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11/09/2013

For the week 11/4-11/8

[Posted 11:00 PM ET, Friday]

Washington and Wall Street

In September, I was in a distinct minority (like literally a handful) that said the Federal Reserve would not begin to taper its $85 billion a month bond-buying program because the economic data was too weak. I started talking about this in mid-August and I ended up being right.

Now, after we’ve seen some admittedly hard-to-decipher employment reports, post-government shutdown, for September and October that on the surface are decent, plus strong ISM data on manufacturing and the service sector (including the recent Chicago Purchasing Managers survey) that have been outright giddy, I’ll say the Fed does begin to taper at its Dec. 17-18 meeting. The only things that would change my mind are if November’s jobs report, released Dec. 6, is incredibly putrid, and if by the Dec. 13 deadline, Republicans and Democrats haven’t reached a budget compromise, the expected “small deal.” The latter would be a game-changer for the Fed and it couldn’t possibly act then with renewed uncertainty concerning shutdowns and debt ceiling deadlines.

But now that I’ve laid out my stance, let’s take a look at Friday’s jobs report for October, release of which was delayed a week. The Labor Department said U.S. payrolls grew by 204,000, far better than expected, though the unemployment rate ticked up to 7.3% from 7.2%, owing, we are told, to the employees who were furloughed during the shutdown. The Labor Department said that without the furloughs, the unemployment rate would have been 7.0%.

The jobs figures for August and September were revised upwards to 238,000 and 163,000, respectively, with the three-month average now 200,000 and a six-month average job gain of 163,000.

None of this is great, especially for this phase in the recovery, and the labor participation rate dropped to 62.8 (lowest since 1978) as 720,000 largely gave up looking, but for some time now we have seen progress on the labor front, albeit of the halting variety.

But there was some other solid news. The first reading on third quarter GDP came in at 2.8% when 2.0% was expected. Granted, 0.8 of this was attributable to a one-time inventory buildup, so you strip that out and there’s your 2.0%. It is, though, still a better headline number, better than the second quarter’s annualized 2.5% and the first’s 1.1%. Growth is expected to be in the 2.0% to 2.5% range in the current quarter, even with the 16-day October disruption.

Yes, consumption growth remains weak, but all-in-all, the data is far from awful. We’re just living in a 2% environment and we’re learning to get used to it. Certainly the markets love it.

So the Fed will begin tapering in December, says your editor, but if you’re thinking the members of the Open Market Committee are contemplating actually raising the short-term funds rate off zero, well they’ve already told us, not until 2015, or later. And now the Fed governors are analyzing an internal research report that says interest rates shouldn’t be hiked until the unemployment rate falls to as low as 5.5%. Currently, the Fed’s rough benchmark is if the jobless rate hits 6.5%, and inflation doesn’t exceed 2.5%, they’d finally act.

The Fed doesn’t have to adopt this policy, but you may see a comment or two pertaining to the research following the December gathering.

On to ObamaCare....

“Watching the Obama administration at work this week, a friend offered this judgment: Under Obama, Iran keeps its nuclear program and Americans lose their health insurance.”

--William Kristol / The Weekly Standard

I discuss the latest on Iran below.

As for the topic of ObamaCare, here are some basic truths. The whole concept was supposed to be about choice and competition. The fact is in many states there is little choice, such as 2 insurers to choose from in Alabama, 2 in Mississippi, 1 in West Virginia, 1 in New Hampshire. [From a CNN report I saw about ten days ago.] Ergo, not a lot of competition.

I told you in early October how my own Summit Medical Group (a much bigger practice than it sounds) refuses to take any ObamaCare patients until they see how everything shakes out. Bottom line, they want their doctors to be paid. I don’t blame them one bit. 

June 15, 2009...President Obama to the American Medical Association as the health care bill was being written.

“That means that no matter how we reform health care, we will keep this promise to the American people: If you like your doctor, you will be able to keep your doctor, period. If you like your health care plan, you’ll be able to keep your health care plan, period. No one will take it away, no matter what.”

Of course we all know that there are at least 23 other such statements, either prior to this key presentation or after.

Then the website, HealthCare.gov, didn’t function on its October 1 launch date. Six people across the country were able to sign up the first day off the exchanges listed. Less than 250, nationwide, a day later.

I tried going online myself around Oct. 7 and as I told you at the time was waylaid by the security questions issue. I waited until this past Monday morning to test it again.

I actually zipped through the security questions this time, thinking I’d finally get to see what was offered (I’ve told you I’m satisfied with my existing plan and I think I’ll be able to keep it come renewal time) but then the Social Security # screen popped up and no way am I giving that information, at least not now. But this did show me there is now information for the hackers to steal as more and more get through to this step and beyond.

Sec. of Health and Human Services, Kathleen Sebelius, was asked specifically about the Social Security data at a Senate hearing this week and she said it wasn’t being saved, that it was being “pinged off” to the IRS and others using it to verify your identity, subsidies eligibility, etc. I see zero reason to believe her, which is why Consumer Reports still had the best advice. If you can, stay off the website for another few weeks, at least.

After all, Democratic Senator Tom Harkin, as liberal and as much of an Obama supporter as they come, said the other day he is “most concerned about security and giving up Social Security #s.”

One other sidebar, the ‘super’ in my building, Luis, has become a friend over the years. He’s from Ecuador and his boss, the building owner, refuses to give him insurance, which to me is almost criminal given the hard labor the guy does.

Anyway, I got some information together for Luis, seeing as he’s the perfect candidate for ObamaCare, and he started calling the navigators who replied, check back with us in a few weeks.

So I wanted to get the above down for the archives, to fill in a few gaps from my recent, post-launch commentary, as prelude to this week’s apology by the president.

In an interview with NBC News’ Chuck Todd, Obama, addressing the topic of those who are losing their health insurance despite his repeated promises they would not, said:

“I am sorry that they, you know, are finding themselves in this situation, based on assurances they got from me. We’ve got to work hard to make sure that they know we hear them and that we’re going to do everything we can to deal with folks who find themselves in a tough position as a consequence of this.”

The president said he had his staff looking into administrative fixes.

“I’ve assigned my team to see what we can do to close some of the holes and gaps in the law,” he said, “because, you know, my intention is to lift up and make sure the insurance that people buy is effective – that it’s actually going to deliver what they think they’re purchasing.”

Obama defended the law in the interview, saying many of those being canceled were in “subpar plans” and would probably benefit from new options.

“The majority of folks will end up being better off, of course. Because the Web site’s not working right, they don’t necessarily know it right” now, he said. “Keep in mind that most of the folks who...got these cancellation letters, they’ll be able to get better care at the same cost or cheaper in these new marketplaces.”

You mean those marketplaces with all the competition, Mr. President?

As the Washington Post’s Juliet Eilperin noted, “(Although) the president apologized for the fact that ‘we weren’t as clear as we needed to be in terms of the changes that were taking place,’ he only did so after Chuck Todd pressed him on the point."

Earlier in the week, the president kept muddling the issue. As Ms. Eilperin notes:

“In a speech in Boston on Wednesday, Obama said that letting people keep their plans ‘was part of the promise we made’ but that part of the law’s purpose is to help consumers upgrade their plans. On Monday night, he suggested that the promise really applied only to people who bought their plans before the health-care overhaul was enacted.”

Republican Senate Minority Leader Mitch McConnell (Ky.) said of the president’s Thursday interview:

“If the president is truly sorry for breaking his promises to the American people, he’ll do more than just issue a half-hearted apology on TV. A great place to start would be to support the [Wisconsin GOP Sen. Ron] Johnson bill that would allow Americans to do what the president promised in the first place: keep the plan they have and like.”

House Speaker John Boehner (R-Oh.) echoed McConnell, saying in a statement that “an apology is certainly in order, but what Americans want to hear is that the president is going to keep his promise.” [Bloomberg]

Both the House and Senate are taking up bills next week that would allow individuals to keep their plans even if the coverage failed to meet the health-law’s standards, but the insurance companies are already changing the plans or dropping them.

Back to Obama:

“When you try to do something big like make our health-care system better, there are going to be problems along the way. I hope that people will look at the end product.”

Needless to say, Democratic senators up for re-election in 2014 are more than a bit concerned about their prospects after this debacle.

Charles Krauthammer / Washington Post

“ObamaCare proponents who live in the real world might admit that they intended to cancel people’s individual plans all along because kicking people off individual policies is at the heart of populating the health exchanges. You must cancel the good, less frilly plans because forcing these people into more expensive plans (that they don’t need) produces the inflated rates that subsidize the health care of others.

“The more honest ObamaCare advocates are, in effect, admitting that to make this omelet you have to break 8 million eggs – roughly the number of people with individual plans who are expected to lose them. Obama, however, goes on as if he can conjure omelets out of thin air.

“This rather bizarre belief in the unlimited power of the speech arises from Obama’s biography. Isn’t that how he rose? Words. It’s not as if he built a company, an enterprise, an institution. He built one thing – his own persona. By persuasion. One great speech in 2004 propels him to the presidential level. More great speeches and he wins the White House.

“But then comes governance.”

Daniel Henninger / Wall Street Journal

“The cruise ship called the USS Obama has hit the rocks. It won’t sink, but the captain never expected to be taking on this much water. The insertion of ObamaCare into American life was supposed to be a breezy, second-term victory lap. It isn’t.

“Gallup has the president’s approval rating down to 40%. Ken Cuccinelli almost won Virginia’s governorship pummeling ObamaCare.

“The Affordable Care Act is in such disrepair that the heads of the Senate and House intelligence committees, Dianne Feinstein of California and Mike Rogers of Michigan, said Sunday it should be taken offline so the software techs can safely approach the cooling towers.

“The daily TV comedian poll has been brutal, teeing up ObamaCare like a day at the driving range.

“All presidencies pass through some crucible. What is striking about the Obama trial by ordeal is how little genuine support Mr. Obama is receiving from his side or the public. The normal operational phrase under these circumstances is ‘circle the wagons.’ If so, what does one call the spectacle of New York Senator Chuck Schumer seizing the moment to nominate Hillary Clinton for president? Ouch....

“National politics today operates in an atmosphere of antipathy and mistrust. Mr. Obama has contributed to that mood. It’s hard to overstate the intensity of political division in the U.S. now. From Congress to Main Street, the two sides just don’t like each other. And that’s in no small part because the president, in speech after speech, gave voters reasons to dislike each other. Little wonder that the public mood is that the ObamaCare train wreck is his problem.

“Barack Obama may yet survive this ordeal, and he can still roll out his personal enforcement hammers at Justice, EPA and Labor. But it’s becoming difficult to see how this American presidency will achieve historic stature in its last three years.”

And come January 2017, as we watch Michelle and Barack board Marine One for a final time, we’ll be looking back at the eight years of the Obama presidency and muse, ‘What was that all about?’

Europe and Asia

While the eurozone’s purchasing managers index readings on manufacturing and the service sector came in at 51.3 and 51.6, respectively, for October (50 being the dividing line between growth and contraction), this is hardly emblematic of robust growth. European Central Bank President Mario Draghi has recently been warning that Europe’s recovery was not a done deal despite some better data points and this week he acted in surprising the financial markets by reducing the benchmark lending rate to 0.25%, joining Japan and the United States in setting interest rates close to zero.

What spooked the ECB was last week’s inflation data that showed consumer prices in the eurozone rose just 0.7% in October, the lowest since the depths of the global financial crisis and well under the ECB’s target of 2%. We learned this week that prices in Ireland actually fell in October vs. a year ago.

While Draghi said outright deflation isn’t an immediate concern, he offered, “We may experience a prolonged period of low inflation.” As in too low.

After an encouraging rebound in the second quarter across much of the eurozone, the recent data has been less than robust and this week the European Commission lowered its GDP forecast for 2014 to 1.1% in the euro area. The main stumbling block is unacceptably high unemployment. Plus government debt levels are way too high in the likes of France (rising to 96% of GDP in 2015), Spain, Italy (134% in 2014), Greece (170%+ currently) and Cyprus.

Overall eurozone sovereign debt is projected to hit an all-time high of 96% next year.

The EC also said Spain is expected to grow only 0.5% in 2014 and that its government budget deficit would rise to 6.6% of GDP in 2015, well above the 3% target Spain is mandated to reach in 2016.

Or look at Italy. It will bring 65 billion euro in debt to market in 2014 just as domestic banks will be pulling back on their purchases. Italy’s banks are in the process of closing hundreds of branches and slashing 19,000 jobs in an effort to boost capital ahead of ECB-mandated stress tests. Sovereign debt holdings are already 10% of total bank assets and 22% of Italian government debt is held by the banks (it’s 39% in Spain). So you can see what needs to occur in 2014. Italy must find new domestic and foreign buyers for its paper.

[Separately, the Italian government says the economy will grow 1.1% in 2014...others say no way. Unemployment remains at a record high 12.5%, 40% on the youth front.]

In Greece, there was another general strike on Wednesday that shut the country down as the unions protest the ongoing austerity program. The troika (EC, ECB and IMF) held a meeting in Athens, seeking more austerity before dolling out the next installment of Greece’s bailout funding, but the Greek government said ‘no more.’

In France, the October PMI on manufacturing was just 49.1, down from 49.8 in September and the 20th consecutive month of contraction.

But then Standard & Poor’s, which was the first ratings agency to strip France of its “AAA” status in January 2012, took France down another notch to “AA” from AA+. While this did not have a major impact on the currency or bond markets in the eurozone, S&P’s accompanying statement uttered some harsh truths about the second-largest economy in the euro area.

“The downgrade reflects our view that the French government’s current approach to budgetary and structural reforms to taxation, as well as to product, services, and labor markets, is unlikely to substantially raise France’s medium-term growth prospects.

“Moreover, we see France’s fiscal flexibility as constrained by successive governments’ moves to increase already-high tax levels, and what we see as the government’s inability to significantly reduce total government spending.”

It didn’t help that France’s industrial output also fell in September by 0.5% from the previous month. Add it all up and French President Francois Hollande is facing major heat, witness his record low approval ratings.

Regarding Germany, two weeks ago the U.S. Treasury Department criticized Germany’s huge trade surplus, which the U.S. wants Berlin to reduce because it is hindering Europe’s recovery. The Merkel government rejected such criticism as “incomprehensible.”

The Washington Post editorialized the other day:

“It’s anything but. As the Treasury report explained: ‘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.’ In other words, the problem in Europe is not only German-prescribed austerity in Spain, Italy and the rest, but also German-prescribed austerity in Germany.”

