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01/04/2014

For the week 12/30-1/3

[Posted 11:00 PM ET, Friday]

Washington and Wall Street

2013

Dow Jones +26.5%...best since 1995
S&P 500 +29.6%
...best since 1997
Nasdaq +38.3%
...best since 2009

A December AP-GfK poll found the number of Americans who feel the nation is heading in the right direction rebounded to 34% from its October low of 22%, and I imagine the above performance numbers were responsible for a few points of the increase, though 2013’s average 33% for this poll question is essentially the same as 2011.

I said last time I feel President Obama’s numbers have bottomed and will rebound slightly in 2014 because a better economy will trump items like ObamaCare, for now, especially since Americans couldn’t care less about the geopolitical scene even as the world continues to unravel.

Sticking with the current state of the economy, there were a few releases this holiday week, with the Chicago Purchasing Managers Index for December coming in at 59.1, down from 63.0 in November but still strong, while the December ISM reading was 57.0, on pace with expectations, as new orders soared to their best level since 2010. A Conference Board reading on consumer confidence for last month also rose to 78.1 from November’s 72.0. And the figure on November construction spending was better than expected.

The S&P/Case-Shiller housing index for October (reminder, this one lags a bit), showed U.S. home prices in 20 major metropolitan areas were up 13.6% year-over-year, but up just 0.2% October over September. There’s no doubt price appreciation has been slowing and this isn’t necessarily a bad thing but rising mortgage rates, at least off the May lows, continue to bear watching.

On Friday, however, we saw figures for U.S. auto sales in December and they were just so-so vs. expectations. Up 2% for Ford, 6% for Chrysler, but down 6% from year ago levels for GM.

Toyota also saw sales decline by 1.7% from a year ago when a rise had been expected, while Nissan’s rose 11% last month.

For all of 2013, among those reporting, Ford was up 11%, GM up 7%, Chrysler up 9%, Toyota up 7% and Nissan’s rose 9%.

The annualized sales pace for December is about 15.4 million, according to Autodata, which is just fine, but a little less than forecast. For all of 2013, 15.6 million. The low was 10.4 million back in 2009 at the depths of the Great Recession.

So I told you last week that I expect the U.S. economy to do just fine in 2014, but that U.S. equities will finish down 2% to 5% (the latter figure for Nasdaq) after a solid start. I just look for some big picture items to finally enter the investor mindset in the second half as I’ll address in a few moments.

For now, next week gives us a key labor report (they all are), while with a few exceptions, fourth-quarter earnings begin coming through in bulk the week of Jan. 13. 

Re ObamaCare...it’s too early to know just how the whole year-end rush to get coverage for Jan. 1 worked, but the evidence will roll in the next few weeks on the efficacy of the sign-up process and paperwork issues.

The administration said 2.1 million had enrolled in ObamaCare, including through exchanges run by the states, far short of the 3.3 million-enrollee target set by the White House before the launch, but a solid improvement on October and November. We do not have the latest numbers for new Medicaid enrollments.

I am not going hyperbolic in my commentary the next week or so on this topic until more facts are known, but what we do know is one critical thing. ObamaCare is going to cost way more than we were led to believe. The president, though, may catch a bit of a break in terms of the public debate if the economy grows more than expected, thus favorably impacting tax revenues while hiding the future cost of ObamaCare for a spell. The goal, after all, is to somehow get through the mid-term election with few facts getting out and Democrats somehow managing to hold onto the Senate, since it would seem regaining control of the House is a non-starter, at least as of the first week in January.

That said, we have the following:

Charles Krauthammer / Washington Post

“First order of business for the returning Congress: The No Bailout for Insurance Companies Act of 2014.

“Make it one line long: ‘Sections 1341 and 1342 of the Affordable Care Act are hereby repealed.’

“End of bill. End of bailout. End of story.

“Why do we need it? On Dec. 18, the chairman of the Council of Economic Advisers was asked what was the administration’s Plan B if, because of adverse selection (enrolling too few young and healthies), the insurance companies face financial difficulty.

“Jason Furman wouldn’t bite. ‘There’s a Plan A,’ he replied. Enroll the young.

“But of course there’s a Plan B. It’s a government bailout.

“Administration officials can’t say it for political reasons. And they don’t have to say it because it’s already in the Affordable Care Act, buried deep.

“First, Section 1341, the ‘reinsurance’ fund collected from insurers and self-insuring employers at a nifty $63 a head. (Who do you think the cost is passed on to?) This yields about $20 billion over three years to cover losses.

“Then there is Section 1342, the ‘risk corridor’ provision that mandates a major taxpayer payout covering up to 80 percent of insurance-company losses.

“Never heard of these? That’s the beauty of passing a bill of such monstrous length. You can insert a chicken soup recipe and no one will notice.

“Nancy Pelosi was right: We’d have to pass the damn thing to know what’s in it. Well, now we have and now we know.

“The whole scheme was risky enough to begin with – getting enough enrollees and making sure 40 percent were young and healthy. ObamaCare is already far behind its own enrollment estimates. But things have gotten worse. The administration has been changing the rules repeatedly – with every scrimmage-line audible raising costs and diminishing revenue....

“How are we going to survive this? Shrinking revenues and rising costs could bring on the ‘death spiral’ – an unbalanced patient pool forcing huge premium increases (to restore revenue) that would further unbalance the patient pool as the young and healthy drop out.

“End result? Insolvency – before which the insurance companies will pull out of ObamaCare.

“Solution? A huge government bailout. It’s ObamaCare’s escape hatch. And – surprise, surprise – it’s already baked into the law.”

From the New York Post:

“New York’s small-business owners, seniors and doctors are among the big losers as President Obama’s prescription for health-insurance reform takes effect.

“The National Federation of Independent Businesses, an organization that represents nearly 11,000 entrepreneurs across the state, says it has yet to find a single member whose health-care costs are going down under the ObamaCare program, whose plans took effect New Year’s Day.

“Meanwhile, an ‘overwhelming majority’ of businesses canvassed by the group has reported increases in their insurance premiums, said Mike Durant, the NFIB’s New York director.”

Europe and Asia

Frankfurt +25.5%
London +14.4%
Paris +18.0%

Tokyo +56.7%
Shanghai -6.8%

It was a good year for Europe’s stock markets, as the continent was emerging from a deep recession in fits and starts, perhaps best exemplified by the final PMI reading on manufacturing for the eurozone, which came in as first estimated at 52.7 vs. 51.6 in November. But you had Germany at 54.3 and France at a still sickly 47.0, down from 48.4 in November. [Separately, the UK was 57.3 vs. 58.1 in November]

There is no doubt that with few exceptions, such as in France, the eurozone is recovering, but growth for 2014 is still just expected to be in the 1% range. Maybe it surprises to the upside, but as I note below there is a big picture item that could roil markets and potentially the region’s economy.

What we do know is that some such as Spain are seeing stronger retail sales, up 1.9% in November year-over-year, while unemployment there fell in December by the most on record for the month, though officially the jobless rate is still 26% until we get the quarterly data later on.

And Italy had a solid PMI number for manufacturing, 53.3, but there remain deep issues here with urgent reform needed for the economy.

The biggest single issue, economically, however (aside from unemployment), is whether the banks will begin to lend, even as they continue to shore up their balance sheets under new capital requirements. For his part, European Central Bank President Mario Draghi has convinced investors the ECB will provide a back stop where necessary but a true, much-needed banking union still requires further work.

One potential positive is the movement for less austerity, and a big shout out to the new 18th member of the eurozone, Latvia!

A negative this week was gunshots being fired at the German ambassador’s residence in Athens. Six detained. 60 shots fired. Greece takes over the EU six-month rotating presidency this month and Germany continues to be vilified for the tough austerity program it insisted on for Athens in order to receive its $330 billion in bailout aid.

French President Hollande’s 75% top tax rate for those earning $1.35 million and over received high court approval after it had been overturned by an earlier ruling. The rich don’t like it and will move, though it’s just for two years and the polls show the people, very shortsighted, approve of the move.

British Prime Minister David Cameron, who has a lot to be proud of, took a swipe at France, without naming it, in vowing to make 2014 the year that Britain starts turning into the world’s “post-Great Recession success story,” which I had predicted way back would be the case though this year is the key to see whether it sticks.

Cameron was clearly talking of France and Hollande’s policies when he urged voters to reject any shift towards “more borrowing, more spending and more debt” by urging them to look at countries following that approach. “They face increasing unemployment, industrial stagnation and enterprise in free fall. The opposite of what’s happening here,” he wrote in an op-ed for the London Times.

For his part, in a New Year’s address, Hollande told the French people his top priority is to lower unemployment, currently running at 11%. He also vowed to lower taxes (except his cherished temporary levy on the rich).

German Chancellor Angela Merkel said eliminating the budget deficit and completing her nation’s transformation from coal and nuclear energy to renewables were the priorities of her third four-year term.

Turning to Asia, China released PMI data on manufacturing for December and it wasn’t great, 51.0 vs. 51.4 in November, while the service sector PMI came in at 54.6 vs. 56.0 for the preceding month. So there remain growth concerns. New home prices for December rose last month, up 0.4% over November and up 10.4% from a year earlier.

A new study by a top central planning authority revealed that local government debt has surged 70% since mid-2010 to $2.95 trillion, with 40% of it maturing by end of this year, placing huge pressure on local governments to come up with the cash to make repayments.

So the government is giving them the go-ahead to issue bonds as a way of rolling the debt over, a process already underway in many parts of the country.

Many are saying this is the next crisis, but I agree with economist Tao Wang of UBS who said the debt level was “manageable” even as the rapid rise was “alarming.”

What it further points out, though, is how China must continue to move away from an investment economy to a consumer-led one, the burgeoning debt having financed major infrastructure programs, including for bridges, roads and sewers, as well as housing and commercial real estate developments. But it’s certainly an issue to watch this year.

In Japan, as you can see from the spectacular market returns in the Nikkei for 2013, Abenomics was a success. Prime Minister Shinzo Abe has said his priorities for 2014 are the economy and military reform, but now the key is, how will the public take the April sales tax hike from 5% to 8%? It’s just not known what the impact will be, though the Bank of Japan is estimating the economy’s growth rate will fall from a projected 2.6% in 2013 to 1.4% this year as a result.

1.4% would be OK. What Japan needs is steady inflation after decades of deflation, and it also needs to begin the long road to straighten out its finances, which is the reason for the tax hike (and another planned for 2015 to take the rate to 10%).

It’s about business confidence and whether there is capital investment and wage hikes for workers who would then spend it.

Abe’s approval numbers have been sliding to between 49% and 55%, depending on the survey, down from 70%+ when he first took office in this second go around for him, and the majority disagrees with his Yasukuni shrine visit.

2013 and 2014

So on the Big Picture, geopolitical stuff, what did I say would happen in 2013? Did I get a single thing right?

Week in Review 12/29/12

“China and Japan will not come to blows in the East China Sea as both new leaders focus on their respective economies.”

That wasn’t bad.

“The European debt crisis will re-emerge in a big way, starting with Spain and Greece, with major social unrest finally taking root. Greece’s governing coalition will be toppled. Golden Dawn, with the police as a major ally, will create mayhem from time to time and scores could be killed.

“Otherwise, it’s all about Chancellor Angela Merkel’s re-election in Germany next September.”

Missed badly on this front. Golden Dawn was actually rolled up by the Greek government (though it’s still lying in the shadows).

I said “Syria will remain a hellhole! OK, that’s not a shocker, but does not bode well for the entire region as the civil war, which will remain even if Assad finally exits the scene, leeches into its neighbors.”

And it more than leeched when it came to Lebanon and Iraq, so I was OK on this one.

“Iran? They have a presidential election to replace Ahmadinejad and Supreme Leader Ayatollah Khamenei will attempt to buy more time through another round of fake negotiations over the nuclear program. But a report will emerge that Iran is perfecting a nuclear trigger (weaponization), putting immense pressure on Benjamin Netanyahu to act. He won’t get any help from Washington.”

Not bad. Not totally correct but not bad.

I said “Hamas will take over the West Bank in a move that will rock Israel to its core.”

Not yet.

“Egypt’s upcoming parliamentary elections will be chaotic as the Muslim Brotherhood and the Salafists become even more entrenched. Morsi, in over his head, will make one mistake after another. The military, though, will stand back and try not to get involved beyond riot control.”

Well, I certainly got it right that Morsi was in over his head right. But the military did more than riot control. So a ‘C-’.

“Vladimir Putin will be the victim of a terror attack... possibly a car bombing a la Rafik Hariri in Beirut, 2005.”

Missed this one.

“But while Barack Obama tries like heck to avoid dealing with Iran, he won’t be able to avoid dealing with North Korea, as their chubby leader test-fires more long-range ballistic missiles capable of hitting the United States. One launch will fail. Another, though, will succeed spectacularly well.”

I’ll stop here. This wasn’t bad. We learned one of the long-range tests did indeed work very well, which is why the U.S. repositioned more of its missile defense assets to Alaska and California.

“The United States will deliver an ultimatum to Kim Jong Un...cut the crap. Kim will fire a short-range missile at South Korea in response, though at a relatively sparsely populated area with minimal casualties. Seoul will not retaliate...immediately...but the U.S. will be under pressure to take out the Yongbyon nuclear facility, though fears over the spread of nuclear fallout will preclude this...for now.”

Just fast-forward the preceding paragraph to about September 2014.

“Robert Mugabe will finally die in Zimbabwe and StocksandNews will rejoice. Hugo Chavez’ days are numbered.”

Chavez did indeed die March 5. But Mugabe lives on...much to the detriment of his people. He cannot die soon enough. He should have been taken out in 2000.

So aside from my note on North and South Korea, what else will happen in 2014?

I’m big-time focused on the European Union parliamentary elections in May (May 22-25) and the impact the far right will have. The eurozone economy may be improving, but it’s all about unemployment when it comes to the masses; ‘jobs and the impact of immigrants’ for many in countries such as France, the Netherlands, Belgium, Austria and Denmark. There is a chance the far right, collectively, is the leading party when the votes are tallied. These are the folks who do not like the EU. Sentiment, and the rhetoric, could be extreme come the spring; potentially impacting the euro recovery if it gets out of hand.

What Europe needs in the next few months are some outstanding economic numbers but the data will largely fall short.

In the Middle East, the Iraqi military will be put to the test to regain control of Anbar province after al-Qaeda’s recent inroads. The U.S. will become increasingly under pressure to help in some way, become re-engaged in more than just giving military aid. Some of our Special Ops Forces will go back (more below).

Lebanon will see a surge of car bombings, it’s inevitable, and the Lebanese Army at some point will confront Hizbullah in pitched battles. Hizbullah will begin withdrawing its troops from Syria to deal with the issues back home. Al-Qaeda and its minions will gain a strong foothold in Syria, while trying to do the same in Iraq.

As for Iran and the nuclear talks, they’ll just go on and on, until they finally break down. This will help roil financial markets once reality sets in. Military action will be inevitable. I’m just not sure it occurs this year. What will be interesting is how President Obama judges the political dynamic and the Nov. mid-term election here in terms of what to do about Iran. And of course Benjamin Netanyahu will be under immense pressure to act himself. It depends on when the talks fail.

I comment on the Sochi Olympics below. I agree with Ralph Peters from four years ago. It will make Munich look like a terrorist amateur hour by comparison.

Moscow will receive at least one large-scale terror attack of its own, killing at least 50. I’m not commenting on Putin this time in terms of his fate.

Ukraine will continue to be roiled, but it’s not a market-moving event. Tymoshenko will be released from prison.

As for China and Japan, they will again skate by and avoid a direct military confrontation, though there will be a few close calls. Should something happen, though, Katy bar the door. President Xi may not be able to hold his generals back.

The pollution issue in China will continue to be front and center and there will be lots of stories of international businesses pulling out of the country because of it. Growth will come in less than expected.

Nicolas Maduro in Venezuela will be removed in a coup.

