Week in Review

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Week in Review

12/14/2013

For the week 12/9-12/13

Note: There hasn’t been much time for work the past two days and I will fill in the gaps next time.

Washington and Wall Street

I’ve been saying for weeks that the Federal Reserve will finally begin to taper its $85 billion a month bond buying program when the Open Market Committee next meets, Dec. 17-18, IF House and Senate budget conferees agreed on a plan for addressing the budget for fiscal 2014, which began last October 1.

Alas, Republican Rep. Paul Ryan (Wis.) and Democratic Sen. Patty Murray (Wash.) hammered out a deal that, while weak, prevents a government shutdown until October 2015 and the House already approved it by a whopping 332-94 margin, with the Senate to follow next week. [The bill won’t actually be written in full until line-by-line details are agreed to sometime by January 15, in order to officially avoid a shutdown.] President Obama will sign it.

Said Congressman Ryan, “We’ve been at each other’s throats for a long time. I think our constituents expect a little more from us.”

The bill doesn’t reform the tax code or attack entitlements, except in a small (though significant) way, while it ends jobless benefits for the long-term unemployed and does not impose new tax hikes on the wealthy or curtail tax breaks for large corporations.

Some conservatives, read Tea Party, are upset because the bill increases discretionary spending to $1.012 trillion in 2014 and $1.014 trillion in 2015, when spending had been due to come in under the sequester at $967 billion for fiscal 2014. 

But this was a pure compromise. Republicans wanted $967 billion, Democrats 1.050 trillion, so they basically split the difference.

The $63 billion increase in spending for 2014 and 2015 is offset by $85 billion in deficit reductions over the next 10 years, for a net deficit reduction of $22.5 billion.

Some of the savings come from an extension of the 2% cut on Medicare payments to health-care providers from 2013 through 2021 that are now extended to 2022 and 2023.

The deal also raises the Transportation Security Administration fee on some airline tickets, while requiring federal workers to contribute 1.3 percentage points more of their salaries toward their pensions, as well as trimming cost-of-living adjustments to the pensions of military retirees under the age of 62.

Changes to the sequester will most impact the Defense Department.

So, again, no “grand bargain.” Nothing that remotely attacks our long-term budget issues.

Paul Ryan said, “It’s a start.” Most importantly, it eliminates the uncertainty that has clouded Corporate America’s decision making and I see this as a huge positive. One cannot discount the added revenue flowing in from an economy that grows, perhaps, 0.5% more from the optimism potentially created by this little deal. I believe Ryan and Murray deserve kudos.

But back to the Fed and tapering, a major reason, as I foresaw, for them not acting in September to begin tapering then was the looming government shutdown. Chairman Ben Bernanke said as much later.

Since then the economy has continued to improve and the Fed’s credibility would tumble further if they don’t act next week. I get a kick out of those who say the Fed will wait until Janet Yellen takes the reins in March. What if the data is very strong from here through February? The bond market would go nuts. It may still do so when tapering takes hold but the action in the bond pits will at least be more orderly (in relative terms) then if the Fed sits on its hands another three months. And that’s a memo. [I’m prepared to be very wrong, of course, come Wednesday.]

“There’s a lot not to like in the budget deal that Sen. Patty Murray and Rep. Paul Ryan have struck on behalf of their respective parties and legislative houses. It does basically nothing to resolve the country’s long-term fiscal predicament. It does very little to correct the growing imbalance between discretionary spending and entitlements as a share of the federal budget. And even these modest policy achievements required the use of a budgetary gimmick or two.

“Yet the deal has one overriding virtue: It exists. Republican and Democratic leaders have produced a bipartisan spending plan – and one that doesn’t increase the deficit through fiscal year 2015 at that. Now House and Senate appropriations committees can proceed to allocate funds within the overall caps set by the Murray-Ryan agreement: roughly $520 billion for defense [Ed. not including the cost of the war in Afghanistan] and $490 billion for non-defense discretionary spending over the next two years. This eases the ‘sequester,’ restores needed funds to defense and all but banishes the threat of a government shutdown like the GOP-engineered fiasco that so badly damaged this country’s reputation in October.

“In short, the agreement’s importance is not fiscal but political: It amounts to a truce in the destructive budgetary wars that have plagued Washington since the advent of a Republican-majority House in 2011. During the interlude, U.S. businesses can invest in job-creating (and deficit-reducing) growth without worrying too much about disruptions from Washington. And lawmakers can address long-term questions such as tax and entitlement reform – assuming they want to.”

“The best that can be said about the House-Senate budget deal announced late Tuesday is that it includes no tax increases, no new incentives for not working, and some modest entitlement reforms. Oh, and it will avoid another shutdown fiasco, assuming enough Republicans refuse to attempt suicide a second time. [Ed. they did.]

“The worst part of the two-year deal is that it breaks the 2011 Budget Control Act’s discretionary spending caps for fiscal years 2014 and 2015. The deal breaks the caps by some $63 billion over the two years and then re-establishes the caps starting in 2016 where they are in current law at $1.016 trillion….

“Breaking the caps is a victory for Senate Democrats and House Republican Appropriators like Oklahoma’s Tom Cole, who will get more money to spend and will dodge another continuing resolution that doesn’t allow them to set spending priorities. It would be nice to think they’ll spend the money on such useful purposes as cancer or Alzheimer’s research at the National Institutes of Health. But they will also get to dole out pork. The deal means overall federal spending will not decline in 2014 as it has the last two years.”

