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03/29/2014

For the week 3/24-3/28

[Posted 12:00 AM ET]

Edition No. 781*

Ukraine

Once again as I go to post the situation is tense on Ukraine’s eastern border with Russia. In an interview on Friday from Rome, President Barack Obama called on Russia to pull its troops away from the area and to begin talks to defuse military tensions, with Russia’s force estimated at 40,000 and growing. Ukraine says it could be closer to 100,000. With the annexation of Crimea complete, what’s next for Russian President Vladimir Putin? Late Friday, he unexpectedly tracked down Obama, now in Saudi Arabia, for an hour-long call in which Putin agreed to have Foreign Minister Lavrov meet with Secretary of State Kerry to discuss a plan put forward by the White House, details unknown. But Putin took the opportunity to complain about a “rampage of extremists” intimidating officials and residents “in various regions,” according to a statement from the Kremlin, which of course is a bunch of garbage.

Some key events as the week progressed...

--Foreign Minister Lavrov finally held talks with his Ukrainian counterpart, Andriy Deshchytsia, on the sidelines of the nuclear summit at The Hague. No other news was made.

--The G-7 suspended Russia from the G-8 and said it will hold its next summit in Brussels in June, not Sochi as originally scheduled, adding it may eventually target specific sectors (energy, finance, banking and arms) of the Russian economy if Putin doesn’t de-escalate.

“This group came together because of shared beliefs and shared responsibilities. Russia’s actions in recent weeks are not consistent with them. We will suspend our participation in the G-8 until Russia changes course and the environment comes back to where the G-8 is able to have a meaningful discussion.”

--Ukraine ordered its remaining forces in Crimea to withdraw for their own safety as Russia stormed some of the bases. Defense Minister Tenyukh was sacked by parliament on Tuesday over his handling of the crisis and there was a story only one-quarter of soldiers in Crimea plan on staying in the military.

--The Wall Street Journal reported that U.S. intelligence told the White House that Putin had an interest in Crimea becoming part of Russia back in December, with Russia beginning to move elite troops “in small quantities over the last few months.”

--On Tuesday, at the Nuclear Security Summit in The Hague, Obama said, “Crimea is not a done deal in the sense that the international community by and large is not recognizing the annexation of Crimea. [But] obviously, the facts on the ground are that the Russian military controls Crimea. There are a number of individuals inside of Crimea that are supportive of that process. There’s no expectation that they will be dislodged by force.”

But, Obama also said, “Russia is a regional power that is threatening some of its immediate neighbors, not out of strength but out of weakness.”

‘Regional power.’ I’m sure Putin loved that. It was one of many stupid descriptions Mr. Obama used this week.

A senior administration official told reporters traveling with the president on Air Force One to Brussels that “there’s no question that NATO is prepared to defend any ally against any aggression.”

--Former Ukrainian Prime Minister Yulia Tymoshenko denied the authenticity of a taped conversation wherein she allegedly called for Russia to be turned into “scorched earth” and for ethnic Russians in Ukraine to be killed, as reported by BBC News. Tymoshenko claimed it was produced by Russia’s security services. While she admitted to speaking by telephone with a member of Ukraine’s parliament, she said her words were altered.

Who knows...but this is classic MO for the FSB (the security apparatus that replaced the KGB).

Meanwhile, Tymoshenko said she would run for president in the May 25 election, pledging to build a strong army. Former heavyweight champion Vitaly Klitschko also announced he was a candidate.   Moscow will no doubt have its own pick in the race, if it can’t force the vote to be canceled.

--In a rather surprising statement, at least for me, Belarusian President Lukashenko said Russia’s annexation of Crimea was a “bad precedent,” while acknowledging the region was now a “de facto” part of Russia.

Lukashenko, long an ally of Putin’s, said that “Crimea is not an independent state unlike Ossetia or Abkhazia,” though he said Ukrainians had brought the current crisis on themselves after years of corruption. Which is rather rich, coming from Lukashenko.