But there is some good news and once again it comes from the U.K. An industry group there early in the week raised its GDP forecast to 2.4% for next year, while the European Commission projects 2.2% growth in 2014, saying the outlook has “improved substantially.” U.K. home prices also rose to a record last month. [Contrast this with Spain, where they probably have another 20% of downside.]

Lastly, there was a disturbing drive-by shooting in Athens that claimed the lives of two guards at anti-immigrant Golden Dawn’s party headquarters, which augurs revenge attacks.

And there was an unsettling survey by the EU’s Fundamental Rights Agency, a Vienna-based organization that monitors discrimination and other violations of basic rights across the bloc.

In a survey of nearly 6,000 Jews living in France, Belgium, Germany, Sweden, Hungary, Italy, Britain and Latvia (these eight being home to 90% of the EU’s Jewish population), 66% who responded considered anti-Semitism to be a problem. 76% believed it had increased over the past five years.

Further, 29% of those surveyed had considered emigrating because of safety concerns, with high numbers recorded in Hungary (48%) and France (46%).

Turning to China, as Communist Party leaders gathered in Beijing for a major plenum, where we may learn where President Xi Jinping and Premier Li Keqiang hope to take the country and what kind of economic reform agenda they have in mind (true political reform would be asking too much), a reading on China’s service sector came in at a solid 56.3 in October vs. 55.4 in September, while October exports rose 5.6% from a year earlier, reversing September’s slide. Imports rose 7.6%. All of this good news.

But when it comes to China’s property market, nothing the government does has slowed down the bubble.

From Reuters and the South China Morning Post:

“Homes in cities such as Beijing are more expensive by some measures than Britain or Japan, a dismal outcome for a central government campaign aimed at making homes more affordable to Chinese. House prices in September rose nationwide at their fastest pace in three years.

“ ‘The starting point of local governments is to keep land prices relatively high,’ said Zou Xiaoyun, deputy chief engineer at China Land Surveying and Planning Institute, a research unit affiliated to the land ministry. ‘Governments are not willing to see home prices fall.’

“Selling land is a major source of income for local governments but other factors drive up prices as well. These include natural demand from a rising population, and speculation fueled by ready cash, given relatively few alternatives for investment....

“To be sure, the central government faces a dilemma. Rising discontent over house prices is a threat to the social and economic stability the Communist Party uses as justification for its one-party rule.

“But the real estate sector is also a major economic driver, supporting some 40 other industries and generating about 16 percent of the country’s $8.5 trillion GDP.”

Street Bytes

--Stocks finished mixed a second straight week with the Dow Jones adding 0.9% to close at a record 15761, while the S&P 500, up 0.5%, closed a point shy of its record at 1770. But Nasdaq lost two points, 0.1%, to finish at 3919.   The Dow and S&P are up five consecutive weeks, but Nasdaq has declined 3 of 5.

On the third-quarter earnings front, the bottom line is coming in with an increase of 4.5% to 5.0%, while the top line, revenues, are generally in the 3% range for companies in the S&P 500. Not awful by any stretch.

--U.S. Treasury Yields

6-mo. 0.09% 2-yr. 0.31% 10-yr. 2.75% 30-yr. 3.85%

Yields continue to rise on the long end of the curve with the stronger economic data and renewed Fed taper fears. Janet Yellen has her confirmation hearing this week and it’s conceivable she could move the markets with her remarks.

--If the lifting of Iran’s sanctions eventually comes to pass (more below), consumers could get a huge break if the country is allowed to export oil again, with the extra volume depressing prices further. Iran has already said if it is allowed to export to previous levels, it would heavily discount its crude in order to win back traditional markets.   But as noted below, there are some in the U.S. Congress who are still hell bent on tightening, not softening, sanctions on Tehran.

--Russia’s Economy Ministry issued a dire report on the outlook for the nation over the coming two decades, warning the oil-fueled growth of the past is essentially over, with the ministry forecasting just 2.5% annual growth to 2030, well below the 7% average pace prior to the 2008 financial crisis and the 5% called for by President Vladimir Putin.

Putin has pledged ambitious spending programs on everything from defense to teachers’ salaries, but slower growth will not only severely crimp these plans, it will do a number on consumer spending.

--In seven years, Twitter went from a tiny upstart to a company with a valuation of around $25 billion after its first day of trading on the New York Stock Exchange, Thursday, as the shares, priced at $26, closed the day at $45 (after briefly hitting $50). [They closed the week at $41.65.] Twitter, which loses money and may not turn a profit until 2015, had a market cap larger than half the companies in the S&P 500 on its first day.  At $45, it also trades at 22 times estimated 2014 sales, compared with the 11 to 12 times that Facebook and LinkedIn trade at.

However, as opposed to the Facebook debacle its first day of trading 18 months ago, Twitter’s went off without a hitch.

--BlackBerry shares plunged on word the smartphone maker had abandoned a plan to sell itself to its biggest shareholder, Fairfax Financial Holdings. Instead, it intends to raise $1 billion in fresh capital, while CEO Thorsten Heins steps down. Former Sybase CEO John Chen will serve as interim chief executive.

Fairfax wasn’t able to raise the financing needed to complete a deal. The company lost $965 million in the second quarter and previously announced it was slashing the workforce by 40%.

--Shares in Tesla plunged to $138 at week’s end (from a Sept. 30 high of $194) following CEO Elon Musk’s announcement battery shortages were hampering production. On Tuesday, the company announced earnings for the third quarter that fell short of expectations, especially the ‘whisper’ numbers of even stronger performance.

Tesla said it sold 5,500 of its Model S cars during the period and is forecasting sales of 6,000 in the current quarter.

But then on Thursday, Tesla reported its third Model S fire in five weeks, this one in Tennessee, with a safety advocate telling Bloomberg the National Highway Traffic Safety Administration “absolutely has to investigate” the latest incident. Clarence Ditlow, executive director of the Center for Auto Safety, said, “It appears there’s inadequate shielding on the bottom of these vehicles.  Road debris is a known hazard to the undercarriage of vehicles.” The driver in the latest incident struck a tow hitch that damaged the undercarriage and caused the fire.

Bottom line, the company was ridiculously overvalued. It was a few weeks ago that a Bank of America analyst set a $40 price target. If the fires result in a recall, you could see this level far sooner than even the analyst expected.

--Billionaire Steven Cohen’s SAC Capital Advisors hedge fund firm agreed to plead guilty to a federal indictment and pay $1.8 billion. The firm was accused of fostering a culture of rampant insider trading, while operating a conspiracy going back to 1999.

Cohen wasn’t charged himself but still faces investigation by the Securities and Exchange Commission.

George Venizelos, head of the FBI’s New York office, said in a statement, “What SAC Capital’s plea demonstrates is that cheating and breaking the law were not only permitted but allowed to persist.”

Two upcoming insider-trading trials of managers at SAC will shed even further light on the hedge fund’s operations.

Manhattan U.S. Attorney Preet Bharara’s office has now charged at least 87 people with insider trading and won convictions or guilty pleas against 75, including the 11-year sentence handed to Raj Rajaratnam, the Galleon Group co-founder.

--Home prices in Australia continue to soar, up 7.6% for the year in October. But Sydney’s are up 11.4%.

--CBS Corp. reported strong earnings for the third quarter, with revenue up 11% compared with Q3 2012. The broadcast network and television studio generated 12% higher revenue, with network ad sales up 13%.

And CBS’ Simon &Schuster publishing house saw its revenue grow 7%, reflecting gains in digital book sales, which grew 39% during the quarter. Digital book sales overall now account for more than a quarter of the publisher’s sales. [Meg James / Los Angeles Times]

--Walt Disney Co. reported record fiscal year revenue and net income for the third year in a row, with revenue up 7% to $45 billion for the year ending Sept. 28, while net income rose 8% to $6.1 billion.

But Disney also reported it was delaying release of “Star Wars: Episode VII” – the first in a new series, until Dec. 2015, rather than the previously reported summer 2015, which means results of this promised blockbuster will fall in the 2016 fiscal year, not 2015.

--Domestic airfares dropped 3.6% in the April-June period, according to the U.S. Bureau of Transportation Statistics. But this figure does not include all the extra charges passengers are being hit up for, with an earlier study showing such passenger fees increased 20% in 2012 over 2011.

--The Food and Drug Administration is banning trans fats, once a staple of baked goods, microwave popcorn and fried foods. Specifically, the FDA will require the food industry to phase out artificial trans fats, but this is a gradual move and different foods may have different schedules, depending on how easily the industry can find substitutes.

Scientists have said trans fats raise levels of ‘bad’ cholesterol, increasing the risk of heart disease, the leading cause of death in the United States.

--Goldman Sachs reported its worst three-month stretch for trading in the third quarter since 2011. Traders posted losses on 15 days, the most since fourth quarter 2011, when the bank booked losses on 17 days. So this is one explanation for the previously reported 20% drop in revenue for the July to September time period.

[Separately, Goldman announced it was under investigation by regulators as part of a wide-ranging probe into potential manipulation of foreign-exchange rates, joining the likes of Barclays, Citigroup and JPMorgan Chase.]

--Vanguard’s Total Stock Market Index Fund surpassed the PIMCO Total Return Fund managed by Bill Gross to become the largest mutual fund as of the end of October, according to Morningstar. Vanguard closed the month at $287 billion in assets to PTR’s $247 billion. PIMCO had been number one since the financial crisis, but with rising interest rates, investors have pulled out $35 billion.

--Shares in Michael Kors soared after the luxury clothing and accessories retailer reported fiscal second-quarter net income that was well ahead of expectations. Same-store sales, a key metric, were up a whopping 23%. Overall revenue rose 39%.

--Kellogg is planning on cutting 7% of its global workforce by 2017. The cereal maker is suffering from competition such as from all the new yogurt products.

--AOL reported higher-than-expected third-quarter revenue on increased advertising sales, but earnings fell sharply owing to its disastrous Patch network of community news websites and costs related to deep cuts in the operation, with the Patch staff being cut by about half in recent months.

But strip Patch out and AOL is doing fine.

--Burger King is bringing back the Big King, only this time for good and not just on a limited basis. The Big King is virtually the same as McDonald’s Big Mac. At least it looks the same, but BK’s burgers are flame broiled, kids.

--McDonald’s same-store sales grew just 0.5% in October. In the U.S. they were up only 0.2%, but up 0.8% in Europe.

--More bad news for Atlantic City. New York voters approved a plan on Tuesday to allow up to seven private, non-Indian, casinos across the state. The first four will be upstate.

--Back to Twitter, in an Associated Press/CNBC poll released days before the IPO, one in 5 Americans said they have a Twitter account.

Nearly a quarter of Twitter account holders send tweets at least once a day.

Just 19% of respondents say they have a “favorable” view of Twitter, while 47% feel the same way about Facebook.

But now I’m formally launching on Twitter. See below.

Foreign Affairs

Iran: Talks between the P5+1 and Iran on Tehran’s nuclear program in Geneva have entered a third day, Saturday, and may yet yield the framework for an interim agreement that would require Iran to halt at least some enrichment activities in exchange for rolling back some of the existing sanctions, at least partially. It would be a first step towards a comprehensive final agreement, but there is going to be significant pushback from both the U.S. Congress and Israel, while some of our Middle East allies such as the Saudis are none too pleased either.

President Obama told NBC News on Thursday that his goal was to ensure Iran begins to dismantle its nuclear program and that the international community can verify “that they are not developing nuclear weapons, that their nuclear energy program is peaceful. And frankly because of actions in the past, the world doesn’t trust them on that.” The president added that a diplomatic solution is “greatly preferable to us ratcheting up that conflict higher and higher, which ultimately might lead to some sort of [military] confrontation.” [Paul Richter / Los Angeles Times]

Any agreement would lay out a step by step process, with a possible schedule for completion of negotiations.

Iran’s top negotiator, Abbas Araqchi, told Iranian state television, “(The six powers...the U.S., Britain, France, China, Russia and Germany) have accepted Iran’s proposed agreement.”

But Iran will retain some enrichment capability and Israeli Prime Minister Benjamin Netanyahu said recently that because of Iran’s new centrifuges, there is little difference in going from 3.5% enriched uranium to 90% weapons-grade material, as opposed to the standard discussion of 20% to 90%, Iran already having enough 20% enriched uranium that could in weeks be enriched to the critical 90% level. U.S. Senator Robert Menendez (D-N.J.), chairman of the Foreign Relations Committee, is also leery of accepting the 3.5% threshold given Iran’s centrifuge advances.

Upon hearing of a potential deal this week, Netanyahu said the six powers were on the brink of a “mistake of historic proportions.”

Then on Friday, as the outline of a deal began to take shape, Netanyahu told reporters:

“I understand the Iranians are walking around very satisfied in Geneva as well they should because they got everything and paid nothing.

“They wanted relief of sanctions after years of grueling sanctions, they got that. They paid nothing because they are not reducing in any way their nuclear enrichment capability. So Iran got the deal of the century and the international community got a bad deal.

“This is a very bad deal and Israel utterly rejects it. Israel isn’t obliged by this agreement and Israel will do everything it needs to do to defend itself and defend the security of its people.”

[Netanyahu added, “That is true also of our negotiations with the Palestinians.”]

Earlier, Supreme Leader Ayatollah Ali Khamenei tweeted that Israel was an “illegitimate and bastard regime." Netanyahu, before the tweet went out, said, “Iran is continuing to try and arm itself with nuclear weapons; it has not changed its goal...and it has not changed its ideology.”

But at the same time that Khamenei was blasting Israel, he also lashed out at criticism of the nuclear negotiating process by a number of Iranian hardliners.

“No one has the right to see our negotiating team as compromisers,” Khamenei said in comments published on his website. [Re my comments of last week on the Ayatollah’s health, as far as I know he still has not been seen in public in weeks.]

Lastly, I have harped on the issue of Iran’s Parchin military base.   A senior Iranian diplomat said this week that despite improved relations with the International Atomic Energy Agency, Iran is unlikely to grant IAEA auditors prompt access to Parchin, as reported by Deutsche Presse-Agentur and the Global Security Newswire.

Ray Takeyh / Washington Post

“If their diplomatic efforts are to succeed, Western powers would be wise to reject the nuclear alarmism that often surrounds this issue. The standard U.S. government assessment is that Iran is still a year away from getting the bomb. This year includes the time required to enrich uranium to weapons-grade and to assemble a nuclear device. But this timeline requires Iran to divert material from safeguarded facilities, an action that would quickly be detected by the International Atomic Energy Agency and that probably would provoke an international reaction. Accordingly, there is nothing magical about 2014. Time is on the side of the United States, not Iran – where economic conditions are worsening by the day.