Robert Mugabe will be killed by a lion that enters his bedroom, the door conveniently left open by his servant who will have finally had enough.

What will be clear throughout 2014 is that the world will be crying out for U.S. leadership and little will be forthcoming.

Daniel Henninger / Wall Street Journal

“As the year turns, the subject becoming impossible to duck is growing global disorder. The days before the New Year brought two suicide bombings in Russia and a major political assassination in Lebanon. Throw a dart randomly at a map of the Middle East or Southeast Asia and it will hit trouble.

“It is no surprise that in conversations of late one hears invocations of the 1930s. Or that a popular book to give this season has been Margaret MacMillan’s ‘The War That Ended Peace: The Road to 1914.’

“Whether the world in 2014 will tip from containment to chaos or war is not the subject here. The subject is rediscovering the antidote to war, which is strong global leadership. The world we inhabit now doesn’t have enough of it. Or any of it for that matter.”

I couldn’t agree more. And as Henninger notes, “Because polls say Americans are in an isolationist mood, Mr. Obama won’t spend political capital outside the country – Ukraine, Syria, Asia. He wants to spend what capital he has left consolidating internal federal authority. The Iran nuclear deal is an obsession, similar to promoting windmills after the fracking revolution.

“It falls to the rest of the political class in the U.S. to recognize that one of the clearest signs of a potentially dangerous breakdown in international order isn’t just poor leadership. Worse is when national populations in many places lose faith in their leadership. During normal times, what comes next is just another government. But in a world with as many disturbances as now, what comes with intense national disaffection and frustration is rarely good. Surly publics often open themselves to anti-political solutions.”

Henninger’s solution: “If the U.S. wants to remain a big-league nation, it’s going to have to elect a big-league president.”

The other week The Economist editorialized on uncomfortable parallels with the era that led to the outbreak of the First World War:

“Thanks to its military, economic and soft power, America is still indispensable, particularly in dealing with threats like climate change and terror, which cross borders. But unless America behaves as a leader and the guarantor of the world order, it will be inviting regional powers to test their strength by bullying neighboring countries.

“The chances are that none of the world’s present dangers will lead to anything that compares to the horrors of 1914. Madness, whether motivated by race, religion or tribe, usually gives ground to rational self-interest. But when it triumphs, it leads to carnage, so to assume that reason will prevail is to be culpably complacent. That is the lesson of a century ago.”

Finally...on a totally different topic, I’ve been reading a lot lately on the backlash in San Francisco and parts of Silicon Valley among older residents and the impact of the latest wave of Internet wealth on housing values in particular. Richard Waters of the Financial Times makes some great comments.

“The projectile that recently broke the window of a bus in San Francisco carrying Google employees to work felt like an intrusion from the real world into the rarefied air of Silicon Valley’s technology elite.

“The missile came from protesters objecting to creeping gentrification caused by highly paid tech workers, who have pushed up rents and home prices in the city’s Mission district and surrounding areas. What better target than the fleets of WiFi-equipped company-owned buses that ferry workers down the peninsula south of San Francisco to the headquarters of businesses such as Google, Facebook and Apple?

“Though this is a local dispute, it is also one of those episodes that highlight an issue of much wider significance. Last year brought a subtle but important shift in the public perception of the golden children who have prospered from the latest internet boom.

“In the aftermath of the financial crisis, Silicon Valley was seen as a bright spot in a very gloomy economy. When President Barack Obama sat down to dinner nearly three years ago to talk about innovation and job creation with a group of tech notables, including the late Steve Jobs of Apple, it was a not-so-veiled bid to associate himself with the most dynamic part of the business establishment....

“Since then, a smartphone-fueled boom has seen new riches showered on the lucky few in the tech world, even as the economy has struggled to grow and the lot of many workers has worsened.

“The feeling has also grown that, however much Silicon Valley likes to style itself the ultimate meritocracy, not all the riches have been deserved. In November, when it was barely two years old, photo-sharing app Snapchat turned down a $3 billion bid from Facebook: how can the industry not start to feel like a giant lottery? With headlines like this among the breakout tech stories of 2013, a backlash is almost inevitable.

“So far, this has done nothing to disturb the complacency that has settled over much of the Bay Area’s technology industry....

“But the insularity has its price. In product terms, it often leads to an opportunistic ‘me too’ approach in which genuine innovation takes a back seat. And it creates a tone-deaf society in which wider social and economic issues can feel distant. Success comes to be measured out in clicks or app downloads rather than real impact on the world.

“An air of invulnerability creeps in during good times....

“Some of the results – such as new forms of mass communication or easier access to information – have been shared widely. But when it comes to wealth and jobs, a lucky few have reaped much of the benefit....

“(One) question that became hard to ignore last year was whether, knowingly or not, the U.S. companies that dominate global internet activity have helped to foster sweeping government surveillance of their users....

“It would be nice to think that questions such as these will receive a more thorough airing in Silicon Valley in 2014 – preferably without more rocks being hurled at the privileged few. But to judge by the self-absorption that has characterized other technology industry booms, it would not do to count on it.”

Street Bytes

--So we rang out 2013, took a day off, and rang in 2014 with the first loss for an opening day trading session since 2008, not that this means a lot. I do like the January barometer, however, in terms of the trend in the first month setting a tone for the rest of the year (not just the first five days as others tout). But, this will be meaningless in 2014, of this I’m sure, whether January finishes up or down. The biggest stories will come in the second half (including the actual impact of the EU parliamentary elections) and not many of them will be good, as I strongly hinted above. 

For the record, though, an average of 20 forecasts for the S&P 500 as compiled by Bloomberg has 2014 ending with the benchmark at 1950, not much higher than the 12/31 close of 1848.

Complete return figures for the week down below.

--U.S. Treasury Yields

12/31/13

6-mo. 0.09% 2-yr. 0.38% 10-yr. 3.03% 30-yr. 3.97%

[10-yr. was 1.76% on 12/31/12]

1/3/14

6-mo. 0.09% 2-yr. 0.40% 10-yr. 2.99% 30-yr. 3.92%

The Barclays U.S. Aggregate Bond Index declined 2% last year and the average core bond fund, including PIMCO’s Total Return Fund managed by Bill Gross, was down a like amount. [It was Gross’ worst performance since 1994.] High-yield funds, on the other hand, were up an average 6%.

--In the last big policy speech of his tenure on Friday, Fed Chairman Ben Bernanke gave an upbeat assessment of the U.S. and global economy, saying there were “some grounds for cautious optimism.” Regarding the U.S., specifically, he said the recovery “clearly remains incomplete,” but headwinds could “now be abating.”

--Netflix was the big winner in the S&P 500 for 2013, up 297%; Newmont Mining the big loser, down 50%.

NFLX 12/31/12...$92.60...12/31/13...$368.20
GOOG 12/31/12...$707...12/31/13...$1120
AMZN 12/31/12...$250...12/31/13...$399
TSLA 12/31/12...$33.90...12/31/13...$150.20
FB 12/31/12...$26.60...12/31/13...$54.65
YHOO 12/31/12...$19.90...12/31/13...$40.45

--Back to the S&P/Case-Shiller housing data for October, Las Vegas has a year-over-year gain of 27%, San Francisco 24.6%, and Los Angeles 22.1%. Conversely, the New York area and Cleveland markets have advanced just 4.9% during this time period vs. the national average of 13.6%.

Actually, an analysis of Zillow price data by the Wall Street Journal found that home values are up more than 13% from their 2007 peak in Oklahoma City and by 6% in the Denver metro area.

--South Korea’s exports jumped 7.1% in December from a year ago (up 8.4% to China, 13.2% to the U.S.), an impressive performance. For 2014, the Ministry of Trade is forecasting 6.4% growth vs. an estimated 2.2% for 2013.

--China is finally going to begin approving firms to list on mainland exchanges, ending a freeze on initial public offerings in place since October 2012 to stamp out equity market fraud and restore confidence in domestic markets. Five have been approved for listing shortly and another 50 or so are behind them.

--Revlon announced it was planning to leave China, resulting in the loss of 1,100 jobs, with the cosmetics manufacturer saying it would save the firm around $11 million a year amid declining global sales.

--Gambling revenue in Macau surged 19% last year to $45.2 billion, and as the Journal put it, “It now takes Macau’s gamblers just one day to wager what’s bet in an entire week on the Las Vegas Strip. Deutsche Bank forecasts revenue will grow by 20% in 2014. 

As for Vegas, analysts estimate revenue rose only 3% in 2013 to $6.4 billion. Las Vegas represents 10% of the U.S. gambling market, according to PriceWaterhouseCoopers. Atlantic City revenue continues to plummet from its 2006 peak.

--Hewlett Packard announced another 5,000 job cuts, bringing the total to 34,000, or 11% of its workforce, by the end of 2014.

--IBM was the only losing stock in the Dow Jones in 2013 ($191.50 to $187.50), which is in keeping with the fact the company has seen declining sales for six straight quarters, dragged down by sluggish demand for computer hardware. Yes, earnings continue to rise but it’s all about financial engineering...job cuts, asset sales and such. And of course the impact of the cloud, which IBM is getting more and more involved in but new competitors are winning the day.

--Gold lost 28%, from $1675 on 12/31/12 to $1202 as we finished up the year. It was the worst performance for gold since 1981, when it fell 33%.

--Despite Europe’s rally in 2013, some of the indices are far from their pre-financial crisis peaks, such as France, off 30%, Italy 57% and Spain, off 38%.

--The price of regular gasoline averaged $3.49 a gallon this year, compared to an average of $3.60 in 2012 and $3.51 in 2011. The high for a national average was Feb. 26 at $3.79. The low was $3.18 on Nov. 11. [Barbara Powell / Bloomberg]

--The fiery train derailment 25 miles west of Fargo, N.D., was a highly significant event. The train was hauling 104 tank cars filled with Bakken crude oil and many of the cars exploded one after the other after the BNSF Railway Co. train hit another train. As the mayor of nearby Casselton said, it could have been a disaster for his 2,400 residents on the scale of the accident last summer in Quebec, killing 47 and incinerating part of the town of Lac Megantic. The train that derailed near Casselton normally goes right through town and had the accident occurred there, it would have been catastrophic.

So the significance is that you’ve had not just these two crashes involving rolling bombs, but there have been others, all carrying crude from the Bakken to refineries in the U.S. and Canada. The rail traffic has exploded with North Dakota’s booming output. Nearly 750,000 barrels of crude are now transported by rail.

[The number of crude oil carloads hauled by rail has surged from 10,840 in 2009 to a projected 400,000 last year. So the actual safety record, by the numbers, is strong, but you know, if it bleeds, it leads.]

But not only has the practice become part of the Keystone Pipeline debate, the government is looking into whether there are impurities in the oil and whether it is being handled properly, including using sturdier rail cars. It may be something as simple as crude being mislabeled. Some is more combustible than other types.

As the Wall Street Journal also reported, “About 70% of crude transported in the U.S. by railroad is now carried on oil-exclusive unit trains, rather than on trains with mixed loads.” National Transportation Safety Board Chairwoman Deborah Hersman warned that “a more significant hazard results when the entire train is assembled with only crude oil.”

--Closing price of Light Sweet Crude past few years:

12/10: $91.38
12/11: $98.83
12/12: $91.80
12/13: $98.42

[Lots of other market stats on my “Wall Street History” link.]

--U.S. farmers grew a record 14 billion bushels of corn last year. Land values in states like Iowa have surged 77% in the past four years, but now lower prices for grain and corn could reverse this trend and that would spell trouble. 

Plus, Iowa State University estimates corn prices could fall 25 cents a bushel in 2014 owing to a proposed cut in a U.S. mandate for ethanol use, a major pillar for corn demand.

But then I saw a story in the South China Morning Post that mainland authorities are tightening screening procedures to check for an unapproved strain of genetically modified grain that led to a big plunge in sales to Chinese customers the week of Dec. 16. Like just 19,000 tons of corn were booked vs. 124,000 in the previous week.

It seems the Chinese are just playing games, specifically over a certain GM variety of corn that has been awaiting China’s approval for more than two years. [I have no clue on this stuff, but for Jeff S., who works with Cargill, Syngenta AG’s MIR 162.]

--Coffee prices fell 20% last year, after finishing lower in 2011 and 2012; down 49% since 2011. Classic oversupply, and it’s expected to remain that way at least the first few months of 2014.

--But cattle prices hit a record on Friday amid expectations of tight supplies, which have been building for some time, going back to the devastating drought of 2012, though now some ranchers are taking advantage of low-feed costs to retain some cows for breeding to expand thinned herds, thus further reducing supply, at least temporarily.

--Skype was hacked by the Syrian Electronic Army, supporters of President Bashar Assad, which wrote on a Skype blog page, “Stop Spying!” referring to Skype’s alleged involvement with the National Security Agency’s surveillance program. Others named in documents leaked by Edward Snowden that showed the U.S. government was able to access private data about conversations were telecom operators such as Verizon, as well as Google and Facebook.

Skype and the others have all denied giving the NSA permission to access their customer data in bulk and without a warrant.

Apple denied knowing of an alleged attempt by the NSA to create a secret “backdoor” for hacking into the iPhone.

--And Snapchat was hacked with hackers getting hold of 4.6 million phone numbers and user names. The company vowed to release an updated version of the app that will allow Snapchatters to opt out of appearing in Find Friends after they have verified their phone number. Snapchat had been warned last summer by a security firm that it was vulnerable to hacks and did nothing.

--Facebook is facing a class-action lawsuit claiming that when users share a link to another website via a private message, Facebook scans it to profile the sender’s web activity. The suit alleges Facebook systematically intercepts messages to mine user data, which it then sells to advertisers and marketers.

--Mandiant, the U.S. cybersecurity company that last year accused the Chinese military of hacking more than 100 U.S. companies, was acquired for more than $1 billion by FireEye, a New York-listed cyber threat detection company. David De Walt, chairman and CEO of FireEye, said the revelations of NSA mass surveillance and Mandiant’s report on Chinese hackers had “accelerated business opportunities” for the company.

--Spain’s national police, working with U.S. authorities, arrested eight members of a global banking hacking network responsible for stealing $10s of millions from cash machines worldwide. Six were Romanians and the other two Moroccans.

“In February, the group acted simultaneously in 23 countries and stole $40 million in just a few hours through 34,000 cash withdrawals, the police said.” [Manuel Baigorri / Bloomberg]

--According to an analysis of Census data by William Frey of the Brookings Institution, the nation’s population only grew 0.72% between July 2012 and July 2013, to 316,128,839...or is it 316,128,840...

This is the weakest rate of growth since the Great Depression, says Frey.

Actually, the Census said Monday that the population would hit 317.3 million on New Year’s Day, also up just 0.7% from New Year’s Day 2013.

At the height of the baby boom in the 1950s, the population grew about 1.8% a year on average. [Neil Shah / Wall Street Journal]

--Sales of Manhattan apartments hit a record in the fourth quarter owing in no small part to wealthy international buyers surging into the market. Said one property broker, “Demand from foreign buyers has never been stronger.” The median price of a luxury apartment jumped 10% from a year ago to $4.9 million. Yup, there is Bill de Blasio’s tale of two cities. [Wall Street Journal]

--According to the New York Post, David Tepper, founder of Appaloosa Management, with more than $20 billion under management, is in line for a $3 billion-plus payday for 2013, when his flagship Palomino fund was up an estimated 42%, after fees. Tepper earned $2.2 billion in 2012.

Tepper, based nearby, has been generous in his philanthropic efforts, most recently following Hurricane Sandy. Appaloosa has an annualized return of 27% since he launched the hedge fund in 1993. I saw one recent piece that pegged him as the wealthiest individual in New Jersey. Hey, with returns like these, good for him. And good for the business school at Carnegie Mellon that has his name on it.

--I keep forgetting to note that the Dunkin’ Donuts downstairs has had a sign up for a month or two about not accepting $100 bills “due to counterfeiting.” It really is far more prevalent than many in my area, at least, probably know.

