the first polio outbreak in Syria in 14 years. An estimated 500,000 children have not been vaccinated for the disease, though the UN now says it is gearing up to vaccinate 10.5 million children in the entire region.

One last item on Assad. This week he sacked his deputy prime minister for being absent without leave and holding unauthorized meetings abroad.

Pakistan: Pakistani Taliban leader Hakimullah Mehsud was killed in a drone strike Friday evening, but Pakistan accused the United States of attempting to “sabotage” efforts to hold peace talks with the group. Apparently, four Taliban leaders were meeting in North Waziristan to discuss how to proceed with Prime Minister Nawaz Sharif’s overtures.

Sharif was just in Washington for positive talks with President Obama.

Mehsud had a $5 million bounty on his head for his alleged role in a 2009 attack on a CIA outpost in eastern Afghanistan that killed seven Americans.

This is one of those classic ‘wait 24 hours’ tales.

Iraq: Prime Minister Nouri al-Maliki was in Washington this week, addressing the resurgence of al-Qaeda and the impact the war in Syria is having on his country.

“Regretfully, the Arab revolutions were able to shake the dictatorships but weren’t able to fill the void in the right way,” Maliki said in a speech to a think tank. “So a vacuum was created, and al-Qaeda and other terrorist organizations were able to exploit it and to gain ground.”

But many in Washington blame Maliki for oppressing the Sunni minority. Maliki wants help in training, intelligence sharing and weapons sales. The U.S. in turn needs to convince him to be more inclusive, though he is increasingly in the throes of the Iranians.

At least 55 died in various bombings and attacks in Iraq last Sunday and the death toll from the violence for the month of October exceeded 550.

Israel: The government announced it is advancing plans for new massive settlements in the West Bank and Jerusalem, just what the so-called ‘peace process’ doesn’t need.

Israel did release 26 Palestinian prisoners in the second round of prisoners to be freed since August, part of a U.S.-brokered deal for the resumption of talks.

Libya: Ten armed men stole $55 million in a heist on a van carrying local and foreign currency for the Libyan central bank on Monday. The van was coming from the airport where the cash had been flown in from Tripoli for the local central bank branch in the coastal city of Sirte. The head of its city council told Reuters, “The robbing is a catastrophe.”

The country is so lawless and dysfunctional, oil exports fell to less than 10% of capacity on Monday after protesters shut down ports and oilfields in the west. [Daily Star]

China: The top security official in the country said a deadly crash in Beijing’s Tiananmen Square that killed three people inside the vehicle and two tourists was incited by the East Turkestan Islamic Movement. On Monday, the car ploughed into a crowd then burst into flames. By week’s end police arrested five suspects, all from the western region of Xinjiang, home to minority Uighur Muslims. 

Some say the Uighur don’t have the capacity to carry out a terror attack like this and that they are used as scapegoats. But what emerged was that President Xi and six other top officials were at the square when the vehicle crashed and exploded. Xi, Premier Li Keqiang and the others, members of the Politburo Standing Committee, were just 200 yards away in the Great Hall of the People.

Separately, the Defense Ministry lodged a formal diplomatic complaint over what it called a “dangerous provocation” by Japan for shadowing Chinese military exercises in the Western Pacific. China accused Japan of disrupting live ammunition drills, while Japanese patrol ships and aircraft gathered information about the exercises.

It was interesting that the complaint came from the Defense Ministry, rather than the normal route employing the Foreign Ministry.

But Tokyo said Beijing was jeopardizing peace over the disputed Senkaku islands in the East China Sea. Japan’s Defense Minister Onodera said, “I believe the intrusions by China in the territorial waters around the Senkakus (“Diaoyus” to China) fall in the ‘grey zone’ (between) peacetime and an emergency situation,” he told reporters. 

On Monday, China’s coastguard sent four vessels into the waters around the islands, where they stayed for two hours, shadowed by their Japanese counterparts. Tokyo also scrambled jets to meet Chinese aircraft in the area, though they did not enter Japanese airspace.

Last week, Japanese Prime Minister Shinzo Abe gave the green light to plans to fire on any unmanned aircraft that did not heed warnings to leave Japanese airspace.

For his part, President Xi said at a conference: “Maintaining a peaceful and stable environment among our neighbors should be the aim of our diplomacy.” Maintaining ties with neighboring countries was key to the “renaissance of the Chinese nation,” and both economic and security cooperation should be stepped up with these countries. [South China Morning Post]

Editorial / Wall Street Journal

“China’s leaders may have thought that by frequently dispatching ships and planes into Japan’s territory around the tiny Senkaku islands they would cause Tokyo to bow to their demands. Instead, their strategy of harassment and intimidation has accomplished the opposite – and then some.

“Prime Minister Abe has rallied Japanese to defend their territorial sovereignty, and he may succeed in reinterpreting the Japanese constitution to allow Japan to come to the military aid of its allies. The threat to the Senkakus has strengthened Tokyo’s alliance with Washington, with the two countries agreeing earlier this month to bolster their military ties....

“In an interview with the Journal last week, Mr. Abe, fresh from a successful tour of the region, signaled his willingness to take up a greater leadership role and issued a warning to Beijing. ‘There are concerns that China is attempting to change the status quo by force, rather than by rule of law. But if China opts to take that path, then it won’t be able to emerge peacefully,’ he said.”

Now we hope there isn’t an accident or miscalculation that sends the two spiraling into war.

Finally...an update on a story I wrote of last time, that of a reporter for the New Express who was detained by police a week ago. It seems he made a public confession admitting to accepting bribes and publishing articles containing false accusations against Zoomlion, China’s second-largest maker of construction equipment. According to the South China Morning Post, “Almost all of the stories were pre-written and fed to him by a third party on the condition that they be published under his byline. (The reporter) was paid thousands of yuan each time he delivered the ‘task,’ according to CCTV.”

I have zero idea if this is really the truth. It’s China, after all.

North Korea: Satellite imagery analysis continues to show that Pyongyang’s nuclear program is gathering pace. As reported by Agence France-Presse:

“In August, images suggested the North had doubled its uranium enrichment capacity at its Yongbyon nuclear complex.

“In September, they indicated it had re-started the plutonium reactor that provided the fissile material for at least two of its three nuclear tests, and just last week they pointed to preparatory work for another detonation at its nuclear test site.

“ ‘Pyongyang is moving ahead on all nuclear fronts,’ believes U.S. nuclear scientist Siegfried Hecker, a leading expert on the North’s weapons program.” [Ed. Mr. Hecker is the expert in the field.]

Separately, as reported by Global Security Newswire, other satellite images show new building activity at a long-range missile launch facility, including a second mobile ballistic missile pad.

Russia: President Vladimir Putin insisted gay and lesbian athletes have nothing to fear at the Sochi Winter Olympics, this despite a new law banning “homosexual propaganda” towards people under 18.

Putin told the head of the International Olympic Committee, Thomas Bach, “We will do everything to make sure that athletes, fans and guests feel comfortable...regardless of their ethnicity, race or sexual orientation. I would like to underline that.”

A recent poll found that nearly half of Russians believe that the gay and lesbian community should not enjoy the same rights as other citizens.

As for the preparation for the Games, which begin Feb. 7, Thomas Bach said organizers should brace themselves for the toughest preparation period ahead. While Bach was talking in general terms, it’s true Sochi is a freakin’ mess and some of the facilities are not finished.

Plus you have this from the Moscow Times and the Associated Press:

“Trucks rumble to the edge of a gigantic pit filled with spray cans, tires and foam sheets, and dump a stream of concrete slabs that send up a cloud of limestone dust. Other trucks pile clay on top and a bulldozer mixes everything together in a rudimentary effort to hide the mess. This landfill outside Sochi, which will host the Winter Olympics in 100 days, is smack in the middle of a water protection zone where dumping industrial waste is banned.”

Classic Russia, sports fans. They don’t care one whit about their environment. [See my piece last week on the Gazprom oil rig in the Arctic.] It turns out Russian Railways operates the dump without a license.

A member of an environmental group said, “Water from here will be contaminating Sochi’s fresh water springs for the next 10 to 15 years.”

“As a centerpiece of its Olympic bid, Russia had trumpeted a ‘Zero Waste’ program that promised the cleanest games ever, saying it would refrain from dumping construction waste and rely on reusable materials.” [Nataliya Vasilyeva / AP]

The Russkies are great liars.

Meanwhile, as suspected by yours truly, opposition leader Alexei Navalny has already been served with new theft and money laundering charges, describing them as part of an attempt to “terrorize” those who displease the Russian authorities.

I’m just surprised the move wasn’t made until after the Sochi Games.

Argentina: President Cristina Fernandez de Kirchner’s Front for Victory suffered a big defeat in mid-term elections as the opposition Renewal Front won by a wide margin, leaving Kirchner, who is recovering from brain surgery, with a very slim majority in Congress. In two years’ time, Sergio Massa, the 44-year-old mayor of an affluent Buenos Aires suburb, is expected to replace her. Kirchner’s policy of doing nothing more than attempt to buy votes through fuel and food subsidies has worn thin as crippling food inflation and other issues have scared off foreign investment. Massa is a leftist (Peronist), but a pragmatic one (so they say) and a business-oriented leader who is already taking advantage of the head guy at the Vatican.

“As our Pope Francis says, harmony is the best way to build our society.”

Finland: The government announced foreign intelligence agents, suspected to be from China and Russia, hacked into government communications, including the foreign ministry office. The nation is torqued off. While Finland is not a member of NATO, it cooperates extensively with the defense alliance. Finland’s foreign minister said the hacking effort went on for years and targeted comments between the government and European Union officials.

Random Musings

--A new NBC News/Wall Street Journal survey has President Obama with just a 42% approval rating, an all-time low for him in this poll. [It was 53% end of 2012.]

63% of voters say they want to replace their own member of Congress, the highest percentage on record since the question was first asked in 1992.

Only 22% see the Republican Party in a positive light, compared to 53% who view it negatively. 37% view the Democratic Party favorably.

Optimism about the U.S. system of government, 30%, was at its lowest in 40 years.

--Regarding 2014, the dreadful start for ObamaCare now has Democrats worried. As the No. 2 Democrat in the Senate, Illinois’ Dick Durbin put it, “People are anxious.”

Senator Jeff Merkley, an Oregon Democrat up for re-election next year, said, “This is more a show-me moment. We were all confident that the system was going to be up and operating on Oct. 1. And now we’re not confident until it’s real.”

So it’s the taint of ObamaCare on the Democrats, and the government shutdown on the Republicans. Which will stick with voters a year from now? It’s too soon to know.

--Daniel Henninger / Wall Street Journal

“Let us try to understand clearly what is happening now with the Obama presidency. On display to everyone watching this week is not merely the failure of a federal website or a software program or Ms. Sebelius’ management skills. This is the failure of the very idea of progressive government. Not liberal government.  Progressive government.

“That battle a few weeks ago over the government shutdown was a familiar Beltway spectacle. But what is happening this week to ObamaCare and the political class that created it is historic. Forty years from now, the millennials who in 2008 and 2012 believed in and voted for the progressive ideal – limitless, mandated, state-led goodness – can tell their grandchildren they watched it fall apart in 2013. This is the glitch that failed....

“What made ObamaCare an exemplar of progressive politics and policy is precisely what has been on view this week in news stories and the Sebelius hearing. It’s not that the health program was to be administered by the state or that it promised benefits to all. Liberalism did that for decades. What made it peculiarly progressive were the mandates. And not just the law’s individual and business mandates to purchase their insurance. The essence of modern Democratic progressivism is: ‘You will participate in what we have created for you, and you will comply with the law’s demands.’