“Another issue that has paradoxically redounded to U.S. advantage was Rohani’s trip to the U.N. General Assembly. Both U.S. and Iranian officials unwisely raised expectations in September and fed a media narrative of an imminent historic breakthrough between two old nemeses. Such raised expectations work to the disadvantage of Iran rather than the United States. Suddenly, the hard-pressed Iranian public has come to expect imminent financial relief. Should the negotiations not yield an accord in a timely manner, it is (Supreme Leader Ali) Khamenei, not President Obama, who would face a popular backlash. A disenfranchised and dispossessed population is an explosive political problem for Khamenei. The Western powers should not be afraid to suspend negotiations or walk away, should the Iranians prove intransigent. Ironically, stalemated negotiations are likely to pressure Iran into offering more concessions.”

But for now negotiations proceed.

Syria: U.N. humanitarian chief Valerie Amos said 9.3 million people in Syria – 40% of the population, needs outside assistance, up 2.5 million since the U.N.’s last report on the topic in September. Ms. Amos told the U.N. Security Council, the Syrian crisis “continues to deteriorate rapidly and inexorably.” [BBC News]

The World Health Organization has confirmed at least 10 cases of polio among babies and toddlers in eastern Syria and a mass immunization program is under way in both Syria and neighboring Lebanon, but many people are on the move. Both the Syrian government and rebel groups blame each other for aid not reaching areas under siege.

Meanwhile, Syrian National Coalition President Ahmad al-Jarba told an emergency Arab League meeting in Cairo that the opposition would not attend proposed peace talks in Geneva unless there was a clear timeframe for President Bashar Assad to leave power. There is also disagreement over whether Iran should be allowed to attend.

Regarding the refugee situation, one in four of Lebanon’s population is said to be Syrian these days, one million-plus having fled into the country.

As for the dismantling of Syria’s chemical weapons program, a U.S. official, speaking to Reuters on condition of anonymity, said, “There are indications the Syrians may be intending to hold some of their stockpile in reserve.” U.S. ambassador to the U.N., Samantha Power, also said the United States is skeptical about the Assad regime’s chemical arms declaration.

On Sunday, Turkey said it stopped vehicles trying to cross into it from Syria with potential chemical-weapons ingredients.

Israel: In talks with Secretary of State Kerry on Wednesday, Prime Minister Netanyahu said he was “concerned” about the negotiations with the Palestinians.

“I’m concerned about their progress, because I see the Palestinians continuing with incitement, continuing to create artificial crisis, continuing to avoid historic decisions that are needed to make a genuine peace.”

Netanyahu pointed to terms that the Palestinians, Israel and the U.S. agreed to three months ago that led to a resumption of the negotiations. Israel agreed to release 104 Palestinian terrorists as part of the deal to renew talks, but government officials said there was no agreement that Israel had to halt settlement construction, and that both the U.S. and the Palestinians knew construction would continue during the duration of the negotiations. Thus Netanyahu claims the Palestinians jump on each settlement announcement to create an “artificial crisis.”

As for the report from Swiss experts that tests on Yasser Arafat’s exhumed remains and possessions “moderately support the proposition (his) death was the consequence of poisoning with polonium—210,” a highly radioactive substance, I would hesitate to call this definitive. If he was poisoned, it doesn’t necessarily have to be the Israelis who carried it out, though Bloomberg’s Jeffrey Goldberg points to Ariel Sharon.

Egypt: The trial of former President Mohamed Morsi began and then the proceedings were adjourned until January, after repeated outbursts by Morsi and his co-defendants. Morsi was defiant: “This was a military coup. The leaders of the coup should be tried. A coup is treason and a crime.”

Two days later, the military government had its sweeping ban on the Muslim Brotherhood upheld by an Egyptian appeals court.

This week, Turkey reiterated Morsi should be reinstated.

Over 1,000 have been killed in violence since Morsi’s ouster and thousands of Islamists arrested.

As for the U.S. position, Sec. of State Kerry, in a quick visit to Cairo on Sunday, said, “The road map is being carried out to the best of our perception.” As the Washington Post opined:

“A liberal constitution and elections? ‘All of that is, in fact, moving down the road map in the direction that everybody has been hoping for.’

“What is it that Mr. Kerry doesn’t perceive? To judge that Egypt is headed toward democracy is to ignore the fact that its last elected leader and thousands of his supporters are now political prisoners facing, at best, blatantly unfair trials. It is to overlook the reality that opposition media have been shut down and that those that remain are more tightly controlled by the regime than they have been in decades. It skips over the rigging of the constitution by the military and that leading secular liberal politicians, such as former presidential candidates Mohamed ElBaradei and Ayman Nour, have been driven out of the country....

“The message seems clear enough: The Obama administration will accept and do business with the new autocracy that Gen. Sissi is constructing. If so, why not be honest about it? Mr. Kerry’s embrace of the regime’s empty promises of democracy only makes him appear foolish – or, perhaps, as cynical as the generals.”

Pakistan: Former President and military chief Pervez Musharraf was released from house arrest and is free to move about the country, though he cannot leave Pakistan. Musharraf may not actually leave his home, at least for a while, as he faces numerous threats to his life.

Meanwhile, following the killing of Taliban leader Hakimullah Mehsud last Friday, the Taliban have appointed Mullah Fazlullah to replace Mehsud, Fazlullah being a hardliner who was responsible for the attack on Malala, the Pakistani teenager.

Fazlullah is not exactly a man of peace, being best known for ordering beheadings and public beatings. He is also the fellow who loudly denounced polio vaccinations. May a drone promptly take his own head off. 

His accession certainly doesn’t help the peace process in Pakistan and Fazlullah has already ruled out talks with the government, vowing revenge for Mehsud’s death.

[I read numerous accounts on the CIA operation that took out Mehsud and it was really quite a technical achievement.]

On a different topic, BBC News reported on Wednesday that Saudi Arabia could quickly acquire nuclear warheads from Pakistan in return for its years of financial investment in the South Asian state.

If Riyadh senses Iran is rushing to build a weapon, the Kingdom could obtain a ready-made one from Islamabad. One expert, Gary Samore, said it’s likely Pakistan would deploy “its own troops armed with nuclear weapons and with delivery systems” into Saudi Arabia.

China: On the eve of a key Communist Party plenum, a series of coordinated explosions outside the provincial party headquarters in the northern city of Taiyuan killed one and injured eight, though it’s not known if this was some kind of formal terrorist attack or the kind of revenge incident fairly common to China. Regardless, China’s security minister was on edge as the top leaders gathered in Beijing. [Many details from this next time.]

Heavy air pollution continued to batter the eastern part of the country, including “severe” levels in Shanghai to the extent normally associated with Beijing. Students were told to avoid outdoor activities. Nothing authorities do to alleviate the problem, such as shutting small factories responsible for pollution, or restricting the number of cars on the road, has worked thus far.

And as reported by Amy Li of the South China Morning Post:

“According to a recently published infographic by Kantar Health, a U.S.-based healthcare consulting firm, non-small cell lung cancer, one of the most common cancers worldwide, now ranks top in China.

“Patients also have the lowest mean age – 38.9 years, as revealed by the data... In Japan, the mean age is 66.3 and in the U.S., 60.2.”

Separately, the South China Morning Post reported “An eight-year-old girl has become the mainland’s youngest lung cancer patient, with her illness blamed directly on environmental factors.” This is totally unheard of.

“In Beijing...deaths from lung cancer rose by 56% from 2001 to 2010.”

As Thomas L. Friedman wrote in his New York Times op-ed:

“While swapping notes on China’s latest ‘airpocalypse’...Hal Harvey, the American chief executive of Energy Innovation, who is working with China’s government to try to get its air quality back under control, asked a powerful question: ‘What if China meets every criteria of economic success except one: You can’t live there.’

“Indeed, what good is it having all those sparkling new buildings if you’re trapped inside them? What good is it if China’s rapid growth has enabled four million people in Beijing to own cars, but the traffic never moves? What good is it if China’s per capita incomes have risen to a level affording tens of millions of once-poor peasants diets rich in milk and meat, but they can’t trust the labels? What good is all that rising GDP, if there is no clear air to breathe?”

William Pesek / Bloomberg:

“China’s pollution bubble is no laughing matter, and tourists tell the story. Thanks to extreme air pollution, foreign arrivals plunged by roughly 50% in the first three-quarters of the year. Beijing could see even fewer visitors to the Forbidden City, the Great Wall and the famous square dominated by a painting of Mao Zedong thanks to images of acrid smog that have been beaming around the globe.”

Pesek argues China must immediately phase out the use of coal and transition to natural gas.

I’ve been writing for some time that this issue will one day result in the overthrow of the government. This shouldn’t seem so far-fetched to many of you as it may have sounded when I first wrote it.

One other...the smog is so bad it is severely impeding China’s security efforts, as in the cameras on virtually every major street and corner in the main cities can’t see through the fog.

On another matter, speaking from China (Hong Kong), Google Inc. Executive Chairman Eric Schmidt responded to reports the U.S. government was spying on the company’s data centers.

“It’s really outrageous that the National Security Agency was looking between the Google data centers, if that’s true. The steps that the organization was willing to do without good judgment to pursue its mission and potentially violate people’s privacy, it’s not OK,” he told the Wall Street Journal.

But in an interview with the South China Morning Post, Schmidt said Beijing needed to allow its people to think and speak freely if it wanted to grow.

Addressing the Chinese government’s recent “500 reposts” rule designed to tighten the government’s control of the Internet, Schmidt said:

“(The rule means) you will definitely think about it before you write. It’s a problem, (it) means your voice is not fully heard. My opinion is China wants to avoid the middle-income trap and in order to avoid that, they have to develop the openness, free speech, and the reason is in order to get there, you should have the debates about everything.”

The middle-income trap refers to what happens when a country moves from low income to middle income, but then finds it difficult to move further to the high-income rank. Some say this is what is happening in Brazil today, with massive social upheaval.

Schmidt listed three serious problems that China was facing.

“The first problem you have is a demographic one – not enough young people and too many old people. The ‘one child’ policy is a terrible mistake. We want more Chinese people not fewer. You need to stop it now. You should have stopped it 10 years ago. In 20 years, the demographic (problem) in China will be more terrible – a very large number of old people, no social security, no good healthcare. You need more young people.”

The other two problems were globalization and automation as others in the region, such as Indonesia and Vietnam, replace China’s role as the world’s factory over the next 10 to 20 years.

Regarding automation, Schmidt comments: “More and more factories will have fewer and fewer people as robots are going to get smarter. Robots can work 24 hours a day and you can’t do that to a human.”

India: Editorial / London Times

“India is a nation in which a third of the population has no electricity and half the people have no private lavatory. Every year 1.7 million Indian children die from preventable diseases and half the children who live suffer from malnutrition. It needs many things but it is not obvious that a mission to Mars is one of them.”

But this week the Indian Space Research Organization launched a rocket whose mission is to explore the Red Planet.

Germany: Back in early 2011, German authorities seized 1,400 pieces of art, including from the likes of Picasso and Renoir, as well as previously unknown paintings by artists such as Henri Matisse, after obtaining a warrant to search the apartment of Cornelius Gurlitt, 80 and the son of a well-known Nazi-era art dealer.

Gurlitt got in trouble with the law in 2010 when he was found traveling by train from Zurich to Munich with a large amount of undeclared cash. He is being investigated for tax evasion but his whereabouts are currently unknown to prosecutors.

The works discovered include 121 framed and 1,285 unframed works. They were professionally stored and in good condition. Estimates of their worth range up to $1.3 billion.

But why did the Germans keep this secret until this week, and why won’t they now put the find online? Instead, they have released grainy photos of just a few of the works.

Jewish groups in Germany are among those demanding authorities locate the owners of the paintings. But the head of the local prosecutor’s office said he will not publish the works online because he doesn’t want to be inundated with claims.

The U.S. State Department is also calling on Germany to return the art to their rightful owners, but under German law there doesn’t appear to be an obligation to do so. You can imagine how complicated it would be to prove right of ownership after so many years. And you have a 30-year statute of limitations on the books.

On the NSA / spy issue...the German government is looking into questioning Edward Snowden in Russia as part of its fact-gathering mission. Snowden has said he is willing to help Germany following revelations, through documents he provided, that Chancellor Angela Merkel’s phone was tapped.

Secretary of State John Kerry warned against Snowden being granted asylum, as he himself apparently wants, and called for his extradition.

While Germany has toned down the rhetoric a bit after the initial outrage, there is no doubt the relationship between Merkel and President Obama has been harmed in a big way, while Germany wants to link the proposed EU-US free trade pact to tough data protection, much to the chagrin of Brussels, which believes introducing privacy rules into the discussions could delay or even derail negotiations.

Staying on the topic of the NSA, France’s former top intelligence official Bernard Squarcini scolded French officials who railed at a report that the NSA was scooping up phone calls in his country.

“I am amazed by such disconcerting naivete,” he told Le Figaro. ‘The French intelligence services know full well that all countries, whether or not they are allies in the fight against terrorism, spy on each other all the time.” [TIME]

Congo: Out of nowhere, the rebels announced on Tuesday they were laying down their arms, ending a conflict that lasted for years and claimed untold lives. It was a combination of diplomatic pressure on Rwanda, which was accused of funding the rebels, and a reenergized Congolese military and U.N. force, the latter being given orders to go on the offensive rather than sit back, as had been its history here, that finally got the job done.

Philippines: As I go to post, no detailed reports as yet on the destruction left by Typhoon Haiyan, the strongest storm on Earth in at least three decades.

Canada: Toronto Mayor Rob Ford finally confessed to smoking crack cocaine after police presented a video that showed him doing so. Then another video emerged, showing Ford making threats to commit “first-degree murder” against an unknown person, with Ford telling reporters he had been “extremely inebriated” in the clip.

Ford still insists, as of this writing, that he’ll run for reelection in 2014. It’s also rumored he may enter rehab. He cannot be legally removed unless he is convicted of a crime.

Random Musings

--Republicans are more divided than ever following Tuesday’s gubernatorial votes in Virginia and New Jersey.    In the former, Democrat Terry McAuliffe was favored by as many as 12 points in the polls heading into the election against Republican Ken Cuccinelli, but McAuliffe, who had the big backing of his friends, Bill and Hillary Clinton, prevailed only 48.0 to 45.5 percent.   Many of Cuccinelli’s supporters immediately blamed the national Republican Party for not supporting Cuccinelli down the stretch, Cuccinelli having adopted many Tea Party issues.