According to a new government report, the number of Americans signing up for insurance through ObamaCare was 250,000 in November, or more than double October’s pace. But it was expected 7 million will have signed up by end of March. 107,000 of the total 350,000+ have been in California, which runs its own insurance marketplace and website. Overall, the 14 states with their own marketplaces and the District of Columbia tallied more than 227,000 sign-ups in October and November, or about twice as many as the 36 states combined using the federal exchange.

So a long, long way to go, plus you are becoming aware of all the other issues. The Wall Street Journal reports in its weekend issue that the website is still rife with serious issues, including major errors on the applications and the information being transferred (or not transferred) to the insurance companies. Young people are turning against it, not what the White House expected; the average deductible on the exchange is $5,081/year vs. an average $3,589 for an individually purchased plan in 2013, up 42% (according to the Wall Street Journal), and a preponderance of those signing up are choosing Medicaid, which means some previously without insurance now have it, or those who had it are dropping down, but it also means this will totally bust the federal budget after the ‘grace period’ between the states and federal governments is over. This last bit is a mess of titanic proportions, but President Obama will have long left office before the numbers truly play out (and the states learn just how much the federal government is going to force them to pick up).

“ObamaCare was created with an ostensibly noble purpose: to expand health coverage to some of the uninsured and to make health care more affordable. Three-and-a-half years ago, perhaps reasonable minds could have differed as to whether it would actually work.

“Today, there can be no dispute that ObamaCare is a disaster.

“The reason ObamaCare is failing is not its bungled website. It is because Americans are now seeing the fundamental trade-off behind the law – that in order to insure a relatively small number of the insured, many millions are likely to lose their private insurance, lose access to preferred doctors, or pay substantially more for their insurance….

“It’s common sense to recognize that ObamaCare isn’t working. We need to repeal it entirely, and instead reform federal law to expand choices and make health plans personal, portable and affordable.”

But it’s too far along, Senator, to repeal the whole thing. That doesn’t mean major changes can’t be made, but for that Republicans need to win the Senate.

I leave you, though, with a related matter concerning health care costs. The Washington Post’s Peter Whoriskey and Dan Keating had an extensive story on two drugs, Avastin and Lucentis, that both prevent blindness (wet age-related macular degeneration), biologically are cousins, and made by the same company, only Avastin costs about $50 per injection and Lucentis costs $2,000.

“Doctors choose the more expensive drug more than half a million times every year, a choice that costs the Medicare program, the largest single customer, an extra $1 billion or more annually.”

Genentech, a division of the Roche Group, manufacturers both but makes far more profit from Lucentis. Doctors can benefit from choosing Lucentis as well because they are reimbursed for the average price of the drug plus 6 percent. So Lucentis is easier to sell to doctors than Avastin.

But J. Gregory Rosenthal, a Toledo ophthalmologist who, outraged by the price, co-founded a group called Physicians for Clinical Responsibility, told the Post, “Lucentis is Avastin – it’s the same damn molecule with a few cosmetic changes. Yet Americans are paying a billion dollars every year for no good reason – unless you count making Genentech rich.”

Six randomized clinical trials involving more than 3,000 patients have found the drugs to be largely equivalent.

Most doctors are actually using the cheaper drug. In the U.S., Avastin is used in 56% of the cases. But Lucentis has still rung up more than $1 billion in U.S. drug sales for Genentech each of the last four years and 80% of U.S. sales are paid for by Medicare.

But other nations are demanding lower prices for Lucentis. Authorities in Britain negotiated a price of about $1,100 per dose, for example. Medicare, though, is blocked from seeking better drug prices by negotiating directly with the drug companies.

So you can see there are countless reforms to the medical system that can be made, irrespective of ObamaCare; let alone issues such as tort reform. But it’s up to Congress…and the White House.

Europe and Asia

The European Union agreed on a rule book for handling failed banks in a compromise that represents a major attempt to shore up national defenses against bank failures that were exposed during the financial crisis.

Under the new rules, which will be phased in across the EU beginning in 2015, there will be so-called bail-in rules for senior bondholders applying in 2016. Governments will be given more flexibility to recapitalize banks with public money, but this will require EU approval under defined conditions.

Basically there will no longer be massive public bailouts of the banks, EU taxpayers having put 473 billion euro of capital into European banks since 2008.

Essentially, bondholders and some depositors will contribute to the costs of bank failure, with insured deposits under 100,000 euro being exempt, similar to the deal worked out with Cyprus. Bank shareholders and creditors will be the ones bearing the brunt of the damage. This is an important step for the EU and eurozone.

Meanwhile, Germany’s industrial production fell 1.2% in October over September, not a good sign when looking at the fourth quarter, but industrial production in the U.K. rose 0.4% in the same month (but exports there declined 1.3% over September).

France’s central bank said the economy would grow 0.5% in the fourth quarter. Ooh la-la!

Italy said its GDP would be flat in Q4, which is a major accomplishment after two years of contraction. [This is how pathetic it is in Euroland…applauding 0.5% and 0.0% figures.] Italy’s government expects growth of 1.0% in 2014. At least Prime Minister Enrico Letta handily survived a no-confidence vote in the Italian Senate so he can proceed with his reform agenda.

In China, there was a slew of data. Exports rose 12.7% in November from a year ago, though once again some are saying the number is suspect, even as the government has been trying hard to clean up the books. Imports rose a disappointing 5.3%. [Exports to the U.S. were supposedly up 17.3%, year over year, and up 18.5% to the EU.]

Factory output rose 10% last month and retail sales were up 13.7%.