At the same time, Lukashenko requested war planes from Moscow and said they would stay in his country “as long as Belarus and Russia want.” [Radio Free Europe/Radio Liberty]

--The IMF and Ukraine reached agreement on a $14bn to $18bn aid package over the next two years that would unlock a further $25bn to $27bn from the European Union and U.S. The interim Ukrainian government agreed to initiate a reform program in return and took the first painful step, hiking gas prices 50%.

--Washington has suspended missile defense cooperation talks with Moscow and on Thursday, both houses of Congress approved bills supporting Ukraine with direct assistance and $1 billion in loan guarantees.

--Friday, ousted Ukrainian President Viktor Yanukovych said the people should “Demand a referendum on the determination of the status of each region within Ukraine” rather than a presidential election, in what is seen as another attempt to destabilize the east and thus provide a pretext for a further invasion.

--A Levada Center poll in Russia had Putin’s approval rating at 80%, 14 years to the day he first became head of state. It was 65% in January and has never been below 63%.

According to a CBS News poll, 56% of Americans support U.S. sanctions against Russia, but...46% disapprove of how Obama is handling events and only 38% approve.

--Lastly, the Brooklyn Nets NBA team is owned by Russian billionaire oligarch Mikhail Prokhorov, who has supported Putin. Prokhorov said he planned on relocating his company that runs the Nets to Russia, which Putin is calling others like him to do even as some pull their assets out of the country.

The NBA said it hasn’t been notified of Prokhorov’s move. He hasn’t been hit by U.S. or European sanctions as yet.

Opinion.....

Editorial / The Economist

“Nobody knows what Mr. Putin will do next. He probably realizes that Kiev, which he refers to as ‘the mother of Russian cities,’ is lost to him. But he will try to claw back what he considers to be part of the ‘Russian world’ – a concept which has no legal borders. If Ukraine implodes, as in its post-revolutionary weakness it might, he will pick off some pieces. The military threat remains. And at the very least he will insist on a deep federalization of Ukraine which would allow a de facto Russian protectorate in the southern and eastern parts of the country, and thus forestall any further movement towards the European Union....

“(Separately), the Ukrainian troops who deified the Russians in Crimea with dignity, if not success, are heroes to their fellow countrymen. The government, though, is seen as having let them down. This could strengthen the hand of Ukraine’s right-wing nationalists.”

Charles Krauthammer / Washington Post

“The United States does not view Europe as a battleground between East and West, nor do we see the situation in Ukraine as a zero-sum game. That’s the kind of thinking that should have ended with the Cold War.”

--Barack Obama, March 24

“Should. Lovely sentiment. As lovely as what Obama said five years ago to the United Nations: ‘No one nation can or should try to dominate another nation.’

“That’s the kind of sentiment you expect from a Miss America contestant asked to name her fondest wish, not from the leader of the free world explaining his foreign policy.

“The East Europeans know they inhabit the battleground between the West and a Russia that wants to return them to its sphere of influence. Ukrainians see tens of thousands of Russian troops across their border and know they are looking down the barrel of quite a zero-sum game.

“Obama thinks otherwise. He says that Vladimir Putin’s kind of neo-imperialist thinking is a relic of the past – and advises Putin to transcend the Cold War.

“Good God. Putin hasn’t transcended the Russian revolution....

“Putin’s irredentist grievances go very deep. Obama seems unable to fathom them. Asked whether he’d misjudged Russia, whether it really is our greatest geopolitical foe, he disdainfully replied that Russia is nothing but ‘a regional power’ acting ‘out of weakness.’

“Where does one begin? Hitler’s Germany and Tojo’s Japan were also regional powers, yet managed to leave behind at least 50 million dead.”