Clearly the issue of ObamaCare tightened the race in the closing days as Cuccinelli hammered away at it. But the Republican National Committee only gave the candidate one-third as much as it had to Robert McDonnell’s successful campaign four years earlier. The U.S. Chamber of Commerce, which gave McDonnell $1 million, gave Cuccinelli nothing. [Washington Post]

In 2012, the RNC warned Republicans could not win elections without being inclusive and the business-oriented Republican establishment is saying “I told you so.”

--Conversely, some Democratic leaders are expressing regret they didn’t support Chris Christie’s opponent, State Sen. Barbara Buono, with more funding in order to knock Christie’s vote margin down. Christie received the 60% he was looking for (and which I’ve been emphasizing since day one of the race) as he took out Buono 60.5 to 38.0 percent. In a heavily Democratic state, to say the least it was impressive.  Christie also won 51% of the Hispanic vote, according to exit polls, and 21% of African-Americans. A national Republican candidate taking 35% of the Hispanic vote (and perhaps 12% to 15% of the black vote) would likely romp in 2016.

Utah Republican Sen. Orrin Hatch said of Christie’s performance, “You’ve gotta say that this fella is really on the right track, if the Republican Party is not too stupid.”

And Hatch also mentioned a potential running mate for Christie, New Mexico Gov. Susana Martinez. I don’t disagree, Martinez having also been just one of two outsiders to campaign with Christie in my state, the other being Rudy Giuliani.

One interesting sidebar...in exit polls, New Jerseyans were asked about a hypothetical race between Christie and Hillary Clinton and Hillary prevailed 48-44, but again, New Jersey is a predominantly Democratic state. [Obama defeated Romney here 58-41.]

[For the record, as I analyze polls, the final Monmouth survey had Christie leading 57-37, while a Rutgers Eagleton poll put it 66-30. Bad job, Rutgers. Monmouth University also did the best job in last month’s Cory Booker senate race...with the last poll calling it 52-42 and it ended up 55-44. Rutgers-Eagleton did a terrible job in the Booker-Lonegan race, too, as I noted in my 10/19 WIR. They had it 58-36 in their last poll. 200 years from now, some historian will appreciate this detail, typed the editor with a smile.]

--John Podhoretz / New York Post

“The political world says the GOP is divided between those who believe in fighting Democrats where possible (the Establishment) and those who believe in a kind of rolling revolution against the corruptions and seductions of Washington as a whole at all times (the Tea Party).

“What medicine does the Establishment need to take?

“The answer was on display right across the river from Washington – in Virginia.

“The Republican candidate for governor was the Tea Party favorite who leapfrogged over the more Establishment. And he proved to be a lousy choice, so clumsy on his feet that he went from 10 points up to 10 points down in a couple of months.

“Sometime late in the summer, big donors and others who’d wasted tens of millions on other lousy Tea Party candidates in 2012 decided to save their money.

“Then something happened two weeks before Election Day: the ObamaCare debacle.

“The lousy candidate didn’t get much better, but by fixing on ObamaCare, he closed the gap with his rival somewhere between 5 and 10 points in two weeks and lost by 2.5 percent.

“The Establishment had washed their hands of the guy. It shouldn’t have. It was clear in the middle of last week that something was changing fast in Virginia.

“A major infusion of dollars and enthusiasm over the final weekend – the bad GOPer was outspent 4-1 in the final seven days – might not have made up 60,000 votes. Then again, it might have. And money has been thrown away on a lot less.

“By staying on the sidelines, the Establishment will be and should be haunted by the possibility that it was responsible for the loss of a race that could have been won in a key swing state.”

As for the lesson of New Jersey, Podhoretz observes:

“Many Tea Partiers are still mad at Christie for standing with President Obama during Hurricane Sandy, and so they’ve decided against all evidence that this pro-life, low-tax, anti-teachers-union tough guy is a ‘Republican In Name Only,’ no better than a liberal.

“Viewing reality through such a distorted prism will make it difficult, if not impossible, for Tea Partiers to derive the right lessons from Christie’s staggering 22-point victory in an Obama-loving state on Tuesday night.

“Which is to say: It’s not enough for a politician to hold views you like. The pol has to be able to talk to people other than you and make them feel good, too.

“So the Establishment needs to improve its game. And the Tea Party needs to mature beyond its emotionally driven politics.”

--Michael Gerson / Washington Post

“The disintermediation of American politics is undeniable. The Internet allows people to find the like-minded, feed the intensity of their mutually held convictions and organize more swiftly and effectively. (It also allows people to filter out opposing views, anonymously attack their opponents and spread conspiracy theories.) This has become a powerful channel of influence outside the political parties – and is increasingly directed against the Republican Party. The Ron Paul and the tea party movements have prospered in this atmosphere. Policy entrepreneurs, political advisers and media personalities are monetizing this trend. In the tech-driven balkanization of American politics, Freedonia is a major power.

“But the interests of Freedonia are substantially different from those of the Republican Party. Tea party candidates – recall Sharron Angle, Christine O’Donnell, Richard Mourdock and Todd Akin – often lose winnable races. Tea party primary challenges, and the fear of them, encourage a harsher ideological tone among sitting Republican legislators, undermining their general-election appeal to independents, minorities and young people. And maximal tea party legislative strategies, as we’ve just seen, can be ruinous. Yet within an ideological bubble, success is defined differently – in purity, combativeness and the acclaim of the faithful. As the public standing of the GOP recently reached its lowest point ever, Sen. Ted Cruz told a cheering tea party audience, ‘Look, the Democrats are feeling the heat.’ It is one thing to engage in Pickett’s Charge; another to describe it as a victory.”

--Stephen Moore / Wall Street Journal

“This us-against-the-world mentality turns off many people regarding the tea party and may prevent it from gaining enough traction with a big tent of voters to realize its goals. Conservative pollster Whit Ayres says of the tea party, ‘I wish they would remember the Reagan rule; if someone is with me 70% of the time in politics, they are my friend.’

“Not the tea party.  If you’re 30% not with them, that can be a real deal breaker....

“(The) GOP is headed for an internal brawl in 2014, and perhaps beyond. In the recent debt-ceiling wrangle, the tea party seems not to have realized where that fight would lead. Before letting the clash with establishment Republicans escalate into all-out war, the tea party should step back and consider an uncomfortable fact. In the end, only one person will win that war. Her name is Hillary Clinton.”

[Last weekend in Iowa, New York Sen. Chuck Schumer told a crowd at the annual Jefferson-Jackson Day dinner in Des Moines, “It’s time for a woman to be president...Run, Hillary, run!”]

--From the new book about the 2012 campaign, “Double Down,” by Mark Halperin and John Heilemann, we learn that at one point Bill Clinton said of President Obama, “he’s luckier than a dog with two d----.” Friends told the authors Clinton made the dirty canine quip “again and again.”

But turnabout is fair play. After a golf game in 2011 with Clinton, according to the book, Obama told an aide: “I like him...in doses.”

--Marc A. Thiessen / Washington Post

“The Wall Street Journal broke the news this weekend that, even as President Obama was telling the American people they could keep their health plans, ‘some White House policy advisors objected to the breadth of Mr. Obama’s ‘keep your plan’ promise. They were overruled by political aides.’...

“Every president faces the challenge of explaining complex policies in simple terms. But the quest for simplicity is no excuse for dishonesty.

“Obama’s own advisers told the Journal that they knew those 16 words were untrue, but Obama kept on saying them – over and over and over again.

“If that’s the case, then Obama didn’t misspeak.

“He lied.”

--Andrew Kohut (of the Pew Research Center) / Wall Street Journal

“Tucked away in recent polls – which have documented the extraordinary anger directed at the Republican Party during the shutdown crisis – are measures of clear disappointment with the Democratic Party. The disappointment is substantial, and it raises big questions about the 2014 midterms.

“The Republican Party’s favorable ratings fell substantially in most every national survey that uses this yard stick, declining to 28% in the Gallup poll at one point.  Yet when the GOP was matched up against the Democrats on key political measures, it did not look so bad.

“A mid-October Pew Research national poll found that a plurality regard the Republicans as ‘better able to deal with the economy’ than the Democrats (44%-37%). Independents favored the GOP on the economy by a whopping 46%-30% margin in that survey.”

And of course independents decide most elections.

--In New York City, Democrat Bill de Blasio steamrollered his Republican opponent, Joe Lhota, 73-24 percent. Goodness gracious. [No issue with polls in this one...they all consistently had a 40-point margin throughout.] 

De Blasio promises to undo much of what 3-term Mayor Michael Bloomberg accomplished. His first big decision is who to replace Police Commissioner Ray Kelly with. Hopefully it’s Bill Bratton; he of the towering ego but solid track record, including in New York.

[A story in Sunday’s New York Post by Brad Hamilton points out that through Oct. 31, the Big Apple had 279 homicides, down 23% from the 364 in the same 10-month period last year. Which means the city is on pace for about 100 fewer than last year’s 419, which was the lowest recorded since 1962, when police began keeping reliable records. The all-time high was 2,245 in 1990...think crack era. I chose domestic that year. And still do over crack or heroin.]

--As noted last week, the plagiarism calls against Kentucky Republican Sen. Rand Paul were just starting and there were more revelations the past few days about his lifting passages without attribution for his speeches. Larry Sabato, director of the University of Virginia’s Center for Politics, told the (Louisville, Ky.) Courier-Journal’s James R. Carroll that “If (Paul) were at my school, he would have been expelled because of the honor code.”

Paul told CNN, “Ultimately, I’m the boss, and things go out under my name, so it is my fault. I never had intentionally presented anyone’s ideas as my own.”

Kevin Madden, an advisor to Mitt Romney during the 2012 campaign, said, “If anything, it’s Example A of how much greater is the scrutiny that you get when you become a national candidate....He’s going to see more and more of it.”

I don’t think this hurts Paul that much. As Sabato remarked, it’s not like this is occurring in the midst of a primary campaign, either.

--CBS News was forced to apologize for an inaccurate report on “60 Minutes” the other week concerning the attack on the U.S. diplomatic post in Benghazi. A correction is being aired on Sunday’s program.

--Sign of the Apocalypse: “A German spa resort has apologized for advertising a ‘romantic Kristall Nacht evening’ on the 75th anniversary of the Night of Broken Glass, when at least 91 Jews were killed by Nazi thugs who attacked businesses, homes and synagogues.”

The owners of the Kristall Sauna-Wellnesspark Hotel often used its Kristall name in promotions, but acknowledged they got this one wrong.

--TIME had a story on the heroic rangers of Virunga National Park in Congo, where most of the remaining 800 gorillas on the planet survive. They set up an orphanage for those who lost their mothers to poaching or rebel fighters in the years-long war noted above.

But what I didn’t know is that 130 rangers have died defending Virunga since 1996. True heroes. 

--Clive Cookson / Financial Times

“Statistical analysis of observations by Kepler, NASA’s planet-hunting satellite, over three years suggests that 22 percent of stars have Earth-sized planets in the ‘Goldilocks zone’ that is neither too hot nor too cold for biological processes.

“ ‘What this means is, when you look up at the thousands of stars in the night sky, the nearest Sun-like star with an Earth-size planet in its habitable zone is probably only 12 light years away and can be seen with the naked eye. That is amazing,’ said Erik Petigura of the University of California, Berkeley.”

Estimates range from the possibility of 8 billion to 40 billion Earth-like planets in our galaxy.

--Happy 95th Birthday to Billy Graham. I watched his farewell video to the nation and was touched by it.

--Finally, it hasn’t been the best of times for America. But back in 1974, the great Johnny Cash penned the following during another time of trouble and turmoil....Watergate, the Vietnam War and veterans returning home, only to be ignored or abused. Thankfully, regarding this last bit we’ve learned our lesson.

Here’s to all who have served as we commemorate Veterans Day. 

Ragged Old Flag by Johnny Cash

I walked through a county courthouse square
On a park bench, an old man was sittin’ there.
I said, “Your old court house is kinda run down,”
He said, “Naw, it’ll do for our little town.”
I said, “Your old flag pole is leaned a little bit,
And that’s a ragged old flag you got hangin’ on it.”
He said, “Have a seat,” and I sat down,
“Is this the first time you’ve been to our little town?”
I said, “I think it is.”
He said, “I don’t like to brag, but we’re kinda proud of That Ragged Old Flag.

“You see, we got a little hole in that flag there,
When Washington took it across the Delaware.
And it got powder burned the night Francis Scott Key sat watching it,
writing ‘Say Can You See.’
It got a rip in New Orleans, with Packingham & Jackson
tugging at its seams.
And it almost fell at the Alamo
beside the Texas flag,
but she waved on though.
She got cut with a sword at Chancellorsville,
And she got cut again at Shiloh Hill.
There was Robert E. Lee and Beauregard and Bragg,
And the south wind blew hard on
That Ragged Old Flag.

“On Flanders Field in World War I,
She got a big hole from a Bertha Gun,
She turned blood red in World War II,
She hung limp, and low, a time or two,
She was in Korea, Vietnam, she went where she was sent by her Uncle Sam.
She waved from our ships upon the briny foam
and now they’ve about quit wavin’ back here at home,
In her own good land here she’s been abused,
She’s been burned, dishonored, denied an’ refused,
And the government for which she stands
Has been scandalized throughout the land.
And she’s getting thread bare, and she’s wearin’ thin,
But she’s in good shape, for the shape she’s in.
Cause she’s been through the fire before
and I believe she can take a whole lot more.

“So we raise her up every morning,
And we bring her down slow every night,
We don’t let her touch the ground,
And we fold her up right.
On second thought,
I do like to brag
Cause I’m mighty proud of
That Ragged Old Flag.”

---

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

God bless America.
---

Gold closed at $1289
Oil, $94.35

Returns for the week 11/4-11/8

Dow Jones +0.9% [15761]
S&P 500 +0.5% [1770]
S&P MidCap -0.4%
Russell 2000 +0.4%
Nasdaq -0.1% [3919]

Returns for the period 1/1/13-11/8/13

Dow Jones +20.3%
S&P 500 +24.1%
S&P MidCap +26.0%
Russell 2000 +29.5%
Nasdaq +29.8%

Bulls 55.2
Bears 15.6 [Source: Investors Intelligence...gap gets wider.]

Have a great week. I appreciate your support.

And now you can catch me on Twitter. Search @stocksandnews. Or go to twitter.com/stocksandnews. Be the fifth or sixth follower! Really. I told you I literally just rolled it out. [We’ve hidden it a few weeks.] But I am now committed.