“Nothing could have been more crystal clear than the explanation for all the canceled insurance policies from the White House’s Jay Carney, the bland face of progressive coercion: ‘What the president said and what everybody said all along is that there are going to be changes brought about by the Affordable Care Act to create minimum standards of coverage, minimum services that every insurance plan has to provide. So it’s true that there are existing health-care plans on the individual market that don’t meet those minimum standards and therefore do not qualify for the Affordable Care Act.’

“If this White House and its progressive ecosystem have a political motto, it’s this: Get over it....

“(What) Americans now riding through the ObamaCare hurricane of canceled policies, disappearing doctors and rebooted promises have to be asking themselves is: Do I want to live with this level of personal enforcement in the U.S.?....

“Barack Obama may have spent a lifetime failing up, but eventually it’s just failure. He has presided over five years of sickly economic growth, inadequate job creation, a doubling of the food stamp population and now this – ObamaCare.

“Progressive government has failed in the U.S. Most fascinating to behold will be whether the Democratic presidential candidate who follows this meltdown will embrace it, fake it or move on.”

--Kentucky Republican Sen. Rand Paul is being accused of plagiarism, specifically for lifting a Wikipedia entry about a futuristic movie, ‘Gattaca,’ for a speech this week. Perhaps a little careless, but I can’t see this becoming a big deal in terms of his prospects for 2016. It’s hardly on a scale like then-senator Joe Biden taking words from a speech by British Labour Party leader, Neil Kinnock.

But...now everyone will be pouring over all of Sen. Paul’s past speeches to see if there is a pattern.

--Heading to election day, New Jersey Gov. Chris Christie has a 64-31 lead over his Democratic challenger Barbara Buono, according to a Quinnipiac University poll of likely voters. By a 48-41 margin, New Jerseyans also say Christie should run for president in 2016. No doubt he desperately wants to hit the 60% mark, which would be quite a statement in a heavily Democratic state.

[A Fairleigh Dickinson University PublicMind poll, however, had Christie leading only 59-40 on Friday. This same survey had it 58-25 in early October.]

Regarding Christie’s presidential ambitions, he’s touting the fact he’s a pragmatist, willing to compromise with those on the other side of the aisle.

Ironically, as a piece by Philip Rucker of the Washington Post on Friday put it, that is exactly the message of Bill and Hillary Clinton in their stump speeches; both calling for “soothing partisan tensions and (espousing) a vision of governing by compromise.” [Rucker]

The Clintons, while blasting Republicans, are also taking a veiled shot at President Obama.

Campaigning for Virginia gubernatorial candidate Terry McAuliffe, Bill Clinton said the other day:

“When people sneeringly say, ‘McAuliffe is a dealmaker,’ I say, ‘Oh, if we only had one in Washington during that shutdown.’”

[A Washington Post poll has McAuliffe with a commanding lead over Republican Ken Cuccinelli, 51-39.]

--A new book, “Double Down” by Mark Halperin and John Heilemann on the 2012 presidential campaign, says Obama’s political advisers secretly explored replacing Joe Biden on the ticket with Hillary Clinton. [Heck, it was no secret. Even I brought it up back then.]  According to the authors, White House chief of staff at the time, William Daley, was the prime advocate of the move (at least exploring the option). But they later concluded Hillary “wouldn’t materially improve” Obama’s chances.

Regarding Mitt Romney and his Veep choice, the book says Romney was far from impressed with Chris Christie and his failure to keep himself in shape.

--In a Quinnipiac poll of New York City voters, Democrat Bill de Blasio maintains a mammoth 65-26 lead over Republican Joe Lhota in the race for mayor. Crain’s New York Business first learned de Blasio did not disclose tens of thousands of dollars in rental income he received in recent years, as required by city law and the Conflicts of Interest Board.

As Kathleen Parker opines in the Post:

“It’s not that voters love McAuliffe. They just don’t like Cuccinelli – and they really don’t like the Republican Party....

“(Mostly), the polls suggest that general distaste for the GOP and the Republican role in shutting down the government has doomed Cuccinelli at a time when he ought to be celebrating his insight in leading the legal challenge to the Affordable Care Act. Fifty-five percent said the shutdown is very important to their vote.”

--Republican Sen. Marco Rubio is abandoning his sweeping immigration reform efforts, arguing the House should lead the way by going small, introducing individual bills one at a time. For Rubio, his heroic early efforts were met with criticism from fellow conservatives and his poll numbers, particularly as it pertained to a possible presidential bid in 2016, dropped.

Rubio said he still prefers a comprehensive fix to the issue but for now wants to ensure “that we don’t allow not being able to do everything to keep us from doing something.” [Wall Street Journal]

--Texas Republican Sen. Ted Cruz made his third trip to Iowa in less than three months, telling the state’s annual Ronald Reagan fundraising dinner last weekend that he knows exactly how to unify the GOP: “Restore historic economic growth,” he said. “Growth and freedom are principles that bring together Main Street and the tea party.”

Cruz also said it was the GOP’s failure to stand together that killed the effort to defund ObamaCare.

“We didn’t accomplish our ultimate policy goal in this battle, and we didn’t because unfortunately a significant number of Senate Republicans chose not to unite and stand side by side with House Republicans. Had we stood together I’m convinced the outcome of this fight would be very, very different. But listen, none of us ever thought that taking on the Washington establishment was going to be easy.”

--New York City Police Commissioner Ray Kelly was booed off the stage at Brown University before he could say a single word in an absolutely disgraceful performance by the Brown (and supposedly some Providence University infiltrators) students. Kelly’s speech was to be on the topic “Proactive Policing in America’s Biggest City.”

Editorial / Wall Street Journal

“Brown is the school where in 1984 students voted overwhelmingly to insist that the campus health services stockpile suicide pills ‘in the event of nuclear war.’....

“Now student rage is aimed at the NYPD’s stop-and-frisk policies, which account for much of the drop in the crime rate, especially in minority neighborhoods, and of which Mr. Kelly has been a vocal champion. Students also object to ‘community policing,’ especially among Muslims, a tool the NYPD has used to keep the city safe from terror.

“We realize that most Brown students have only a faint acquaintance with real life, and none of them know what New York City was like in the 1970s and’80s. But it is revealing to see where the Constitutional right to free speech stands in the esteem of students at one of the most liberal campuses in America.

“Judging by their profuse apology to Mr. Kelly, Brown officials are embarrassed by the episode. Mr. Kelly will certainly get over it, but at a better school the children who acted out at Brown would be expelled.”

But...just days later...a federal appeals court blocked changes to the NYPD’s “stop-and-frisk” policy, putting a hold on an August ruling by Judge Shira Scheindlin that found the program was unconstitutional. The court also removed Scheindlin from the case, saying she “ran afoul” of the judicial code of conduct.

This is a big win for Mayor Michael Bloomberg, especially as any further decision / appeal on the case won’t be forthcoming until at least March so any change in policy wouldn’t occur until after Bloomberg leaves office, his legacy on the matter secure.

It’s also a mess for mayoral candidate Bill de Blasio, seeing as most of his campaign ads tout how he would “end a stop-and-frisk era that unfairly targets people of color.” [Alas, it helps to be up 40 points.]

--I have nothing to say on the tragedy at LAX on Friday other than I saw an analyst on CNN paint a very plausible, scary scenario whereby you can bet airport security is tightened even further. Had that guy not been stopped when he finally was, he had a clear shot straight into the cockpit of one of the parked airliners. Were he a true terrorist, you have another potential 9/11.

--I was catching up on some old articles I toss in a pile for those few moments of relative relaxation I have and I can’t help but note this passage from a piece by Larry Diamond and Jack Mosbacher in the September/October 2013 issue of Foreign Affairs titled “Africa’s Coming Resource Curse – and How to Avoid It.”

“In October 2011, the U.S. Department of Justice filed a motion to seize a palatial cliff-top home in Malibu, California. The 16-acre property towers over its neighbors, with a palm-lined driveway leading to a plaster-and-tile mansion. Situated in the heart of one of the United States’ most expensive neighborhoods, the $30 million estate includes a swimming pool, a tennis court, and a four-hole golf course. In its complaint, the Justice Department also set its sights on high-performance speedboats worth $2 million, over two dozen cars (including a $2 million Maserati and eight Ferraris), and $3.2 million in Michael Jackson memorabilia – in total, assets equaling approximately $71 million. What made these extravagant possessions all the more remarkable was that they belonged to a government worker from a small African country who is making an official salary of about $80,000 a year: Teodoro Nguema Obiang Mangue, the oldest son of and heir apparent to Teodoro Obiang Nguema Mbasogo, the longtime president of Equatorial Guinea.”

Equatorial Guinea has a lot of oil, exporting as many as 400,000 barrels of oil a day since 1995. Little of it, however, has filtered down to the people. “(Today), three out of every four Equatorial Guineans live on less than $2 a day.”

Ah yes...corruption makes the world go ‘round.

--Related to the above, Gallup recently asked people from 63 countries with a free press, “Is your government highly corrupt?”

94% in the Czech Republic said yes. 89% in Ghana. 73% in the United States. [Only 14% felt this way in Sweden.]

--Scientists have discovered a planet that’s close in size and content to Earth – an astronomical first.

However, astrophysicists reported in the journal Nature that the exoplanet Kepler-78b is at least 2,000 degrees hotter than here, though it appears to be made of rock and iron just like Earth.

The planet is, alas, hundreds of light-years away, but I’m guessing if the Keplerians had some of those 1970s cookie-cutter major league ballparks with the astroturf, it would be rather hot on the playing surface.

“Game time temperature is 2,090, but about 2,125 on the turf.”

“Hope the players are drinking lots of fluids, Biff!”

--Congrats to the Red Sox for winning the World Series over the Cardinals...Boston Strong.

---

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

God bless America.

---

Gold closed at $1314
Oil, $94.67

Returns for the week 10/28-11/1

Dow Jones +0.3% [15615]
S&P 500 +0.1% [1761]
S&P MidCap -0.3%
Russell 2000 -2.0%
Nasdaq -0.5% [3922]

Returns for the period 1/1/13-11/1/13

Dow Jones +19.2%
S&P 500 +23.5%
S&P MidCap +26.5%
Russell 2000 +29.0%
Nasdaq +29.9%

Bulls 52.6
Bears 16.5 [Source: Investors Intelligence...Reminder: This is a contrarian indicator. Bear reading is lowest since April 2011. Shortly thereafter, the market corrected 20%. The Bull reading was 54.9 at that time.]

Dr. Bortrum posted a new column.

For new readers, I do have an iPad app. [I was reminded of this when I received my credit from Apple the other day. I always forget.] As for an Android one, it’s a long story. Sorry, guys.

Have a great week. I appreciate your support.

Brian Trumbore



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Week in Review

11/02/2013

For the week 10/28-11/1

[Posted 11:00 PM ET, Friday]

Washington and Wall Street

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Ah yes, the joys of ObamaCare. It was rather funny how the web site was down during Secretary Kathleen Sebelius’ testimony on Wednesday. And on Thursday we learned that a whopping six people...SIX...successfully enrolled on the HealthCare.gov website the first day, October 1, and only 248 had done so by the end of Oct. 2.

Jeffrey D. Zients, President Obama’s new chief troubleshooter, assures us the website will be fully functional, and reliable, by Nov. 30. Actually, he didn’t really go that far.