Foreign Affairs

Iran: The country appointed two hardline lawmakers’ to the group charged with overseeing discussions over the nuclear program with the P5+1, because as an Iranian lawmaker told the state-run Fars News Agency, “This measure has been adopted because the negotiations didn’t move in our interest much in the first stage” of talks.

So you have a battle between moderates and hardliners in the Iranian power structure.

Talks were held in Geneva this week on implementation of the Nov. 24 agreement, but there is still no definitive word on when this will actually take place. It boils down to how Iran suspends some uranium enrichment and how western governments would then ease sanctions.

Israeli Prime Minister Netanyahu warned in a Cabinet meeting Sunday that Iran is “currently developing centrifuges that are capable of enriching uranium six times faster than its regular centrifuges. We are monitoring these developments and are pointing them out to the world.”

So if Iran broke its agreement with the West, it has the capacity for a quick “breakout.” [If you believe Israeli intelligence.]

Lebanon: The war in Syria continued to spill over into Lebanon and Iraq. Another car bomb in Beirut killed at least five and wounded over 70 on Thursday. The attack took place in a suburb popular with Hizbullah. Tension is so high these days the Lebanese Army urged the hundreds who rushed to the scene to pull bodies out of the rubble to leave, fearing further bombs.

Separately, the Lebanese Army has been deploying along the northeastern border with Syria as rebel groups there are mounting an offensive to retake key Syrian towns partially held by Hizbullah-backed fighters working with the Syrian Army.

To show you how complicated and explosive the situation is, Lebanese officials arrested a Saudi citizen who commands the al-Qaeda-aligned Abdullay Azzam Brigades, a Sunni militia with factions in Lebanon, over alleged involvement in the bombing of the Iranian Embassy in Beirut that killed 23. But the Saudis are trying to extradite him. A Saudi...with direct ties to al-Qaeda...no problem. Needless to say, Iranian diplomats in Beirut want to be involved in the investigation of the bombing.

And in the middle sits the incredibly dysfunctional Lebanese government.

Sami Nader, a professor in Beirut, told The Daily Star: “Lebanon is paying the price of a regional bloody ping-pong game. This game will continue because there is no single chance for any regional summit to bring about political solutions to the conflicts in the region.”

Saudi Arabia this week took a huge step in offering $3 billion in aid to Lebanon’s army – which will allow the government to purchase arms, from France, to counter Iranian-supplied Hizbullah.

As an Iranian analyst told the Los Angeles Times, the aid from Riyadh “is going to be undermining all the interests gained [by Iran] in Lebanon and Syria in the past 34 years.”

Iraq: What a disaster. Militants with links to al-Qaeda are threatening to take over towns in Iraq’s Anbar province, a Sunni Muslim stronghold, from the Shiite-led government. Al-Qaeda offshoots are on the verge of capturing both Ramadi and Fallujah, which was a focus of the 2007 U.S. “surge” in Iraq. Again, it’s all about Syria and the proxy war between Iran (Shia) and Saudi Arabia (Sunni). Said Ryan Crocker, former U.S. ambassador to Iraq, in an interview with Bloomberg:

“If al-Qaeda manages to really take hold of western Iraq, that’s a pretty substantial base on Arab territory, where they’d have security and the space to start thinking about operations wherever they want to think about. It’s exactly what they had in Afghanistan before 9/11.”

The U.S. has been sending increased military aid to the Nouri al-Maliki government and thus far the violence hasn’t impacted oil output, which increased to 3.2 million barrels last month. But during an Iraqi military raid against a Sunni MP in Ramadi, his brother and five guards were killed, with further battles killing ten, and then 44 Sunni MPs immediately announced their resignation, calling for Iraqi troops to withdraw from all of Anbar.

So Maliki, in a compromise, agreed to withdraw the army from the cities, but then reversed himself on Wednesday and troops stormed back in.

Looking back, of course, it was a critical mistake on the part of the Obama administration not to have secured a bilateral agreement that would have allowed some U.S. forces to stay in the country. Iraq’s military capabilities have done nothing but decline since then.

Crocker said there would be a chance that increased aid today could lead to at least some Special Ops advisers being sent in to at least operate surveillance drones.

Syria: Between 6,000 and 7,000 foreign fighters have taken up arms with rebels against the Assad regime, according to an Israeli study. That’s 6,000 to 7,000 who become further radicalized, gain military experience, and then potentially wreak havoc when they go back home, with the vast majority, 4,500, being from the Arab world.

As for those coming from Western Europe and other Western countries, it is estimated to be more than 1,000, with most from Britain, France, Holland and Germany. [Jerusalem Post]

This week the Syrian Observatory for Human Rights said the death toll from the nearly three year war now stands at 130,000, including 46,000 civilians. It also includes 29,000 rebels and 52,000 pro-government forces, including some from Hizbullah.

Meanwhile, so much for the Dec. 31 deadline for removing chemical-weapons materials from the country. The powers that be due have a legitimate excuse in that the weather was horrid there for a good stretch. But the highest priority stocks must be moved to the coastal city of Latakia, where they are to be loaded onto foreign vessels and taken away for destruction at sea.

So in a few years, look for some mutant sea monsters in the Mediterranean and some terrific action flicks. Too bad Ray Harryhausen passed away last year.

China / Japan:

The South China Morning Post ran an analysis from Agence France-Presse on the difference between Chinese President Xi Jinping and Japanese Prime Minister Shinzo Abe, who “are locked in a spiraling diplomatic stand-off but their burgeoning rivalry contrasts with striking personal parallels between the two, analysts say.

“While they have emerged through very different systems – one a democracy and the other a one-party state – they are both sons of elite politicians, have suffered serious personal or political setbacks and spout dreams, patriotic visions for the future.

“Similarities in outlook underlie their nationalist and economic agendas, and both are seeking to rejuvenate their countries, the world’s second- and third-biggest economies. As one expert at the Chinese University of Hong Kong told AFP, ‘nationalism has been a potent force which they can exploit to consolidate their position.’”

Of course Abe’s visit to Tokyo’s controversial Yasukuni Shrine, which honors several high-level officials executed for war crimes after World War II, was the latest spark between the countries, this after Beijing declared an air identification zone over islands in the East China Sea claimed by both but controlled by Tokyo.

“Xi has pushed what he calls the ‘Chinese Dream’ and has referred to the ‘great renaissance of the Chinese nation,’ vowing to pursue a stronger military, overhaul an outmoded economic growth model and cleanse a ruling party riven with corruption.

“Abe was voted in vowing to rejuvenate Japan’s long moribund economy after two so-called ‘lost decades,’ amend its war-renouncing constitution and take a more positive view of Japan’s past with the slogan: ‘Take back Japan.’”

As David Zweig, a professor at Hong Kong University of Science and Technology, added, the two face similar challenges.

“Power-wise, China is in ascendancy but morally it’s in decline and so that’s why you get this effort by Xi to impose a new morality, a Maoist morality, an anti-corruption morality, a dream of greatness morality, a unification morality,” he said.

“Abe is clearly trying to end the 22 years of decline. And the way you do that, he probably figures, is through enhancing nationalism, rewriting the past, giving people a more positive sense of who they are as Japanese, strengthening the military, not being so passive in international affairs.

“An assertive leader in Japan clearly can have an impact and I think that’s quite true in China,” said Zweig. “So their own backgrounds should have an important influence.”

In his New Year’s address, first as China’s president, Xi stressed “2014 we will make new strides along the path of reform,” with the emphasis on topics such as loosening the one-child policy, increasing property rights for farmers and encouraging more private investment in more industries.

China also officially abolished re-education labor camps, as rumored, last weekend. Rights groups estimate that up to 300,000 people a year were confined. The one-child policy has been expanded to allow couples to have two children if either parent is an only child. Previously, a couple could only have two children if both parents were only children. It is estimated the reform will lead to two million additional births a year, raising the total from seven million to nine million. [Sydney Morning Herald]

Meanwhile, the Global Times, a government mouthpiece, reported that China’s top 10 journalism schools will have a stronger focus on Marxism to “cultivate outstanding journalists for the Party.”

And in an official document issued by the Communist Party Central Committee, it was reported that China is ordering Communist Party officials to “lead by example” and refrain from smoking in public places, including schools, hospitals, sports and cultural venues. According to a survey in the People’s Daily, an average of 740 million Chinese are exposed to second-hand smoke daily. [New York Times]

Crazy story from a seaside village in Guangdong as “3,000 well-armed policemen and paramilitary troops, aided by helicopters and coastguard speedboats,” swooped in for a drug bust.

3,000?! Such force was warranted.  They were dealing with a huge, violent drug gang armed with AK47s, homemade hand grenades and cross bows and the massive operation yielded 3 tons of crystal meth and 23 tons of drug-making ingredients. 182 were arrested belonging to 18 criminal organizations.

“Previous raids were hampered by villagers who came out on their motorcycles in the hundreds, blocking the village’s narrow roads.” [SCMP]

Good for the police. The meth business in the village also seriously polluted the ground water and damaged crops.

Sounds like a good time for a mass execution, frankly.

As for the rise of China’s military, I like the following conclusion from Edward Luttwak, in an op-ed in the Wall Street Journal, your editor long remembering a lecture in a poli-sci class at Wake Forest from him. [Like 35 years ago!]

“China’s Communist Party leaders have been competent in managing a vast and dynamic economy, and their repression is also very skillful in minimizing visible brutality (except against minorities). For these reasons, there is an assumption by many outsiders that the leadership is equally proficient in foreign policy.

“Unfortunately, the actual evidence so far is that we are witnessing a prolonged outbreak of feckless nationalism and militarism that evokes the sinister precedent of pre-1914 Germany. This was a country that had the world’s best universities, the most advanced industries and the strongest banks. It lacked only the strategic wisdom of persisting in its own ‘peaceful rise.’”

Finally, what have I been saying for years now...the pollution issue will one day bring down the government, though this will take a while.

Edward Wong reported in the New York Times on Monday:

“With awareness of China’s severe environmental degradation rising, there has been a surge of anxiety in the last year among ordinary Chinese and some officials over soil pollution in the country’s agricultural centers and the potential effects on the food chain. In recent years, the government has conducted widespread testing of soil across China, but it has not released the results, adding to the fear and making it more difficult for most Chinese to judge what they eat and pinpoint the offending factories.

“An alarming glimpse of official findings came on Monday, when a vice minister of land and resources, Wang Shiyuan, said at a news conference in Beijing that eight million acres of China’s farmland, equal to the size of Maryland, had become so polluted that planting crops on it ‘should not be allowed.’”

Back to Japan, Prime Minister Abe wants to see a more patriotic tone in Japan’s school textbooks. Opponents warn this could undercut an anti-war message that has kept Japan peaceful for decades.

Abe and the nationalists argue changes were warranted and crucial to restoring the country’s sense of self, after decades when children were taught what they call an overly negative view of Japan’s wartime behavior.

In his New Year’s message, Abe also said: “In a world that is deepening its mutual interdependence, inward-focused thinking is no longer able to safeguard the peace of Japan. We will fully defend the lives and assets of our nationals as well as our territory, territorial waters, and territorial airspace in a resolute manner.”

As for the December 26 surprise visit by Abe to Yasukuni, Chinese Foreign Ministry spokesman Qin Gang said his visit to the shrine had “shut the door” to direct talks between Abe and Xi. [SCMP]

But China is holding off on economic sanctions and there has been no rioting and destruction of Japanese interests in China as there has been in the past when Beijing wanted to play the nationalism card. The economic ties between the two, at least for today, trump politics.

North Korea: Rachel Oswald of the Global Security Newswire and National Journal reported that recent satellite images show signs Pyongyang appears to be moving ahead aggressively with expansion of its plutonium-processing efforts at its Yongbyon nuclear complex. Experts believe Pyongyang has enough plutonium stocks on hand to fuel about six more devices than those already exploded in underground testes, the most recent being in February 2013.

Earlier, in his New Year’s address, Kim Jong Un praised the recent execution of his uncle as a decisive move that got rid of “factionalist scum,” while urging stronger ties with Seoul.

Agence France-Presse reported Kim said, “our party’s timely, accurate decision to purge the anti-party, anti-revolutionary and factionalist elements helped greatly cement unity of the party and the revolution.”

But then he called for creating a “favorable climate” for fostering better relations with the south.

And then he said North Korea would continue to build up the military and would never back down to the United States.

“If war breaks out again in this land, it will bring about a massive nuclear disaster and the U.S. will also never be safe.”

Russia: Just five weeks to the opening of the Winter Games in Sochi and never before has a country found itself in the midst of a wave of terror attacks prior to playing host to an international spectacle. While he has yet to claim direct responsibility for the twin suicide attacks in Volgograd that killed at least 33, it’s pretty clear North Caucasus militant leader Doku Umarov was behind them, he having urged just such a wave last July, vowing to disrupt the “satanic” games.

All of the attacks since then, including a female suicide bomber detonating her explosives in a Volgograd bus in October, have a common link: Dagestan. [Which is also linked to the Boston Marathon bombing.]

Worrisomely, Dagestan is but a few hours’ drive east of Sochi, while Volgograd is 400 miles to the north.

A few thoughts on Sochi from my archives...what I wrote at various times.

Week in Review 7/7/07

“Putin successfully used his personal ‘charm’ to woo the International Olympic Committee and win the bidding for the 2014 Winter Games, to be held in the Black Sea resort of Sochi. Understand something. The entire site will need to be built from scratch. Sochi has nothing on an Olympic scale. In fact, it basically just has a rope tow, let alone zero facilities for everything else you can think of. What a gigantic waste of money.”

Week in Review 10/6/07

“President Putin traveled to Sochi...and said, ‘We unfortunately have to admit that at this point, in a city of half a million people, there is no proper sewage system, electricity supply or infrastructure.’ Doesn’t exactly make me want to visit the place beforehand, if you catch my drift.”

Week in Review 4/3/10

“Russia: Chechen rebel leader Doku Umarov, who awhile back warned Russia that ‘war is coming to your cities,’ claimed responsibility for the twin suicide bombings in the Moscow subway system that killed 39, retaliation for what Umarov said were Russian security force moves against the militants. Two days later, at least 10 were killed in a double suicide bombing in Dagestan, which has become the new hotspot as many of the terrorists have been driven from Chechnya to there, or Ingushetia.....

“I’ve been to Moscow twice in the past years (2002 and 2007) and it’s not only fascinating, it’s depressing. Going back to the apartment bombings of 1999 (I had my own unique theory on these, long before the late-William Safire put out for public consumption that the government itself had a hand in them), and other major terror attacks, many of the people here live in constant fear. The people of Russia are angry that their government cannot protect them....

“I also thought the New York Post’s Ralph Peters nailed it when he reminded his readers that the region from which the terrorists are coming is but a day’s drive from Sochi, site of Putin’s 2014 Winter Olympics, ‘which could wind up making the 1972 Munich Games look like a terrorist amateur hour.’ The terrorists hate Putin. Anything to embarrass him is a victory. Imagine, then, what impact the Islamists could have on this world stage, right in their backyard. You’d be nuts if you even considered going here....”

[Note: Full disclosure, I also urged folks not to go to the World Cup in South Africa around this time and on this I was wrong.]

So the clock is ticking...countdown to Sochi. We all just wonder what else may be ticking there.

Afghanistan: A report from the National Intelligence Estimate, which includes input from America’s 16 intelligence agencies, concludes any gains in Afghanistan will be quickly lost unless Washington and Kabul sign a security pact that would keep an international force in the country beyond 2014.

This seems obvious, but it’s important for debate, both here and in Afghanistan as it also prepares for a presidential election. This is all coming to a head in the next few months.

[A CNN/ORC International survey released Monday showed support for the war in Afghanistan had fallen to a 12-year low, just 17%, down from 52% in December 2008. Opposition now stands at 82%. In CNN polling, opposition to the war in Iraq never got higher than 69%, and all through Vietnam, no more than six in 10 ever told Gallup’s interviewers that war was a mistake, according to CNN’s Polling Director Keating Holland.]