Brian Trumbore



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-11/09/2013-      
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Week in Review

11/09/2013

For the week 11/4-11/8

[Posted 11:00 PM ET, Friday]

Washington and Wall Street

In September, I was in a distinct minority (like literally a handful) that said the Federal Reserve would not begin to taper its $85 billion a month bond-buying program because the economic data was too weak. I started talking about this in mid-August and I ended up being right.

Now, after we’ve seen some admittedly hard-to-decipher employment reports, post-government shutdown, for September and October that on the surface are decent, plus strong ISM data on manufacturing and the service sector (including the recent Chicago Purchasing Managers survey) that have been outright giddy, I’ll say the Fed does begin to taper at its Dec. 17-18 meeting. The only things that would change my mind are if November’s jobs report, released Dec. 6, is incredibly putrid, and if by the Dec. 13 deadline, Republicans and Democrats haven’t reached a budget compromise, the expected “small deal.” The latter would be a game-changer for the Fed and it couldn’t possibly act then with renewed uncertainty concerning shutdowns and debt ceiling deadlines.

But now that I’ve laid out my stance, let’s take a look at Friday’s jobs report for October, release of which was delayed a week. The Labor Department said U.S. payrolls grew by 204,000, far better than expected, though the unemployment rate ticked up to 7.3% from 7.2%, owing, we are told, to the employees who were furloughed during the shutdown. The Labor Department said that without the furloughs, the unemployment rate would have been 7.0%.

The jobs figures for August and September were revised upwards to 238,000 and 163,000, respectively, with the three-month average now 200,000 and a six-month average job gain of 163,000.

None of this is great, especially for this phase in the recovery, and the labor participation rate dropped to 62.8 (lowest since 1978) as 720,000 largely gave up looking, but for some time now we have seen progress on the labor front, albeit of the halting variety.

But there was some other solid news. The first reading on third quarter GDP came in at 2.8% when 2.0% was expected. Granted, 0.8 of this was attributable to a one-time inventory buildup, so you strip that out and there’s your 2.0%. It is, though, still a better headline number, better than the second quarter’s annualized 2.5% and the first’s 1.1%. Growth is expected to be in the 2.0% to 2.5% range in the current quarter, even with the 16-day October disruption.

Yes, consumption growth remains weak, but all-in-all, the data is far from awful. We’re just living in a 2% environment and we’re learning to get used to it. Certainly the markets love it.

So the Fed will begin tapering in December, says your editor, but if you’re thinking the members of the Open Market Committee are contemplating actually raising the short-term funds rate off zero, well they’ve already told us, not until 2015, or later. And now the Fed governors are analyzing an internal research report that says interest rates shouldn’t be hiked until the unemployment rate falls to as low as 5.5%. Currently, the Fed’s rough benchmark is if the jobless rate hits 6.5%, and inflation doesn’t exceed 2.5%, they’d finally act.

The Fed doesn’t have to adopt this policy, but you may see a comment or two pertaining to the research following the December gathering.

On to ObamaCare....

“Watching the Obama administration at work this week, a friend offered this judgment: Under Obama, Iran keeps its nuclear program and Americans lose their health insurance.”

--William Kristol / The Weekly Standard

I discuss the latest on Iran below.

As for the topic of ObamaCare, here are some basic truths. The whole concept was supposed to be about choice and competition. The fact is in many states there is little choice, such as 2 insurers to choose from in Alabama, 2 in Mississippi, 1 in West Virginia, 1 in New Hampshire. [From a CNN report I saw about ten days ago.] Ergo, not a lot of competition.

I told you in early October how my own Summit Medical Group (a much bigger practice than it sounds) refuses to take any ObamaCare patients until they see how everything shakes out. Bottom line, they want their doctors to be paid. I don’t blame them one bit. 

June 15, 2009...President Obama to the American Medical Association as the health care bill was being written.

“That means that no matter how we reform health care, we will keep this promise to the American people: If you like your doctor, you will be able to keep your doctor, period. If you like your health care plan, you’ll be able to keep your health care plan, period. No one will take it away, no matter what.”

Of course we all know that there are at least 23 other such statements, either prior to this key presentation or after.

Then the website, HealthCare.gov, didn’t function on its October 1 launch date. Six people across the country were able to sign up the first day off the exchanges listed. Less than 250, nationwide, a day later.

I tried going online myself around Oct. 7 and as I told you at the time was waylaid by the security questions issue. I waited until this past Monday morning to test it again.

I actually zipped through the security questions this time, thinking I’d finally get to see what was offered (I’ve told you I’m satisfied with my existing plan and I think I’ll be able to keep it come renewal time) but then the Social Security # screen popped up and no way am I giving that information, at least not now. But this did show me there is now information for the hackers to steal as more and more get through to this step and beyond.

Sec. of Health and Human Services, Kathleen Sebelius, was asked specifically about the Social Security data at a Senate hearing this week and she said it wasn’t being saved, that it was being “pinged off” to the IRS and others using it to verify your identity, subsidies eligibility, etc. I see zero reason to believe her, which is why Consumer Reports still had the best advice. If you can, stay off the website for another few weeks, at least.

After all, Democratic Senator Tom Harkin, as liberal and as much of an Obama supporter as they come, said the other day he is “most concerned about security and giving up Social Security #s.”

One other sidebar, the ‘super’ in my building, Luis, has become a friend over the years. He’s from Ecuador and his boss, the building owner, refuses to give him insurance, which to me is almost criminal given the hard labor the guy does.

Anyway, I got some information together for Luis, seeing as he’s the perfect candidate for ObamaCare, and he started calling the navigators who replied, check back with us in a few weeks.

So I wanted to get the above down for the archives, to fill in a few gaps from my recent, post-launch commentary, as prelude to this week’s apology by the president.

In an interview with NBC News’ Chuck Todd, Obama, addressing the topic of those who are losing their health insurance despite his repeated promises they would not, said:

“I am sorry that they, you know, are finding themselves in this situation, based on assurances they got from me. We’ve got to work hard to make sure that they know we hear them and that we’re going to do everything we can to deal with folks who find themselves in a tough position as a consequence of this.”

The president said he had his staff looking into administrative fixes.

“I’ve assigned my team to see what we can do to close some of the holes and gaps in the law,” he said, “because, you know, my intention is to lift up and make sure the insurance that people buy is effective – that it’s actually going to deliver what they think they’re purchasing.”

Obama defended the law in the interview, saying many of those being canceled were in “subpar plans” and would probably benefit from new options.

“The majority of folks will end up being better off, of course. Because the Web site’s not working right, they don’t necessarily know it right” now, he said. “Keep in mind that most of the folks who...got these cancellation letters, they’ll be able to get better care at the same cost or cheaper in these new marketplaces.”

You mean those marketplaces with all the competition, Mr. President?

As the Washington Post’s Juliet Eilperin noted, “(Although) the president apologized for the fact that ‘we weren’t as clear as we needed to be in terms of the changes that were taking place,’ he only did so after Chuck Todd pressed him on the point."

Earlier in the week, the president kept muddling the issue. As Ms. Eilperin notes:

“In a speech in Boston on Wednesday, Obama said that letting people keep their plans ‘was part of the promise we made’ but that part of the law’s purpose is to help consumers upgrade their plans. On Monday night, he suggested that the promise really applied only to people who bought their plans before the health-care overhaul was enacted.”

Republican Senate Minority Leader Mitch McConnell (Ky.) said of the president’s Thursday interview:

“If the president is truly sorry for breaking his promises to the American people, he’ll do more than just issue a half-hearted apology on TV. A great place to start would be to support the [Wisconsin GOP Sen. Ron] Johnson bill that would allow Americans to do what the president promised in the first place: keep the plan they have and like.”

House Speaker John Boehner (R-Oh.) echoed McConnell, saying in a statement that “an apology is certainly in order, but what Americans want to hear is that the president is going to keep his promise.” [Bloomberg]

Both the House and Senate are taking up bills next week that would allow individuals to keep their plans even if the coverage failed to meet the health-law’s standards, but the insurance companies are already changing the plans or dropping them.

Back to Obama:

“When you try to do something big like make our health-care system better, there are going to be problems along the way. I hope that people will look at the end product.”

Needless to say, Democratic senators up for re-election in 2014 are more than a bit concerned about their prospects after this debacle.

Charles Krauthammer / Washington Post

“ObamaCare proponents who live in the real world might admit that they intended to cancel people’s individual plans all along because kicking people off individual policies is at the heart of populating the health exchanges. You must cancel the good, less frilly plans because forcing these people into more expensive plans (that they don’t need) produces the inflated rates that subsidize the health care of others.

“The more honest ObamaCare advocates are, in effect, admitting that to make this omelet you have to break 8 million eggs – roughly the number of people with individual plans who are expected to lose them. Obama, however, goes on as if he can conjure omelets out of thin air.

“This rather bizarre belief in the unlimited power of the speech arises from Obama’s biography. Isn’t that how he rose? Words. It’s not as if he built a company, an enterprise, an institution. He built one thing – his own persona. By persuasion. One great speech in 2004 propels him to the presidential level. More great speeches and he wins the White House.

“But then comes governance.”

Daniel Henninger / Wall Street Journal

“The cruise ship called the USS Obama has hit the rocks. It won’t sink, but the captain never expected to be taking on this much water. The insertion of ObamaCare into American life was supposed to be a breezy, second-term victory lap. It isn’t.

“Gallup has the president’s approval rating down to 40%. Ken Cuccinelli almost won Virginia’s governorship pummeling ObamaCare.

“The Affordable Care Act is in such disrepair that the heads of the Senate and House intelligence committees, Dianne Feinstein of California and Mike Rogers of Michigan, said Sunday it should be taken offline so the software techs can safely approach the cooling towers.

“The daily TV comedian poll has been brutal, teeing up ObamaCare like a day at the driving range.

“All presidencies pass through some crucible. What is striking about the Obama trial by ordeal is how little genuine support Mr. Obama is receiving from his side or the public. The normal operational phrase under these circumstances is ‘circle the wagons.’ If so, what does one call the spectacle of New York Senator Chuck Schumer seizing the moment to nominate Hillary Clinton for president? Ouch....

“National politics today operates in an atmosphere of antipathy and mistrust. Mr. Obama has contributed to that mood. It’s hard to overstate the intensity of political division in the U.S. now. From Congress to Main Street, the two sides just don’t like each other. And that’s in no small part because the president, in speech after speech, gave voters reasons to dislike each other. Little wonder that the public mood is that the ObamaCare train wreck is his problem.

“Barack Obama may yet survive this ordeal, and he can still roll out his personal enforcement hammers at Justice, EPA and Labor. But it’s becoming difficult to see how this American presidency will achieve historic stature in its last three years.”

And come January 2017, as we watch Michelle and Barack board Marine One for a final time, we’ll be looking back at the eight years of the Obama presidency and muse, ‘What was that all about?’

Europe and Asia

While the eurozone’s purchasing managers index readings on manufacturing and the service sector came in at 51.3 and 51.6, respectively, for October (50 being the dividing line between growth and contraction), this is hardly emblematic of robust growth. European Central Bank President Mario Draghi has recently been warning that Europe’s recovery was not a done deal despite some better data points and this week he acted in surprising the financial markets by reducing the benchmark lending rate to 0.25%, joining Japan and the United States in setting interest rates close to zero.

What spooked the ECB was last week’s inflation data that showed consumer prices in the eurozone rose just 0.7% in October, the lowest since the depths of the global financial crisis and well under the ECB’s target of 2%. We learned this week that prices in Ireland actually fell in October vs. a year ago.

While Draghi said outright deflation isn’t an immediate concern, he offered, “We may experience a prolonged period of low inflation.” As in too low.

After an encouraging rebound in the second quarter across much of the eurozone, the recent data has been less than robust and this week the European Commission lowered its GDP forecast for 2014 to 1.1% in the euro area. The main stumbling block is unacceptably high unemployment. Plus government debt levels are way too high in the likes of France (rising to 96% of GDP in 2015), Spain, Italy (134% in 2014), Greece (170%+ currently) and Cyprus.

Overall eurozone sovereign debt is projected to hit an all-time high of 96% next year.

The EC also said Spain is expected to grow only 0.5% in 2014 and that its government budget deficit would rise to 6.6% of GDP in 2015, well above the 3% target Spain is mandated to reach in 2016.

Or look at Italy. It will bring 65 billion euro in debt to market in 2014 just as domestic banks will be pulling back on their purchases. Italy’s banks are in the process of closing hundreds of branches and slashing 19,000 jobs in an effort to boost capital ahead of ECB-mandated stress tests. Sovereign debt holdings are already 10% of total bank assets and 22% of Italian government debt is held by the banks (it’s 39% in Spain). So you can see what needs to occur in 2014. Italy must find new domestic and foreign buyers for its paper.

[Separately, the Italian government says the economy will grow 1.1% in 2014...others say no way. Unemployment remains at a record high 12.5%, 40% on the youth front.]

In Greece, there was another general strike on Wednesday that shut the country down as the unions protest the ongoing austerity program. The troika (EC, ECB and IMF) held a meeting in Athens, seeking more austerity before dolling out the next installment of Greece’s bailout funding, but the Greek government said ‘no more.’

In France, the October PMI on manufacturing was just 49.1, down from 49.8 in September and the 20th consecutive month of contraction.

But then Standard & Poor’s, which was the first ratings agency to strip France of its “AAA” status in January 2012, took France down another notch to “AA” from AA+. While this did not have a major impact on the currency or bond markets in the eurozone, S&P’s accompanying statement uttered some harsh truths about the second-largest economy in the euro area.

“The downgrade reflects our view that the French government’s current approach to budgetary and structural reforms to taxation, as well as to product, services, and labor markets, is unlikely to substantially raise France’s medium-term growth prospects.

“Moreover, we see France’s fiscal flexibility as constrained by successive governments’ moves to increase already-high tax levels, and what we see as the government’s inability to significantly reduce total government spending.”

It didn’t help that France’s industrial output also fell in September by 0.5% from the previous month. Add it all up and French President Francois Hollande is facing major heat, witness his record low approval ratings.

Regarding Germany, two weeks ago the U.S. Treasury Department criticized Germany’s huge trade surplus, which the U.S. wants Berlin to reduce because it is hindering Europe’s recovery. The Merkel government rejected such criticism as “incomprehensible.”

The Washington Post editorialized the other day:

“It’s anything but. As the Treasury report explained: ‘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.’ In other words, the problem in Europe is not only German-prescribed austerity in Spain, Italy and the rest, but also German-prescribed austerity in Germany.”