“By the end of November, HealthCare.gov will work smoothly for the vast majority of users.

“It will take a lot of work,” he said. “A lot of problems need to be addressed. But let me be clear: HealthCare.gov is fixable.”

No it isn’t. At least not to the vast majority’s satisfaction. I wrote in this space on Oct. 12, “Wait ‘til we hear the first extensive examples of identity theft.”

And so this week in the space of two hours I heard a CNN tech expert say: “The conversation we will be having is about security flaws in the system,” followed a few hours later by an NBC News story concerning the same topic, site security.

It’s over when you realize your personal information is subject to a system based on a Commodore 64. But as I also noted Oct. 19 in this space, the hacking community has nothing to hack yet! So few of us can actually register anything of value, let alone sign up for a plan, witness the early numbers.

Consumer Reports had the best advice about ten days ago: “Stay away from HealthCare.gov for at least another month, if you can.”

Meanwhile, we’re all hearing the stories of 119,000 individuals in California having their insurance canceled by Blue Shield, Kaiser Permanente tossing 160,000 in the state. Florida Blue terminating 300,000.

Expert Robert Laszewski, president of Health Policy and Strategy Associates, said, “Sixteen million people are now receiving letters from their carriers saying they are losing their current coverage.”

Others are seeing their premiums rise from 60% to 100%, according to the Manhattan Institute.

As for the Obama administration, there still hasn’t been an admission as to what exactly the bugs are, though as I noted in the first days, it was clear the late request made to the builders of the site for more personal data was a major cause of the problems, aside from the fact you had too many complicated systems, from corporate to state to federal, having to communicate with one another.

And NBC News first reported the White House knew about all the cancellations under the Affordable Care Act for about three years, but as recently as 2012, the president was still saying, “If you already have health insurance, you will keep your health insurance.”

Spokesman Jay Carney explained that the reason some Americans are losing their plans is that the policies are “substandard,” adding, “It’s true that there are existing health-care plans on the individual market that don’t meet those minimum standards and therefore do not qualify for the Affordable Care Act.”

On Wednesday, President Obama went to Boston to speak about the debacle and said the ACA was replacing “substandard plans” offered by “bad-apple insurers” with improved coverage that includes more benefits.

“So, if you’re getting one of these letters, just shop around in the new marketplace.” For most people, “you’re going to get a better deal.”

Oh brother. Of course the cancellation notices go out and then you can’t access the website to find out what your options are.

An NBC News/Wall Street Journal survey late this week had only 37% of the American people thinking ObamaCare was a good idea, 47% saying it was a bad one. Democrats, suddenly, are quivering over their prospects for 2014. What a difference a day makes in politics.

Editorial / The Economist...a review of the key issue...

“(What) if young healthy people meet so many glitches on the exchanges that they give up? People with illnesses that are costly to treat will presumably keep trying. That could leave insurers with a sick, expensive pool of patients. To cover their costs, they would have to raise prices. That would dissuade healthy patients from enrolling the next year, driving rates higher still. Such a death spiral could make ObamaCare collapse.

“For years Republicans have howled about theoretical problems with Mr. Obama’s ambitious reforms. Now they can rant about real ones.”

Edward Luce / Financial Times

“The problems with ObamaCare are a feature, not a bug, of his administration.

“The president’s biggest mistake was to withhold resources from the exchanges before the November 2012 election. Fearing bad publicity, the Obama campaign did not want to attract attention to the unpopular law before polling day. Given that the exchanges require seamless interface between several federal agencies at the front end and scores of private insurers at the back end, they needed all the time they could get to test the system. The White House took that away.

“But the political angst did not end with last year’s re-election. As recently as August, the Obama administration made the blunder of telling the exchange’s website to show visitors the price of subsidized insurance rather than the true cost of the premiums. This was to avoid the political fallout of ‘rate shock’ that would hit users when they saw the pre-subsidized cost of insurance. It meant the website had to verify each visitor’s identity before it could display the relevant prices. Changing such a big element of a huge system so late in the day inevitably contributed to its seizing up.”

Charles Krauthammer / Washington Post

“Every disaster has its moment of clarity. Physicist Richard Feynman dunks an O-ring into ice water and everyone understands instantly why the shuttle Challenger exploded. This week, the ObamaCare O-ring froze for all the world to see: Hundreds of thousands of cancellation letters went out to people who had been assured a dozen times by the president that ‘If you like your health-care plan, you’ll be able to keep your health-care plan. Period.’

“The cancellations lay bare three pillars of ObamaCare; (a) mendacity, (b) paternalism and (c) subterfuge.

“(a) Those letters are irrefutable evidence that President Obama’s repeated you-keep-your-coverage claim was false. Why were they sent out? Because ObamaCare renders illegal (with exceedingly narrow ‘grandfathered’ exceptions) the continuation of any insurance plan deemed by Washington regulators not to meet their arbitrary standards for adequacy. Example: No maternity care? You are terminated.

“So a law designed to cover the uninsured is now throwing far more people off their insurance than it can possibly be signing up on the nonfunctioning insurance exchanges. Indeed, most of the 19 million people with individual insurance will have to find new and likely more expensive coverage. And that doesn’t even include the additional millions who are sure to lose their employer-provided coverage. That’s a lot of people. That’s a pretty big lie.

“But perhaps Obama didn’t know. Maybe the bystander president was as surprised by this as he claims to have been by the IRS scandal, the Associated Press and James Rosen phone logs, the failure of the ObamaCare website, the premeditation of the Benghazi attacks, the tapping of Angela Merkel’s phone – i.e., the workings of the federal government of which he is the nominal head.

“I’m skeptical.”

Wall Street

Turning to the markets and the economy, the S&P 500 rose a sterling 4.5% for the month of October despite the 16-day government shutdown, the threat of default, and a generally surly mood across America. It also seems from some key readings on manufacturing that the shutdown had little impact in this regard, with the Chicago Purchasing Managers Index coming in at a spectacular 65.9 for October, with a surge in new orders, and the national October ISM at 56.4, like the prior month the best since April 2011. [Reminder...50 is the dividing line between growth and contraction.]

But retail sales for September were down 0.1% when a gain was expected, though up 0.4% when you strip out autos, and pending home sales for September plunged 5.6%, the fourth straight month of declines and the worst in three years, not good.

September’s industrial production reading, up 0.6%, was deceiving because much of this increase was due to higher temperatures across the country, ergo, electricity production. Otherwise, the manufacturing component was up only 0.1%. But the October ISM data trumps this.

This coming Friday, Nov. 8, we receive the October employment report and the Federal Reserve will be looking at this one carefully.

This week the Fed held a two-day meeting and, as expected because of the uncertainty created by the shutdown, announced it would continue with its $85 billion a month bond-buying program ($40 billion in mortgage paper, $45 billion in Treasuries), but, it hinted it may finally begin tapering in December, not March as most expect.

[Ben Bernanke’s term ends January 31 and, assuming Janet Yellen is confirmed to be his successor, her first meeting is March 18-19.]

The Fed in its accompanying statement said in part, “The housing sector has slowed somewhat in recent months,” but all in all, the economy is expanding “at a moderate pace” and exhibits underlying growth.

But in the days after the meeting, a few of the Fed governors made hawkish statements that it was time to begin tapering, though the Fed is up against some key deadlines.

The December Fed Open Market Committee meeting is Dec. 17-18 and it will see the October and November jobs reports beforehand. But you also have the Dec. 13 deadline for the congressional budget conferees to issue a compromise budget plan and if there is renewed risk of a shutdown Jan. 15, the deadline for actual adoption of a budget, the Fed’s decision will be made for them; no tapering regardless of how the labor picture looks.

Looking ahead to the key holiday shopping season, it’s not a good thing that a Wall Street Journal/NBC News poll showed just 24% of Americans said they think the economy will improve over the next year. So with that kind of negativity, it’s no wonder that Morgan Stanley released a report this week calling for an increase in spending over November and December of just 1.7%, vs. an earlier prediction by the National Retail Federation that sales would be up 3.9%, as compared to a 3.5% increase in 2012.

Lastly, as the government data crunchers catch up, it was announced this week that the Fiscal Year 2013 (ending 9/30) budget deficit was $680.3 billion, the first time in five years the shortfall has been below $1 trillion but the fifth-largest in history.

To beat a dead horse, yes, the deficit is coming down further the next two years as well, barring a major military conflict, but then it is going to take off anew and just keep going and going and going....unless we attack entitlements immediately, and that is not in the cards.

Bottom line, the congressional budget negotiators are already targeting a small deal but if it prevents renewed fireworks, even I will probably just exhale and reach for a cold one. After a while you just give up...and move on.

The NSA

The chief of the National Security Agency, Gen. Keith Alexander, denied he discussed with President Obama an alleged foreign intelligence operation involving German Chancellor Angela Merkel, “nor has he ever discussed alleged operations involving Chancellor Merkel,” an NSA spokeswoman said in reply to a report in the German tabloid Bild that claimed Gen. Alexander had told the president about the bugging of her cellphone. The German magazine Der Spiegel said it has seen secret documents from the NSA showing Merkel’s number on a list dating from 2002 – before she became chancellor. Her number was still on a surveillance list from 2013. Merkel’s text messages were also monitored, according to Bild.

Gen. Alexander, in testimony to the House Intelligence Committee, said that NATO allies were actually sharing their own information with the United States, and that reports by French and Spanish newspapers that reported the NSA was conducting surveillance in their countries was misunderstood.

“This is not information that we collected on European citizens. It represents information that we and our NATO allies have collected in defense of our countries and in support of military operations.”

President Obama said this week the national security operations were being reassessed to ensure the NSA’s growing technological capability was kept under control. Secretary of State John Kerry said, “I assure you, innocent people are not being abused in the process, but there’s an effort to try to gather information. And yes, in some cases, it has reached too far inappropriately.”

David Sanger / New York Times

“Mr. Obama, like his predecessors, argues that the United States taps phones and hacks into computers only to protect the world, not to gain commercial advantage. But no one in the government has admitted that the NSA has been spying on Ms. Merkel, or the Mexican president, or the Brazilians, much less explained why. One thing is clear: The NSA’s cold-war-era argument, that everyone does it, seems unlikely to win the day.”

Editorial / Wall Street Journal

“The German case is more sensitive even if the details remain unclear. Nobody doubts Mrs. Merkel’s personal bona fides as a friend of the U.S. But there are good reasons the U.S. would want to eavesdrop on German chancellors, going back decades.

“In the 1970s, Gunter Guillaume, a top aide to then-Chancellor Willy Brandt, was exposed as a Stasi agent. The disclosure forced Brandt to resign. More recently, former German Chancellor Gerhard Schroder formed a de facto alliance with France’s Jacques Chirac and Russia’s Vladimir Putin to oppose the U.S. over Iraq....

“Such history is a good reason the Obama administration should resist calls from Berlin and Paris to adopt a ‘no spy’ agreement of the kind the U.S. has with Britain, Canada, Australia and New Zealand. American and European interests have frequently and sharply diverged and will inevitably do so again. President Obama should not tie the hands of successors who may not have someone as sympathetic as Mrs. Merkel as a Berlin counterpart.”

R. James Woolsey (former CIA director) / Wall Street Journal

“(In) targeting Chancellor Angela Merkel, the U.S. picked someone who grew up dodging East Germany’s Stasi secret police in order to talk honestly to friends. The U.S. has not denied that the monitoring occurred in the past and some media reports say it went on for a decade. If so, we have been sitting on a powder keg for years....