Michael McFaul, former ambassador to Russia:

“I am very depressed today. For those of us, Russians and Americans alike, who have believed in the possibility of a strong, prosperous, democratic Russia fully integrated into the international system and as a close partner of the United States, Putin’s recent decisions represent a giant step backwards. Tragically, we are entering a new period with some important differences, but many similarities to the Cold War. The ideological struggle between autocracy and democracy is resurgent. Protection of European countries from Russian aggression is paramount again. Shoring up vulnerable states, including first and foremost Ukraine, must become a top priority again for the United States and Europe. And doing business with Russian companies will once again become politicized. Most tragically, in seeking to isolate the Russian regime, many Russians with no connection to the government will also suffer the effects of isolation. My only hope is that this dark period will not last as long as the last Cold War.” [Todd Lindberg / The Weekly Standard]

Editorial / Wall Street Journal

“Delivering the keynote address of this week’s European tour, President Obama rejected Russia’s invasion of Ukraine point-by-point with lawyerly logic. If the stately Palais des Beaux-Arts in Brussels on Wednesday had been the Oxford Union debating society, the American would have carried the evening.

“But Vladimir Putin has no time for another tutorial ‘that in the 21st century the borders of Europe cannot be redrawn with force, that international law matters.’ He gobbled up Crimea in three weeks at zero cost in the 21st century and may want a bigger chunk of Ukraine’s south or east. Nothing Mr. Obama said or did in Europe gives the Russian leader a compelling reason to rethink his assault on the post-Cold War order.

“In five years at the White House, Mr. Obama ignored America’s relations with Europe and failed to anticipate Russian revanchism. Yet the leader of the Atlantic alliance and the world’s sole superpower can still rally long-standing allies – as long as he leads and argues for a robust strategy to deter Russian aggression. This week he has not. Instead he has settled for minor sanctions, rhetorical pleading, and more diplomatic ‘off-ramps’ than I-95. To a KGB man like Mr. Putin, that sounds like weakness....

“Mr. Obama also didn’t make any new commitments to boost missile defenses or announce a halt to the U.S. troop drawdown in Europe....

“The message that Kiev will hear in all this is: You’re on your own.

“As he has since the Ukrainian crisis began, President Obama sounded almost a defeated tone, beseeching the Russian czar to stop and talk it over. ‘Russia has resisted diplomatic overtures,’ he said at one point, plaintively stating the obvious – before calling again on Russia to ‘de-escalate’ and take the diplomatic off-ramp.

“The Kremlin isn’t dumb. If the off-ramp is always available and nothing stands in the road ahead, why get off the road at all?”

Matthew Kaminski / Wall Street Journal

“In his speech annexing Ukraine’s Crimea last week, Mr. Putin added a pointed retro-Stalinist warning about ‘a fifth column, this disparate bunch of ‘national traitors’.’ He’s signaling a worse purge to come after two years of unrelenting repression of dissent inside Russia – and a wider and ongoing conflict with Ukraine fought with higher natural gas prices, trade embargoes, KGB-style subversion and possibly tanks and soldiers. Mr. Putin has no good reason to stop with Crimea....

“Neo-Sovietism offers up Russian jingoism stripped bare of Marxist internationalist pretenses, which scares its neighbors and could be used to further isolate a friendless Moscow in the region. The Kremlin elite’s unimaginable wealth and power offers another opportunity to end the Putin march...

“Will Moscow tycoons sit by as the ruble tumbles, the economy stalls and their access to bank accounts, yachts and schools for their kids in the West is endangered? Much harder sanctions than the European Union and America have so far proved willing to consider could test these propositions.

“There’s another familiar note from the past. Over the last four months, Kiev came to resemble Gdansk or Prague in 1989 or Lithuania’s rebellious capital Vilnius a few years later – the scene of a society coming of age, demanding a say over its own future, preferably in a free Europe. Then as now, standing in the way is a little man at the Kremlin desperate to hold on to the Soviet/Russian Empire and his own thrown.”

Ian Bremmer (Eurasia Group) / New York Times

“The United States has once again twisted itself into a rhetorical pretzel. As when it threatened military action against Syria if a ‘red line’ was crossed, the Obama administration’s rhetoric about Russia and Ukraine goes far beyond what it will be willing and able to enforce.