Auto sales rose 16% in November, as Japanese automakers recovered from the anti-Japan sentiment of a year earlier, with Chinese consumers apparently ignoring the new tensions in the East China Sea between the two countries. [GM’s auto sales rose 13% from a year earlier in November.]

In Japan, GDP in the third quarter was revised downward to up just 0.3% from 0.5% (1.1% annualized from 1.9%). This is not good. Prime Minister Abe’s approval rating has been falling rapidly over a controversial bill addressing intelligence breaches and stricter penalties. The government says it is necessary to strengthen safeguards when it comes to state secrets in order to assure its allies the information they share won’t be leaked. Because the legislation is unpopular, Abe’s support has fallen from 75% to 55%. With GDP slowing and an April tax hike looming, Abe’s approval number is a critical barometer.

Street Bytes

--The Dow Jones and S&P 500 registered their second consecutive down weeks, with both falling 1.7%, while Nasdaq lost 1.5%. Stocks were hit on taper fears, which outweighed the positives generated by a budget compromise.

But USA TODAY had an interesting piece by Adam Shell, wherein he talked about the huge number of companies issuing earnings warnings for the fourth quarter over those pre-announcing positive news; a 10-to-1 ratio of negative to positive, which handily beats a prior record of 6.8-to-1, warnings to positive pre-announcements.

Heck, I’ve been showing the bull/bear readings down below since day one of StocksandNews and eventually when it gets to extremes, as it is now, more often than not it works as a contrarian barometer.

I’ll hold off on other thoughts until my look ahead at 2014 in two weeks. For now we await the Fed’s decision on Wednesday.

Yields were essentially unchanged on the week. On the inflation front, the producer price index for November came in at -0.1%, +0.1% ex-food and energy. For the 12 months, the PPI was +0.7%, +1.3% on core.

The Obama administration is said to be leaning towards nominating Stanley Fischer to be the Fed’s No. 2, which would be a solid move. He has tremendous experience as a central banker, including recently as Bank of Israel governor (Fischer holding dual citizenship). Fischer also has an extensive rolodex, which would come in handy when the Federal Reserve is trying to get its message out, particularly with emerging markets.

--Last week I told you how the roaring stock market was improving the pension picture and this week, two new studies were issued, one by JPMorgan Chase and the other by Milliman, that conclude investments in the average company’s pension plan are expected to cover 96% and 94% of future obligations at the end of the year, respectively. A third, Mercer, pegs it at 91% at the end of October, as reported by the Wall Street Journal.

Of course a major correction in stocks would end the progress being made, but chances are stocks would be falling because interest rates are rising and the latter’s a good thing in determining pension funds’ future funding levels.

Corporate plans would have actually done even better if they didn’t have on average only 52% of plan assets in stocks.

--On a related issue, the Federal Reserve said household net worth in the United States rose 2.6% in the third quarter to $77.3 trillion. This reflects the value of homes, stocks, bank accounts and other assets minus mortgages, credit cards and other debts.

Higher stock prices more than doubled rising home values in terms of the net worth of Americans. Adjusted for inflation, net worth is still 1% below its prerecession peak.

--Big week for General Motors. The Treasury Department on Monday announced it had sold its final shares of GM stock, which at one time was a 60% stake in the automaker. Taxpayers ended up losing $10 billion on their $49.5 billion bailout, but overall, the Treasury is in the black by about $10 billion from the Troubled Asset Relief Program, TARP.

The government spent $80 billion on G.M., Chrysler and their suppliers, while Ford steered a separate, successful course without direct financial aid.

But GM made news for a different matter, naming product development chief Mary Barra the new CEO, replacing Dan Akerson. Barra thus becomes the first woman to run a U.S. carmaker; the first woman to lead a global automaker for that matter.

Barra, who at one time was head of human resources at GM, has a reputation for slashing costs and cutting bureaucracy.

--Meanwhile, Holden, a subsidiary of General Motors, said it would stop making cars in Australia by the end of 2017, resulting in the loss of 2,900 jobs. Tepid domestic demand and high manufacturing costs were the primary reason given by the company.

Holden has made cars in Australia for nearly 65 years.

Panicked, the Aussie government is now holding talks with Toyota in an effort to keep them from leaving the country. Toyota is the last to manufacture cars in the country. Thousands more jobs are at risk, let alone 33,000 in the automotive components sector.

--But some good news on the hiring front. Ford said it would hire 11,000 in 2014; 5,000 in the U.S. and 6,000 in Asia.

--I agree with CNBC’s Jim Cramer when it comes to the Volcker rule. Basically, it bores the hell out of me. [Not Cramer’s words, but his point is that the banks already acted on it...that they saw it coming down the pike and acted accordingly.]

And Wall Street caught a little break as the final rules were put in place this week in that it leaves the banks’ market-making operations intact. It had been feared such desks that generate $40 billion a year in revenue would be banned. Plus the banks were given an extra year to conform, out to July 2015. 

Regulators do have lots of leeway to interpret the rules. Market-making is about using a firm’s capital to buy and sell securities with customers and getting a spread, as well as price discovery. This as opposed to proprietary trading where the banks use their capital to place speculative bets. The Volcker rule was designed to stop financial institutions from making such trades with federally insured deposits.

Bottom line, the rules aren’t as bad as some thought they would be years ago and, as Cramer said, the Street has adjusted.

“Just in time for Christmas, financial regulators have come down the chimney with a sackful of billable hours for securities lawyers. Truly a gift that keeps on giving, the Volcker Rule adopted on Tuesday by five federal agencies will create a limitless supply of ambiguity and the need for experienced counsel.”