“Some critics have waxed indignant over the possibility that the U.S. has collected intelligence on some 35 national leaders. But the intelligence business is not a competition to avoid collecting intelligence. In particular, we should be getting the lowdown on hostile regimes and the governments that deal with them. Keeping an eye on allies has always been part of the effort as well. Yet there is no doubt that the U.S. has taken a heavy blow regarding our part in this wild dance of spies – especially from the monitoring of Chancellor Merkel’s phone.

“The episode poses its greatest danger if it seriously damages America’s ability to obtain badly needed allied intelligence and allied help in dealing with terrorism and terrorist-backing states. [Ed. My point last week.] We are doubly at risk of losing that sort of cooperation because our allies are already wary of the U.S., having seen less American leadership in recent years on a number of important issues. [Ed. see Syria, for one.]....

“Because of this history, the U.S. must take steps to bolster a spirit of trust and cooperation with its allies. A restoration of American leadership would do much to help on that front, as it did during the Cold War, when the U.S. would show initiative and assumed, rightly, that its allies would follow. With America and its allies battling the global terror threat, no less sense of direction from Washington is needed.

“But even in the absence of such leadership, the U.S. can take another step to build necessary bridges with its allies. America already is part of the decades-old ‘Five Eyes’ pact with Britain, Australia, Canada and New Zealand, agreeing to share intelligence and not to spy on each other. The U.S. should accede to recent requests from Germany and France to join the group.

“Taking such a step would not be popular in some corners of the intelligence community. But if the U.S. is already going to stand down on intelligence efforts and military capability because of the costs imposed by sequestration, world-weariness, or other reasons, then we must stop and take stock of where intelligence now fits in the nation’s interests....

“Chancellor Merkel should be able to use her phone with the confidence that at least the Americans are not among those listening in.”

Richard Cohen / Washington Post

“Where is Casey Stengel when we need him? In 1962, as the manager of the brand new and determinedly hapless New York Mets – 40 wins, 120 losses – he looked up and down his bench one dismal day and wondered, ‘Can’t anybody here play this game?’ That phrase kept coming at me recently as I watched the impressively inept performance of the Obama administration in both foreign and domestic policy. On a given day, this administration makes the ’62 Mets looks good.

“This is a surprise – at least to me. If Barack Obama has an image, it is of the infinitely cool, cerebral leader. The man can give a rousing speech, but he is, at heart, a planner and a plodder. Both of his presidential campaigns were exercises in micromanagement – digital all the way....

“Yet this same man has lately so mishandled both domestic and foreign policy that he is in mortal peril of altering his image. This unsettling and uncharacteristic incompetence became shockingly clear when Obama failed to come to grips with the Syrian civil war. I did not agree with the president’s do-nothing policy, but at least it was both a policy and intellectually coherent. What followed, though, was both intellectually incoherent and pathetically inconsistent – a ‘red line’ that came out of nowhere and then mysteriously evaporated and a missile strike that was threatened and then abandoned. It was a policy so wavering that if Obama were driving, he would be forced to take a breathalyzer.

“The debacle of the Affordable Care Act’s Web site raised similar questions about confidence. This was supposed to be Obama’s Big Deal....

“Something went wrong. People could not sign up. Why? Not sure. Who’s at fault? Apparently no one. An act of God....

“Here, I must mention that bit of theater in which various world leaders wax indignant about their telephone conversations being bugged by the National Security Agency. This is not Obama’s doing since the program predated his time in office. But the decibel level of the outrage does suggest that in Germany, France, Brazil and elsewhere, Obama’s standing is not what it once was. He and America are no longer held in either awe or respect, and the bugging program, instead of seeming a necessary evil, looks both clumsy and silly.”

[In a further sign of strain in relations between Washington and Berlin, the German government said on Friday it was willing to speak to Edward Snowden about the NSA’s activities.]

Europe

I have been writing all year that any economic recovery in Europe was not only going to be tepid, but there were real reasons for concern that a recovery would even last. European Central Bank President Mario Draghi clearly issued a warning of his own a few weeks ago and the past few days some of the economic data bore this out.

It’s also clear the recent strength in the euro currency was unwarranted, considering the punk economy and the fact a stronger currency hurts exports, plus demand from many of the emerging markets has been weak.

And despite an ECB survey this week that the banks are ready to ease lending standards, the evidence is lacking. Some $1.7 trillion of non-performing loans is sitting on European banks’ balance sheets, as a story from CNBC.com noted this week, and you have the looming ECB bank stress tests I discussed last time.

So eurozone retail sales hit a five-month low in October, while on Thursday, we had the release from Eurostat of the September labor picture and there will be no lasting recovery until the jobless rate in euroland goes down and currently it remains at a record 12.2%, this after the August figure was revised up to the 12.2 mark. While Austria (4.9%) and Germany (5.2%) are in solid shape when it comes to the job market, Greece’s unemployment rate is 27.6% (July, latest reporting period), 26.6% in Spain, 16.3% in Portugal, 13.6% in Ireland, 12.5% in Italy and 11.1% in France.

The youth rate remains sickeningly high as well. 56.5% in Spain, 57.3% in Greece, 52.8% in Croatia (the newest eurozone member), 40.4% in Italy.

You also had the release of the latest inflation data, with consumer prices up just 0.7% in October, year over year, vs. a 1.1% rise in September. The ECB’s target is 2% and Europe is dangerously close to outright deflation. Consumers will begin deferring purchases, potentially, at the worst possible time when the continent needs growth. Inflation is at the lowest level in four years for the eurozone.

Regarding Germany, the U.S. Treasury Department blasted Germany’s export-led growth model in language normally reserved for America’s prime target, China, and another recently perceived problem nation, Japan.

Treasury’s report read: “Germany’s anemic pace of domestic demand growth and dependence on exports have hampered rebalancing at a time when many other euro area countries have been under severe pressure to curb demand and compress imports in order to promote adjustment. The net result has been a deflationary bias for the euro area as well as for the world economy.”

Germany was furious, saying the global appetite for German cars and machinery was driven by nothing more than market factors.

“The trade surpluses reflect the strong competitiveness of the German economy and the international demand for quality products from Germany,” the Economics Ministry said. It was “incomprehensible” Washington could be so critical.

But on this one, the United States was right. 24 hours after Treasury’s report, the deflationary price data came out, along with a report Germany’s retail sales had fallen in September.

There was some good news, however. Spain reported the number of overseas tourists the first nine months of the year was at the highest level since at least 2000.

But in France, President Francois Hollande said he would not repeal the 75% income tax bracket on salaries above 1 million euro as France’s top football clubs had called for. The clubs protested that the “unfair and discriminatory” levy threatened “the death of French football,” cancelling all games the last weekend in November in an unprecedented strike by the owners, not players. I mean why would you play in France if you were a star, even though the constitutional court ruled out applying the tax to individuals? Why take the chance the ruling is reversed later? [The tax is now applied to the employers instead.]

Roger Boyes / London Times

“For one thing, the eurozone crisis is far from over. Spain may be growing again but its youth unemployment rate is still a terrifying 50 percent. Greece has cut its budget deficit but at a huge social and political cost. The acute economic crisis may have passed but the chronic challenges remain. The social welfare state – once Europe’s pride and joy, its answer to American capitalism – is becoming unaffordable. Health services and the pension sector are having to cope with an aging population and a heavily taxed young generation is wondering whether emigration might represent a better future....

“Jan Techau, a shrewd analyst at the Carnegie Europe think-tank, concludes that ‘Europe is drowning in its own culture of impossibility.’ Brussels bursts with generously sponsored symposiums asking the right questions... Why not use the Lisbon agenda to make Europe more competitive? Propel European universities into world top league? Give more muscle to Baroness Ashton’s EU foreign policy arm? Create an EU seat on the UN Security Council? Forge more cooperation between NATO and the EU? The answer is always a variant of: impossible.

“The logjam can only be broken with imaginative leadership. Her phone may be worth bugging (actually I doubt this) but Angela Merkel is only ‘leader of Europe’ by default. The governing coalition with the Social Democrats that is cautiously emerging in Berlin will if anything play to her low-intensity, non-interventionist instincts. She is already taking her country out of nuclear power, has become a pacifist in all but name and is borrowing the rhetoric of the menacing surveillance state. In harness with the Social Democrats she is likely to shift even further leftwards. Nobody, not David Cameron, not Barack Obama, should count on Chancellor Merkel delivering the kind of competitive, outward-looking Europe that they would like to see.

“Leadership in Europe signifies something more than a Merkel-style moderator, more than an individual with presidential swagger. A well-led continent has to adopt some form of co-management....

“Chiefly, though, Europeans have to be steered out of the backwaters and into a position of global significance. Staying out of the fray is a sure recipe for an accelerating European decline.”

Just a few notes on Asia, where the news was respectable. 

In China, the October PMI on manufacturing was 51.4 vs. 51.1 in September, according to the government, a 15-month high, while home prices rose 10.7% for the month over October 2012. Industrial profits for the first nine months of the year rose 13.5% from the same period a year earlier.

On the housing front, President Xi called for more housing and suggested that further price controls are unlikely. Xi said the government must focus on ensuring that needy people have adequate housing.

But the big news in China could come over the coming ten days as a key meeting of senior Communist Party officials begins Nov. 9 and this week the fourth-ranked member in the elite Politburo Standing Committee, Yu Zhengsheng, said the closed-door meeting would “principally explore the issue of deep and comprehensive reforms.”

“The reforms this time will be broad, with major strength, and will be unprecedented,” he said, according to Xinhua. “Inevitably they will strongly push forward profound transformations in the economy, society and other spheres.”

The party plenum will be the third for the 200-member Central Committee since last year’s leadership transition.

Elsewhere, the manufacturing PMI in South Korea hit 50.2 in October, the best in months, while exports there rose a stronger than expected 7.3% over a year earlier. In Taiwan, its PMI came in at a solid 53.0, the best since March 2012.

Street Bytes

--The Dow Jones rose for a fourth straight week, 0.3% to 15615, after earlier hitting a new closing high of 15680 on Tuesday. The S&P 500 eked out a gain of 0.1% to 1761, with its all-time closing high of 1771 set on Tuesday as well. Nasdaq lost 0.5% on the week.

With over 300 of the S&P 500 companies having reported third-quarter earnings, it appears they will end the reporting season with a gain of around 5% for EPS, with revenues up 3%; slightly better than expected on both.

--U.S. Treasury Yields

6-mo. 0.08% 2-yr. 0.31% 10-yr. 2.62% 30-yr. 3.69%

The long end of the curve rose (in yield) on the strong manufacturing data and renewed talk of Fed tapering. Plus, as many experts pointed out, 2.47% on the 10-year was a key technical level and bonds bounced off it.

The September inflation data was finally released. Producer prices fell 0.1%, up 0.1% ex-food and energy. For the year, the PPI was up 0.3%, 1.2% on the core. Consumer prices rose 0.2%, up 0.1% on core, and for the 12 months were up 1.2%, 1.7% ex-the stuff we use. Like in the case of the ECB, the Fed’s inflation target is 2% but for now 1.2% isn’t a huge issue.

--One-time billionaire Eike Batista of Brazil used to brag he would one day be the richest man in the world and how the various companies he had assembled, including his flagship oil company OGX, had some $2 trillion in untapped natural resources.