“Earlier this month, President Obama warned that America would ‘isolate Russia’ if it grabbed more land, and yesterday, he suggested that more sanctions were possible. Likewise, Secretary of State John Kerry said the Group of 7 nations were ‘prepared to go to the hilt’ in order to isolate Russia.

“But Washington’s rhetoric is dangerously excessive, for three main reasons: Ukraine is far more important to Vladimir V. Putin than it is to America; it will be hard for the United States and Europe to make good on their threats of crippling sanctions; and other countries could ultimately defang them....

“Such sharp rhetoric from the West could push Mr. Putin to be even more aggressive. That’s because he does not believe that the West would ever treat Russia like Iran and implement robust sanctions that would cut off vast areas of Russia’s economy from the West. As Mr. Putin recently explained, in a globalized world ‘it’s possible to damage each other – but this would be mutual damage.’”

George Will / Washington Post

“In last week’s Kremlin address, (Putin) said, ‘do not believe those who want you to fear Russia, shouting that other regions will follow Crimea. We do not want to divide Ukraine; we do not need that.’ The word ‘need’ is not reassuring. It suggests that Russia’s needs are self-legitimizing and recalls the definition of a barbarian as someone who thinks his appetites are their own justification.

“Speaking of which: Six months after Germany’s absorption of Austria, which was quickly ratified by a plebiscite, Adolf Hitler, on Sept. 26, 1938, discussed the Sudeten region of Czechoslovakia, home of many ethnic and linguistic Germans. Three days before the Munich Conference began, he said: ‘This is the last territorial demand I have to make in Europe.’ On March 15, 1939, six months after Germany’s annexation of the Sudetenland, agreed to at Munich, Hitler swallowed the rest of Czechoslovakia.

“Then his attention turned to ‘protecting’ the German-speaking population in Poland. On Sept. 1, 1939, Germany invaded Poland on the pretext of responding to a Polish provocation. Ten days before, he had told senior military officers, ‘I shall give a propagandistic cause for starting the war, whether it be plausible or not. The victor shall not be asked, later on, never mind whether we told the truth or not.’ On the night of Aug. 31, a German prisoner was dressed in a Polish uniform, killed and displayed as a casualty of a Polish attack on a German radio station.”

[Ed. William Shirer’s “The Rise and Fall of the Third Reich” is once again a must read these days.]

Yulia Latynina, Moscow radio host / Moscow Times

“Will war break out? A mere glance at the map shows that the annexation of Crimea is just the beginning of the division of Ukraine. Crimea has no local source of electricity, gas or even water. Controlling territory when it lacks a land corridor is like owning a suitcase without a handle. This particularly applies to the self-proclaimed Transdniester republic [Ed. part of Moldova], Russia’s de facto client state. To create a land corridor to Transdniester, Putin needs to control Odessa and the Mykolaiv and Kherson regions of Ukraine. [Ed. Think southern Ukraine]

“How will Russia fight this war? Unfortunately, it will likely be fought using women and children as shields. Putin said as much at a news conference on March 4: ‘And let’s see those troops try to shoot their own people, with us behind them – not in the front, but behind. Let them just try to shoot at women and children!’

“It was not an empty threat. The Ukrainian naval headquarters in Crimea were stormed in the same fashion: by an angry mob supported from behind by Russian troops.”

Editorial / Wall Street Journal

“Vladimir Putin and his American apologists like to blame NATO’s post-Cold War expansion for his territorial conquests, which ignores that the alliance refused in 2008 to let Georgia and Ukraine even begin the process of joining. Those are the two countries the Russian has since carved up, and the question now is whether Russia’s expansionism will slap Western leaders out of their self-defense slumbers.

“NATO Secretary-General Anders Fogh Rasmussen sounded the alarm last week in a visit to Washington. ‘I see Crimea as an element in a greater pattern’ of Russian strategy... Moscow’s annexation of Crimea, he said, is ‘a wake-up call’ that ‘must be followed by increased European investment in defense.’ He might have included the U.S.