Egypt: There was renewed unrest on Friday as at least five deaths were reported in fresh protests mounted by the Muslim Brotherhood in cities across the country. Two others were killed in Alexandria on Thursday. Ousted President Morsi goes on trial in a few weeks and the upcoming period could be particularly volatile.

India: Prime Minister Manmohan Singh announced he will not stay in power if his Congress party wins the next election, due in the summer. Singh, 81, has been PM for almost a decade. Singh appeared to tab deputy leader Rahul Gandhi as the probable Congress candidate. Singh added it would be “disastrous for the country” if opposition leader Narendra Modi were elected PM.

“Someone who presided over the massacre of innocent people should not be the prime minister,” Singh said, referring to a situation in 2002, when Modi was the chief minister of the western state of Gujarat and he was accused of doing little to stop anti-Muslim riots which left more than 1,000 dead.

Separately, the head of an Indian terror group reportedly admitted to authorities that he was seeking a compact “nuclear bomb” in Pakistan and that his superior there had been requested to provide it. [Times of India]

Turkey: Relative calm here the past few days but the corruption investigations continue, only the extent of which is in doubt as Prime Minister Erdogan purged the upper echelon of the police force in an attempt to derail the probes that have caused such an upheaval in his government.

Erdogan’s prime rival, and former backer, cleric Fethullah Gulen, is based in Pennsylvania and in recent weeks prayed that “God bring fire to their houses,” while Erdogan responded with a promise to “go into their caves” and “expose them.” [AP]

Erdogan, without naming Gulen, maintains the investigation is nothing more than a “serious smear campaign.”

Ukraine: Relative calm here as well, but probably not for long. Protesters need to get out of the cold for a while!

Australia: The country smashed its previous annual heat record in 2013, with mean temperatures 1.2 degrees C. above the 1961-90 average. Sydney had its highest temps ever as well. Too bad they can’t export some of this heat to the demonstrators freezing their butts off in Kiev. [Those of us with true democracy in the U.S. can deal with our own record cold this week.]

[Globally, a report from the Sydney Morning Herald said this was the sixth hottest year in records dating back to 1880.]

Random Musings

--Sen. Tom Coburn (R-OK) / Wall Street Journal

“The past year may go down not only as the least productive ever in Washington but as one of the worst for the republic.

“In both the executive branch and Congress, Americans witnessed an unwinding of the country’s founding principles and of their government’s most basic responsibilities. The rule of law gave way to the rule of rulers. And the rule of reality – in which politicians are entitled to their own opinions but not their own facts, as Sen. Daniel Patrick Moynihan liked to say – gave way to some politicians’ belief that they were entitled to both their own opinions and their own facts. It’s no wonder the institutions of government barely function.

“On health care, President Obama oversaw a disastrous and, sadly, dishonest launch of his signature achievement. The president gave an exception to employers, but not to individuals, without any legal basis, and made other adjustments according to his whim. Even more troubling was his message over the past three years that if you like your plan, you can keep it, and that if you like your doctor, you can keep your doctor. We now know that the administration was aware that these claims were false, yet Mr. Obama continued to make them, repeatedly.

“In 2014, millions of Americans will likely discover that the president’s claim that the average family will save $2,500 on health insurance was equally disconnected from reality.”

As for Congress, “(If it) wants to get serious, and be taken seriously, it can start by doing its job. It can debate and pass individual appropriations bills – a task that Congress has not completed in eight years.   And perhaps Congress can cut some of the stupidity in government spending. The House deserves some credit for trying – it passed four appropriations bills – but the Senate deserves none. Mr. Reid did not pass a single appropriations bill in 2013, thus shielding vulnerable members of his party from having to make tough votes.

“How the nation’s leaders perform in Washington is a reflection of the country, and culture, they represent. Moral relativism and postmodern disregard of truth has been promoted by academia for decades; sometimes it seems that the best students of that thinking can be found in Washington....

“The coming year presents an opportunity to Americans who hope for better. Despite Washington’s dysfunction, ‘We the People’ still call the shots and can demand a course correction. In 2014, here’s a message worth considering: If you don’t like the rulers you have, you don’t have to keep them.”

--Crime is always a big topic at yearend as the statistics roll in, consider this. Newark, N.J. recorded 111 murders for 2013, the most in 23 years, while New York City had 333, the lowest since records began being kept in Gotham back in 1963. Further, Newark has a population of about 270,000...New York 8 million. [Newark also had 400 carjackings in 2013. As of Dec. 27, New York had 159. That’s staggering.]

New Jersey Sen. Cory Booker (Dem.), the mayor of Newark for seven years, said on New Year’s Day, “I can say as a mayor who has been fighting on the front lines for years, the drug war is an abject failure. It’s consumed egregious amounts of taxpayers’ dollars. It hasn’t achieved the public-safety aims of our streets, it’s consumed human potential, it is a massive government overreach.”

He said the real answer to fighting crime is addressing poverty and schools.

A better comment was given by Newark Police Director Samuel DeMaio to the Star-Ledger, when commenting on a 15-year-old boy who was charged with a Christmas Day shooting that left two teenagers dead and third seriously injured.

“This new young generation is the most violent – and has the most disregard for life – that I’ve seen in my 28 years of law enforcement here in Newark. Every generation just seems to keep getting worse and worse and worse. These kids have no expectation to live past 25, and why should they?”

But, again, New York has the same issues Newark has yet former Police Commissioner Ray Kelly did a terrific job.

Editorial / New York Post

“Blessed be the defender, for without him the meek shall inherit only the wind.

“Hold that thought today, and in the weeks and months to come, as incoming New York City Police Commissioner Bill Bratton moves to fill the big brogans left him by departing top cop Raymond W. Kelly....

“New Yorkers in all five boroughs have particular reason to be grateful for his service: His second stint as commissioner was a 12-year turn – itself historic – which saw crime brought to historic lows and remain there, even as Kelly, through force of will, built an anti-terrorism operation that is the envy of big cities around the world....

“Kelly took office while smoke was still rising over Ground Zero. That is, when the need for a vigorous anti-terrorism presence could not have been more obvious. The city had relied on the feds to keep us safe from terror after the 1993 World Trade Center truck bombing. To no avail.

“Kelly, and Mayor Bloomberg decided they would not wait for the next attack.... Thus was born the city’s anti-terrorism effort.

“It is impossible to know how many acts of savagery were averted simply by the presence of the NYPD’s unit. This much is on record: Since 9/11, sixteen serious plots were taken down wholly or in part by city counter-terrorism cops....

“No matter what the pinched-vision critics have to say, New York is what it is today – safe, sane and still ascendant after all these years – in no small measure because of Raymond W. Kelly, a son of the city and, above all, a cop’s cop.”

As for Michael Bloomberg, he left office with a 50% approval rating (49% in one I saw, 53% in another) and I must say I was amused with those criticizing the man.

True, he probably should not have been there the final four years, changing the rules to allow himself a third term, but my bottom line as one who occasionally goes into New York is crime. New York is undeniably safer and from this, including confidence to work and invest there, let alone booming tourism, all else flows.

The nanny state stuff never bothered me.
 
Editorial / New York Post

“We had our doubts when Mike was elected. Bloomberg, we noted, was a ‘life-long liberal Democrat’ who was ‘lefty to the core’ and lacked political experience. The question was whether the Rudy Giuliani gains – especially against crime – would stick.

“The record is now before us. Recall that Rudy had already reduced murders and other violence to levels no one had thought possible. Yet with Ray Kelly at the helm of the NYPD, crime rates plunged even further....

“The cops deserve full credit, of course. But New York’s Finest could not have succeeded without a mayor who had their backs. Mike stood up for cops – and let them do their jobs.

“Mike also took on the sacred cows of education. True, our schools still have a long way to go, given that two out of three city kids graduate unprepared for either college or a job. But Mike’s policies chipped away at the education cartel that has made our public schools more of a jobs program for the teachers union than a program of learning for city schoolchildren....

“At the same time Mayor Mike helped New York do what any city needs to do to prosper: Grow.... Mike changed the city landscape, mostly for the better....

“Nearly 40 percent of Gotham has been rezoned. Some 40,000 structures were built. Both housing and parkland have expanded.

“The same goes for his oversight over the public purse. Though taxes remain much too high – property taxes are higher than when he took office – and spending has almost doubled, even in the hardest times Bloomberg kept the city out of financial crisis....

“Not that Mike was perfect. He was arrogant. He turned fetishes into policy... He was impatient with due process and transparency. And he rammed through a third term against the wishes of New Yorkers, who had backed term limits in two separate referenda....

“(But) on this, Bloomberg’s last day in office, The Post says simply: Thank you, Mr. Mayor. You did New York proud.”

--Bill de Blasio took the oath of office to be New York’s next mayor and vowed to usher in a sweeping agenda, including higher taxes on city residents making more than $500,000 a year, along with universal pre-K, de-emphasizing standardized testing in public schools and reining in some of the more aggressive tactics employed by the NYPD.

“Today, we commit to a new progressive direction in New York.”

His biggest challenge this first year is going to be negotiating with the city’s unions, who are clamoring for raises after years of frozen pay and/or givebacks.

And as for higher taxes, it’s really up to Gov. Andrew Cuomo and the state Legislature, neither of whom want to raise them, with Cuomo running for re-election this year.

--Back to the crime beat...across Los Angeles, homicides were down 16% in 2013 from 2012 and the city ended the year with the fewest killings since 1966. [Down about 50% since 2003.]

Chicago’s murder rate, despite the headlines, actually fell 17% this year to the lowest level since the ‘60s.

But homicides were up in Washington, D.C. with 103 – a sizable increase from the half-century low of 88 in 2012.

--A new study, published in the current issue of JAMA, The Journal of the American Medical Association, suggests that some Alzheimer’s patients may benefit from vitamin E supplements. The benefit, while not huge, is nonetheless noteworthy; “high-dose vitamin E slowed the decline of people with mild to moderate Alzheimer’s by about six months on average.” [Pam Belluck / New York Times]

It’s more about delaying the need for help with daily activities like dressing or feeding themselves vs. any delay in memory deterioration.

“Notably, in this study, high-dose vitamin E appeared safe.”

--Cultural critic Camille Paglia, in an interview in the Wall Street Journal by Bari Weiss:

“(No) subject gets her going more than when I ask if she really sees a connection between society’s attempts to paper over the biological distinction between men and women and the collapse of Western civilization.

“She starts by pointing to the diminished status of military service. ‘The entire elite class now, in finance, in politics and so on, none of them have military service – hardly anyone, there are a few.   But there is no prestige attached to it anymore. That is a recipe for disaster,’ she says. ‘These people don’t think in military ways, so there’s this illusion out there that people are basically nice, people are basically kind, if we’re just nice and benevolent to everyone they’ll be nice too. They literally don’t have any sense of evil or criminality.’....

“Ms. Paglia argues that the softening of modern American society begins as early as kindergarten. ‘Primary-school education is a crock, basically. It’s oppressive to anyone with physical energy, especially guys,’ she says, pointing to the most obvious example; the way many schools have cut recess. ‘They’re making a toxic environment for boys. Primary education does everything in its power to turn boys into neuters.’....

“Politically correct, inadequate education, along with the decline of America’s brawny industrial base, leaves many men with ‘no models of manhood,’ she says. ‘Masculinity is just becoming something that is imitated from the movies. There’s nothing left. There’s no room for anything manly right now.’ The only place you can hear what men really feel these days, she claims, is on sports radio.”

Personally, I think the callers are morons. 

--As for “Week in Review Person of the Year,” for my purposes it must go to a political figure; the consequences of governance, or lack thereof, being central to what we explore in this column. The last two years, 2011 and 2012, I didn’t select anyone. In fact, having started the award in 2001, it’s a pathetic list, but then it’s been a pretty pathetic time for all manner of reasons around the world. I mean in 2007 and 2008, I gave it to Gen. David Petraeus (stretching the definition of a political figure) and Defense Sec. Robert Gates both years yet any progress made by them proved, or will prove to be, I’m sure, fleeting.

If Barack Obama would just lead, I’d gladly give it to him. I gave it to Ben Bernanke in 2009 and he deserved it over any other single individual given the times.

I can’t give it to Pope Francis because he doesn’t, yet, fit my definition. No one emerged in the Middle East. Putin is more in the next category. Xi Jinping? Maybe someday...which would be a good sign. So I’m just shelving the award.

Far easier to pick a “Dirtball of the Year” as there has been no shortage of candidates since the first one in 2000, Robert Mugabe (who also won in 2002, 2007 and ’08); this award given to the person(s) who has most negatively impacted the lives of millions.

So for a third straight year it goes to Bashar al-Assad. 

--I loved Dubai’s pyrotechnics display to ring in the New Year, with a record half a million fireworks from 400 firing locations, all synchronized by 100 computers. An amazing technical feat. The company responsible, IMG Artists, should have been given the ObamaCare website project.

--On Jan. 1, Colorado became the first American state to legalize pot. [“Doonesbury” has been terrific on this topic.]

Editorial / Wall Street Journal

“Marijuana possession remains a federal crime until Congress changes the Controlled Substances Act, which is supposedly to trump state law. But the Obama Administration is suspending enforcement to allow Colorado to undertake its experiment, with Washington state to follow later this year.

“The feds say they’ll intervene if governments can’t prevent distribution to minors or trafficking across state borders, but those are both inevitable and no one should expect that Attorney General Eric Holder’s troops will arrest people as they cross into Utah. Those are President Obama’s voters.

“The larger question is whether the benefits exceed the costs to U.S. society. On top of tax receipts, the legalizers promise to build more schools and roads as resources are shifted away from law enforcement and imprisonment. That’s almost certainly oversold because few marijuana users end up in jail today and no one knows the costs of more drug use....

“Marijuana politics are changing, especially in California, the West and New England, but the consequences of legalization are unknowable in advance. Perhaps the gains will be everything the stoners claim, though bong-inspired visions tend to be defeated by reality.

“Colorado and Washington voters may come to regret their decision if they notice a surge in drug use, or more violence, or a generation of underdeveloped young people. Legalization, once achieved, will be hard to reverse. Better, then, to let Colorado go first, and watch what happens.”

--More fun and games as Toronto Mayor Rob Ford filed to run for another term.

--We note the passing of Bob Grant, 84, the father of conservative talk radio, spending decades in the New York market with WABC and WOR.

--In his year-end prayer service on Tuesday evening, Pope Francis urged people to ask themselves a tough question.

“Let us courageously ask ourselves: How did we live the time (God) gave us? This year did we contribute, in our own small ways, to make it more livable, orderly, welcoming?”

Editorial / Financial Times

“(What) is striking about Pope Francis is how rapidly he has become an authentic figurehead for those who are concerned by what he calls ‘the idol called money’ and the way ‘we have fallen into globalized indifference in this globalized world.’ Many on the right of politics will disagree with his critique of ‘unbridled capitalism.’ But he conveys his concerns and anxieties with a sincerity and authenticity that no world leader can match.”

---

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

God bless America.
---

Gold closed 2013 at $1202. 1/3...$1238
Oil closed 2013 at $98.42. 1/3...$93.96 [Down $6.50 on the week]

Returns for 2013

Dow Jones +26.5% [16576]
S&P 500 +29.6% [1848]
S&P MidCap +31.6%
Russell 2000 +37.0%
Nasdaq +38.3% [4176]

Returns for the week 12/30-1/3

Dow Jones -0.1%
S&P 500 -0.5%
S&P MidCap -0.2%
Russell 2000 -0.6%
Nasdaq -0.6%

Returns for the period 1/1/14-1/3/14

Dow Jones -0.6%
S&P 500 -0.9%
S&P MidCap -0.6%
Russell 2000 -0.4%
Nasdaq -1.1%

Bulls 61.6 [highest since Oct. 2007]
Bears 15.2 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Dr. Bortrum posted a new column.