But on Tuesday OGX filed for bankruptcy protection against its creditors in one of the largest corporate busts in Latin America, which begs the question just how far the debacle will spread across the region, specifically the bond market.

Then again, Batista’s problems have been well-telegraphed, the bond market already hit hard, and some speculators could move in.

Batista’s biggest problem was his oil wells never generated any significant production.

--A story in Bloomberg about U.S. companies in China was rather distressing. The other week, IBM reported revenue plunged 22% in the third quarter there, while others such as Starbucks are struggling. As a managing director at China Market Research Group in Shanghai, Shaun Rein, put it, “The operating environment for foreign firms has deteriorated in the last year in a serious way. In my 16 years in China, it’s some of the worst business sentiment among foreign executives. They don’t feel as welcome as they used to.” In a survey of more than 100 U.S. firms, only 39% are optimistic about the next five years in China; 58% felt that way in 2011.

There are some companies doing very well...General Electric, General Motors and Coach Inc., to cite a few examples.

But everyone is looking to see what message emerges from the aforementioned meeting of the Central Committee. Sometimes such gatherings open the economy to foreign investment through new reforms.

--In a different vein, McDonald’s and Yum Brands (KFC) are getting their clocks cleaned in China by new, home-grown rivals with healthier, cheaper fare tailored to local tastes, as well as a fresh look in their stores. Both McDonald’s and Yum have also been hit by food scares and bad publicity.

--The Chinese government is extremely upset with their Australian counterparts as the new Aussie government has decided to uphold a ban on Chinese networking giant Huawei’s participation in the Australian national broadband network. Earlier, various Aussie cabinet ministers had sent out positive signals, with the Trade and Investment Manager saying Huawei had a “big future in Australia” during a recent visit to China.

The whole deal with Huawei, globally, is the concern it has close links to the Chinese government and that the company, if allowed to provide equipment for something like the broadband project, could compromise Australia’s national security.

So as a Chinese diplomat told the Sydney Morning Herald, “Why should we allow Australian companies better access to China when Australia stops one of the most respected Chinese companies from doing business here?”

This anonymous diplomat added American intelligence services might be behind the Aussie government’s new policy. [Just stating China’s opinion...not mine.]

--On a related issue, European officials are warning that any attempt by AT&T to acquire a major wireless carrier would face intense scrutiny, given the company’s relationship with the National Security Agency. AT&T has long said it wants to take advantage of the growth opportunity on the continent, with a likely target being Vodafone Group PLC, which owns cellphone networks across Europe.

AT&T provides calling data to the NSA. Any AT&T bid, to be fair, would face intense scrutiny regardless given the proclivity for national governments in Europe to block takeovers by foreign companies.

--There is a serious water shortage in Dublin, Ireland, and some neighboring communities, due to serious problems at the country’s biggest treatment plant. “Dublin and Leinster are literally running out of water,” warned Senator John Whelan.

“Housing estate upon housing estate” was built in the boom, but the government did not match the boom with the infrastructure, namely a strategy on water supply.

Water to the area has been cut off for up to 13 hours at times; this as 9,000 of the world’s top IT entrepreneurs descended on the city for a major summit.

The issue has to do with the lake water flowing into the treatment plant and an as yet unidentified issue with the quality of the water.

Many of the city’s hotels have large water-storage facilities on site so it’s expected their operations will be fairly normal. But businesses are different.

Of course you all are thinking, gee, Editor....it’s not like there is a shortage of water in Ireland!

Yup, so imagine what the locals are saying, especially as their utility bills keep going up.

--India’s main stock index hit a record high on Friday, propelled by an inflow of foreign capital just two months after the same investors were pulling out! Ergo, ‘short’ India in a big way. This is totally nonsensical. The economy’s fundamentals suck.

--Claire Cain Miller / New York Times

“Google has spent months and millions of dollars encrypting email, search queries and other information flowing among its data centers worldwide. Facebook’s chief executive said at a conference this fall that the government ‘blew it.’ And though it has not been announced publicly, Twitter plans to set up new types of encryption to protect messages from snoops.

“It is all reaction to reports of how far the government has gone in spying on Internet users, sneaking around tech companies to tap into their systems without their knowledge or cooperation.

“What began as a public relations predicament for America’s technology companies has evolved into a moral and business crisis that threatens the foundation of their businesses, which rests on consumers and companies trusting them with their digital lives.”

It’s about the image many will have of the likes of Google and Yahoo being seen as enablers of the surveillance.

Google’s chief legal officer, David Drummond, issued a statement this week. “We are outraged at the lengths to which the government seems to have gone.”

And as Jason Healey, a former NSA official who is now the director of the Cyber Statecraft Initiative at the Atlantic Council think-tank, said of the latest revelations:

“If true, then it is a stunningly bad idea. It shows that our intelligence leaders have adopted a purely short-term view of what is acceptable, which is only going to encourage the trend towards the Balkanization of the internet and the imposition of national boundaries.”

Another, Milton Mueller, professor at Syracuse University’s school of information studies, said, “U.S. credibility as a neutral steward of the internet has been severely damaged by the NSA revelations.” [Geoff Dyer and Richard Waters / Financial Times]

--Apple Inc. reported sales of $37.5 billion for its fiscal fourth quarter and projected revenue in the current period would be $55 billion to $58 billion, not up significantly from a year earlier, which caused concerns among some about the holiday season, though Apple often sandbags and CEO Tim Cook expressed optimism. Profit fell 8.6% to $7.51 billion, or $8.26 a share, above the projected $7.92.

IPhone sales, including about a week of the new 5s and 5c models on store shelves, were 33.8 million, better than expected, while 14.1 million iPads were sold, a little less than forecast by analysts.

The new iPad Air went on sale Friday.

Meanwhile, Carl Icahn continues with his campaign to get Apple to initiate a $150 billion buyback to boost the share price.

--JPMorgan Chase’s $13 billion settlement with the Department of Justice is in jeopardy as JPM seeks to offset some of the settlement with a reimbursement from the FDIC related to Washington Mutual, which JPM bought in 2008. The bank believes it has claims of $4 billion against the FDIC – representing bad assets JPM inherited when it acquired WaMu.

--Greg David of Crain’s New York Business has a stark piece in the current issue of how some, such as the New York state comptroller, appear to be too optimistic concerning the seeming recovery on Wall Street and the impact on city and state tax revenues. To wit.

“Revenue (on the Street) last year, $161 billion, was less than half the revenue for the peak year of 2007, $352 billion. This year may be worse: Goldman Sachs’ third-quarter revenue fell by 20% - and we’re talking about the industry’s best-run name.

“If that happens, securities firms will shed employees by the tens of thousands and finally take an ax to pay. With revenue at 1990s levels, bonuses will return to that decade’s norms, too. There goes the Street as a driving force in the economy.

“City and state budgets will be engulfed in red ink, too. At its peak, Wall Street provided 24% of all the revenue for the state and 13% for the city. Last year, the figures were 16% and 8.5%, respectively....

“The city’s economy is more diversified today, but not enough to avoid trouble if this doomsday scenario comes to pass.”

--The S&P/Case-Shiller 20-city home price index for August rose 1.3% from July, up 12.8% from year ago levels, but the rate of increase is beginning to slow, as reflected in other housing data. Home prices are up 29.2% in Las Vegas over this period (institutions buying up properties to flip for the most part), San Francisco saw a 25.4% rise, Los Angeles 21.7% and San Diego 21.5%. [Go Josh P.]

--The Federal Aviation Administration finally changed its policy restricting use of electronic devices in flight and by year-end, most airline passengers will be able to use their tablets, e-readers and other gadgets during the entire flight, including below 10,000 feet.

Phone calls and e-mails will still be banned.

A recent survey showed that 34% of business travelers said being able to use electronic devices is very important – but an equal number said it isn’t important at all. Put me in the latter category. I save up hard copy reading material for flights.

--Facebook Inc. handily beat on both the top and bottom line for the third quarter and initially the shares soared $7 to $57 in Wednesday’s after hours trading. But then shortly thereafter the stock gave up all its gains when executives told analysts they won’t be adding more ads into users’ news feeds (the company not wanting to irritate its users), and that U.S. teens are spending less time on the site.

Meanwhile, Facebook said 49% of its advertising revenue - $880 million – came from mobile devices, up from 14% of revenue a year earlier. Overall advertising revenue jumped 66%.

Facebook had 1.19 billion users during the quarter, up from about 1.15 billion in the second quarter. The number of mobile users rose 6.7% to 874 million from the prior period.

--LinkedIn shares cratered after the company issued a conservative revenue forecast for the fourth quarter and, perhaps, investors began to think twice about the absurd valuation, like 150 times forward earnings.

That said, revenue was up 56% in the third quarter from a year ago,   Monthly users rose to 259 million during the quarter, a 38% rise from a year ago.

But CEO Jeff Weiner signaled in recent months that LinkedIn could reach a saturation point among white-collar workers, particularly in the U.S.

--General Motors reported strong earnings, up 15% over last year’s pace, to $2.64 billion, with sales up 3.7% to $39 billion, though they fell in September.

Losses in Europe narrowed from $487 million to $214 million. Sales on the continent were up 3.3%, echoing Ford’s experience there, as reported a week earlier.

--Struggling Fiat slashed its full-year profit guidance, despite strong results at US subsidiary Chrysler. Fiat continues to suffer in Europe and South America, in particular. Ironically, it’s Chrysler’s pile of cash ($11.5 billion) and strong earnings generation that are crucial to Fiat’s survival. CEO Sergio Marchionne is attempting to combine the two operations to form a true rival to GM and the other bigs, including Volkswagen, but he’s been blocked by a healthcare trust that owns 40.5% of Chrysler not held by Fiat.

--Consumer Reports dealt a blow to Toyota when it removed the Camry, RAV4 and the Prius V from its “recommended” list because of bad crash test scores, though at the same time CR lauded Toyota for its lineup’s reliability.

[Toyota’s global sales for the first nine months of the year reached 7.41 million vehicles, ahead of No. 2 GM’s 7.25 million. Volkswagen AG sold a little over 7 million for third.]

--Domestic auto sales for October were up 13% over last year after a poor September. GM posted a 16% gain, Ford’s were up 14%, and Chrysler’s up 11%. 

Nissan’s sales rose 14%, but Toyota’s increased only 9% and Honda’s were up 7%, while Volkswagen’s fell 18%. VW desperately needs new models. 

--Merck & Co. reported a 35% decline in third-quarter earnings as the drugmaker said it may shed assets and focus on priorities such as vaccines, diabetes treatments, and oncology products; this as Merck previously said it would cut its workforce by 20% over the next two years, including at the location across the street from moi. Merck’s sales declined 4% year over year.

--Starbucks Corp. reported a 34% jump in quarterly profit, as global sales at Starbucks cafes open at least 13 months jumped a very solid 7%.

--Boeing announced it will be increasing production of its popular single-aisle 737 jets to 47 a month by 2017, from 38 now, as the demand for fuel-efficient planes grows.

Airbus now builds 42 of its competing A320 each month.

--Airlines worldwide are expected to collect $42.6 billion from passenger fees, the sale of frequent flier miles and other sources in 2013, an 18% increase from last year, according to a consultant for the airline industry, IdeaWorksCompany. This would represent about 6% of all revenues for airlines worldwide. $23.7 billion of the $42.6 billion is projected to come from onboard sales of food, drinks and seat upgrades and revenue from check bag fees. [Hugo Martin / Los Angeles Times]

--Alcatel-Lucent reported a narrower loss in the third quarter on both lower costs and slightly better revenue, and the network-gear maker was positive in its guidance.