“The combined GDP of NATO’s 28 member states tops $30 trillion. Yet with few exceptions, most notably Poland, NATO defense expenditures have declined since the end of the Cold War.... Only four members – the U.S., U.K., Greece and Estonia – spent at least 2% of GDP on defense (in 2013).

“At 1.9%, France last year fell short of the 2% that is supposed to be the technical requirement for membership. Mr. Rasmussen’s Denmark spent 1.4% of its GDP on defense, Angela Merkel’s Germany 1.3%, Italy 1.2% and Spain 0.9%. This is what a country spends if it thinks its main security threat is Belgium....

“The cuts have created ‘gaps in meeting core NATO tasks’ and resulted in ‘forces that are not ready, not trained, and not sufficiently equipped,’ according to a 2012 study from the U.S. National Defense University. In plain English, this means that if Vladimir Putin sets his sights on NATO’s eastern periphery – by targeting the Baltic States, for example – the alliance may not have the capability to resist even if it has the political will.”

Robert Kagan / Washington Post

“For many decades Americans thought of their nation as special. They were the self-proclaimed ‘leader of the free world,’ the ‘indispensable nation,’ the No. 1 superpower. It was a source of pride. Now, pundits and prognosticators are telling them that those days are over, that it is time for the United States to seek more modest goals commensurate with its declining power. And they have a president committed to this task. He has shown little nostalgia for the days of U.S. leadership and at times seems to conceive it as his job to deal with the ‘reality’ of decline.

“Perhaps this is what they want from him. But it is not something they will thank him for. To follow a leader to triumph inspires loyalty, gratitude and affection. Following a leader in retreat inspires no such emotions.”

Washington and Wall Street

It was a volatile week, particularly for the momentum stocks as I’ll detail below in Street Bytes. The markets are also beginning to weigh the impact of the Federal Reserve’s change in interest rate policy that is coming in 2015. One Fed governor, Charles Plosser, said he expects the short-term funds rate to rise to 3% by end of ‘15 (from essentially zero) and 4% in 2016. Another, James Bullard, echoed Plosser’s view in forecasting a 4% funds rate by end of ’16.

Savers should rejoice should this come to pass. Finally, a return on your CDs. But the speed of the change, and the reaction on other parts of the yield curve, like the 10-year, is what could roil markets. But this is down the road. For now it’s a tug of war over valuation and tensions in Ukraine.

Regarding the former, valuation, many noted the fact the Russell 2000 small cap index has rallied seven straight quarters, the longest stretch ever, and is at a valuation 26% over 1990s level. Heading into this week, it was up some 248% since March 2009, with price-earnings multiples 3 times that of the S&P 500; 49 times reported earnings vs. 39 in March 2000. [The Russell proceeded to fall hard this week, down 3.5%, and is suddenly down with one day to go in Q1.]

Plus now we’re at the end of the quarter and earnings for the S&P are expected to rise just 0.3% (down from an estimated increase of 4.4% at the start of the quarter), versus Q4’s 8.5% eps gain.

Separately, the S&P / Case-Shiller home price index for January, while up 13.2% over January 2013 for the 20-city index, continued to show signs of deceleration, while the data on February new-home sales was in line and nothing exciting (blame the weather in part), and a figure on pending home sales fell for an eighth consecutive month.

The figure on durable good for February was up 2.2%, which sounds good, but when you strip out volatile transportation, it rose only 0.2%, not good. A final reading on fourth-quarter GDP came in at 2.6%.

But the Conference Board’s latest on consumer confidence came in at the highest level in six years.

Mohamed El-Erian / Financial Times

“Do not look to global co-operation as a way to diffuse most of today’s geopolitical tensions. Hampered by national politics, the effectiveness of multilateral institutions has failed to keep up with the increasing complexities on the ground.

“This weakness could even start playing out in earnest in Ukraine in the next few weeks. All it would take is for additional blatant territorial intervention by Russia to trigger comprehensive financial and economic sanctions by the West. With Russia likely to retaliate by disrupting the supply of energy to Western Europe, the world would be thrown into recession, along with renewed financial instability – a situation that would certainly derail capital markets.