--JPMorgan Chase is working on yet another settlement with the government, $2 billion in penalties related to the Bernie Madoff case (the five-year anniversary of his arrest being Wednesday) for turning a blind eye to his Ponzi scheme. JPM would also be cited for criminal violations but not indicted as long as the penalties are paid and the bank acknowledges the facts of the government’s case.  [New York Times]

--IBM’s Senior Vice President Erich Clementi told a conference audience this week that the company continues to face economic challenges as it tries to reignite sales. “Europe has shown signs of recovery. North America has been a little more uncertain.”

IBM’s real issue is its business is geared to computer hardware when many of its prospects are using software and cloud-computing solutions to increase efficiency. IBM recently paid $2 billion for SoftLayer Technologies Inc., a cloud-computing storage provider that competes with the likes of Amazon in the space.

IBM also continues to suffer from declining China sales, down 20% in the last quarter.

--Including dividends, investors have a total return of zero during General Electric CEO Jeffrey Immelt’s 12 years at the helm after succeeding Jack Welch; this as the S&P 500 has returned over 100% in that time.

--Aerospace giant EADS is planning to cut up to 6,000 jobs as part of a restructuring of its European business, though the company is hoping most of the cuts will be voluntary.

--The International Energy Agency said global oil demand in 2014 will be higher than previously forecast, up 1.2 million barrels a day to 92.4 million. U.S. fuel use in November rose above 20 million barrels a day for the first time since 2008.

--Lululemon billionaire founder Chip Wilson resigned as chairman after his controversial statements about body size, such as complaints over “see-through pants” were due to overweight women. Wilson said in November, some women’s bodies “just don’t actually work.”

It was back in March the company had to withdraw one of its yoga pants because of complaints over the sheer fabric.

All I notice these days in my unscientific study (including a few trips into New York the past week) is that more and more women seem to be wearing them as part of a normal, non-workout, wardrobe. I refuse to comment further. [I want to...but I’m afraid I’ll lose my International Web Site Association license.]

--Avon Products Inc. plans to slash 650 jobs as part of an effort to trim $400 million in costs. 

--New York City is on track to record a record number of visitors in 2013 for a 12th straight year. This year should see 54.3 million tourists, 1.6 million more than the year before. Mayor Bloomberg’s goal was 55 million by 2015. Tourism will have a $58.7 billion overall economic impact this year and accounts for more than 370,000 jobs at the city’s hotels, restaurants and other attractions. 11.4 million tourists are from abroad.

The average daily room rate in Gotham this year will be $296, up 4% over 2012. [Lisa Fickenscher / Crain’s New York Business]

--But New York is seeing its share of securities jobs in the U.S. continue to decline, down to 19.9% of the nationwide total in October, the first time it’s been below 20%.   As Crain’s reports, the city’s share of investment-banking and brokerage jobs was 30% two decades ago.

This is not good for tax receipts and the overall state of New York’s economy. Wall Street contributed a full sixth of the state’s tax revenue in 2012.

--Shares in Twitter soared this week, despite the overall market doldrums, as analysts issued bullish comments on the micro-blogging site’s new advertising features. [The stock closed the week at $59, after being priced on Nov. 7 at $26 and after a first-day IPO close of $45.]

--Facebook will be added to the S&P 500 on Dec. 20, which should only help its share price as mutual and exchange-traded funds tracking the benchmark add Facebook to their holdings.

--Advertisers will spend $5.6 billion on YouTube in 2013, an increase of more than 50% over 2012. It’s all about the explosion in viewing on mobile devices and young viewers continuing to shift away from television.

YouTube passes on much of what it takes in from advertisers to content creators and partners, but will have net revenues of around $2 billion, or 1.7% of all global digital advertising spending, according to eMarketer.

U.S. advertisers will continue to spend big on television, however…some $66.5 billion this year, but eMarketer sees lesser growth in the category the next three years.

--Google, Microsoft, Apple, Yahoo, Facebook, Twitter, AOL and LinkedIn are mounting a public campaign to get the Obama administration to set new limits on government surveillance. As Brad Smith, Microsoft’s general counsel, put it, “People won’t use technology they don’t trust. Governments have put this trust at risk, and governments need to help restore it.”

In a statement, Google co-founder and CEO Larry Page criticized governments for the “apparent wholesale collection of data, in secret and without independent oversight.” [New York Times]

--McDonald’s continues to struggle. Global comp sales increased just 0.5% in November; down 0.8% in the U.S., but up 1.9% in Europe. Looking ahead to next year, the company vows to strengthen key elements of customer service.

Meanwhile, while fast food workers were walking off the job in 100 cities, protesting for higher wages, McDonald’s issued some holiday tip suggestions to its employees – like how much to tip your massage therapist or pool cleaner. Good lord. The suggestions were quickly deleted from the employee resource website.

--I haven’t been reporting on the World Trade Organization’s latest round of negotiations, which were deemed successful, because by my reading there is far more to do in the “Doha Round” before a final agreement is reached; including work on contentious farm subsidies and tariffs on industrial goods.

--Did you know that China makes nearly four-fifths of the world’s pianos? 

--It’s official…American Airlines and US Airways have completed their merger to create the world’s biggest airline, which will be known as American Airlines, with some 6,700 daily flights to more than 330 destinations in more than 50 countries.

Foreign Affairs

Ukraine: Another chaotic week as protesters who want the country to align with Europe clashed with the security forces of President Viktor Yanukovych, who recently spurned a European Union offer for a trade pact and aid that would have been a major first step towards Ukraine integrating with the EU.