The company is eliminating 15% of its workers and pursuing $1.4 billion in asset sales to fund restructuring, as well as pay emergency loans taken out earlier this year.

Revenue in North America, though, was up 14% as the company benefited from spending on 4G wireless networks, such as was the case with Sprint which selected Alcatel.

I drive by the North American headquarters in Murray Hill, N.J., once a week these days and I was struck the last time how jammed the parking lots seemed (relative to the pathetic emptiness I normally espy). I’ll be taking a closer look at this in the future.

--Sony Corp. surprised the Street in cutting its full-year profit forecast amid lousy demand for its televisions and digital cameras, as well as poor box office receipts because its movies have sucked. [And if you want me to personalize your earnings release statements, just drop me a line.]

The television market is saturated and of course consumers are using their smartphones in lieu of digital cameras and camcorders.

Actually, Sony’s movies topped the global box office for the quarter, but gross sales were far below the pace of a year earlier.

Sony cut its net income forecast for the year ending in March 2014 from about $500 million to $300 million. The shares tanked 11% on the news.

--Interesting piece in The Record (New Jersey), via The Star-Ledger, on how students are living off campus to save money. As in some of New Jersey’s commuter public colleges and universities had made a concerted push to upgrade on-campus residences but in the case of Ramapo College and Williams Paterson University, over 10% of the dorm rooms are vacant.

--Thomson Reuters, the provider of news and information services, said it plans to cut another 3,000 jobs as it struggles with weak demand from bank clients, which have been reducing head count themselves since the financial crisis hit. Earlier this year, the company eliminated 2,500 jobs. Third quarter earnings for Thomson Reuters fell 38% as revenue fell 3%.

--According to the Alliance for Audited Media, using a new metric that combines print and digital apps, USA TODAY has the highest daily circulation of any U.S. newspaper for the six months ended Sept. 30. It’s the first time digital has been included and it gives USA TODAY an average circulation of 2.9 million for the period, vs. the Wall Street Journal’s 2.27 million. The Journal’s paid digital circulation rose 14.3 % to 903,000 in the same period.

The New York Times is third with an average weekly circulation of 1.9 million, including 1.2 million in digital subscribers (727,000 of which are paying subs). Separately, the Times reported total ad revenue fell 2% in the third quarter.

--Chinese scientists announced they have a vaccine for the H7N9 bird flu virus and could have it ready to launch in six months. This would be a nice surprise.

--Customers buying Dell Latitude 6430u laptops are complaining their new computers are emitting a smell similar to cat urine. The smell is coming from the keyboard or palm rest. A company spokesman said the odor isn’t related to a “biological contamination” and doesn’t present a health hazard.

Don’t trust anyone these days. It’s a WMD.

--The Herald Scotland reported this week on a half-decade of thefts from British atomic-powered submarines, as well as from air force installations and army bases in Scotland, citing documents obtained through ‘open-record laws,’ as they put it across the pond.

Among the items taken were 55 pounds of bacon, 33 pounds of shrimp and 12 sacks of sausages taken from a marine base. I’m drooling....

[I know the above isn’t a Street Byte, but it’s a Street Bite.]

--PIMCO’s Bill Gross tweeted that Carl Icahn should stop pushing Apple to launch a massive share buyback program as a way of juicing the share price and instead spend more time on philanthropy like Bill and Melinda Gates. Icahn fired back that Gross should join him in signing the Giving Pledge, a group headed by Gates and Warren Buffett to encourage the world’s richest to give the majority of their wealth to charity.

Gross then said he and his wife pledged to give their wealth all away via the Andrew Carnegie pledge; Carnegie having said the wealthy have an obligation to improve society.

I’m leaving out some details but the whole exchange between the two titans was stupid and needlessly nasty.

--A report by Morgan Stanley on the wine industry finds that prices are likely to rise owing to steadily rising demand, especially from the U.S. and China, while there is an undersupply of the product, ostensibly because of poor weather in the likes of France and Argentina. Morgan Stanley says 2.8 billion cases of wine were produced last year, but there was an undersupply of 300 million cases. [Each case contains 12 bottles.]

Another issue is the French are consuming more again, after decades of falling consumption, leaving less for export. France remains the biggest wine-drinking country in the world but the U.S. is catching up fast. And the Chinese have doubled their consumption twice in the past five years.

Morgan Stanley notes, “The global wine industry has seen an excess of 600 million cases in 2004 reduced to just one million in 2012, largely through an on-going reduction in structural capacity.

“After adjusting for non-wine uses, demand for wine exceeded supply by 300 million cases in 2012, the steepest shortfall in over 40 years of records.” [David Charter / London Times]

Foreign Affairs

Iran: The next round of talks on Tehran’s nuclear program is taking place Nov. 7-8 in Geneva, but in talks between technical experts from Iran and the P5+1 group in Vienna this week, there are reports Iran is prepared to make it easier for U.N. inspectors to visit its contested facilities. Separate talks with the International Atomic Energy Agency, which would conduct the inspections, also were “very productive,” according to a rare joint statement.

In Washington, though, President Obama continued to press the Senate to hold off on expanding sanctions against Iran as talks continue, while for his part, Israeli Prime Minister Benjamin Netanyahu said:

“I heard Iranian officials define the last round of talks as ‘useful and constructive.’ Well, I am sure that for the Iranians they were useful and constructive, because they just win time to continue their enrichment program to create fissile material for nuclear weapons.”

Last weekend an Iranian lawmaker said his country continues to enrich uranium to 20% purity, knocking down reports Iran had halted the enrichment of near-weapons-grade uranium.

Netanyahu said this week that talk about 20% purity was not the key; rather, because of Iran’s new centrifuges, the ability to go from 3.5% enriched uranium to 90% weapons-grade material would take just 8-10 weeks.

But at the end of the day there could be a bigger issue impacting Iran’s future direction. As Hugh Tomlinson of the London Times put it, there are growing concerns about the health of Supreme Leader Ayatollah Ali Khamenei. He has not been seen in public for over three weeks and “reports suggest that he has had a relapse of a chronic illness.”

“His death, or even a prolonged absence, could prompt a power struggle as negotiations with the West over Iran’s nuclear program reach a critical stage.”

A Khamenei loyalist wrote on Facebook, “It is not good news coming our way from our master...Pray deeply for him.”

But there are rumors that if Khamenei dies or is forced to step down, former president Rafsanjani would succeed him and conservatives in Iran loathe the fact Rafsanjani is viewed as a reformer. If you’re a long-time reader of this column, you know how I would feel. I’d be thrilled, at least in the short term.

One Khamenei loyalist told the London Times, “Rafsanjani has been scheming for 30 years to turn Iran into Saudi Arabia – a dictatorship backed by the West.”

Then again, there have been rumors of Khamenei’s bad health for years and he always comes back.

Separately, Iran hanged 16 “rebels” of an unspecified militant group in retaliation for an ambush that resulted in the deaths of 14 Iranian border guards last weekend, near the border with Pakistan. It’s not known whether the attackers were drug smugglers or an armed opposition group.

Syria: Israel’s air force attacked two military sites inside Syria on Wednesday; one near the port city of Latakia, an Assad regime stronghold, and the other in Damascus. While Israel doesn’t confirm or deny such talk, at least 11 Israeli jets were seen flying over Lebanon the same day. An Obama administration source told CNN that Israel was targeting Russian-made missiles potentially heading to Hizbullah.

Meanwhile, there are conflicting reports on just who has the upper hand in recent fighting. The Wall Street Journal reported on Friday that Islamist rebels are entrenched in some Damascus suburbs, from which they have been launching terror attacks against the regime, including blowing up a gas pipeline that caused an hours-long power failure in the capital.

But President Assad is using the presence of the Islamists to his advantage in his public relations war, saying he will not participate in a proposed peace conference in Geneva unless Western and Arab states stop funding rebels he calls terrorists.  [Of course the opposition says it won’t attend if Assad is there. And 19 Islamist groups issued a statement saying the Geneva conference “is not, nor will it ever be our people’s choice or our revolution’s demand.”]

The situation is so dire in the Damascus suburbs that clerics have issued edicts that permit the eating of cats and dogs to fend off starvation.

On the chemical weapons front, Syria has completed the functional destruction of all equipment related to production, though inspectors could not visit two sites due to the war. Assad’s forces would thus appear to have complied with a Nov. 1 deadline, according to the Organization for the Prohibition of Chemical Weapons and the United Nations, which is overseeing the disarmament activities.

But there are major questions as to whether the Assad government disclosed all of the locations and U.S. security officials say their estimates of sites are higher than what Syria declared.

And now comes the huge task of actually eliminating Syria’s 1,000-plus metric tons of toxic agents and munitions. Last week I reported that Norway said it would help in the destruction effort, but then it backed off. Now Albania is a contender. The deadline to complete the task is mid-2014.

As for the opposition rebels, they say this whole game of Assad dismantling his WMD capability does nothing more than legitimize his regime and is an insult to those who died in the big attack on a Damascus suburb on Aug. 21, which killed 1,400.

Michael Gerson / Washington Post

“While chemical weapons disarmament proceeds in Syria, so do mass attacks on civilians. In the eastern suburbs of Damascus, where the regime used sarin, it now conducts a siege, blocking the entrance of food and the exit of refugees. This technique involves less sophisticated chemistry, but it is still effective. Aid workers report hunger and malnutrition.

“Through trial and error, Syrian President Bashar al-Assad is finding ways to attack women and children that the world finds more acceptable.

“Events in Syria strain recent historical comparisons. Only Syria and Afghanistan have experienced the displacement of more than 6 million people. Only the violence in Syria and Rwanda has displaced tens of thousands in a single day. A third of the Syrian population has been forced from their homes; perhaps 100,000 are dead.

“As the conflict grows more chaotic, it becomes more opaque. Fewer journalists are willing to risk the growing anarchy, banditry and kidnapping. And the proliferation of rebel groups, some disturbingly radical, have left many confused about whom to pull for. The result is a vast tragedy within Syria and a vast emotional numbing outside it.”

Editorial / Washington Post

“According to Secretary of State John F. Kerry, Syrian ruler Bashar al-Assad now is waging ‘a war of starvation’ against his own people. In a robustly worded op-ed column posted Friday (10/25) on ForeignPolicy.com, Mr. Kerry denounced what he said was ‘the systematic denial of medical assistance, food supplies and other humanitarian aid to huge proportions of the population.’ The regime’s tactics, he said, ‘threaten to take a humanitarian disaster into the abyss.’ They are ‘intolerable,’ and ‘the world must act quickly.’

“So what does the Obama administration propose to do to stop this barbarism? The simple answer is: nothing, other than issue strongly worded statements....

“Mr. Kerry’s feckless op-ed offensive is a direct consequence of President Obama’s radical retrenchment of U.S. policy in the Middle East this fall....

“ ‘The world cannot sit by watching innocents die,’ declares Mr. Kerry. But, apparently, the Obama administration can.”

John McCain and Lindsey Graham / Washington Post

“What’s worse, the administration’s failure on Syria is part of a broader collapse of U.S. credibility in the Middle East. As recent reports make clear, Israel and our Gulf Arab partners are losing all confidence in the competence, capability and wisdom of the administration’s diplomacy in the region. America’s relationship with Saudi Arabia, in particular, is deteriorating rapidly, to the detriment of U.S. national security interests....