Catch me on Twitter @stocksandnews

Brian Trumbore



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-01/04/2014-      
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Week in Review

01/04/2014

For the week 12/30-1/3

[Posted 11:00 PM ET, Friday]

Washington and Wall Street

2013

Dow Jones +26.5%...best since 1995
S&P 500 +29.6%
...best since 1997
Nasdaq +38.3%
...best since 2009

A December AP-GfK poll found the number of Americans who feel the nation is heading in the right direction rebounded to 34% from its October low of 22%, and I imagine the above performance numbers were responsible for a few points of the increase, though 2013’s average 33% for this poll question is essentially the same as 2011.

I said last time I feel President Obama’s numbers have bottomed and will rebound slightly in 2014 because a better economy will trump items like ObamaCare, for now, especially since Americans couldn’t care less about the geopolitical scene even as the world continues to unravel.

Sticking with the current state of the economy, there were a few releases this holiday week, with the Chicago Purchasing Managers Index for December coming in at 59.1, down from 63.0 in November but still strong, while the December ISM reading was 57.0, on pace with expectations, as new orders soared to their best level since 2010. A Conference Board reading on consumer confidence for last month also rose to 78.1 from November’s 72.0. And the figure on November construction spending was better than expected.

The S&P/Case-Shiller housing index for October (reminder, this one lags a bit), showed U.S. home prices in 20 major metropolitan areas were up 13.6% year-over-year, but up just 0.2% October over September. There’s no doubt price appreciation has been slowing and this isn’t necessarily a bad thing but rising mortgage rates, at least off the May lows, continue to bear watching.

On Friday, however, we saw figures for U.S. auto sales in December and they were just so-so vs. expectations. Up 2% for Ford, 6% for Chrysler, but down 6% from year ago levels for GM.

Toyota also saw sales decline by 1.7% from a year ago when a rise had been expected, while Nissan’s rose 11% last month.

For all of 2013, among those reporting, Ford was up 11%, GM up 7%, Chrysler up 9%, Toyota up 7% and Nissan’s rose 9%.

The annualized sales pace for December is about 15.4 million, according to Autodata, which is just fine, but a little less than forecast. For all of 2013, 15.6 million. The low was 10.4 million back in 2009 at the depths of the Great Recession.

So I told you last week that I expect the U.S. economy to do just fine in 2014, but that U.S. equities will finish down 2% to 5% (the latter figure for Nasdaq) after a solid start. I just look for some big picture items to finally enter the investor mindset in the second half as I’ll address in a few moments.

For now, next week gives us a key labor report (they all are), while with a few exceptions, fourth-quarter earnings begin coming through in bulk the week of Jan. 13. 

Re ObamaCare...it’s too early to know just how the whole year-end rush to get coverage for Jan. 1 worked, but the evidence will roll in the next few weeks on the efficacy of the sign-up process and paperwork issues.

The administration said 2.1 million had enrolled in ObamaCare, including through exchanges run by the states, far short of the 3.3 million-enrollee target set by the White House before the launch, but a solid improvement on October and November. We do not have the latest numbers for new Medicaid enrollments.

I am not going hyperbolic in my commentary the next week or so on this topic until more facts are known, but what we do know is one critical thing. ObamaCare is going to cost way more than we were led to believe. The president, though, may catch a bit of a break in terms of the public debate if the economy grows more than expected, thus favorably impacting tax revenues while hiding the future cost of ObamaCare for a spell. The goal, after all, is to somehow get through the mid-term election with few facts getting out and Democrats somehow managing to hold onto the Senate, since it would seem regaining control of the House is a non-starter, at least as of the first week in January.

That said, we have the following:

Charles Krauthammer / Washington Post

“First order of business for the returning Congress: The No Bailout for Insurance Companies Act of 2014.

“Make it one line long: ‘Sections 1341 and 1342 of the Affordable Care Act are hereby repealed.’

“End of bill. End of bailout. End of story.

“Why do we need it? On Dec. 18, the chairman of the Council of Economic Advisers was asked what was the administration’s Plan B if, because of adverse selection (enrolling too few young and healthies), the insurance companies face financial difficulty.

“Jason Furman wouldn’t bite. ‘There’s a Plan A,’ he replied. Enroll the young.

“But of course there’s a Plan B. It’s a government bailout.

“Administration officials can’t say it for political reasons. And they don’t have to say it because it’s already in the Affordable Care Act, buried deep.

“First, Section 1341, the ‘reinsurance’ fund collected from insurers and self-insuring employers at a nifty $63 a head. (Who do you think the cost is passed on to?) This yields about $20 billion over three years to cover losses.

“Then there is Section 1342, the ‘risk corridor’ provision that mandates a major taxpayer payout covering up to 80 percent of insurance-company losses.

“Never heard of these? That’s the beauty of passing a bill of such monstrous length. You can insert a chicken soup recipe and no one will notice.

“Nancy Pelosi was right: We’d have to pass the damn thing to know what’s in it. Well, now we have and now we know.

“The whole scheme was risky enough to begin with – getting enough enrollees and making sure 40 percent were young and healthy. ObamaCare is already far behind its own enrollment estimates. But things have gotten worse. The administration has been changing the rules repeatedly – with every scrimmage-line audible raising costs and diminishing revenue....

“How are we going to survive this? Shrinking revenues and rising costs could bring on the ‘death spiral’ – an unbalanced patient pool forcing huge premium increases (to restore revenue) that would further unbalance the patient pool as the young and healthy drop out.

“End result? Insolvency – before which the insurance companies will pull out of ObamaCare.

“Solution? A huge government bailout. It’s ObamaCare’s escape hatch. And – surprise, surprise – it’s already baked into the law.”

From the New York Post:

“New York’s small-business owners, seniors and doctors are among the big losers as President Obama’s prescription for health-insurance reform takes effect.

“The National Federation of Independent Businesses, an organization that represents nearly 11,000 entrepreneurs across the state, says it has yet to find a single member whose health-care costs are going down under the ObamaCare program, whose plans took effect New Year’s Day.

“Meanwhile, an ‘overwhelming majority’ of businesses canvassed by the group has reported increases in their insurance premiums, said Mike Durant, the NFIB’s New York director.”

Europe and Asia

Frankfurt +25.5%
London +14.4%
Paris +18.0%

Tokyo +56.7%
Shanghai -6.8%

It was a good year for Europe’s stock markets, as the continent was emerging from a deep recession in fits and starts, perhaps best exemplified by the final PMI reading on manufacturing for the eurozone, which came in as first estimated at 52.7 vs. 51.6 in November. But you had Germany at 54.3 and France at a still sickly 47.0, down from 48.4 in November. [Separately, the UK was 57.3 vs. 58.1 in November]

There is no doubt that with few exceptions, such as in France, the eurozone is recovering, but growth for 2014 is still just expected to be in the 1% range. Maybe it surprises to the upside, but as I note below there is a big picture item that could roil markets and potentially the region’s economy.

What we do know is that some such as Spain are seeing stronger retail sales, up 1.9% in November year-over-year, while unemployment there fell in December by the most on record for the month, though officially the jobless rate is still 26% until we get the quarterly data later on.

And Italy had a solid PMI number for manufacturing, 53.3, but there remain deep issues here with urgent reform needed for the economy.

The biggest single issue, economically, however (aside from unemployment), is whether the banks will begin to lend, even as they continue to shore up their balance sheets under new capital requirements. For his part, European Central Bank President Mario Draghi has convinced investors the ECB will provide a back stop where necessary but a true, much-needed banking union still requires further work.

One potential positive is the movement for less austerity, and a big shout out to the new 18th member of the eurozone, Latvia!

A negative this week was gunshots being fired at the German ambassador’s residence in Athens. Six detained. 60 shots fired. Greece takes over the EU six-month rotating presidency this month and Germany continues to be vilified for the tough austerity program it insisted on for Athens in order to receive its $330 billion in bailout aid.

French President Hollande’s 75% top tax rate for those earning $1.35 million and over received high court approval after it had been overturned by an earlier ruling. The rich don’t like it and will move, though it’s just for two years and the polls show the people, very shortsighted, approve of the move.

British Prime Minister David Cameron, who has a lot to be proud of, took a swipe at France, without naming it, in vowing to make 2014 the year that Britain starts turning into the world’s “post-Great Recession success story,” which I had predicted way back would be the case though this year is the key to see whether it sticks.

Cameron was clearly talking of France and Hollande’s policies when he urged voters to reject any shift towards “more borrowing, more spending and more debt” by urging them to look at countries following that approach. “They face increasing unemployment, industrial stagnation and enterprise in free fall. The opposite of what’s happening here,” he wrote in an op-ed for the London Times.

For his part, in a New Year’s address, Hollande told the French people his top priority is to lower unemployment, currently running at 11%. He also vowed to lower taxes (except his cherished temporary levy on the rich).

German Chancellor Angela Merkel said eliminating the budget deficit and completing her nation’s transformation from coal and nuclear energy to renewables were the priorities of her third four-year term.

Turning to Asia, China released PMI data on manufacturing for December and it wasn’t great, 51.0 vs. 51.4 in November, while the service sector PMI came in at 54.6 vs. 56.0 for the preceding month. So there remain growth concerns. New home prices for December rose last month, up 0.4% over November and up 10.4% from a year earlier.

A new study by a top central planning authority revealed that local government debt has surged 70% since mid-2010 to $2.95 trillion, with 40% of it maturing by end of this year, placing huge pressure on local governments to come up with the cash to make repayments.

So the government is giving them the go-ahead to issue bonds as a way of rolling the debt over, a process already underway in many parts of the country.

Many are saying this is the next crisis, but I agree with economist Tao Wang of UBS who said the debt level was “manageable” even as the rapid rise was “alarming.”

What it further points out, though, is how China must continue to move away from an investment economy to a consumer-led one, the burgeoning debt having financed major infrastructure programs, including for bridges, roads and sewers, as well as housing and commercial real estate developments. But it’s certainly an issue to watch this year.

In Japan, as you can see from the spectacular market returns in the Nikkei for 2013, Abenomics was a success. Prime Minister Shinzo Abe has said his priorities for 2014 are the economy and military reform, but now the key is, how will the public take the April sales tax hike from 5% to 8%? It’s just not known what the impact will be, though the Bank of Japan is estimating the economy’s growth rate will fall from a projected 2.6% in 2013 to 1.4% this year as a result.

1.4% would be OK. What Japan needs is steady inflation after decades of deflation, and it also needs to begin the long road to straighten out its finances, which is the reason for the tax hike (and another planned for 2015 to take the rate to 10%).

It’s about business confidence and whether there is capital investment and wage hikes for workers who would then spend it.

Abe’s approval numbers have been sliding to between 49% and 55%, depending on the survey, down from 70%+ when he first took office in this second go around for him, and the majority disagrees with his Yasukuni shrine visit.

2013 and 2014

So on the Big Picture, geopolitical stuff, what did I say would happen in 2013? Did I get a single thing right?

Week in Review 12/29/12

“China and Japan will not come to blows in the East China Sea as both new leaders focus on their respective economies.”

That wasn’t bad.

“The European debt crisis will re-emerge in a big way, starting with Spain and Greece, with major social unrest finally taking root. Greece’s governing coalition will be toppled. Golden Dawn, with the police as a major ally, will create mayhem from time to time and scores could be killed.

“Otherwise, it’s all about Chancellor Angela Merkel’s re-election in Germany next September.”

Missed badly on this front. Golden Dawn was actually rolled up by the Greek government (though it’s still lying in the shadows).

I said “Syria will remain a hellhole! OK, that’s not a shocker, but does not bode well for the entire region as the civil war, which will remain even if Assad finally exits the scene, leeches into its neighbors.”

And it more than leeched when it came to Lebanon and Iraq, so I was OK on this one.

“Iran? They have a presidential election to replace Ahmadinejad and Supreme Leader Ayatollah Khamenei will attempt to buy more time through another round of fake negotiations over the nuclear program. But a report will emerge that Iran is perfecting a nuclear trigger (weaponization), putting immense pressure on Benjamin Netanyahu to act. He won’t get any help from Washington.”

Not bad. Not totally correct but not bad.

I said “Hamas will take over the West Bank in a move that will rock Israel to its core.”

Not yet.

“Egypt’s upcoming parliamentary elections will be chaotic as the Muslim Brotherhood and the Salafists become even more entrenched. Morsi, in over his head, will make one mistake after another. The military, though, will stand back and try not to get involved beyond riot control.”

Well, I certainly got it right that Morsi was in over his head right. But the military did more than riot control. So a ‘C-’.

“Vladimir Putin will be the victim of a terror attack... possibly a car bombing a la Rafik Hariri in Beirut, 2005.”

Missed this one.

“But while Barack Obama tries like heck to avoid dealing with Iran, he won’t be able to avoid dealing with North Korea, as their chubby leader test-fires more long-range ballistic missiles capable of hitting the United States. One launch will fail. Another, though, will succeed spectacularly well.”

I’ll stop here. This wasn’t bad. We learned one of the long-range tests did indeed work very well, which is why the U.S. repositioned more of its missile defense assets to Alaska and California.

“The United States will deliver an ultimatum to Kim Jong Un...cut the crap. Kim will fire a short-range missile at South Korea in response, though at a relatively sparsely populated area with minimal casualties. Seoul will not retaliate...immediately...but the U.S. will be under pressure to take out the Yongbyon nuclear facility, though fears over the spread of nuclear fallout will preclude this...for now.”

Just fast-forward the preceding paragraph to about September 2014.

“Robert Mugabe will finally die in Zimbabwe and StocksandNews will rejoice. Hugo Chavez’ days are numbered.”

Chavez did indeed die March 5. But Mugabe lives on...much to the detriment of his people. He cannot die soon enough. He should have been taken out in 2000.

So aside from my note on North and South Korea, what else will happen in 2014?

I’m big-time focused on the European Union parliamentary elections in May (May 22-25) and the impact the far right will have. The eurozone economy may be improving, but it’s all about unemployment when it comes to the masses; ‘jobs and the impact of immigrants’ for many in countries such as France, the Netherlands, Belgium, Austria and Denmark. There is a chance the far right, collectively, is the leading party when the votes are tallied. These are the folks who do not like the EU. Sentiment, and the rhetoric, could be extreme come the spring; potentially impacting the euro recovery if it gets out of hand.

What Europe needs in the next few months are some outstanding economic numbers but the data will largely fall short.

In the Middle East, the Iraqi military will be put to the test to regain control of Anbar province after al-Qaeda’s recent inroads. The U.S. will become increasingly under pressure to help in some way, become re-engaged in more than just giving military aid. Some of our Special Ops Forces will go back (more below).

Lebanon will see a surge of car bombings, it’s inevitable, and the Lebanese Army at some point will confront Hizbullah in pitched battles. Hizbullah will begin withdrawing its troops from Syria to deal with the issues back home. Al-Qaeda and its minions will gain a strong foothold in Syria, while trying to do the same in Iraq.

As for Iran and the nuclear talks, they’ll just go on and on, until they finally break down. This will help roil financial markets once reality sets in. Military action will be inevitable. I’m just not sure it occurs this year. What will be interesting is how President Obama judges the political dynamic and the Nov. mid-term election here in terms of what to do about Iran. And of course Benjamin Netanyahu will be under immense pressure to act himself. It depends on when the talks fail.

I comment on the Sochi Olympics below. I agree with Ralph Peters from four years ago. It will make Munich look like a terrorist amateur hour by comparison.

Moscow will receive at least one large-scale terror attack of its own, killing at least 50. I’m not commenting on Putin this time in terms of his fate.

Ukraine will continue to be roiled, but it’s not a market-moving event. Tymoshenko will be released from prison.

As for China and Japan, they will again skate by and avoid a direct military confrontation, though there will be a few close calls. Should something happen, though, Katy bar the door. President Xi may not be able to hold his generals back.

The pollution issue in China will continue to be front and center and there will be lots of stories of international businesses pulling out of the country because of it. Growth will come in less than expected.

Nicolas Maduro in Venezuela will be removed in a coup.