But there is some good news and once again it comes from the U.K. An industry group there early in the week raised its GDP forecast to 2.4% for next year, while the European Commission projects 2.2% growth in 2014, saying the outlook has “improved substantially.” U.K. home prices also rose to a record last month. [Contrast this with Spain, where they probably have another 20% of downside.]

Lastly, there was a disturbing drive-by shooting in Athens that claimed the lives of two guards at anti-immigrant Golden Dawn’s party headquarters, which augurs revenge attacks.

And there was an unsettling survey by the EU’s Fundamental Rights Agency, a Vienna-based organization that monitors discrimination and other violations of basic rights across the bloc.

In a survey of nearly 6,000 Jews living in France, Belgium, Germany, Sweden, Hungary, Italy, Britain and Latvia (these eight being home to 90% of the EU’s Jewish population), 66% who responded considered anti-Semitism to be a problem. 76% believed it had increased over the past five years.

Further, 29% of those surveyed had considered emigrating because of safety concerns, with high numbers recorded in Hungary (48%) and France (46%).

Turning to China, as Communist Party leaders gathered in Beijing for a major plenum, where we may learn where President Xi Jinping and Premier Li Keqiang hope to take the country and what kind of economic reform agenda they have in mind (true political reform would be asking too much), a reading on China’s service sector came in at a solid 56.3 in October vs. 55.4 in September, while October exports rose 5.6% from a year earlier, reversing September’s slide. Imports rose 7.6%. All of this good news.

But when it comes to China’s property market, nothing the government does has slowed down the bubble.

From Reuters and the South China Morning Post:

“Homes in cities such as Beijing are more expensive by some measures than Britain or Japan, a dismal outcome for a central government campaign aimed at making homes more affordable to Chinese. House prices in September rose nationwide at their fastest pace in three years.

“ ‘The starting point of local governments is to keep land prices relatively high,’ said Zou Xiaoyun, deputy chief engineer at China Land Surveying and Planning Institute, a research unit affiliated to the land ministry. ‘Governments are not willing to see home prices fall.’

“Selling land is a major source of income for local governments but other factors drive up prices as well. These include natural demand from a rising population, and speculation fueled by ready cash, given relatively few alternatives for investment....

“To be sure, the central government faces a dilemma. Rising discontent over house prices is a threat to the social and economic stability the Communist Party uses as justification for its one-party rule.

“But the real estate sector is also a major economic driver, supporting some 40 other industries and generating about 16 percent of the country’s $8.5 trillion GDP.”

Street Bytes

--Stocks finished mixed a second straight week with the Dow Jones adding 0.9% to close at a record 15761, while the S&P 500, up 0.5%, closed a point shy of its record at 1770. But Nasdaq lost two points, 0.1%, to finish at 3919.   The Dow and S&P are up five consecutive weeks, but Nasdaq has declined 3 of 5.

On the third-quarter earnings front, the bottom line is coming in with an increase of 4.5% to 5.0%, while the top line, revenues, are generally in the 3% range for companies in the S&P 500. Not awful by any stretch.

--U.S. Treasury Yields

6-mo. 0.09% 2-yr. 0.31% 10-yr. 2.75% 30-yr. 3.85%

Yields continue to rise on the long end of the curve with the stronger economic data and renewed Fed taper fears. Janet Yellen has her confirmation hearing this week and it’s conceivable she could move the markets with her remarks.

--If the lifting of Iran’s sanctions eventually comes to pass (more below), consumers could get a huge break if the country is allowed to export oil again, with the extra volume depressing prices further. Iran has already said if it is allowed to export to previous levels, it would heavily discount its crude in order to win back traditional markets.   But as noted below, there are some in the U.S. Congress who are still hell bent on tightening, not softening, sanctions on Tehran.

--Russia’s Economy Ministry issued a dire report on the outlook for the nation over the coming two decades, warning the oil-fueled growth of the past is essentially over, with the ministry forecasting just 2.5% annual growth to 2030, well below the 7% average pace prior to the 2008 financial crisis and the 5% called for by President Vladimir Putin.

Putin has pledged ambitious spending programs on everything from defense to teachers’ salaries, but slower growth will not only severely crimp these plans, it will do a number on consumer spending.

--In seven years, Twitter went from a tiny upstart to a company with a valuation of around $25 billion after its first day of trading on the New York Stock Exchange, Thursday, as the shares, priced at $26, closed the day at $45 (after briefly hitting $50). [They closed the week at $41.65.] Twitter, which loses money and may not turn a profit until 2015, had a market cap larger than half the companies in the S&P 500 on its first day.  At $45, it also trades at 22 times estimated 2014 sales, compared with the 11 to 12 times that Facebook and LinkedIn trade at.

However, as opposed to the Facebook debacle its first day of trading 18 months ago, Twitter’s went off without a hitch.

--BlackBerry shares plunged on word the smartphone maker had abandoned a plan to sell itself to its biggest shareholder, Fairfax Financial Holdings. Instead, it intends to raise $1 billion in fresh capital, while CEO Thorsten Heins steps down. Former Sybase CEO John Chen will serve as interim chief executive.

Fairfax wasn’t able to raise the financing needed to complete a deal. The company lost $965 million in the second quarter and previously announced it was slashing the workforce by 40%.

--Shares in Tesla plunged to $138 at week’s end (from a Sept. 30 high of $194) following CEO Elon Musk’s announcement battery shortages were hampering production. On Tuesday, the company announced earnings for the third quarter that fell short of expectations, especially the ‘whisper’ numbers of even stronger performance.

Tesla said it sold 5,500 of its Model S cars during the period and is forecasting sales of 6,000 in the current quarter.

But then on Thursday, Tesla reported its third Model S fire in five weeks, this one in Tennessee, with a safety advocate telling Bloomberg the National Highway Traffic Safety Administration “absolutely has to investigate” the latest incident. Clarence Ditlow, executive director of the Center for Auto Safety, said, “It appears there’s inadequate shielding on the bottom of these vehicles.  Road debris is a known hazard to the undercarriage of vehicles.” The driver in the latest incident struck a tow hitch that damaged the undercarriage and caused the fire.

Bottom line, the company was ridiculously overvalued. It was a few weeks ago that a Bank of America analyst set a $40 price target. If the fires result in a recall, you could see this level far sooner than even the analyst expected.

--Billionaire Steven Cohen’s SAC Capital Advisors hedge fund firm agreed to plead guilty to a federal indictment and pay $1.8 billion. The firm was accused of fostering a culture of rampant insider trading, while operating a conspiracy going back to 1999.

Cohen wasn’t charged himself but still faces investigation by the Securities and Exchange Commission.

George Venizelos, head of the FBI’s New York office, said in a statement, “What SAC Capital’s plea demonstrates is that cheating and breaking the law were not only permitted but allowed to persist.”

Two upcoming insider-trading trials of managers at SAC will shed even further light on the hedge fund’s operations.

Manhattan U.S. Attorney Preet Bharara’s office has now charged at least 87 people with insider trading and won convictions or guilty pleas against 75, including the 11-year sentence handed to Raj Rajaratnam, the Galleon Group co-founder.

--Home prices in Australia continue to soar, up 7.6% for the year in October. But Sydney’s are up 11.4%.

--CBS Corp. reported strong earnings for the third quarter, with revenue up 11% compared with Q3 2012. The broadcast network and television studio generated 12% higher revenue, with network ad sales up 13%.

And CBS’ Simon &Schuster publishing house saw its revenue grow 7%, reflecting gains in digital book sales, which grew 39% during the quarter. Digital book sales overall now account for more than a quarter of the publisher’s sales. [Meg James / Los Angeles Times]

--Walt Disney Co. reported record fiscal year revenue and net income for the third year in a row, with revenue up 7% to $45 billion for the year ending Sept. 28, while net income rose 8% to $6.1 billion.

But Disney also reported it was delaying release of “Star Wars: Episode VII” – the first in a new series, until Dec. 2015, rather than the previously reported summer 2015, which means results of this promised blockbuster will fall in the 2016 fiscal year, not 2015.

--Domestic airfares dropped 3.6% in the April-June period, according to the U.S. Bureau of Transportation Statistics. But this figure does not include all the extra charges passengers are being hit up for, with an earlier study showing such passenger fees increased 20% in 2012 over 2011.

--The Food and Drug Administration is banning trans fats, once a staple of baked goods, microwave popcorn and fried foods. Specifically, the FDA will require the food industry to phase out artificial trans fats, but this is a gradual move and different foods may have different schedules, depending on how easily the industry can find substitutes.

Scientists have said trans fats raise levels of ‘bad’ cholesterol, increasing the risk of heart disease, the leading cause of death in the United States.

--Goldman Sachs reported its worst three-month stretch for trading in the third quarter since 2011. Traders posted losses on 15 days, the most since fourth quarter 2011, when the bank booked losses on 17 days. So this is one explanation for the previously reported 20% drop in revenue for the July to September time period.

[Separately, Goldman announced it was under investigation by regulators as part of a wide-ranging probe into potential manipulation of foreign-exchange rates, joining the likes of Barclays, Citigroup and JPMorgan Chase.]

--Vanguard’s Total Stock Market Index Fund surpassed the PIMCO Total Return Fund managed by Bill Gross to become the largest mutual fund as of the end of October, according to Morningstar. Vanguard closed the month at $287 billion in assets to PTR’s $247 billion. PIMCO had been number one since the financial crisis, but with rising interest rates, investors have pulled out $35 billion.

--Shares in Michael Kors soared after the luxury clothing and accessories retailer reported fiscal second-quarter net income that was well ahead of expectations. Same-store sales, a key metric, were up a whopping 23%. Overall revenue rose 39%.

--Kellogg is planning on cutting 7% of its global workforce by 2017. The cereal maker is suffering from competition such as from all the new yogurt products.

--AOL reported higher-than-expected third-quarter revenue on increased advertising sales, but earnings fell sharply owing to its disastrous Patch network of community news websites and costs related to deep cuts in the operation, with the Patch staff being cut by about half in recent months.

But strip Patch out and AOL is doing fine.

--Burger King is bringing back the Big King, only this time for good and not just on a limited basis. The Big King is virtually the same as McDonald’s Big Mac. At least it looks the same, but BK’s burgers are flame broiled, kids.

--McDonald’s same-store sales grew just 0.5% in October. In the U.S. they were up only 0.2%, but up 0.8% in Europe.

--More bad news for Atlantic City. New York voters approved a plan on Tuesday to allow up to seven private, non-Indian, casinos across the state. The first four will be upstate.

--Back to Twitter, in an Associated Press/CNBC poll released days before the IPO, one in 5 Americans said they have a Twitter account.

Nearly a quarter of Twitter account holders send tweets at least once a day.

Just 19% of respondents say they have a “favorable” view of Twitter, while 47% feel the same way about Facebook.

But now I’m formally launching on Twitter. See below.

Foreign Affairs

Iran: Talks between the P5+1 and Iran on Tehran’s nuclear program in Geneva have entered a third day, Saturday, and may yet yield the framework for an interim agreement that would require Iran to halt at least some enrichment activities in exchange for rolling back some of the existing sanctions, at least partially. It would be a first step towards a comprehensive final agreement, but there is going to be significant pushback from both the U.S. Congress and Israel, while some of our Middle East allies such as the Saudis are none too pleased either.

President Obama told NBC News on Thursday that his goal was to ensure Iran begins to dismantle its nuclear program and that the international community can verify “that they are not developing nuclear weapons, that their nuclear energy program is peaceful. And frankly because of actions in the past, the world doesn’t trust them on that.” The president added that a diplomatic solution is “greatly preferable to us ratcheting up that conflict higher and higher, which ultimately might lead to some sort of [military] confrontation.” [Paul Richter / Los Angeles Times]

Any agreement would lay out a step by step process, with a possible schedule for completion of negotiations.

Iran’s top negotiator, Abbas Araqchi, told Iranian state television, “(The six powers...the U.S., Britain, France, China, Russia and Germany) have accepted Iran’s proposed agreement.”

But Iran will retain some enrichment capability and Israeli Prime Minister Benjamin Netanyahu said recently that because of Iran’s new centrifuges, there is little difference in going from 3.5% enriched uranium to 90% weapons-grade material, as opposed to the standard discussion of 20% to 90%, Iran already having enough 20% enriched uranium that could in weeks be enriched to the critical 90% level. U.S. Senator Robert Menendez (D-N.J.), chairman of the Foreign Relations Committee, is also leery of accepting the 3.5% threshold given Iran’s centrifuge advances.

Upon hearing of a potential deal this week, Netanyahu said the six powers were on the brink of a “mistake of historic proportions.”

Then on Friday, as the outline of a deal began to take shape, Netanyahu told reporters:

“I understand the Iranians are walking around very satisfied in Geneva as well they should because they got everything and paid nothing.

“They wanted relief of sanctions after years of grueling sanctions, they got that. They paid nothing because they are not reducing in any way their nuclear enrichment capability. So Iran got the deal of the century and the international community got a bad deal.

“This is a very bad deal and Israel utterly rejects it. Israel isn’t obliged by this agreement and Israel will do everything it needs to do to defend itself and defend the security of its people.”

[Netanyahu added, “That is true also of our negotiations with the Palestinians.”]

Earlier, Supreme Leader Ayatollah Ali Khamenei tweeted that Israel was an “illegitimate and bastard regime." Netanyahu, before the tweet went out, said, “Iran is continuing to try and arm itself with nuclear weapons; it has not changed its goal...and it has not changed its ideology.”

But at the same time that Khamenei was blasting Israel, he also lashed out at criticism of the nuclear negotiating process by a number of Iranian hardliners.

“No one has the right to see our negotiating team as compromisers,” Khamenei said in comments published on his website. [Re my comments of last week on the Ayatollah’s health, as far as I know he still has not been seen in public in weeks.]

Lastly, I have harped on the issue of Iran’s Parchin military base.   A senior Iranian diplomat said this week that despite improved relations with the International Atomic Energy Agency, Iran is unlikely to grant IAEA auditors prompt access to Parchin, as reported by Deutsche Presse-Agentur and the Global Security Newswire.

Ray Takeyh / Washington Post

“If their diplomatic efforts are to succeed, Western powers would be wise to reject the nuclear alarmism that often surrounds this issue. The standard U.S. government assessment is that Iran is still a year away from getting the bomb. This year includes the time required to enrich uranium to weapons-grade and to assemble a nuclear device. But this timeline requires Iran to divert material from safeguarded facilities, an action that would quickly be detected by the International Atomic Energy Agency and that probably would provoke an international reaction. Accordingly, there is nothing magical about 2014. Time is on the side of the United States, not Iran – where economic conditions are worsening by the day.