“We further share the concerns expressed by our Israeli and Arab partners about the risks of being drawn into protracted negotiations with Iran’s rulers that become a stalling tactic for Tehran. We should be prepared to suspend the implementation of new sanctions, but only if Iran suspends its enrichment activities. We should not accept that the centrifuges spin while the diplomats talk.

“The United States is experiencing a serious failure of policy and loss of credibility in the Middle East. Events in the region are headed in a perilous direction, and there is little reason to feel confident that the Obama administration has a strategy to secure U.S. interests and values in this vitally important part of the world.”

And now the UN’s World Health Organization has confirmed the first polio outbreak in Syria in 14 years. An estimated 500,000 children have not been vaccinated for the disease, though the UN now says it is gearing up to vaccinate 10.5 million children in the entire region.

One last item on Assad. This week he sacked his deputy prime minister for being absent without leave and holding unauthorized meetings abroad.

Pakistan: Pakistani Taliban leader Hakimullah Mehsud was killed in a drone strike Friday evening, but Pakistan accused the United States of attempting to “sabotage” efforts to hold peace talks with the group. Apparently, four Taliban leaders were meeting in North Waziristan to discuss how to proceed with Prime Minister Nawaz Sharif’s overtures.

Sharif was just in Washington for positive talks with President Obama.

Mehsud had a $5 million bounty on his head for his alleged role in a 2009 attack on a CIA outpost in eastern Afghanistan that killed seven Americans.

This is one of those classic ‘wait 24 hours’ tales.

Iraq: Prime Minister Nouri al-Maliki was in Washington this week, addressing the resurgence of al-Qaeda and the impact the war in Syria is having on his country.

“Regretfully, the Arab revolutions were able to shake the dictatorships but weren’t able to fill the void in the right way,” Maliki said in a speech to a think tank. “So a vacuum was created, and al-Qaeda and other terrorist organizations were able to exploit it and to gain ground.”

But many in Washington blame Maliki for oppressing the Sunni minority. Maliki wants help in training, intelligence sharing and weapons sales. The U.S. in turn needs to convince him to be more inclusive, though he is increasingly in the throes of the Iranians.

At least 55 died in various bombings and attacks in Iraq last Sunday and the death toll from the violence for the month of October exceeded 550.

Israel: The government announced it is advancing plans for new massive settlements in the West Bank and Jerusalem, just what the so-called ‘peace process’ doesn’t need.

Israel did release 26 Palestinian prisoners in the second round of prisoners to be freed since August, part of a U.S.-brokered deal for the resumption of talks.

Libya: Ten armed men stole $55 million in a heist on a van carrying local and foreign currency for the Libyan central bank on Monday. The van was coming from the airport where the cash had been flown in from Tripoli for the local central bank branch in the coastal city of Sirte. The head of its city council told Reuters, “The robbing is a catastrophe.”

The country is so lawless and dysfunctional, oil exports fell to less than 10% of capacity on Monday after protesters shut down ports and oilfields in the west. [Daily Star]

China: The top security official in the country said a deadly crash in Beijing’s Tiananmen Square that killed three people inside the vehicle and two tourists was incited by the East Turkestan Islamic Movement. On Monday, the car ploughed into a crowd then burst into flames. By week’s end police arrested five suspects, all from the western region of Xinjiang, home to minority Uighur Muslims. 

Some say the Uighur don’t have the capacity to carry out a terror attack like this and that they are used as scapegoats. But what emerged was that President Xi and six other top officials were at the square when the vehicle crashed and exploded. Xi, Premier Li Keqiang and the others, members of the Politburo Standing Committee, were just 200 yards away in the Great Hall of the People.

Separately, the Defense Ministry lodged a formal diplomatic complaint over what it called a “dangerous provocation” by Japan for shadowing Chinese military exercises in the Western Pacific. China accused Japan of disrupting live ammunition drills, while Japanese patrol ships and aircraft gathered information about the exercises.

It was interesting that the complaint came from the Defense Ministry, rather than the normal route employing the Foreign Ministry.

But Tokyo said Beijing was jeopardizing peace over the disputed Senkaku islands in the East China Sea. Japan’s Defense Minister Onodera said, “I believe the intrusions by China in the territorial waters around the Senkakus (“Diaoyus” to China) fall in the ‘grey zone’ (between) peacetime and an emergency situation,” he told reporters. 

On Monday, China’s coastguard sent four vessels into the waters around the islands, where they stayed for two hours, shadowed by their Japanese counterparts. Tokyo also scrambled jets to meet Chinese aircraft in the area, though they did not enter Japanese airspace.

Last week, Japanese Prime Minister Shinzo Abe gave the green light to plans to fire on any unmanned aircraft that did not heed warnings to leave Japanese airspace.

For his part, President Xi said at a conference: “Maintaining a peaceful and stable environment among our neighbors should be the aim of our diplomacy.” Maintaining ties with neighboring countries was key to the “renaissance of the Chinese nation,” and both economic and security cooperation should be stepped up with these countries. [South China Morning Post]

Editorial / Wall Street Journal

“China’s leaders may have thought that by frequently dispatching ships and planes into Japan’s territory around the tiny Senkaku islands they would cause Tokyo to bow to their demands. Instead, their strategy of harassment and intimidation has accomplished the opposite – and then some.

“Prime Minister Abe has rallied Japanese to defend their territorial sovereignty, and he may succeed in reinterpreting the Japanese constitution to allow Japan to come to the military aid of its allies. The threat to the Senkakus has strengthened Tokyo’s alliance with Washington, with the two countries agreeing earlier this month to bolster their military ties....

“In an interview with the Journal last week, Mr. Abe, fresh from a successful tour of the region, signaled his willingness to take up a greater leadership role and issued a warning to Beijing. ‘There are concerns that China is attempting to change the status quo by force, rather than by rule of law. But if China opts to take that path, then it won’t be able to emerge peacefully,’ he said.”

Now we hope there isn’t an accident or miscalculation that sends the two spiraling into war.

Finally...an update on a story I wrote of last time, that of a reporter for the New Express who was detained by police a week ago. It seems he made a public confession admitting to accepting bribes and publishing articles containing false accusations against Zoomlion, China’s second-largest maker of construction equipment. According to the South China Morning Post, “Almost all of the stories were pre-written and fed to him by a third party on the condition that they be published under his byline. (The reporter) was paid thousands of yuan each time he delivered the ‘task,’ according to CCTV.”

I have zero idea if this is really the truth. It’s China, after all.

North Korea: Satellite imagery analysis continues to show that Pyongyang’s nuclear program is gathering pace. As reported by Agence France-Presse:

“In August, images suggested the North had doubled its uranium enrichment capacity at its Yongbyon nuclear complex.

“In September, they indicated it had re-started the plutonium reactor that provided the fissile material for at least two of its three nuclear tests, and just last week they pointed to preparatory work for another detonation at its nuclear test site.

“ ‘Pyongyang is moving ahead on all nuclear fronts,’ believes U.S. nuclear scientist Siegfried Hecker, a leading expert on the North’s weapons program.” [Ed. Mr. Hecker is the expert in the field.]

Separately, as reported by Global Security Newswire, other satellite images show new building activity at a long-range missile launch facility, including a second mobile ballistic missile pad.

Russia: President Vladimir Putin insisted gay and lesbian athletes have nothing to fear at the Sochi Winter Olympics, this despite a new law banning “homosexual propaganda” towards people under 18.

Putin told the head of the International Olympic Committee, Thomas Bach, “We will do everything to make sure that athletes, fans and guests feel comfortable...regardless of their ethnicity, race or sexual orientation. I would like to underline that.”

A recent poll found that nearly half of Russians believe that the gay and lesbian community should not enjoy the same rights as other citizens.

As for the preparation for the Games, which begin Feb. 7, Thomas Bach said organizers should brace themselves for the toughest preparation period ahead. While Bach was talking in general terms, it’s true Sochi is a freakin’ mess and some of the facilities are not finished.

Plus you have this from the Moscow Times and the Associated Press:

“Trucks rumble to the edge of a gigantic pit filled with spray cans, tires and foam sheets, and dump a stream of concrete slabs that send up a cloud of limestone dust. Other trucks pile clay on top and a bulldozer mixes everything together in a rudimentary effort to hide the mess. This landfill outside Sochi, which will host the Winter Olympics in 100 days, is smack in the middle of a water protection zone where dumping industrial waste is banned.”

Classic Russia, sports fans. They don’t care one whit about their environment. [See my piece last week on the Gazprom oil rig in the Arctic.] It turns out Russian Railways operates the dump without a license.

A member of an environmental group said, “Water from here will be contaminating Sochi’s fresh water springs for the next 10 to 15 years.”

“As a centerpiece of its Olympic bid, Russia had trumpeted a ‘Zero Waste’ program that promised the cleanest games ever, saying it would refrain from dumping construction waste and rely on reusable materials.” [Nataliya Vasilyeva / AP]

The Russkies are great liars.

Meanwhile, as suspected by yours truly, opposition leader Alexei Navalny has already been served with new theft and money laundering charges, describing them as part of an attempt to “terrorize” those who displease the Russian authorities.

I’m just surprised the move wasn’t made until after the Sochi Games.

Argentina: President Cristina Fernandez de Kirchner’s Front for Victory suffered a big defeat in mid-term elections as the opposition Renewal Front won by a wide margin, leaving Kirchner, who is recovering from brain surgery, with a very slim majority in Congress. In two years’ time, Sergio Massa, the 44-year-old mayor of an affluent Buenos Aires suburb, is expected to replace her. Kirchner’s policy of doing nothing more than attempt to buy votes through fuel and food subsidies has worn thin as crippling food inflation and other issues have scared off foreign investment. Massa is a leftist (Peronist), but a pragmatic one (so they say) and a business-oriented leader who is already taking advantage of the head guy at the Vatican.

“As our Pope Francis says, harmony is the best way to build our society.”

Finland: The government announced foreign intelligence agents, suspected to be from China and Russia, hacked into government communications, including the foreign ministry office. The nation is torqued off. While Finland is not a member of NATO, it cooperates extensively with the defense alliance. Finland’s foreign minister said the hacking effort went on for years and targeted comments between the government and European Union officials.

Random Musings

--A new NBC News/Wall Street Journal survey has President Obama with just a 42% approval rating, an all-time low for him in this poll. [It was 53% end of 2012.]

63% of voters say they want to replace their own member of Congress, the highest percentage on record since the question was first asked in 1992.

Only 22% see the Republican Party in a positive light, compared to 53% who view it negatively. 37% view the Democratic Party favorably.

Optimism about the U.S. system of government, 30%, was at its lowest in 40 years.

--Regarding 2014, the dreadful start for ObamaCare now has Democrats worried. As the No. 2 Democrat in the Senate, Illinois’ Dick Durbin put it, “People are anxious.”

Senator Jeff Merkley, an Oregon Democrat up for re-election next year, said, “This is more a show-me moment. We were all confident that the system was going to be up and operating on Oct. 1. And now we’re not confident until it’s real.”

So it’s the taint of ObamaCare on the Democrats, and the government shutdown on the Republicans. Which will stick with voters a year from now? It’s too soon to know.

--Daniel Henninger / Wall Street Journal

“Let us try to understand clearly what is happening now with the Obama presidency. On display to everyone watching this week is not merely the failure of a federal website or a software program or Ms. Sebelius’ management skills. This is the failure of the very idea of progressive government. Not liberal government.  Progressive government.