At one point Ukrainian police stormed the headquarters of jailed former Prime Minister Yulia Tymoshenko’s opposition party, as a warning was issued by the head prosecutor not to “test the patience of authorities.”

Clashes at Independence Square in Kiev late Tuesday night were ugly, as earlier in the day European Union foreign policy chief Catherine Ashton made an appearance in support of the protesters there, a courageous move on her part. U.S. Assistant Secretary of State Victoria Nuland traveled to Kiev to help “save Ukraine’s European future.”

The protesters rebuilt and reinforced their barricades. President Yanukovych promised to hold an “all-national roundtable” with representatives of the government and opposition.

Russia condemned the West for interfering in Ukraine’s internal affairs. Remember, essentially Eastern Ukraine is pro-Russia, Western Ukraine favors the EU and the West.

First Deputy Prime Minister Azburov said Ukraine would do an about face and “soon sign” the EU trade pact in Brussels. The European Union promised more financial aid if Ukraine did.

Putin wants Ukraine to sign a regional customs union involving the likes of Belarus.

The national round table was then held on Friday, with three former presidents in attendance, and the opposition having among its participants heavyweight boxing champion Vitali Klitschko, who continues to emerge as a leader of the movement.

But while Yanukovych offered amnesty for all those arrested thus far in the weeks-long demonstrations, the opposition is insisting the government step down and early parliamentary and presidential elections be held.

Yanukovych told the opposition, a no-confidence vote in his government was held last week and he won.

So the standoff continues, and this coming Tuesday, Yanukovych meets with President Putin.

Iran: President Rohani, in a key speech on Saturday (Dec. 7), reiterated, “Nuclear energy is our absolute right, yes, but the right to progress, development, improving people’s livelihood and welfare are also our rights….This government is committed to all its promises, but we need internal consensus. We need to be more tolerant, rational and avoid being too emotional.”

Rohani is not only addressing internal dissent over the Geneva nuclear agreement, but also the need to turn around the economy and you can’t do it without consensus.

As for Israeli Prime Minister Netanyahu, he has switched tactics from railing about the interim agreement to working on key U.S. and Western officials on the shape of any ‘final’ agreement.

Israel appears to believe now that it is inevitable Iran will be left with some nuclear capability in a final deal so the Israelis are focused on items such as trying to limit Iran to 1,000 to 2,000 centrifuges rather than the current 19,000. And turning the Arak heavy water reactor to a light water one.

As for the role of the U.S. Congress, which has threatened harsher sanctions, it appears Congress is giving in to President Obama’s wishes in conceding that any new sanctions that are legislated would not take effect until after the six-month interim deal has run its course, even as many senators and congressmen were unimpressed with Secretary of State John Kerry’s performances on Capitol Hill before various forums, pleading the administration’s case to hold off on further action.

For this part, Iranian Foreign Minister Zarif said, “The entire deal is dead” if Congress approves new sanctions. Zarif also insisted the Arak plant is too far along to be shut down.

The thing is the interim deal still isn’t even official! Talks over details on implementation did not go well this past week.

And recall how the interim deal does nothing to address Iran’s ballistic missile program. On Monday, the Iranian military claimed it had greatly enhanced the precision of its longer-range missiles, thanks to laser technology, according to the AP. The claims, as usual, could not be independently verified.

“Three years ago, in May 2010, the Islamic Republic News Agency of Iran – IRNA – published a stern, if flowery, warning following a series of incidents involving Gulf states.

“ ‘There is no lion in the region save the one crouching on the shore opposite the Emirates states,’ IRNA said. ‘He protects his lair, the Persian Gulf. Those who believe that there is another lion in the area [the United States], his claws and fangs have been broken in Iraq, Afghanistan, Lebanon and Palestine.

“ ‘No good can be expected from him or from his hunting forays. He is merely counting the days until he can find a way to escape when he still can. Iran, the Emirates and the other countries of the region will forever be neighbors because of their geographic situation.’

“The Geneva agreement appears to be another step in America’s flight from the Middle East rather than a genuine effort to stop Iran’s rush to nuclear weapons.

“Saudi Arabia and the Gulf countries are still reeling.

“The special relationship between Washington and Riyadh had been the cornerstone of America’s policy in the Gulf and the Middle East for nearly a century. The United States needed Saudi oil and secure export routes through the Gulf. It supplied the kingdom with sophisticated weapons. The Gulf states believed themselves safe thanks to this special relationship, which endured for decades….

“For Saudi Arabia, the agreement also means that Iran has been given a tacit nod to pursue its subversive activities in the Gulf. This is a direct threat to the stability of the kingdom…

“Russia is making a spectacular comeback in the region while a new race for nuclear weapons is about to begin.”

“Not too many years ago, hardly anyone disagreed with John McCain when he first said that ‘the only thing worse than bombing Iran is letting Iran get the bomb.’ Today hardly anyone disagrees with those who say that the only thing worse than letting Iran get the bomb is bombing Iran….

“The Obama administration tells us that the interim agreement puts Iran on a track that will lead to the abandonment of its quest for a nuclear arsenal. But the Iranians are jubilant because they know that the only abandonment going on is of our own effort to keep them from getting the bomb.

“Adherents of the new consensus would have us believe that only two choices remain: a war to prevent Iran from acquiring nuclear weapons or containment of a nuclear Iran – with containment the only responsible option. Yet as an unregenerate upholder of the old consensus, I remain convinced that containment is impossible, from which it follows that the two choices before us are not war vs. containment but a conventional war now or a nuclear war later.