Robert Mugabe will be killed by a lion that enters his bedroom, the door conveniently left open by his servant who will have finally had enough.

What will be clear throughout 2014 is that the world will be crying out for U.S. leadership and little will be forthcoming.

Daniel Henninger / Wall Street Journal

“As the year turns, the subject becoming impossible to duck is growing global disorder. The days before the New Year brought two suicide bombings in Russia and a major political assassination in Lebanon. Throw a dart randomly at a map of the Middle East or Southeast Asia and it will hit trouble.

“It is no surprise that in conversations of late one hears invocations of the 1930s. Or that a popular book to give this season has been Margaret MacMillan’s ‘The War That Ended Peace: The Road to 1914.’

“Whether the world in 2014 will tip from containment to chaos or war is not the subject here. The subject is rediscovering the antidote to war, which is strong global leadership. The world we inhabit now doesn’t have enough of it. Or any of it for that matter.”

I couldn’t agree more. And as Henninger notes, “Because polls say Americans are in an isolationist mood, Mr. Obama won’t spend political capital outside the country – Ukraine, Syria, Asia. He wants to spend what capital he has left consolidating internal federal authority. The Iran nuclear deal is an obsession, similar to promoting windmills after the fracking revolution.

“It falls to the rest of the political class in the U.S. to recognize that one of the clearest signs of a potentially dangerous breakdown in international order isn’t just poor leadership. Worse is when national populations in many places lose faith in their leadership. During normal times, what comes next is just another government. But in a world with as many disturbances as now, what comes with intense national disaffection and frustration is rarely good. Surly publics often open themselves to anti-political solutions.”

Henninger’s solution: “If the U.S. wants to remain a big-league nation, it’s going to have to elect a big-league president.”

The other week The Economist editorialized on uncomfortable parallels with the era that led to the outbreak of the First World War:

“Thanks to its military, economic and soft power, America is still indispensable, particularly in dealing with threats like climate change and terror, which cross borders. But unless America behaves as a leader and the guarantor of the world order, it will be inviting regional powers to test their strength by bullying neighboring countries.

“The chances are that none of the world’s present dangers will lead to anything that compares to the horrors of 1914. Madness, whether motivated by race, religion or tribe, usually gives ground to rational self-interest. But when it triumphs, it leads to carnage, so to assume that reason will prevail is to be culpably complacent. That is the lesson of a century ago.”

Finally...on a totally different topic, I’ve been reading a lot lately on the backlash in San Francisco and parts of Silicon Valley among older residents and the impact of the latest wave of Internet wealth on housing values in particular. Richard Waters of the Financial Times makes some great comments.

“The projectile that recently broke the window of a bus in San Francisco carrying Google employees to work felt like an intrusion from the real world into the rarefied air of Silicon Valley’s technology elite.

“The missile came from protesters objecting to creeping gentrification caused by highly paid tech workers, who have pushed up rents and home prices in the city’s Mission district and surrounding areas. What better target than the fleets of WiFi-equipped company-owned buses that ferry workers down the peninsula south of San Francisco to the headquarters of businesses such as Google, Facebook and Apple?

“Though this is a local dispute, it is also one of those episodes that highlight an issue of much wider significance. Last year brought a subtle but important shift in the public perception of the golden children who have prospered from the latest internet boom.

“In the aftermath of the financial crisis, Silicon Valley was seen as a bright spot in a very gloomy economy. When President Barack Obama sat down to dinner nearly three years ago to talk about innovation and job creation with a group of tech notables, including the late Steve Jobs of Apple, it was a not-so-veiled bid to associate himself with the most dynamic part of the business establishment....

“Since then, a smartphone-fueled boom has seen new riches showered on the lucky few in the tech world, even as the economy has struggled to grow and the lot of many workers has worsened.

“The feeling has also grown that, however much Silicon Valley likes to style itself the ultimate meritocracy, not all the riches have been deserved. In November, when it was barely two years old, photo-sharing app Snapchat turned down a $3 billion bid from Facebook: how can the industry not start to feel like a giant lottery? With headlines like this among the breakout tech stories of 2013, a backlash is almost inevitable.

“So far, this has done nothing to disturb the complacency that has settled over much of the Bay Area’s technology industry....

“But the insularity has its price. In product terms, it often leads to an opportunistic ‘me too’ approach in which genuine innovation takes a back seat. And it creates a tone-deaf society in which wider social and economic issues can feel distant. Success comes to be measured out in clicks or app downloads rather than real impact on the world.

“An air of invulnerability creeps in during good times....

“Some of the results – such as new forms of mass communication or easier access to information – have been shared widely. But when it comes to wealth and jobs, a lucky few have reaped much of the benefit....

“(One) question that became hard to ignore last year was whether, knowingly or not, the U.S. companies that dominate global internet activity have helped to foster sweeping government surveillance of their users....

“It would be nice to think that questions such as these will receive a more thorough airing in Silicon Valley in 2014 – preferably without more rocks being hurled at the privileged few. But to judge by the self-absorption that has characterized other technology industry booms, it would not do to count on it.”

Street Bytes

--So we rang out 2013, took a day off, and rang in 2014 with the first loss for an opening day trading session since 2008, not that this means a lot. I do like the January barometer, however, in terms of the trend in the first month setting a tone for the rest of the year (not just the first five days as others tout). But, this will be meaningless in 2014, of this I’m sure, whether January finishes up or down. The biggest stories will come in the second half (including the actual impact of the EU parliamentary elections) and not many of them will be good, as I strongly hinted above. 

For the record, though, an average of 20 forecasts for the S&P 500 as compiled by Bloomberg has 2014 ending with the benchmark at 1950, not much higher than the 12/31 close of 1848.

Complete return figures for the week down below.

--U.S. Treasury Yields

12/31/13

6-mo. 0.09% 2-yr. 0.38% 10-yr. 3.03% 30-yr. 3.97%

[10-yr. was 1.76% on 12/31/12]

1/3/14

6-mo. 0.09% 2-yr. 0.40% 10-yr. 2.99% 30-yr. 3.92%

The Barclays U.S. Aggregate Bond Index declined 2% last year and the average core bond fund, including PIMCO’s Total Return Fund managed by Bill Gross, was down a like amount. [It was Gross’ worst performance since 1994.] High-yield funds, on the other hand, were up an average 6%.

--In the last big policy speech of his tenure on Friday, Fed Chairman Ben Bernanke gave an upbeat assessment of the U.S. and global economy, saying there were “some grounds for cautious optimism.” Regarding the U.S., specifically, he said the recovery “clearly remains incomplete,” but headwinds could “now be abating.”

--Netflix was the big winner in the S&P 500 for 2013, up 297%; Newmont Mining the big loser, down 50%.

NFLX 12/31/12...$92.60...12/31/13...$368.20
GOOG 12/31/12...$707...12/31/13...$1120
AMZN 12/31/12...$250...12/31/13...$399
TSLA 12/31/12...$33.90...12/31/13...$150.20
FB 12/31/12...$26.60...12/31/13...$54.65
YHOO 12/31/12...$19.90...12/31/13...$40.45

--Back to the S&P/Case-Shiller housing data for October, Las Vegas has a year-over-year gain of 27%, San Francisco 24.6%, and Los Angeles 22.1%. Conversely, the New York area and Cleveland markets have advanced just 4.9% during this time period vs. the national average of 13.6%.

Actually, an analysis of Zillow price data by the Wall Street Journal found that home values are up more than 13% from their 2007 peak in Oklahoma City and by 6% in the Denver metro area.

--South Korea’s exports jumped 7.1% in December from a year ago (up 8.4% to China, 13.2% to the U.S.), an impressive performance. For 2014, the Ministry of Trade is forecasting 6.4% growth vs. an estimated 2.2% for 2013.

--China is finally going to begin approving firms to list on mainland exchanges, ending a freeze on initial public offerings in place since October 2012 to stamp out equity market fraud and restore confidence in domestic markets. Five have been approved for listing shortly and another 50 or so are behind them.

--Revlon announced it was planning to leave China, resulting in the loss of 1,100 jobs, with the cosmetics manufacturer saying it would save the firm around $11 million a year amid declining global sales.

--Gambling revenue in Macau surged 19% last year to $45.2 billion, and as the Journal put it, “It now takes Macau’s gamblers just one day to wager what’s bet in an entire week on the Las Vegas Strip. Deutsche Bank forecasts revenue will grow by 20% in 2014. 

As for Vegas, analysts estimate revenue rose only 3% in 2013 to $6.4 billion. Las Vegas represents 10% of the U.S. gambling market, according to PriceWaterhouseCoopers. Atlantic City revenue continues to plummet from its 2006 peak.

--Hewlett Packard announced another 5,000 job cuts, bringing the total to 34,000, or 11% of its workforce, by the end of 2014.

--IBM was the only losing stock in the Dow Jones in 2013 ($191.50 to $187.50), which is in keeping with the fact the company has seen declining sales for six straight quarters, dragged down by sluggish demand for computer hardware. Yes, earnings continue to rise but it’s all about financial engineering...job cuts, asset sales and such. And of course the impact of the cloud, which IBM is getting more and more involved in but new competitors are winning the day.

--Gold lost 28%, from $1675 on 12/31/12 to $1202 as we finished up the year. It was the worst performance for gold since 1981, when it fell 33%.

--Despite Europe’s rally in 2013, some of the indices are far from their pre-financial crisis peaks, such as France, off 30%, Italy 57% and Spain, off 38%.

--The price of regular gasoline averaged $3.49 a gallon this year, compared to an average of $3.60 in 2012 and $3.51 in 2011. The high for a national average was Feb. 26 at $3.79. The low was $3.18 on Nov. 11. [Barbara Powell / Bloomberg]

--The fiery train derailment 25 miles west of Fargo, N.D., was a highly significant event. The train was hauling 104 tank cars filled with Bakken crude oil and many of the cars exploded one after the other after the BNSF Railway Co. train hit another train. As the mayor of nearby Casselton said, it could have been a disaster for his 2,400 residents on the scale of the accident last summer in Quebec, killing 47 and incinerating part of the town of Lac Megantic. The train that derailed near Casselton normally goes right through town and had the accident occurred there, it would have been catastrophic.

So the significance is that you’ve had not just these two crashes involving rolling bombs, but there have been others, all carrying crude from the Bakken to refineries in the U.S. and Canada. The rail traffic has exploded with North Dakota’s booming output. Nearly 750,000 barrels of crude are now transported by rail.

[The number of crude oil carloads hauled by rail has surged from 10,840 in 2009 to a projected 400,000 last year. So the actual safety record, by the numbers, is strong, but you know, if it bleeds, it leads.]

But not only has the practice become part of the Keystone Pipeline debate, the government is looking into whether there are impurities in the oil and whether it is being handled properly, including using sturdier rail cars. It may be something as simple as crude being mislabeled. Some is more combustible than other types.

As the Wall Street Journal also reported, “About 70% of crude transported in the U.S. by railroad is now carried on oil-exclusive unit trains, rather than on trains with mixed loads.” National Transportation Safety Board Chairwoman Deborah Hersman warned that “a more significant hazard results when the entire train is assembled with only crude oil.”

--Closing price of Light Sweet Crude past few years:

12/10: $91.38
12/11: $98.83
12/12: $91.80
12/13: $98.42

[Lots of other market stats on my “Wall Street History” link.]

--U.S. farmers grew a record 14 billion bushels of corn last year. Land values in states like Iowa have surged 77% in the past four years, but now lower prices for grain and corn could reverse this trend and that would spell trouble. 

Plus, Iowa State University estimates corn prices could fall 25 cents a bushel in 2014 owing to a proposed cut in a U.S. mandate for ethanol use, a major pillar for corn demand.

But then I saw a story in the South China Morning Post that mainland authorities are tightening screening procedures to check for an unapproved strain of genetically modified grain that led to a big plunge in sales to Chinese customers the week of Dec. 16. Like just 19,000 tons of corn were booked vs. 124,000 in the previous week.

It seems the Chinese are just playing games, specifically over a certain GM variety of corn that has been awaiting China’s approval for more than two years. [I have no clue on this stuff, but for Jeff S., who works with Cargill, Syngenta AG’s MIR 162.]

--Coffee prices fell 20% last year, after finishing lower in 2011 and 2012; down 49% since 2011. Classic oversupply, and it’s expected to remain that way at least the first few months of 2014.

--But cattle prices hit a record on Friday amid expectations of tight supplies, which have been building for some time, going back to the devastating drought of 2012, though now some ranchers are taking advantage of low-feed costs to retain some cows for breeding to expand thinned herds, thus further reducing supply, at least temporarily.

--Skype was hacked by the Syrian Electronic Army, supporters of President Bashar Assad, which wrote on a Skype blog page, “Stop Spying!” referring to Skype’s alleged involvement with the National Security Agency’s surveillance program. Others named in documents leaked by Edward Snowden that showed the U.S. government was able to access private data about conversations were telecom operators such as Verizon, as well as Google and Facebook.

Skype and the others have all denied giving the NSA permission to access their customer data in bulk and without a warrant.

Apple denied knowing of an alleged attempt by the NSA to create a secret “backdoor” for hacking into the iPhone.

--And Snapchat was hacked with hackers getting hold of 4.6 million phone numbers and user names. The company vowed to release an updated version of the app that will allow Snapchatters to opt out of appearing in Find Friends after they have verified their phone number. Snapchat had been warned last summer by a security firm that it was vulnerable to hacks and did nothing.

--Facebook is facing a class-action lawsuit claiming that when users share a link to another website via a private message, Facebook scans it to profile the sender’s web activity. The suit alleges Facebook systematically intercepts messages to mine user data, which it then sells to advertisers and marketers.

--Mandiant, the U.S. cybersecurity company that last year accused the Chinese military of hacking more than 100 U.S. companies, was acquired for more than $1 billion by FireEye, a New York-listed cyber threat detection company. David De Walt, chairman and CEO of FireEye, said the revelations of NSA mass surveillance and Mandiant’s report on Chinese hackers had “accelerated business opportunities” for the company.

--Spain’s national police, working with U.S. authorities, arrested eight members of a global banking hacking network responsible for stealing $10s of millions from cash machines worldwide. Six were Romanians and the other two Moroccans.

“In February, the group acted simultaneously in 23 countries and stole $40 million in just a few hours through 34,000 cash withdrawals, the police said.” [Manuel Baigorri / Bloomberg]

--According to an analysis of Census data by William Frey of the Brookings Institution, the nation’s population only grew 0.72% between July 2012 and July 2013, to 316,128,839...or is it 316,128,840...

This is the weakest rate of growth since the Great Depression, says Frey.

Actually, the Census said Monday that the population would hit 317.3 million on New Year’s Day, also up just 0.7% from New Year’s Day 2013.

At the height of the baby boom in the 1950s, the population grew about 1.8% a year on average. [Neil Shah / Wall Street Journal]

--Sales of Manhattan apartments hit a record in the fourth quarter owing in no small part to wealthy international buyers surging into the market. Said one property broker, “Demand from foreign buyers has never been stronger.” The median price of a luxury apartment jumped 10% from a year ago to $4.9 million. Yup, there is Bill de Blasio’s tale of two cities. [Wall Street Journal]

--According to the New York Post, David Tepper, founder of Appaloosa Management, with more than $20 billion under management, is in line for a $3 billion-plus payday for 2013, when his flagship Palomino fund was up an estimated 42%, after fees. Tepper earned $2.2 billion in 2012.

Tepper, based nearby, has been generous in his philanthropic efforts, most recently following Hurricane Sandy. Appaloosa has an annualized return of 27% since he launched the hedge fund in 1993. I saw one recent piece that pegged him as the wealthiest individual in New Jersey. Hey, with returns like these, good for him. And good for the business school at Carnegie Mellon that has his name on it.

--I keep forgetting to note that the Dunkin’ Donuts downstairs has had a sign up for a month or two about not accepting $100 bills “due to counterfeiting.” It really is far more prevalent than many in my area, at least, probably know.