“While a notable risk, this is not the most likely scenario for the next few weeks. Instead, the situation is likely to stabilize temporarily at a new geopolitical equilibrium, albeit a fragile one, in which the West tolerates the annexation of Crimea and Russia’s ‘legitimate interests’ there, while Russia pays lip service to Ukrainian territorial integrity and supports international help for the country while deferring some of its own claims.

“Should this indeed materialize, markets would again feel vindicated in having responded rather calmly to the Crimea crisis. Yet they should guard against complacency based on a simple extrapolation of the past. Underlying geopolitical tensions around the world have been gradually building towards a tipping point. Should this continue, it would quickly become evident that many markets are underpricing geopolitical risk.”

Noted investor Jeremy Grantham of GMO:

“Over the next seven years we think the market will have negative returns. The next bust will be unlike any other because the Fed and other central banks around the world have taken on all this leverage that was out there and put it on their balance sheets. We have never had this before.

“Assets are overpriced generally. They will become cheap again. That’s how we will pay for this. It’s going to be very painful for investors.” [Fortune / Sydney Morning Herald]

Europe and Asia

A flash composite reading on manufacturing and the service economy for March in the eurozone came in at 53.2 vs. 53.3 in February (50 being the dividing line between growth and contraction). The flash report also gives estimates for Germany and France and in the former, the preliminary reading on manufacturing for this month is 53.8 vs. 54.8 in February; 54.0 on services, down from 55.9. In France the manufacturing PMI expanded for the first time in two years, 51.9 vs. 49.7 in February, while services rose to 51.4 from 47.2. So two better readings for France, but then the labor ministry reported the number of jobless in the country rose to a new high in February.

There was also a release on Friday that reignited fears of deflation as prices unexpectedly dipped in Spain while Germany’s inflation rate came in at just 0.9%.

According to a flash report by Spain’s national statistics office, consumer prices fell by 0.2% in March compared with a year earlier, the second time the year-on-year rate has dropped into negative territory in recent months.

So there remain serious concerns about the eurozone recovery, with Jens Weidmann, the president of the Bundesbank and the European Central Bank’s leading hawk, stating that he could support outright bond-buying by the central bank to spur growth if the recovery falters. Eurostat will be publishing more inflation data on Monday.

Meanwhile, earlier in the week the Bank of Spain said the nation’s debt to GDP ratio was 7.1% in 2013, vs. a target of 6.5% and well above the ECB’s 3% required threshold for all eurozone nations. Spain had been granted an extension to get to that level in a few years but with all the hard austerity measures already having been taken, it won’t be easy. This week Spain saw violent, anti-austerity protests in Madrid.

But the U.K. reported more good news, a solid gain in retail sales for February, up 1.7% over January (up 3.7% from a year ago), while household-spending is expected to grow 3% this year. Fourth-quarter GDP rose 2.7% year-on-year.

As for Greece, it is due to receive its next tranche of aid in the bailout program, some $11.4 billion, which is needed to avert default on about $16 billion in government debt due in May. As I noted before, this is also important because the Greek government wants to put its best face on the economy prior to the European Parliament elections end of May.

Euro Bits...

--Russia’s deputy economics minister projected some $70 billion in assets will be pulled out of the country the first three months of the year owing to sanctions and tensions over Ukraine. He also expects growth in the quarter to be “around zero.” [BBC News]

--To keep its budget balanced, Russia requires an oil price of about $110 barrel (Brent...normally I am quoting West Texas Intermediate...which is about $7 less).

--Unrest in Ukraine led to a 17% decline in Russian tourism to the U.K. in February. Russians are also among the top-five spending tourists there.

--Though Russia is only Germany’s 11th-leading trade partner, after Poland, some 300,000 German jobs depend on exports there. Russia in turn supplies about 35% of Germany’s imports of both oil and gas.