“Given how very unlikely it is that President Obama, despite his all-options-on-the-table protestations to the contrary, would ever take military action, the only hope rests with Israel. If, then, Israel fails to strike now, Iran will get the bomb. And when it does, the Israelis will be forced to decide whether to wait for a nuclear attack and then to retaliate out of the rubble, or to pre-empt with a nuclear strike of their own. But the Iranians will be faced with the same dilemma. Under these unprecedentedly hair-trigger circumstances, it will take no time before one of them tries to beat the other to the punch.

“And so my counsel to proponents of the new consensus is to consider the unspeakable horrors that would then be visited not just on Israel and Iran but on the entire region and beyond. The destruction would be far worse than any imaginable consequences of an Israeli conventional strike today when there is still a chance to put at least a temporary halt, and conceivably even a permanent one, to the relentless Iranian quest for the bomb.”

Syria: More than 800,000 Syrian refugees are at risk during a fierce winter storm in Lebanon. Heavy snow, wind and rain and no heat, where most of them are sheltering in informal camps in the north of the country and the Bekaa Valley. The BBC’s Jim Muir met one family that was burning old shoes to feed their fire because they could not afford firewood, despite their children being barefoot.

But in Syria itself, Islamist fighters are in an increasing three-way civil war against Western-backed rebels, as well as Assad, with the top rebel commander, Gen. Salim Idris of the Free Syrian Army, who I recently wrote of, being run out of his headquarters this week, forcing him to flee the country. As reported by the Wall Street Journal, the Islamists took over key warehouses holding U.S. military aid in northern Syria.

North Korea: Early in the week after learning Kim Jong Un had arrested his uncle, the de facto No. 2, South Korean President Park Geun-hye warned the purge shows that Pyongyang is carrying out a “reign of terror” that might jeopardize bilateral ties.

That proved to be quite prescient. Two days later, the North announced that Jang Song Thaek had been executed, and no one seems to have a clue, aside from President Park, just what the heck is going on in the Hermit Kingdom. To say it’s disconcerting would be an understatement. No one should be the least bit surprised to wake up one morning to learn of a major incident that rattles global markets.

Separately, South Korea announced an expansion of its air defense zone in response to China’s redrawing its ADZ.

China’s move to assert authority over a busy stretch of airspace in the East China Sea has raised concerns among commercial airliners. There are more than 1,000 flights a day that pass through the new air-defense identification zone. U.S. airlines are among those obeying the new zone rules, including filing flight plans with China. But Japanese and South Korean airlines are ignoring the rules.

It’s not a stretch to think back to 1983 and the downing by a Soviet fighter jet of Korean Air Flight 007, which had strayed into Soviet airspace. 269 died when the Soviets mistook it for a hostile aircraft.

But on a related matter, China has its hands full with the smog, with Chinese commercial pilots often flying blind. Many mainland airlines are requiring their pilots to upgrade their certification on landing in low visibility.

With each passing week, I am more convinced than ever the pollution issue will eventually topple the government.

I had a discussion here on Kiawah Thursday with a bartender, the issue of China came up (no one else in the place…what else to talk about?) and she said the hotel hires some Chinese interns for one-year periods. Great experience and a nice place to gain it.

So one of the Chinese girls came out, extremely pleasant, we talked about my upcoming trip there, she had to get back to work, and the other mentioned the girl doesn’t want to go back home.

Who would? There’s zero reason to. Who wants to worry the rest of your life how much dirt and soot you are ingesting every day. Who wants to worry about what’s in the drinking water? What chemicals are in the food? I’ve told you about the duck farms I’ve seen. I’m shocked we haven’t had a pandemic yet. It’s disgusting.

Moving along…Chinese business executives told a survey from PricewaterhouseCoopers that hacking of corporate computer systems is on the rise in China, including Hong Kong. 

But back to the smog topic, because I’ll never get away from it, the Global Times, a Party mouthpiece, editorialized…and I kid you not:

“Smog may affect people’s health and daily lives…but on the battlefield, it can serve as a defensive advantage in military operations.” [Chris Luo / South China Morning Post]

Russia: President Vladimir Putin dissolved the state news agency, RIA Novosti, by decree, and is installing a new state organ of his choosing. As the Wall Street Journal editorialized, “It seems the agency has sometimes offended the president by continuing to report too much news – publishing details, for instance, of protests and trials.”

Putin put a loyalist, Dmitry Kiselyov, in charge of the new body, which will be called Russia Today. It’s the Putin channel…24/7. The Moscow Times described Kiselyov as “aggressively pro-Kremlin.” He is infamous for praising Stalinist politics and saying in August that the hearts of homosexuals should be “buried or burned” if they were to die in an accident, the MT added.

Kiselyov himself said after being named the new station head: “Restoring a fair attitude toward Russia, an important country in the world that has good intentions, is the mission of the new organization.”

Wall Street Journal: “We wonder if (Edward) Snowden, the stealer of U.S. security secrets, and (Glenn) Greenwald, his chief propagandist, will be featured commentators on Russia Today? You’ll recall that Mr. Snowden sought and received asylum in Russia while he and Mr. Greenwald have loudly denounced America and Britain for spying without revealing a single violation of the law. These supposed stalwarts of transparency are apparently more comfortable in a country that won’t tolerate a free media.”

On a totally different topic, the Crown Prince of Bahrain, Sheikh Salman, gave an interview to The Daily Telegraph where he said the Obama administration would lose influence in the Middle East if it persisted with a “transient and reactive” foreign policy.