Foreign Affairs

Iran: The country appointed two hardline lawmakers’ to the group charged with overseeing discussions over the nuclear program with the P5+1, because as an Iranian lawmaker told the state-run Fars News Agency, “This measure has been adopted because the negotiations didn’t move in our interest much in the first stage” of talks.

So you have a battle between moderates and hardliners in the Iranian power structure.

Talks were held in Geneva this week on implementation of the Nov. 24 agreement, but there is still no definitive word on when this will actually take place. It boils down to how Iran suspends some uranium enrichment and how western governments would then ease sanctions.

Israeli Prime Minister Netanyahu warned in a Cabinet meeting Sunday that Iran is “currently developing centrifuges that are capable of enriching uranium six times faster than its regular centrifuges. We are monitoring these developments and are pointing them out to the world.”

So if Iran broke its agreement with the West, it has the capacity for a quick “breakout.” [If you believe Israeli intelligence.]

Lebanon: The war in Syria continued to spill over into Lebanon and Iraq. Another car bomb in Beirut killed at least five and wounded over 70 on Thursday. The attack took place in a suburb popular with Hizbullah. Tension is so high these days the Lebanese Army urged the hundreds who rushed to the scene to pull bodies out of the rubble to leave, fearing further bombs.

Separately, the Lebanese Army has been deploying along the northeastern border with Syria as rebel groups there are mounting an offensive to retake key Syrian towns partially held by Hizbullah-backed fighters working with the Syrian Army.

To show you how complicated and explosive the situation is, Lebanese officials arrested a Saudi citizen who commands the al-Qaeda-aligned Abdullay Azzam Brigades, a Sunni militia with factions in Lebanon, over alleged involvement in the bombing of the Iranian Embassy in Beirut that killed 23. But the Saudis are trying to extradite him. A Saudi...with direct ties to al-Qaeda...no problem. Needless to say, Iranian diplomats in Beirut want to be involved in the investigation of the bombing.

And in the middle sits the incredibly dysfunctional Lebanese government.

Sami Nader, a professor in Beirut, told The Daily Star: “Lebanon is paying the price of a regional bloody ping-pong game. This game will continue because there is no single chance for any regional summit to bring about political solutions to the conflicts in the region.”

Saudi Arabia this week took a huge step in offering $3 billion in aid to Lebanon’s army – which will allow the government to purchase arms, from France, to counter Iranian-supplied Hizbullah.

As an Iranian analyst told the Los Angeles Times, the aid from Riyadh “is going to be undermining all the interests gained [by Iran] in Lebanon and Syria in the past 34 years.”

Iraq: What a disaster. Militants with links to al-Qaeda are threatening to take over towns in Iraq’s Anbar province, a Sunni Muslim stronghold, from the Shiite-led government. Al-Qaeda offshoots are on the verge of capturing both Ramadi and Fallujah, which was a focus of the 2007 U.S. “surge” in Iraq. Again, it’s all about Syria and the proxy war between Iran (Shia) and Saudi Arabia (Sunni). Said Ryan Crocker, former U.S. ambassador to Iraq, in an interview with Bloomberg:

“If al-Qaeda manages to really take hold of western Iraq, that’s a pretty substantial base on Arab territory, where they’d have security and the space to start thinking about operations wherever they want to think about. It’s exactly what they had in Afghanistan before 9/11.”

The U.S. has been sending increased military aid to the Nouri al-Maliki government and thus far the violence hasn’t impacted oil output, which increased to 3.2 million barrels last month. But during an Iraqi military raid against a Sunni MP in Ramadi, his brother and five guards were killed, with further battles killing ten, and then 44 Sunni MPs immediately announced their resignation, calling for Iraqi troops to withdraw from all of Anbar.

So Maliki, in a compromise, agreed to withdraw the army from the cities, but then reversed himself on Wednesday and troops stormed back in.

Looking back, of course, it was a critical mistake on the part of the Obama administration not to have secured a bilateral agreement that would have allowed some U.S. forces to stay in the country. Iraq’s military capabilities have done nothing but decline since then.

Crocker said there would be a chance that increased aid today could lead to at least some Special Ops advisers being sent in to at least operate surveillance drones.

Syria: Between 6,000 and 7,000 foreign fighters have taken up arms with rebels against the Assad regime, according to an Israeli study. That’s 6,000 to 7,000 who become further radicalized, gain military experience, and then potentially wreak havoc when they go back home, with the vast majority, 4,500, being from the Arab world.

As for those coming from Western Europe and other Western countries, it is estimated to be more than 1,000, with most from Britain, France, Holland and Germany. [Jerusalem Post]

This week the Syrian Observatory for Human Rights said the death toll from the nearly three year war now stands at 130,000, including 46,000 civilians. It also includes 29,000 rebels and 52,000 pro-government forces, including some from Hizbullah.

Meanwhile, so much for the Dec. 31 deadline for removing chemical-weapons materials from the country. The powers that be due have a legitimate excuse in that the weather was horrid there for a good stretch. But the highest priority stocks must be moved to the coastal city of Latakia, where they are to be loaded onto foreign vessels and taken away for destruction at sea.

So in a few years, look for some mutant sea monsters in the Mediterranean and some terrific action flicks. Too bad Ray Harryhausen passed away last year.

China / Japan:

The South China Morning Post ran an analysis from Agence France-Presse on the difference between Chinese President Xi Jinping and Japanese Prime Minister Shinzo Abe, who “are locked in a spiraling diplomatic stand-off but their burgeoning rivalry contrasts with striking personal parallels between the two, analysts say.

“While they have emerged through very different systems – one a democracy and the other a one-party state – they are both sons of elite politicians, have suffered serious personal or political setbacks and spout dreams, patriotic visions for the future.

“Similarities in outlook underlie their nationalist and economic agendas, and both are seeking to rejuvenate their countries, the world’s second- and third-biggest economies. As one expert at the Chinese University of Hong Kong told AFP, ‘nationalism has been a potent force which they can exploit to consolidate their position.’”

Of course Abe’s visit to Tokyo’s controversial Yasukuni Shrine, which honors several high-level officials executed for war crimes after World War II, was the latest spark between the countries, this after Beijing declared an air identification zone over islands in the East China Sea claimed by both but controlled by Tokyo.

“Xi has pushed what he calls the ‘Chinese Dream’ and has referred to the ‘great renaissance of the Chinese nation,’ vowing to pursue a stronger military, overhaul an outmoded economic growth model and cleanse a ruling party riven with corruption.

“Abe was voted in vowing to rejuvenate Japan’s long moribund economy after two so-called ‘lost decades,’ amend its war-renouncing constitution and take a more positive view of Japan’s past with the slogan: ‘Take back Japan.’”

As David Zweig, a professor at Hong Kong University of Science and Technology, added, the two face similar challenges.

“Power-wise, China is in ascendancy but morally it’s in decline and so that’s why you get this effort by Xi to impose a new morality, a Maoist morality, an anti-corruption morality, a dream of greatness morality, a unification morality,” he said.

“Abe is clearly trying to end the 22 years of decline. And the way you do that, he probably figures, is through enhancing nationalism, rewriting the past, giving people a more positive sense of who they are as Japanese, strengthening the military, not being so passive in international affairs.

“An assertive leader in Japan clearly can have an impact and I think that’s quite true in China,” said Zweig. “So their own backgrounds should have an important influence.”

In his New Year’s address, first as China’s president, Xi stressed “2014 we will make new strides along the path of reform,” with the emphasis on topics such as loosening the one-child policy, increasing property rights for farmers and encouraging more private investment in more industries.

China also officially abolished re-education labor camps, as rumored, last weekend. Rights groups estimate that up to 300,000 people a year were confined. The one-child policy has been expanded to allow couples to have two children if either parent is an only child. Previously, a couple could only have two children if both parents were only children. It is estimated the reform will lead to two million additional births a year, raising the total from seven million to nine million. [Sydney Morning Herald]

Meanwhile, the Global Times, a government mouthpiece, reported that China’s top 10 journalism schools will have a stronger focus on Marxism to “cultivate outstanding journalists for the Party.”

And in an official document issued by the Communist Party Central Committee, it was reported that China is ordering Communist Party officials to “lead by example” and refrain from smoking in public places, including schools, hospitals, sports and cultural venues. According to a survey in the People’s Daily, an average of 740 million Chinese are exposed to second-hand smoke daily. [New York Times]

Crazy story from a seaside village in Guangdong as “3,000 well-armed policemen and paramilitary troops, aided by helicopters and coastguard speedboats,” swooped in for a drug bust.

3,000?! Such force was warranted.  They were dealing with a huge, violent drug gang armed with AK47s, homemade hand grenades and cross bows and the massive operation yielded 3 tons of crystal meth and 23 tons of drug-making ingredients. 182 were arrested belonging to 18 criminal organizations.

“Previous raids were hampered by villagers who came out on their motorcycles in the hundreds, blocking the village’s narrow roads.” [SCMP]

Good for the police. The meth business in the village also seriously polluted the ground water and damaged crops.

Sounds like a good time for a mass execution, frankly.

As for the rise of China’s military, I like the following conclusion from Edward Luttwak, in an op-ed in the Wall Street Journal, your editor long remembering a lecture in a poli-sci class at Wake Forest from him. [Like 35 years ago!]

“China’s Communist Party leaders have been competent in managing a vast and dynamic economy, and their repression is also very skillful in minimizing visible brutality (except against minorities). For these reasons, there is an assumption by many outsiders that the leadership is equally proficient in foreign policy.

“Unfortunately, the actual evidence so far is that we are witnessing a prolonged outbreak of feckless nationalism and militarism that evokes the sinister precedent of pre-1914 Germany. This was a country that had the world’s best universities, the most advanced industries and the strongest banks. It lacked only the strategic wisdom of persisting in its own ‘peaceful rise.’”

Finally, what have I been saying for years now...the pollution issue will one day bring down the government, though this will take a while.

Edward Wong reported in the New York Times on Monday:

“With awareness of China’s severe environmental degradation rising, there has been a surge of anxiety in the last year among ordinary Chinese and some officials over soil pollution in the country’s agricultural centers and the potential effects on the food chain. In recent years, the government has conducted widespread testing of soil across China, but it has not released the results, adding to the fear and making it more difficult for most Chinese to judge what they eat and pinpoint the offending factories.

“An alarming glimpse of official findings came on Monday, when a vice minister of land and resources, Wang Shiyuan, said at a news conference in Beijing that eight million acres of China’s farmland, equal to the size of Maryland, had become so polluted that planting crops on it ‘should not be allowed.’”

Back to Japan, Prime Minister Abe wants to see a more patriotic tone in Japan’s school textbooks. Opponents warn this could undercut an anti-war message that has kept Japan peaceful for decades.

Abe and the nationalists argue changes were warranted and crucial to restoring the country’s sense of self, after decades when children were taught what they call an overly negative view of Japan’s wartime behavior.

In his New Year’s message, Abe also said: “In a world that is deepening its mutual interdependence, inward-focused thinking is no longer able to safeguard the peace of Japan. We will fully defend the lives and assets of our nationals as well as our territory, territorial waters, and territorial airspace in a resolute manner.”

As for the December 26 surprise visit by Abe to Yasukuni, Chinese Foreign Ministry spokesman Qin Gang said his visit to the shrine had “shut the door” to direct talks between Abe and Xi. [SCMP]

But China is holding off on economic sanctions and there has been no rioting and destruction of Japanese interests in China as there has been in the past when Beijing wanted to play the nationalism card. The economic ties between the two, at least for today, trump politics.

North Korea: Rachel Oswald of the Global Security Newswire and National Journal reported that recent satellite images show signs Pyongyang appears to be moving ahead aggressively with expansion of its plutonium-processing efforts at its Yongbyon nuclear complex. Experts believe Pyongyang has enough plutonium stocks on hand to fuel about six more devices than those already exploded in underground testes, the most recent being in February 2013.

Earlier, in his New Year’s address, Kim Jong Un praised the recent execution of his uncle as a decisive move that got rid of “factionalist scum,” while urging stronger ties with Seoul.

Agence France-Presse reported Kim said, “our party’s timely, accurate decision to purge the anti-party, anti-revolutionary and factionalist elements helped greatly cement unity of the party and the revolution.”

But then he called for creating a “favorable climate” for fostering better relations with the south.

And then he said North Korea would continue to build up the military and would never back down to the United States.

“If war breaks out again in this land, it will bring about a massive nuclear disaster and the U.S. will also never be safe.”

Russia: Just five weeks to the opening of the Winter Games in Sochi and never before has a country found itself in the midst of a wave of terror attacks prior to playing host to an international spectacle. While he has yet to claim direct responsibility for the twin suicide attacks in Volgograd that killed at least 33, it’s pretty clear North Caucasus militant leader Doku Umarov was behind them, he having urged just such a wave last July, vowing to disrupt the “satanic” games.

All of the attacks since then, including a female suicide bomber detonating her explosives in a Volgograd bus in October, have a common link: Dagestan. [Which is also linked to the Boston Marathon bombing.]

Worrisomely, Dagestan is but a few hours’ drive east of Sochi, while Volgograd is 400 miles to the north.

A few thoughts on Sochi from my archives...what I wrote at various times.

Week in Review 7/7/07

“Putin successfully used his personal ‘charm’ to woo the International Olympic Committee and win the bidding for the 2014 Winter Games, to be held in the Black Sea resort of Sochi. Understand something. The entire site will need to be built from scratch. Sochi has nothing on an Olympic scale. In fact, it basically just has a rope tow, let alone zero facilities for everything else you can think of. What a gigantic waste of money.”

Week in Review 10/6/07

“President Putin traveled to Sochi...and said, ‘We unfortunately have to admit that at this point, in a city of half a million people, there is no proper sewage system, electricity supply or infrastructure.’ Doesn’t exactly make me want to visit the place beforehand, if you catch my drift.”

Week in Review 4/3/10

“Russia: Chechen rebel leader Doku Umarov, who awhile back warned Russia that ‘war is coming to your cities,’ claimed responsibility for the twin suicide bombings in the Moscow subway system that killed 39, retaliation for what Umarov said were Russian security force moves against the militants. Two days later, at least 10 were killed in a double suicide bombing in Dagestan, which has become the new hotspot as many of the terrorists have been driven from Chechnya to there, or Ingushetia.....

“I’ve been to Moscow twice in the past years (2002 and 2007) and it’s not only fascinating, it’s depressing. Going back to the apartment bombings of 1999 (I had my own unique theory on these, long before the late-William Safire put out for public consumption that the government itself had a hand in them), and other major terror attacks, many of the people here live in constant fear. The people of Russia are angry that their government cannot protect them....

“I also thought the New York Post’s Ralph Peters nailed it when he reminded his readers that the region from which the terrorists are coming is but a day’s drive from Sochi, site of Putin’s 2014 Winter Olympics, ‘which could wind up making the 1972 Munich Games look like a terrorist amateur hour.’ The terrorists hate Putin. Anything to embarrass him is a victory. Imagine, then, what impact the Islamists could have on this world stage, right in their backyard. You’d be nuts if you even considered going here....”

[Note: Full disclosure, I also urged folks not to go to the World Cup in South Africa around this time and on this I was wrong.]

So the clock is ticking...countdown to Sochi. We all just wonder what else may be ticking there.

Afghanistan: A report from the National Intelligence Estimate, which includes input from America’s 16 intelligence agencies, concludes any gains in Afghanistan will be quickly lost unless Washington and Kabul sign a security pact that would keep an international force in the country beyond 2014.

This seems obvious, but it’s important for debate, both here and in Afghanistan as it also prepares for a presidential election. This is all coming to a head in the next few months.

[A CNN/ORC International survey released Monday showed support for the war in Afghanistan had fallen to a 12-year low, just 17%, down from 52% in December 2008. Opposition now stands at 82%. In CNN polling, opposition to the war in Iraq never got higher than 69%, and all through Vietnam, no more than six in 10 ever told Gallup’s interviewers that war was a mistake, according to CNN’s Polling Director Keating Holland.]