“That battle a few weeks ago over the government shutdown was a familiar Beltway spectacle. But what is happening this week to ObamaCare and the political class that created it is historic. Forty years from now, the millennials who in 2008 and 2012 believed in and voted for the progressive ideal – limitless, mandated, state-led goodness – can tell their grandchildren they watched it fall apart in 2013. This is the glitch that failed....

“What made ObamaCare an exemplar of progressive politics and policy is precisely what has been on view this week in news stories and the Sebelius hearing. It’s not that the health program was to be administered by the state or that it promised benefits to all. Liberalism did that for decades. What made it peculiarly progressive were the mandates. And not just the law’s individual and business mandates to purchase their insurance. The essence of modern Democratic progressivism is: ‘You will participate in what we have created for you, and you will comply with the law’s demands.’

“Nothing could have been more crystal clear than the explanation for all the canceled insurance policies from the White House’s Jay Carney, the bland face of progressive coercion: ‘What the president said and what everybody said all along is that there are going to be changes brought about by the Affordable Care Act to create minimum standards of coverage, minimum services that every insurance plan has to provide. So it’s true that there are existing health-care plans on the individual market that don’t meet those minimum standards and therefore do not qualify for the Affordable Care Act.’

“If this White House and its progressive ecosystem have a political motto, it’s this: Get over it....

“(What) Americans now riding through the ObamaCare hurricane of canceled policies, disappearing doctors and rebooted promises have to be asking themselves is: Do I want to live with this level of personal enforcement in the U.S.?....

“Barack Obama may have spent a lifetime failing up, but eventually it’s just failure. He has presided over five years of sickly economic growth, inadequate job creation, a doubling of the food stamp population and now this – ObamaCare.

“Progressive government has failed in the U.S. Most fascinating to behold will be whether the Democratic presidential candidate who follows this meltdown will embrace it, fake it or move on.”

--Kentucky Republican Sen. Rand Paul is being accused of plagiarism, specifically for lifting a Wikipedia entry about a futuristic movie, ‘Gattaca,’ for a speech this week. Perhaps a little careless, but I can’t see this becoming a big deal in terms of his prospects for 2016. It’s hardly on a scale like then-senator Joe Biden taking words from a speech by British Labour Party leader, Neil Kinnock.

But...now everyone will be pouring over all of Sen. Paul’s past speeches to see if there is a pattern.

--Heading to election day, New Jersey Gov. Chris Christie has a 64-31 lead over his Democratic challenger Barbara Buono, according to a Quinnipiac University poll of likely voters. By a 48-41 margin, New Jerseyans also say Christie should run for president in 2016. No doubt he desperately wants to hit the 60% mark, which would be quite a statement in a heavily Democratic state.

[A Fairleigh Dickinson University PublicMind poll, however, had Christie leading only 59-40 on Friday. This same survey had it 58-25 in early October.]

Regarding Christie’s presidential ambitions, he’s touting the fact he’s a pragmatist, willing to compromise with those on the other side of the aisle.

Ironically, as a piece by Philip Rucker of the Washington Post on Friday put it, that is exactly the message of Bill and Hillary Clinton in their stump speeches; both calling for “soothing partisan tensions and (espousing) a vision of governing by compromise.” [Rucker]

The Clintons, while blasting Republicans, are also taking a veiled shot at President Obama.

Campaigning for Virginia gubernatorial candidate Terry McAuliffe, Bill Clinton said the other day:

“When people sneeringly say, ‘McAuliffe is a dealmaker,’ I say, ‘Oh, if we only had one in Washington during that shutdown.’”

[A Washington Post poll has McAuliffe with a commanding lead over Republican Ken Cuccinelli, 51-39.]

--A new book, “Double Down” by Mark Halperin and John Heilemann on the 2012 presidential campaign, says Obama’s political advisers secretly explored replacing Joe Biden on the ticket with Hillary Clinton. [Heck, it was no secret. Even I brought it up back then.]  According to the authors, White House chief of staff at the time, William Daley, was the prime advocate of the move (at least exploring the option). But they later concluded Hillary “wouldn’t materially improve” Obama’s chances.

Regarding Mitt Romney and his Veep choice, the book says Romney was far from impressed with Chris Christie and his failure to keep himself in shape.

--In a Quinnipiac poll of New York City voters, Democrat Bill de Blasio maintains a mammoth 65-26 lead over Republican Joe Lhota in the race for mayor. Crain’s New York Business first learned de Blasio did not disclose tens of thousands of dollars in rental income he received in recent years, as required by city law and the Conflicts of Interest Board.

As Kathleen Parker opines in the Post:

“It’s not that voters love McAuliffe. They just don’t like Cuccinelli – and they really don’t like the Republican Party....

“(Mostly), the polls suggest that general distaste for the GOP and the Republican role in shutting down the government has doomed Cuccinelli at a time when he ought to be celebrating his insight in leading the legal challenge to the Affordable Care Act. Fifty-five percent said the shutdown is very important to their vote.”

--Republican Sen. Marco Rubio is abandoning his sweeping immigration reform efforts, arguing the House should lead the way by going small, introducing individual bills one at a time. For Rubio, his heroic early efforts were met with criticism from fellow conservatives and his poll numbers, particularly as it pertained to a possible presidential bid in 2016, dropped.

Rubio said he still prefers a comprehensive fix to the issue but for now wants to ensure “that we don’t allow not being able to do everything to keep us from doing something.” [Wall Street Journal]

--Texas Republican Sen. Ted Cruz made his third trip to Iowa in less than three months, telling the state’s annual Ronald Reagan fundraising dinner last weekend that he knows exactly how to unify the GOP: “Restore historic economic growth,” he said. “Growth and freedom are principles that bring together Main Street and the tea party.”

Cruz also said it was the GOP’s failure to stand together that killed the effort to defund ObamaCare.

“We didn’t accomplish our ultimate policy goal in this battle, and we didn’t because unfortunately a significant number of Senate Republicans chose not to unite and stand side by side with House Republicans. Had we stood together I’m convinced the outcome of this fight would be very, very different. But listen, none of us ever thought that taking on the Washington establishment was going to be easy.”

--New York City Police Commissioner Ray Kelly was booed off the stage at Brown University before he could say a single word in an absolutely disgraceful performance by the Brown (and supposedly some Providence University infiltrators) students. Kelly’s speech was to be on the topic “Proactive Policing in America’s Biggest City.”

Editorial / Wall Street Journal

“Brown is the school where in 1984 students voted overwhelmingly to insist that the campus health services stockpile suicide pills ‘in the event of nuclear war.’....

“Now student rage is aimed at the NYPD’s stop-and-frisk policies, which account for much of the drop in the crime rate, especially in minority neighborhoods, and of which Mr. Kelly has been a vocal champion. Students also object to ‘community policing,’ especially among Muslims, a tool the NYPD has used to keep the city safe from terror.

“We realize that most Brown students have only a faint acquaintance with real life, and none of them know what New York City was like in the 1970s and’80s. But it is revealing to see where the Constitutional right to free speech stands in the esteem of students at one of the most liberal campuses in America.

“Judging by their profuse apology to Mr. Kelly, Brown officials are embarrassed by the episode. Mr. Kelly will certainly get over it, but at a better school the children who acted out at Brown would be expelled.”

But...just days later...a federal appeals court blocked changes to the NYPD’s “stop-and-frisk” policy, putting a hold on an August ruling by Judge Shira Scheindlin that found the program was unconstitutional. The court also removed Scheindlin from the case, saying she “ran afoul” of the judicial code of conduct.

This is a big win for Mayor Michael Bloomberg, especially as any further decision / appeal on the case won’t be forthcoming until at least March so any change in policy wouldn’t occur until after Bloomberg leaves office, his legacy on the matter secure.

It’s also a mess for mayoral candidate Bill de Blasio, seeing as most of his campaign ads tout how he would “end a stop-and-frisk era that unfairly targets people of color.” [Alas, it helps to be up 40 points.]

--I have nothing to say on the tragedy at LAX on Friday other than I saw an analyst on CNN paint a very plausible, scary scenario whereby you can bet airport security is tightened even further. Had that guy not been stopped when he finally was, he had a clear shot straight into the cockpit of one of the parked airliners. Were he a true terrorist, you have another potential 9/11.

--I was catching up on some old articles I toss in a pile for those few moments of relative relaxation I have and I can’t help but note this passage from a piece by Larry Diamond and Jack Mosbacher in the September/October 2013 issue of Foreign Affairs titled “Africa’s Coming Resource Curse – and How to Avoid It.”

“In October 2011, the U.S. Department of Justice filed a motion to seize a palatial cliff-top home in Malibu, California. The 16-acre property towers over its neighbors, with a palm-lined driveway leading to a plaster-and-tile mansion. Situated in the heart of one of the United States’ most expensive neighborhoods, the $30 million estate includes a swimming pool, a tennis court, and a four-hole golf course. In its complaint, the Justice Department also set its sights on high-performance speedboats worth $2 million, over two dozen cars (including a $2 million Maserati and eight Ferraris), and $3.2 million in Michael Jackson memorabilia – in total, assets equaling approximately $71 million. What made these extravagant possessions all the more remarkable was that they belonged to a government worker from a small African country who is making an official salary of about $80,000 a year: Teodoro Nguema Obiang Mangue, the oldest son of and heir apparent to Teodoro Obiang Nguema Mbasogo, the longtime president of Equatorial Guinea.”

Equatorial Guinea has a lot of oil, exporting as many as 400,000 barrels of oil a day since 1995. Little of it, however, has filtered down to the people. “(Today), three out of every four Equatorial Guineans live on less than $2 a day.”

Ah yes...corruption makes the world go ‘round.

--Related to the above, Gallup recently asked people from 63 countries with a free press, “Is your government highly corrupt?”

94% in the Czech Republic said yes. 89% in Ghana. 73% in the United States. [Only 14% felt this way in Sweden.]

--Scientists have discovered a planet that’s close in size and content to Earth – an astronomical first.

However, astrophysicists reported in the journal Nature that the exoplanet Kepler-78b is at least 2,000 degrees hotter than here, though it appears to be made of rock and iron just like Earth.

The planet is, alas, hundreds of light-years away, but I’m guessing if the Keplerians had some of those 1970s cookie-cutter major league ballparks with the astroturf, it would be rather hot on the playing surface.

“Game time temperature is 2,090, but about 2,125 on the turf.”

“Hope the players are drinking lots of fluids, Biff!”

--Congrats to the Red Sox for winning the World Series over the Cardinals...Boston Strong.

---

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

God bless America.

---

Gold closed at $1314
Oil, $94.67

Returns for the week 10/28-11/1

Dow Jones +0.3% [15615]
S&P 500 +0.1% [1761]
S&P MidCap -0.3%
Russell 2000 -2.0%
Nasdaq -0.5% [3922]

Returns for the period 1/1/13-11/1/13

Dow Jones +19.2%
S&P 500 +23.5%
S&P MidCap +26.5%
Russell 2000 +29.0%
Nasdaq +29.9%

Bulls 52.6
Bears 16.5 [Source: Investors Intelligence...Reminder: This is a contrarian indicator. Bear reading is lowest since April 2011. Shortly thereafter, the market corrected 20%. The Bull reading was 54.9 at that time.]

Dr. Bortrum posted a new column.

For new readers, I do have an iPad app. [I was reminded of this when I received my credit from Apple the other day. I always forget.] As for an Android one, it’s a long story. Sorry, guys.

Have a great week. I appreciate your support.

Brian Trumbore