Citing Obama’s handling of the crisis over Syria’s chemical weapons, Sheikh Salman said some states were reviewing their relations with America.

“The Russians have proved they are reliable friends,” said Sheikh Salman, referring to Putin’s diplomatic intervention to prevent military action against Bashar al-Assad. “America seems to suffer from schizophrenia when it deals with the Arab world.”

Sheikh Salman did have another interesting comment: “The problem is that policy in America operates in two-year election cycles, and there is no long-term planning.” [The Daily Telegraph]

Thailand: Prime Minister Yingluck dissolved parliament and called for new elections, but protests continue.

Venezuela: It seems that President Nicolas Maduro’s hold on power was cemented in municipal elections held nationwide last weekend, with his leftwing United Socialist party of Venezuela getting 49% of the vote to 43% for the opposition coalition. But the opposition seems to have won in five of the most populous cities, including Caracas.

Iraq: The following from the New York Times’ Duraid Adnan sums up the current depressing state of affairs in this hellhole as the country hurtles towards another full-fledged civil war.

“Seven Sunni construction workers were killed by unidentified gunmen who fired on them from a speeding SUV on Tuesday morning in Abara, a majority-Sunni village in Diyala Province… When their families took the bodies to a ritual washing hall, a bomb exploded, killing six family members, two women and four men. That evening, a suicide bomber targeted a Shiite shrine in Diyala, killing 12 Shiites.” Said one security expert and former army officer, “Al-Qaeda has succeeded in its strategy. Now Sunnis think that the Shiites are killing them, and the Shiites think that the Sunnis killed them.”

Random Musings

--House Speaker John Boehner, as part of the budget deal, lashed out at some of the conservative groups that have so impacted congressional action the past year.

“They’re using our members, and they’re using the American people for their own goals, this is ridiculous,” referring to outfits like Heritage Action for America and the Club for Growth. Such groups were instrumental in the impasse that led to the government shutdown in October.

Republican Rep. Adam Kinzinger (Ill.) said outside groups are in competition with one another for money, devolving into a contest of who can be silliest.

“These groups exist on trying to create dissension within the party,” he said in an interview with Bloomberg. “They’re a very destructive force.”

From Wall Street Journal/NBC News, President Obama’s job approval figure came in at 43%, with a record 54% disapproving of his performance.

On ObamaCare, 50% of the people think it was a bad idea, only 34% believe it was a good one. 

For Republicans, there was some good news. For the first time since 2011, those surveyed gave Republicans a 44-42 edge over Democrats when it comes to who they would like to see control Congress next year.

In a USA TODAY/Pew Research Poll, Obama’s job approval is at 45% - 49% disapprove.

54% disapprove of ObamaCare, 41% approve, the worst rating for the Affordable Care Act in this particular survey since it was enacted 3 ½ years ago.

“Obama has been buoyed by the strong support he continues to get from some critical constituencies: 89% of African Americans, 81% of Democrats, 72% of liberals and 59% of Hispanics. But a year after he decisively won a second term, he faces significant erosion in support among some crucial groups of supporters.

“The president’s approval rating among 18- to 29-year-olds was at 67% in January; it’s 45% now. At the beginning of the year, 66% of those with postgraduate degrees approved of the job he was doing; now 52% do. Among women under 50, his approval dropped from 58% to 47%.”

A Quinnipiac University survey released Tuesday showed President Obama with just a 38% approval rating among registered voters, 56% disapproving. Among 18- to 29-year-olds in this one, only 41% approve – 49% disapprove. The Quinnipiac poll has Hispanics favoring Obama by a much smaller margin than the USA TODAY/Pew survey, 50-43.

Quinnipiac also finds Obama is not ‘honest and trustworthy’ by a 52-44 score.

By a 41-38 margin, respondents said they would vote for a Republican over a Democrat for the House of Representatives.

In a New York Times/CBS News poll, Obama receives only a 42% approval rating, 50% disapproval. But the same poll, recall, kind of shocked the world in mid-November when it registered just 37% for Obama, 57% disapproval.

No doubt, the fallout from the launch of HealthCare.gov has bottomed. While only 39% approve of the ACA, it was just 31% last month in this survey.

--Sen. Orrin Hatch (R-Utah) said of the Tea Party and its attempts to ‘primary’ the likes of Texas Republican Sen. John Cornyn, the No. 2 GOP leader, “They’re really undermining everything we’re trying to do here.” The path to conservative victories is through defeating Democrats, Hatch said. “You can’t do it by destroying sitting [GOP] senators.”

Republicans need to pick up six seats to win the majority (which would make Hatch the powerful Finance Committee chairman), with Democrats having to defend seven key battleground races in places where Obama lost in 2012. Please don’t blow it, Republicans.

--I’m not Cuban-American, so maybe I’m not supposed to understand, or comment on President Obama’s handshake with Cuban President Raul Castro at Nelson Mandela’s memorial service, but I totally cut Obama slack on this, long believing the sanctions regime against Cuban has outlived its value. Plus not shaking Castro’s hand certainly wouldn’t have been in keeping with Mandela’s legacy of reconciliation. That said, Castro could easily take a step or two to warrant real dialogue.

--New York City Mayor-elect Bill de Blasio is moving into Gracie Mansion with his family, this after Mayor Bloomberg opted to stay for 12 years in his Upper East Side townhouse and use Gracie Mansion strictly for functions. Rudy Giuliani did live in the residence.