Egypt: There was renewed unrest on Friday as at least five deaths were reported in fresh protests mounted by the Muslim Brotherhood in cities across the country. Two others were killed in Alexandria on Thursday. Ousted President Morsi goes on trial in a few weeks and the upcoming period could be particularly volatile.

India: Prime Minister Manmohan Singh announced he will not stay in power if his Congress party wins the next election, due in the summer. Singh, 81, has been PM for almost a decade. Singh appeared to tab deputy leader Rahul Gandhi as the probable Congress candidate. Singh added it would be “disastrous for the country” if opposition leader Narendra Modi were elected PM.

“Someone who presided over the massacre of innocent people should not be the prime minister,” Singh said, referring to a situation in 2002, when Modi was the chief minister of the western state of Gujarat and he was accused of doing little to stop anti-Muslim riots which left more than 1,000 dead.

Separately, the head of an Indian terror group reportedly admitted to authorities that he was seeking a compact “nuclear bomb” in Pakistan and that his superior there had been requested to provide it. [Times of India]

Turkey: Relative calm here the past few days but the corruption investigations continue, only the extent of which is in doubt as Prime Minister Erdogan purged the upper echelon of the police force in an attempt to derail the probes that have caused such an upheaval in his government.

Erdogan’s prime rival, and former backer, cleric Fethullah Gulen, is based in Pennsylvania and in recent weeks prayed that “God bring fire to their houses,” while Erdogan responded with a promise to “go into their caves” and “expose them.” [AP]

Erdogan, without naming Gulen, maintains the investigation is nothing more than a “serious smear campaign.”

Ukraine: Relative calm here as well, but probably not for long. Protesters need to get out of the cold for a while!

Australia: The country smashed its previous annual heat record in 2013, with mean temperatures 1.2 degrees C. above the 1961-90 average. Sydney had its highest temps ever as well. Too bad they can’t export some of this heat to the demonstrators freezing their butts off in Kiev. [Those of us with true democracy in the U.S. can deal with our own record cold this week.]

[Globally, a report from the Sydney Morning Herald said this was the sixth hottest year in records dating back to 1880.]

Random Musings

--Sen. Tom Coburn (R-OK) / Wall Street Journal

“The past year may go down not only as the least productive ever in Washington but as one of the worst for the republic.

“In both the executive branch and Congress, Americans witnessed an unwinding of the country’s founding principles and of their government’s most basic responsibilities. The rule of law gave way to the rule of rulers. And the rule of reality – in which politicians are entitled to their own opinions but not their own facts, as Sen. Daniel Patrick Moynihan liked to say – gave way to some politicians’ belief that they were entitled to both their own opinions and their own facts. It’s no wonder the institutions of government barely function.

“On health care, President Obama oversaw a disastrous and, sadly, dishonest launch of his signature achievement. The president gave an exception to employers, but not to individuals, without any legal basis, and made other adjustments according to his whim. Even more troubling was his message over the past three years that if you like your plan, you can keep it, and that if you like your doctor, you can keep your doctor. We now know that the administration was aware that these claims were false, yet Mr. Obama continued to make them, repeatedly.

“In 2014, millions of Americans will likely discover that the president’s claim that the average family will save $2,500 on health insurance was equally disconnected from reality.”

As for Congress, “(If it) wants to get serious, and be taken seriously, it can start by doing its job. It can debate and pass individual appropriations bills – a task that Congress has not completed in eight years.   And perhaps Congress can cut some of the stupidity in government spending. The House deserves some credit for trying – it passed four appropriations bills – but the Senate deserves none. Mr. Reid did not pass a single appropriations bill in 2013, thus shielding vulnerable members of his party from having to make tough votes.

“How the nation’s leaders perform in Washington is a reflection of the country, and culture, they represent. Moral relativism and postmodern disregard of truth has been promoted by academia for decades; sometimes it seems that the best students of that thinking can be found in Washington....

“The coming year presents an opportunity to Americans who hope for better. Despite Washington’s dysfunction, ‘We the People’ still call the shots and can demand a course correction. In 2014, here’s a message worth considering: If you don’t like the rulers you have, you don’t have to keep them.”

--Crime is always a big topic at yearend as the statistics roll in, consider this. Newark, N.J. recorded 111 murders for 2013, the most in 23 years, while New York City had 333, the lowest since records began being kept in Gotham back in 1963. Further, Newark has a population of about 270,000...New York 8 million. [Newark also had 400 carjackings in 2013. As of Dec. 27, New York had 159. That’s staggering.]

New Jersey Sen. Cory Booker (Dem.), the mayor of Newark for seven years, said on New Year’s Day, “I can say as a mayor who has been fighting on the front lines for years, the drug war is an abject failure. It’s consumed egregious amounts of taxpayers’ dollars. It hasn’t achieved the public-safety aims of our streets, it’s consumed human potential, it is a massive government overreach.”

He said the real answer to fighting crime is addressing poverty and schools.

A better comment was given by Newark Police Director Samuel DeMaio to the Star-Ledger, when commenting on a 15-year-old boy who was charged with a Christmas Day shooting that left two teenagers dead and third seriously injured.

“This new young generation is the most violent – and has the most disregard for life – that I’ve seen in my 28 years of law enforcement here in Newark. Every generation just seems to keep getting worse and worse and worse. These kids have no expectation to live past 25, and why should they?”

But, again, New York has the same issues Newark has yet former Police Commissioner Ray Kelly did a terrific job.

Editorial / New York Post

“Blessed be the defender, for without him the meek shall inherit only the wind.

“Hold that thought today, and in the weeks and months to come, as incoming New York City Police Commissioner Bill Bratton moves to fill the big brogans left him by departing top cop Raymond W. Kelly....

“New Yorkers in all five boroughs have particular reason to be grateful for his service: His second stint as commissioner was a 12-year turn – itself historic – which saw crime brought to historic lows and remain there, even as Kelly, through force of will, built an anti-terrorism operation that is the envy of big cities around the world....

“Kelly took office while smoke was still rising over Ground Zero. That is, when the need for a vigorous anti-terrorism presence could not have been more obvious. The city had relied on the feds to keep us safe from terror after the 1993 World Trade Center truck bombing. To no avail.

“Kelly, and Mayor Bloomberg decided they would not wait for the next attack.... Thus was born the city’s anti-terrorism effort.

“It is impossible to know how many acts of savagery were averted simply by the presence of the NYPD’s unit. This much is on record: Since 9/11, sixteen serious plots were taken down wholly or in part by city counter-terrorism cops....

“No matter what the pinched-vision critics have to say, New York is what it is today – safe, sane and still ascendant after all these years – in no small measure because of Raymond W. Kelly, a son of the city and, above all, a cop’s cop.”

As for Michael Bloomberg, he left office with a 50% approval rating (49% in one I saw, 53% in another) and I must say I was amused with those criticizing the man.

True, he probably should not have been there the final four years, changing the rules to allow himself a third term, but my bottom line as one who occasionally goes into New York is crime. New York is undeniably safer and from this, including confidence to work and invest there, let alone booming tourism, all else flows.

The nanny state stuff never bothered me.
 
Editorial / New York Post

“We had our doubts when Mike was elected. Bloomberg, we noted, was a ‘life-long liberal Democrat’ who was ‘lefty to the core’ and lacked political experience. The question was whether the Rudy Giuliani gains – especially against crime – would stick.

“The record is now before us. Recall that Rudy had already reduced murders and other violence to levels no one had thought possible. Yet with Ray Kelly at the helm of the NYPD, crime rates plunged even further....

“The cops deserve full credit, of course. But New York’s Finest could not have succeeded without a mayor who had their backs. Mike stood up for cops – and let them do their jobs.

“Mike also took on the sacred cows of education. True, our schools still have a long way to go, given that two out of three city kids graduate unprepared for either college or a job. But Mike’s policies chipped away at the education cartel that has made our public schools more of a jobs program for the teachers union than a program of learning for city schoolchildren....

“At the same time Mayor Mike helped New York do what any city needs to do to prosper: Grow.... Mike changed the city landscape, mostly for the better....

“Nearly 40 percent of Gotham has been rezoned. Some 40,000 structures were built. Both housing and parkland have expanded.

“The same goes for his oversight over the public purse. Though taxes remain much too high – property taxes are higher than when he took office – and spending has almost doubled, even in the hardest times Bloomberg kept the city out of financial crisis....

“Not that Mike was perfect. He was arrogant. He turned fetishes into policy... He was impatient with due process and transparency. And he rammed through a third term against the wishes of New Yorkers, who had backed term limits in two separate referenda....

“(But) on this, Bloomberg’s last day in office, The Post says simply: Thank you, Mr. Mayor. You did New York proud.”

--Bill de Blasio took the oath of office to be New York’s next mayor and vowed to usher in a sweeping agenda, including higher taxes on city residents making more than $500,000 a year, along with universal pre-K, de-emphasizing standardized testing in public schools and reining in some of the more aggressive tactics employed by the NYPD.

“Today, we commit to a new progressive direction in New York.”

His biggest challenge this first year is going to be negotiating with the city’s unions, who are clamoring for raises after years of frozen pay and/or givebacks.

And as for higher taxes, it’s really up to Gov. Andrew Cuomo and the state Legislature, neither of whom want to raise them, with Cuomo running for re-election this year.

--Back to the crime beat...across Los Angeles, homicides were down 16% in 2013 from 2012 and the city ended the year with the fewest killings since 1966. [Down about 50% since 2003.]

Chicago’s murder rate, despite the headlines, actually fell 17% this year to the lowest level since the ‘60s.

But homicides were up in Washington, D.C. with 103 – a sizable increase from the half-century low of 88 in 2012.

--A new study, published in the current issue of JAMA, The Journal of the American Medical Association, suggests that some Alzheimer’s patients may benefit from vitamin E supplements. The benefit, while not huge, is nonetheless noteworthy; “high-dose vitamin E slowed the decline of people with mild to moderate Alzheimer’s by about six months on average.” [Pam Belluck / New York Times]

It’s more about delaying the need for help with daily activities like dressing or feeding themselves vs. any delay in memory deterioration.

“Notably, in this study, high-dose vitamin E appeared safe.”

--Cultural critic Camille Paglia, in an interview in the Wall Street Journal by Bari Weiss:

“(No) subject gets her going more than when I ask if she really sees a connection between society’s attempts to paper over the biological distinction between men and women and the collapse of Western civilization.

“She starts by pointing to the diminished status of military service. ‘The entire elite class now, in finance, in politics and so on, none of them have military service – hardly anyone, there are a few.   But there is no prestige attached to it anymore. That is a recipe for disaster,’ she says. ‘These people don’t think in military ways, so there’s this illusion out there that people are basically nice, people are basically kind, if we’re just nice and benevolent to everyone they’ll be nice too. They literally don’t have any sense of evil or criminality.’....

“Ms. Paglia argues that the softening of modern American society begins as early as kindergarten. ‘Primary-school education is a crock, basically. It’s oppressive to anyone with physical energy, especially guys,’ she says, pointing to the most obvious example; the way many schools have cut recess. ‘They’re making a toxic environment for boys. Primary education does everything in its power to turn boys into neuters.’....

“Politically correct, inadequate education, along with the decline of America’s brawny industrial base, leaves many men with ‘no models of manhood,’ she says. ‘Masculinity is just becoming something that is imitated from the movies. There’s nothing left. There’s no room for anything manly right now.’ The only place you can hear what men really feel these days, she claims, is on sports radio.”

Personally, I think the callers are morons. 

--As for “Week in Review Person of the Year,” for my purposes it must go to a political figure; the consequences of governance, or lack thereof, being central to what we explore in this column. The last two years, 2011 and 2012, I didn’t select anyone. In fact, having started the award in 2001, it’s a pathetic list, but then it’s been a pretty pathetic time for all manner of reasons around the world. I mean in 2007 and 2008, I gave it to Gen. David Petraeus (stretching the definition of a political figure) and Defense Sec. Robert Gates both years yet any progress made by them proved, or will prove to be, I’m sure, fleeting.

If Barack Obama would just lead, I’d gladly give it to him. I gave it to Ben Bernanke in 2009 and he deserved it over any other single individual given the times.

I can’t give it to Pope Francis because he doesn’t, yet, fit my definition. No one emerged in the Middle East. Putin is more in the next category. Xi Jinping? Maybe someday...which would be a good sign. So I’m just shelving the award.

Far easier to pick a “Dirtball of the Year” as there has been no shortage of candidates since the first one in 2000, Robert Mugabe (who also won in 2002, 2007 and ’08); this award given to the person(s) who has most negatively impacted the lives of millions.

So for a third straight year it goes to Bashar al-Assad. 

--I loved Dubai’s pyrotechnics display to ring in the New Year, with a record half a million fireworks from 400 firing locations, all synchronized by 100 computers. An amazing technical feat. The company responsible, IMG Artists, should have been given the ObamaCare website project.

--On Jan. 1, Colorado became the first American state to legalize pot. [“Doonesbury” has been terrific on this topic.]

Editorial / Wall Street Journal

“Marijuana possession remains a federal crime until Congress changes the Controlled Substances Act, which is supposedly to trump state law. But the Obama Administration is suspending enforcement to allow Colorado to undertake its experiment, with Washington state to follow later this year.

“The feds say they’ll intervene if governments can’t prevent distribution to minors or trafficking across state borders, but those are both inevitable and no one should expect that Attorney General Eric Holder’s troops will arrest people as they cross into Utah. Those are President Obama’s voters.

“The larger question is whether the benefits exceed the costs to U.S. society. On top of tax receipts, the legalizers promise to build more schools and roads as resources are shifted away from law enforcement and imprisonment. That’s almost certainly oversold because few marijuana users end up in jail today and no one knows the costs of more drug use....

“Marijuana politics are changing, especially in California, the West and New England, but the consequences of legalization are unknowable in advance. Perhaps the gains will be everything the stoners claim, though bong-inspired visions tend to be defeated by reality.

“Colorado and Washington voters may come to regret their decision if they notice a surge in drug use, or more violence, or a generation of underdeveloped young people. Legalization, once achieved, will be hard to reverse. Better, then, to let Colorado go first, and watch what happens.”

--More fun and games as Toronto Mayor Rob Ford filed to run for another term.

--We note the passing of Bob Grant, 84, the father of conservative talk radio, spending decades in the New York market with WABC and WOR.

--In his year-end prayer service on Tuesday evening, Pope Francis urged people to ask themselves a tough question.

“Let us courageously ask ourselves: How did we live the time (God) gave us? This year did we contribute, in our own small ways, to make it more livable, orderly, welcoming?”

Editorial / Financial Times

“(What) is striking about Pope Francis is how rapidly he has become an authentic figurehead for those who are concerned by what he calls ‘the idol called money’ and the way ‘we have fallen into globalized indifference in this globalized world.’ Many on the right of politics will disagree with his critique of ‘unbridled capitalism.’ But he conveys his concerns and anxieties with a sincerity and authenticity that no world leader can match.”

---

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

God bless America.
---

Gold closed 2013 at $1202. 1/3...$1238
Oil closed 2013 at $98.42. 1/3...$93.96 [Down $6.50 on the week]

Returns for 2013

Dow Jones +26.5% [16576]
S&P 500 +29.6% [1848]
S&P MidCap +31.6%
Russell 2000 +37.0%
Nasdaq +38.3% [4176]

Returns for the week 12/30-1/3

Dow Jones -0.1%
S&P 500 -0.5%
S&P MidCap -0.2%
Russell 2000 -0.6%
Nasdaq -0.6%

Returns for the period 1/1/14-1/3/14

Dow Jones -0.6%
S&P 500 -0.9%
S&P MidCap -0.6%
Russell 2000 -0.4%
Nasdaq -1.1%

Bulls 61.6 [highest since Oct. 2007]
Bears 15.2 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Dr. Bortrum posted a new column.

Catch me on Twitter @stocksandnews

Brian Trumbore