“Another issue that has paradoxically redounded to U.S. advantage was Rohani’s trip to the U.N. General Assembly. Both U.S. and Iranian officials unwisely raised expectations in September and fed a media narrative of an imminent historic breakthrough between two old nemeses. Such raised expectations work to the disadvantage of Iran rather than the United States. Suddenly, the hard-pressed Iranian public has come to expect imminent financial relief. Should the negotiations not yield an accord in a timely manner, it is (Supreme Leader Ali) Khamenei, not President Obama, who would face a popular backlash. A disenfranchised and dispossessed population is an explosive political problem for Khamenei. The Western powers should not be afraid to suspend negotiations or walk away, should the Iranians prove intransigent. Ironically, stalemated negotiations are likely to pressure Iran into offering more concessions.”

But for now negotiations proceed.

Syria: U.N. humanitarian chief Valerie Amos said 9.3 million people in Syria – 40% of the population, needs outside assistance, up 2.5 million since the U.N.’s last report on the topic in September. Ms. Amos told the U.N. Security Council, the Syrian crisis “continues to deteriorate rapidly and inexorably.” [BBC News]

The World Health Organization has confirmed at least 10 cases of polio among babies and toddlers in eastern Syria and a mass immunization program is under way in both Syria and neighboring Lebanon, but many people are on the move. Both the Syrian government and rebel groups blame each other for aid not reaching areas under siege.

Meanwhile, Syrian National Coalition President Ahmad al-Jarba told an emergency Arab League meeting in Cairo that the opposition would not attend proposed peace talks in Geneva unless there was a clear timeframe for President Bashar Assad to leave power. There is also disagreement over whether Iran should be allowed to attend.

Regarding the refugee situation, one in four of Lebanon’s population is said to be Syrian these days, one million-plus having fled into the country.

As for the dismantling of Syria’s chemical weapons program, a U.S. official, speaking to Reuters on condition of anonymity, said, “There are indications the Syrians may be intending to hold some of their stockpile in reserve.” U.S. ambassador to the U.N., Samantha Power, also said the United States is skeptical about the Assad regime’s chemical arms declaration.

On Sunday, Turkey said it stopped vehicles trying to cross into it from Syria with potential chemical-weapons ingredients.

Israel: In talks with Secretary of State Kerry on Wednesday, Prime Minister Netanyahu said he was “concerned” about the negotiations with the Palestinians.

“I’m concerned about their progress, because I see the Palestinians continuing with incitement, continuing to create artificial crisis, continuing to avoid historic decisions that are needed to make a genuine peace.”

Netanyahu pointed to terms that the Palestinians, Israel and the U.S. agreed to three months ago that led to a resumption of the negotiations. Israel agreed to release 104 Palestinian terrorists as part of the deal to renew talks, but government officials said there was no agreement that Israel had to halt settlement construction, and that both the U.S. and the Palestinians knew construction would continue during the duration of the negotiations. Thus Netanyahu claims the Palestinians jump on each settlement announcement to create an “artificial crisis.”

As for the report from Swiss experts that tests on Yasser Arafat’s exhumed remains and possessions “moderately support the proposition (his) death was the consequence of poisoning with polonium—210,” a highly radioactive substance, I would hesitate to call this definitive. If he was poisoned, it doesn’t necessarily have to be the Israelis who carried it out, though Bloomberg’s Jeffrey Goldberg points to Ariel Sharon.

Egypt: The trial of former President Mohamed Morsi began and then the proceedings were adjourned until January, after repeated outbursts by Morsi and his co-defendants. Morsi was defiant: “This was a military coup. The leaders of the coup should be tried. A coup is treason and a crime.”

Two days later, the military government had its sweeping ban on the Muslim Brotherhood upheld by an Egyptian appeals court.

This week, Turkey reiterated Morsi should be reinstated.

Over 1,000 have been killed in violence since Morsi’s ouster and thousands of Islamists arrested.

As for the U.S. position, Sec. of State Kerry, in a quick visit to Cairo on Sunday, said, “The road map is being carried out to the best of our perception.” As the Washington Post opined:

“A liberal constitution and elections? ‘All of that is, in fact, moving down the road map in the direction that everybody has been hoping for.’

“What is it that Mr. Kerry doesn’t perceive? To judge that Egypt is headed toward democracy is to ignore the fact that its last elected leader and thousands of his supporters are now political prisoners facing, at best, blatantly unfair trials. It is to overlook the reality that opposition media have been shut down and that those that remain are more tightly controlled by the regime than they have been in decades. It skips over the rigging of the constitution by the military and that leading secular liberal politicians, such as former presidential candidates Mohamed ElBaradei and Ayman Nour, have been driven out of the country....

“The message seems clear enough: The Obama administration will accept and do business with the new autocracy that Gen. Sissi is constructing. If so, why not be honest about it? Mr. Kerry’s embrace of the regime’s empty promises of democracy only makes him appear foolish – or, perhaps, as cynical as the generals.”

Pakistan: Former President and military chief Pervez Musharraf was released from house arrest and is free to move about the country, though he cannot leave Pakistan. Musharraf may not actually leave his home, at least for a while, as he faces numerous threats to his life.

Meanwhile, following the killing of Taliban leader Hakimullah Mehsud last Friday, the Taliban have appointed Mullah Fazlullah to replace Mehsud, Fazlullah being a hardliner who was responsible for the attack on Malala, the Pakistani teenager.

Fazlullah is not exactly a man of peace, being best known for ordering beheadings and public beatings. He is also the fellow who loudly denounced polio vaccinations. May a drone promptly take his own head off. 

His accession certainly doesn’t help the peace process in Pakistan and Fazlullah has already ruled out talks with the government, vowing revenge for Mehsud’s death.

[I read numerous accounts on the CIA operation that took out Mehsud and it was really quite a technical achievement.]

On a different topic, BBC News reported on Wednesday that Saudi Arabia could quickly acquire nuclear warheads from Pakistan in return for its years of financial investment in the South Asian state.

If Riyadh senses Iran is rushing to build a weapon, the Kingdom could obtain a ready-made one from Islamabad. One expert, Gary Samore, said it’s likely Pakistan would deploy “its own troops armed with nuclear weapons and with delivery systems” into Saudi Arabia.

China: On the eve of a key Communist Party plenum, a series of coordinated explosions outside the provincial party headquarters in the northern city of Taiyuan killed one and injured eight, though it’s not known if this was some kind of formal terrorist attack or the kind of revenge incident fairly common to China. Regardless, China’s security minister was on edge as the top leaders gathered in Beijing. [Many details from this next time.]

Heavy air pollution continued to batter the eastern part of the country, including “severe” levels in Shanghai to the extent normally associated with Beijing. Students were told to avoid outdoor activities. Nothing authorities do to alleviate the problem, such as shutting small factories responsible for pollution, or restricting the number of cars on the road, has worked thus far.

And as reported by Amy Li of the South China Morning Post:

“According to a recently published infographic by Kantar Health, a U.S.-based healthcare consulting firm, non-small cell lung cancer, one of the most common cancers worldwide, now ranks top in China.

“Patients also have the lowest mean age – 38.9 years, as revealed by the data... In Japan, the mean age is 66.3 and in the U.S., 60.2.”

Separately, the South China Morning Post reported “An eight-year-old girl has become the mainland’s youngest lung cancer patient, with her illness blamed directly on environmental factors.” This is totally unheard of.

“In Beijing...deaths from lung cancer rose by 56% from 2001 to 2010.”

As Thomas L. Friedman wrote in his New York Times op-ed:

“While swapping notes on China’s latest ‘airpocalypse’...Hal Harvey, the American chief executive of Energy Innovation, who is working with China’s government to try to get its air quality back under control, asked a powerful question: ‘What if China meets every criteria of economic success except one: You can’t live there.’

“Indeed, what good is it having all those sparkling new buildings if you’re trapped inside them? What good is it if China’s rapid growth has enabled four million people in Beijing to own cars, but the traffic never moves? What good is it if China’s per capita incomes have risen to a level affording tens of millions of once-poor peasants diets rich in milk and meat, but they can’t trust the labels? What good is all that rising GDP, if there is no clear air to breathe?”

William Pesek / Bloomberg:

“China’s pollution bubble is no laughing matter, and tourists tell the story. Thanks to extreme air pollution, foreign arrivals plunged by roughly 50% in the first three-quarters of the year. Beijing could see even fewer visitors to the Forbidden City, the Great Wall and the famous square dominated by a painting of Mao Zedong thanks to images of acrid smog that have been beaming around the globe.”

Pesek argues China must immediately phase out the use of coal and transition to natural gas.

I’ve been writing for some time that this issue will one day result in the overthrow of the government. This shouldn’t seem so far-fetched to many of you as it may have sounded when I first wrote it.

One other...the smog is so bad it is severely impeding China’s security efforts, as in the cameras on virtually every major street and corner in the main cities can’t see through the fog.

On another matter, speaking from China (Hong Kong), Google Inc. Executive Chairman Eric Schmidt responded to reports the U.S. government was spying on the company’s data centers.

“It’s really outrageous that the National Security Agency was looking between the Google data centers, if that’s true. The steps that the organization was willing to do without good judgment to pursue its mission and potentially violate people’s privacy, it’s not OK,” he told the Wall Street Journal.

But in an interview with the South China Morning Post, Schmidt said Beijing needed to allow its people to think and speak freely if it wanted to grow.

Addressing the Chinese government’s recent “500 reposts” rule designed to tighten the government’s control of the Internet, Schmidt said:

“(The rule means) you will definitely think about it before you write. It’s a problem, (it) means your voice is not fully heard. My opinion is China wants to avoid the middle-income trap and in order to avoid that, they have to develop the openness, free speech, and the reason is in order to get there, you should have the debates about everything.”

The middle-income trap refers to what happens when a country moves from low income to middle income, but then finds it difficult to move further to the high-income rank. Some say this is what is happening in Brazil today, with massive social upheaval.

Schmidt listed three serious problems that China was facing.

“The first problem you have is a demographic one – not enough young people and too many old people. The ‘one child’ policy is a terrible mistake. We want more Chinese people not fewer. You need to stop it now. You should have stopped it 10 years ago. In 20 years, the demographic (problem) in China will be more terrible – a very large number of old people, no social security, no good healthcare. You need more young people.”

The other two problems were globalization and automation as others in the region, such as Indonesia and Vietnam, replace China’s role as the world’s factory over the next 10 to 20 years.

Regarding automation, Schmidt comments: “More and more factories will have fewer and fewer people as robots are going to get smarter. Robots can work 24 hours a day and you can’t do that to a human.”

India: Editorial / London Times

“India is a nation in which a third of the population has no electricity and half the people have no private lavatory. Every year 1.7 million Indian children die from preventable diseases and half the children who live suffer from malnutrition. It needs many things but it is not obvious that a mission to Mars is one of them.”

But this week the Indian Space Research Organization launched a rocket whose mission is to explore the Red Planet.

Germany: Back in early 2011, German authorities seized 1,400 pieces of art, including from the likes of Picasso and Renoir, as well as previously unknown paintings by artists such as Henri Matisse, after obtaining a warrant to search the apartment of Cornelius Gurlitt, 80 and the son of a well-known Nazi-era art dealer.

Gurlitt got in trouble with the law in 2010 when he was found traveling by train from Zurich to Munich with a large amount of undeclared cash. He is being investigated for tax evasion but his whereabouts are currently unknown to prosecutors.

The works discovered include 121 framed and 1,285 unframed works. They were professionally stored and in good condition. Estimates of their worth range up to $1.3 billion.

But why did the Germans keep this secret until this week, and why won’t they now put the find online? Instead, they have released grainy photos of just a few of the works.

Jewish groups in Germany are among those demanding authorities locate the owners of the paintings. But the head of the local prosecutor’s office said he will not publish the works online because he doesn’t want to be inundated with claims.

The U.S. State Department is also calling on Germany to return the art to their rightful owners, but under German law there doesn’t appear to be an obligation to do so. You can imagine how complicated it would be to prove right of ownership after so many years. And you have a 30-year statute of limitations on the books.

On the NSA / spy issue...the German government is looking into questioning Edward Snowden in Russia as part of its fact-gathering mission. Snowden has said he is willing to help Germany following revelations, through documents he provided, that Chancellor Angela Merkel’s phone was tapped.

Secretary of State John Kerry warned against Snowden being granted asylum, as he himself apparently wants, and called for his extradition.

While Germany has toned down the rhetoric a bit after the initial outrage, there is no doubt the relationship between Merkel and President Obama has been harmed in a big way, while Germany wants to link the proposed EU-US free trade pact to tough data protection, much to the chagrin of Brussels, which believes introducing privacy rules into the discussions could delay or even derail negotiations.

Staying on the topic of the NSA, France’s former top intelligence official Bernard Squarcini scolded French officials who railed at a report that the NSA was scooping up phone calls in his country.

“I am amazed by such disconcerting naivete,” he told Le Figaro. ‘The French intelligence services know full well that all countries, whether or not they are allies in the fight against terrorism, spy on each other all the time.” [TIME]

Congo: Out of nowhere, the rebels announced on Tuesday they were laying down their arms, ending a conflict that lasted for years and claimed untold lives. It was a combination of diplomatic pressure on Rwanda, which was accused of funding the rebels, and a reenergized Congolese military and U.N. force, the latter being given orders to go on the offensive rather than sit back, as had been its history here, that finally got the job done.

Philippines: As I go to post, no detailed reports as yet on the destruction left by Typhoon Haiyan, the strongest storm on Earth in at least three decades.

Canada: Toronto Mayor Rob Ford finally confessed to smoking crack cocaine after police presented a video that showed him doing so. Then another video emerged, showing Ford making threats to commit “first-degree murder” against an unknown person, with Ford telling reporters he had been “extremely inebriated” in the clip.

Ford still insists, as of this writing, that he’ll run for reelection in 2014. It’s also rumored he may enter rehab. He cannot be legally removed unless he is convicted of a crime.

Random Musings

--Republicans are more divided than ever following Tuesday’s gubernatorial votes in Virginia and New Jersey.    In the former, Democrat Terry McAuliffe was favored by as many as 12 points in the polls heading into the election against Republican Ken Cuccinelli, but McAuliffe, who had the big backing of his friends, Bill and Hillary Clinton, prevailed only 48.0 to 45.5 percent.   Many of Cuccinelli’s supporters immediately blamed the national Republican Party for not supporting Cuccinelli down the stretch, Cuccinelli having adopted many Tea Party issues.