It makes total sense for de Blasio to do this, especially from a security standpoint, but what is going to be interesting to watch is the dynamics involving his son, Dante, he of the big ‘fro that helped de Blasio immensely in his mayoral campaign (sad as it is to say). You see, Dante will now have a driver take him to his high school in Brooklyn (a good one), and many of his fellow students, being total jerks, are already making snarky comments.  

Ah, the days of social media. I’m not a Dante fan, but I sympathize with him on this one.

--A report titled “Nuclear Famine: Two Billion People at Risk,” put out by the watchdog group Physicians for Social Responsibility, concludes a hypothetical nuclear war in South Asia could trigger worldwide famine and “probably cause the end of modern industrial civilization as we know it.”

It’s about a “limited” nuclear war between India and Pakistan. An earlier report, 2012, put the number at risk at one billion. Everything from Chinese winter wheat to U.S. production of corn and soybeans would be impacted, the study notes. Increasing prices would exacerbate the shortage of available food.

“Significant, sustained agricultural shortfalls over an extended period would almost certainly lead to panic and hoarding on an international scale as food exporting nations suspended exports in order to assure adequate food supplies for their own populations,” the report says. “This turmoil in the agricultural markets would further reduce accessible food.”

Ira Helfand, who served as the lead author, told Global Security Newswire, “the data shows that the equivalent of 100 Hiroshima-size bombs could ‘probably cause the end of modern civilization as we know it.’”

100 nukes would be about half the combined stockpile between India and Pakistan.

“This is an unbelievably huge shock to the international system,” Helfand said. “We saw what happened to the world’s economy when the housing bubble collapsed in the United States – [here] we’re talking about a shock to the international economic-social system orders of magnitude larger than that. I think it’s quite hard to imagine how this much-more-fragile-than-we’d-like-to-think system can survive that.”

As reported by Douglas P. Guarino of GSN, it’s about firestorms being caused by the nuclear detonations that “would launch more than 6 million metric tons of soot into the Earth’s atmosphere,” blocking out sunlight...i.e., nuclear winter.

I had to include this item just because it’s interesting. To be accurate, Physicians for Social Responsibility has long advocated the abolition of all nuclear weapons.

--Archbishop Desmond Tutu’s home was robbed as he was attending the memorial honoring Nelson Mandela, the third time he has been targeted by thieves. In one of the earlier robberies, his Nobel Peace Prize medal was stolen but later recovered.

So speaking of Tutu, last week was not a time, I believed, to talk about Nelson Mandela’s faults. But it was Tutu who did note one of Mandela’s weaknesses when he was president.

“He retained in his Cabinet underperforming, frankly incompetent ministers. This tolerance of mediocrity arguably laid the seeds for greater levels of mediocrity and corruptibility that were to come.”

Tutu said Mandela exhibited a “steadfast loyalty to his organization and to some of his colleagues who ultimately let him down,” referring to the African National Congress, in part. [Christopher Torchia / AP]

And let’s face it, we all know South Africa is a mess. Heck, if you didn’t know, the incident with the “signer” at the memorial service tells you everything. Forget that this guy was an immense security threat feet from President Obama and other world leaders, but I forget which network reported that there was essentially zero screening of those streaming in from the streets to attend the service. The reporter was astonished.

I have written in the past of how in my travels I have met some terrific people from South Africa, businessmen (yes, in bars) who have told me how dangerous it is, and how they want to move their families out but can’t, because their job pays too well. 

40% of the population in South Africa gets by on less than $40 a month per family member. Whites still earn six times more than blacks. [Robyn Dixon / Los Angeles Times]

And back to the bogus sign language interpreter, as I go to post there’s a story breaking that ten years ago, the same guy was accused of murder.

--TIME magazine selected Pope Francis as its Person of the Year, with TIME saying he beat out Edward Snowden. Nancy Gibbs, managing editor, said of the pope, “He really stood out to us as someone who has changed the tone and the perception and the focus of one of the world’s largest institutions in an extraordinary way.”

A Vatican spokesman said: “The Holy Father is not looking to become famous or to receive honors. But if the choice of Person of the Year helps spread the message of the Gospel – a message of God’s love for everyone – he will certainly be happy about that.”

More on my feelings about the Pope next time…in response to Rush Limbaugh’s recent comments.

--NASA’s Mars rover, Curiosity, has found potential signs of life on the desolate surface, evidence of a past lake…Lake Mars…that was probably home to the Lake Mars Monster.

OK, I’m stretching it…but the signs are hopeful there was some form of life at one point.

Perhaps more amazing is the discovery made by the Hubble telescope that one of Jupiter’s moons, Europa, appears to be spewing (spraying water) through the ice; more like a gas that then falls back to the surface, as reported in the journal Science.

So perhaps while our attention has been directed at Mars and a Martian invasion, we should be more concerned about Jupiter, or rather the Europaeans…who bear a striking resemblance to…omigod…Angela Merkel!!! [Which isn’t a concern because she really doesn’t do anything, come to think of it.]

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

Gold closed at $1238
Oil, $96.44

Returns for the week 12/9-12/13

Dow Jones -1.7% [15755]
S&P 500 -1.7% [1775]
S&P MidCap -1.5%
Russell 2000 -2.1%
Nasdaq -1.5% [4000]

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

Dow Jones +20.2%
S&P 500 +24.5%
S&P MidCap +26.4%
Russell 2000 +30.3%
Nasdaq +32.5%

Bulls 58.2
Bears 14.3 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Catch me on Twitter @stocksandnews

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