Clearly the issue of ObamaCare tightened the race in the closing days as Cuccinelli hammered away at it. But the Republican National Committee only gave the candidate one-third as much as it had to Robert McDonnell’s successful campaign four years earlier. The U.S. Chamber of Commerce, which gave McDonnell $1 million, gave Cuccinelli nothing. [Washington Post]

In 2012, the RNC warned Republicans could not win elections without being inclusive and the business-oriented Republican establishment is saying “I told you so.”

--Conversely, some Democratic leaders are expressing regret they didn’t support Chris Christie’s opponent, State Sen. Barbara Buono, with more funding in order to knock Christie’s vote margin down. Christie received the 60% he was looking for (and which I’ve been emphasizing since day one of the race) as he took out Buono 60.5 to 38.0 percent. In a heavily Democratic state, to say the least it was impressive.  Christie also won 51% of the Hispanic vote, according to exit polls, and 21% of African-Americans. A national Republican candidate taking 35% of the Hispanic vote (and perhaps 12% to 15% of the black vote) would likely romp in 2016.

Utah Republican Sen. Orrin Hatch said of Christie’s performance, “You’ve gotta say that this fella is really on the right track, if the Republican Party is not too stupid.”

And Hatch also mentioned a potential running mate for Christie, New Mexico Gov. Susana Martinez. I don’t disagree, Martinez having also been just one of two outsiders to campaign with Christie in my state, the other being Rudy Giuliani.

One interesting sidebar...in exit polls, New Jerseyans were asked about a hypothetical race between Christie and Hillary Clinton and Hillary prevailed 48-44, but again, New Jersey is a predominantly Democratic state. [Obama defeated Romney here 58-41.]

[For the record, as I analyze polls, the final Monmouth survey had Christie leading 57-37, while a Rutgers Eagleton poll put it 66-30. Bad job, Rutgers. Monmouth University also did the best job in last month’s Cory Booker senate race...with the last poll calling it 52-42 and it ended up 55-44. Rutgers-Eagleton did a terrible job in the Booker-Lonegan race, too, as I noted in my 10/19 WIR. They had it 58-36 in their last poll. 200 years from now, some historian will appreciate this detail, typed the editor with a smile.]

--John Podhoretz / New York Post

“The political world says the GOP is divided between those who believe in fighting Democrats where possible (the Establishment) and those who believe in a kind of rolling revolution against the corruptions and seductions of Washington as a whole at all times (the Tea Party).

“What medicine does the Establishment need to take?

“The answer was on display right across the river from Washington – in Virginia.

“The Republican candidate for governor was the Tea Party favorite who leapfrogged over the more Establishment. And he proved to be a lousy choice, so clumsy on his feet that he went from 10 points up to 10 points down in a couple of months.

“Sometime late in the summer, big donors and others who’d wasted tens of millions on other lousy Tea Party candidates in 2012 decided to save their money.

“Then something happened two weeks before Election Day: the ObamaCare debacle.

“The lousy candidate didn’t get much better, but by fixing on ObamaCare, he closed the gap with his rival somewhere between 5 and 10 points in two weeks and lost by 2.5 percent.

“The Establishment had washed their hands of the guy. It shouldn’t have. It was clear in the middle of last week that something was changing fast in Virginia.

“A major infusion of dollars and enthusiasm over the final weekend – the bad GOPer was outspent 4-1 in the final seven days – might not have made up 60,000 votes. Then again, it might have. And money has been thrown away on a lot less.

“By staying on the sidelines, the Establishment will be and should be haunted by the possibility that it was responsible for the loss of a race that could have been won in a key swing state.”

As for the lesson of New Jersey, Podhoretz observes:

“Many Tea Partiers are still mad at Christie for standing with President Obama during Hurricane Sandy, and so they’ve decided against all evidence that this pro-life, low-tax, anti-teachers-union tough guy is a ‘Republican In Name Only,’ no better than a liberal.

“Viewing reality through such a distorted prism will make it difficult, if not impossible, for Tea Partiers to derive the right lessons from Christie’s staggering 22-point victory in an Obama-loving state on Tuesday night.

“Which is to say: It’s not enough for a politician to hold views you like. The pol has to be able to talk to people other than you and make them feel good, too.

“So the Establishment needs to improve its game. And the Tea Party needs to mature beyond its emotionally driven politics.”

--Michael Gerson / Washington Post

“The disintermediation of American politics is undeniable. The Internet allows people to find the like-minded, feed the intensity of their mutually held convictions and organize more swiftly and effectively. (It also allows people to filter out opposing views, anonymously attack their opponents and spread conspiracy theories.) This has become a powerful channel of influence outside the political parties – and is increasingly directed against the Republican Party. The Ron Paul and the tea party movements have prospered in this atmosphere. Policy entrepreneurs, political advisers and media personalities are monetizing this trend. In the tech-driven balkanization of American politics, Freedonia is a major power.

“But the interests of Freedonia are substantially different from those of the Republican Party. Tea party candidates – recall Sharron Angle, Christine O’Donnell, Richard Mourdock and Todd Akin – often lose winnable races. Tea party primary challenges, and the fear of them, encourage a harsher ideological tone among sitting Republican legislators, undermining their general-election appeal to independents, minorities and young people. And maximal tea party legislative strategies, as we’ve just seen, can be ruinous. Yet within an ideological bubble, success is defined differently – in purity, combativeness and the acclaim of the faithful. As the public standing of the GOP recently reached its lowest point ever, Sen. Ted Cruz told a cheering tea party audience, ‘Look, the Democrats are feeling the heat.’ It is one thing to engage in Pickett’s Charge; another to describe it as a victory.”

--Stephen Moore / Wall Street Journal

“This us-against-the-world mentality turns off many people regarding the tea party and may prevent it from gaining enough traction with a big tent of voters to realize its goals. Conservative pollster Whit Ayres says of the tea party, ‘I wish they would remember the Reagan rule; if someone is with me 70% of the time in politics, they are my friend.’

“Not the tea party.  If you’re 30% not with them, that can be a real deal breaker....

“(The) GOP is headed for an internal brawl in 2014, and perhaps beyond. In the recent debt-ceiling wrangle, the tea party seems not to have realized where that fight would lead. Before letting the clash with establishment Republicans escalate into all-out war, the tea party should step back and consider an uncomfortable fact. In the end, only one person will win that war. Her name is Hillary Clinton.”

[Last weekend in Iowa, New York Sen. Chuck Schumer told a crowd at the annual Jefferson-Jackson Day dinner in Des Moines, “It’s time for a woman to be president...Run, Hillary, run!”]

--From the new book about the 2012 campaign, “Double Down,” by Mark Halperin and John Heilemann, we learn that at one point Bill Clinton said of President Obama, “he’s luckier than a dog with two d----.” Friends told the authors Clinton made the dirty canine quip “again and again.”

But turnabout is fair play. After a golf game in 2011 with Clinton, according to the book, Obama told an aide: “I like him...in doses.”

--Marc A. Thiessen / Washington Post

“The Wall Street Journal broke the news this weekend that, even as President Obama was telling the American people they could keep their health plans, ‘some White House policy advisors objected to the breadth of Mr. Obama’s ‘keep your plan’ promise. They were overruled by political aides.’...

“Every president faces the challenge of explaining complex policies in simple terms. But the quest for simplicity is no excuse for dishonesty.

“Obama’s own advisers told the Journal that they knew those 16 words were untrue, but Obama kept on saying them – over and over and over again.

“If that’s the case, then Obama didn’t misspeak.

“He lied.”

--Andrew Kohut (of the Pew Research Center) / Wall Street Journal

“Tucked away in recent polls – which have documented the extraordinary anger directed at the Republican Party during the shutdown crisis – are measures of clear disappointment with the Democratic Party. The disappointment is substantial, and it raises big questions about the 2014 midterms.

“The Republican Party’s favorable ratings fell substantially in most every national survey that uses this yard stick, declining to 28% in the Gallup poll at one point.  Yet when the GOP was matched up against the Democrats on key political measures, it did not look so bad.

“A mid-October Pew Research national poll found that a plurality regard the Republicans as ‘better able to deal with the economy’ than the Democrats (44%-37%). Independents favored the GOP on the economy by a whopping 46%-30% margin in that survey.”

And of course independents decide most elections.

--In New York City, Democrat Bill de Blasio steamrollered his Republican opponent, Joe Lhota, 73-24 percent. Goodness gracious. [No issue with polls in this one...they all consistently had a 40-point margin throughout.] 

De Blasio promises to undo much of what 3-term Mayor Michael Bloomberg accomplished. His first big decision is who to replace Police Commissioner Ray Kelly with. Hopefully it’s Bill Bratton; he of the towering ego but solid track record, including in New York.

[A story in Sunday’s New York Post by Brad Hamilton points out that through Oct. 31, the Big Apple had 279 homicides, down 23% from the 364 in the same 10-month period last year. Which means the city is on pace for about 100 fewer than last year’s 419, which was the lowest recorded since 1962, when police began keeping reliable records. The all-time high was 2,245 in 1990...think crack era. I chose domestic that year. And still do over crack or heroin.]

--As noted last week, the plagiarism calls against Kentucky Republican Sen. Rand Paul were just starting and there were more revelations the past few days about his lifting passages without attribution for his speeches. Larry Sabato, director of the University of Virginia’s Center for Politics, told the (Louisville, Ky.) Courier-Journal’s James R. Carroll that “If (Paul) were at my school, he would have been expelled because of the honor code.”

Paul told CNN, “Ultimately, I’m the boss, and things go out under my name, so it is my fault. I never had intentionally presented anyone’s ideas as my own.”

Kevin Madden, an advisor to Mitt Romney during the 2012 campaign, said, “If anything, it’s Example A of how much greater is the scrutiny that you get when you become a national candidate....He’s going to see more and more of it.”

I don’t think this hurts Paul that much. As Sabato remarked, it’s not like this is occurring in the midst of a primary campaign, either.

--CBS News was forced to apologize for an inaccurate report on “60 Minutes” the other week concerning the attack on the U.S. diplomatic post in Benghazi. A correction is being aired on Sunday’s program.

--Sign of the Apocalypse: “A German spa resort has apologized for advertising a ‘romantic Kristall Nacht evening’ on the 75th anniversary of the Night of Broken Glass, when at least 91 Jews were killed by Nazi thugs who attacked businesses, homes and synagogues.”

The owners of the Kristall Sauna-Wellnesspark Hotel often used its Kristall name in promotions, but acknowledged they got this one wrong.

--TIME had a story on the heroic rangers of Virunga National Park in Congo, where most of the remaining 800 gorillas on the planet survive. They set up an orphanage for those who lost their mothers to poaching or rebel fighters in the years-long war noted above.

But what I didn’t know is that 130 rangers have died defending Virunga since 1996. True heroes. 

--Clive Cookson / Financial Times

“Statistical analysis of observations by Kepler, NASA’s planet-hunting satellite, over three years suggests that 22 percent of stars have Earth-sized planets in the ‘Goldilocks zone’ that is neither too hot nor too cold for biological processes.

“ ‘What this means is, when you look up at the thousands of stars in the night sky, the nearest Sun-like star with an Earth-size planet in its habitable zone is probably only 12 light years away and can be seen with the naked eye. That is amazing,’ said Erik Petigura of the University of California, Berkeley.”

Estimates range from the possibility of 8 billion to 40 billion Earth-like planets in our galaxy.

--Happy 95th Birthday to Billy Graham. I watched his farewell video to the nation and was touched by it.

--Finally, it hasn’t been the best of times for America. But back in 1974, the great Johnny Cash penned the following during another time of trouble and turmoil....Watergate, the Vietnam War and veterans returning home, only to be ignored or abused. Thankfully, regarding this last bit we’ve learned our lesson.

Here’s to all who have served as we commemorate Veterans Day. 

Ragged Old Flag by Johnny Cash

I walked through a county courthouse square
On a park bench, an old man was sittin’ there.
I said, “Your old court house is kinda run down,”
He said, “Naw, it’ll do for our little town.”
I said, “Your old flag pole is leaned a little bit,
And that’s a ragged old flag you got hangin’ on it.”
He said, “Have a seat,” and I sat down,
“Is this the first time you’ve been to our little town?”
I said, “I think it is.”
He said, “I don’t like to brag, but we’re kinda proud of That Ragged Old Flag.

“You see, we got a little hole in that flag there,
When Washington took it across the Delaware.
And it got powder burned the night Francis Scott Key sat watching it,
writing ‘Say Can You See.’
It got a rip in New Orleans, with Packingham & Jackson
tugging at its seams.
And it almost fell at the Alamo
beside the Texas flag,
but she waved on though.
She got cut with a sword at Chancellorsville,
And she got cut again at Shiloh Hill.
There was Robert E. Lee and Beauregard and Bragg,
And the south wind blew hard on
That Ragged Old Flag.

“On Flanders Field in World War I,
She got a big hole from a Bertha Gun,
She turned blood red in World War II,
She hung limp, and low, a time or two,
She was in Korea, Vietnam, she went where she was sent by her Uncle Sam.
She waved from our ships upon the briny foam
and now they’ve about quit wavin’ back here at home,
In her own good land here she’s been abused,
She’s been burned, dishonored, denied an’ refused,
And the government for which she stands
Has been scandalized throughout the land.
And she’s getting thread bare, and she’s wearin’ thin,
But she’s in good shape, for the shape she’s in.
Cause she’s been through the fire before
and I believe she can take a whole lot more.

“So we raise her up every morning,
And we bring her down slow every night,
We don’t let her touch the ground,
And we fold her up right.
On second thought,
I do like to brag
Cause I’m mighty proud of
That Ragged Old Flag.”

---

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

God bless America.
---

Gold closed at $1289
Oil, $94.35

Returns for the week 11/4-11/8

Dow Jones +0.9% [15761]
S&P 500 +0.5% [1770]
S&P MidCap -0.4%
Russell 2000 +0.4%
Nasdaq -0.1% [3919]

Returns for the period 1/1/13-11/8/13

Dow Jones +20.3%
S&P 500 +24.1%
S&P MidCap +26.0%
Russell 2000 +29.5%
Nasdaq +29.8%

Bulls 55.2
Bears 15.6 [Source: Investors Intelligence...gap gets wider.]

Have a great week. I appreciate your support.

And now you can catch me on Twitter. Search @stocksandnews. Or go to twitter.com/stocksandnews. Be the fifth or sixth follower! Really. I told you I literally just rolled it out. [We’ve hidden it a few weeks.] But I am now committed.

Brian Trumbore