BMW has a big stake in Russia and saw its sales rise 12% last year to 44,871 vehicles. Volkswagen sold about 287,000 cars in Russia, accounting for 3.2% of VW’s global sales. [Bloomberg]

--The Italian government is selling off hundreds of car used by politicians and government officials as part of Prime Minister Matteo Renzi’s effort to end a symbol of wasteful spending. Renzi had adopted a similar stance when he was mayor of Florence, saying at one point: “Why should an undersecretary have an official car? The undersecretary should go by foot.”

--Pilots at Lufthansa have called a three-day strike for April 1 over pay and work conditions.

--Britain’s Royal Mail, which is a public company listed on the London Stock Exchange, said it would cut a net 1,300 jobs, though not frontline employees including delivery personnel. The union is threatening a job action.

--Despite what some are calling a turnaround in Greece, car sales for the last 12 months are nearly 79% below the level of 2007. [Floyd Norris / New York Times]

Finally, German Chancellor Angela Merkel said her government is considering limits on the rights of unemployed migrants from other EU states, similar to a crackdown proposed by British Prime Minister David Cameron. Immigration to Germany has been soaring with the country’s stronger economy (ditto the U.K.) vs. the stagnation in much of southern and eastern Europe.

So we move to France and last weekend, in the first round of municipal elections across the country, the far-right National Front (FN) won its first mayoral seat outright since 1995 and will now appear in run-offs this Sunday in more than 200 cities and towns, most notably in Marseille, where it finished second, ahead of President Francois Hollande’s ruling socialist party.

Overall, the right-wing UMP of former President Nicolas Sarkozy took 47% and the National Front 5%, but the latter is deceiving. The FN ran candidates in only about 600 of 37,000 municipalities and when viewed in this proper context, you can see where FN leader Marine Le Pen is confident her party will gain 20%, or more, of the European Parliament vote in May.

Le Pen’s aim is to continue building to 2017, when she hopes to gain the second round of the next presidential election, same as her father, the virulently racist and anti-Semitic Jean-Marie Le Pen did in 2002. Marine has been trying to change the image of the party her father founded and she is meeting with obvious success, which needless to say has the Jewish community in France on edge.

As for Hollande, his Socialists only gained about 38% of the vote last week and there is pressure on him to remove Prime Minister Jean-Marc Ayrault and replace him with popular Interior Minister Manuel Valls, who has continually fought against anti-Semitism and the rise of Islamism.

I have long warned of the rise of the far-right in Europe and no doubt I was years early. But we’ll see what happens in May and the Euro parliament vote. In yet another worrisome sign, a new study in Hungary by a local researcher, Andras Kovacs, finds that between 15 and 20 percent of Hungarians consider themselves “extreme anti-Semites.” [Jerusalem Post]

The neo-Nazi Jobbik party in Hungary is the third-largest faction in parliament. Hungarians go to the polls April 6 so Jobbik’s vote total will be closely watched.

Turning to Asia, there are reports of slower urbanization in China which would hurt GDP. 300 million have moved from rural areas to the cities since 1995 and the government is calling for another 300 million to do the same over the coming years, but among the many questions of such a policy is what impact would this have on the environment and already strained resources, along with an infrastructure (think sewers) that can’t handle it. So there is talk of moving the people to smaller cities, like the one I was in two months ago, Fuzhou.

Separately, HSBC released its flash PMI for March and at 48.1, it’s the continuation of a trend, a real slowdown. The 48.1 is down from 48.5 in February, while the government releases its official reading on April 1st.

As for Japan, this is a big week coming up. On Tuesday, the government hikes the sales (VAT) tax to 8% from 5% and it is expected to have a major negative impact in the short run.

The problem appears to be compounded by the fact consumer spending in February, as just announced the other day, fell 2.5% from a year earlier and the first drop in six months, when it was expected to rise as consumers bought goods ahead of the tax hike. It’s also a sign, perhaps,  that with inflation finally returning, up 1.3% in February and per the government’s wishes, purchasing power was damaged, which is why Prime Minister Abe has been pushing companies to hike wages in a significant way.

Abe said he would push 40% of annual government spending into the April-June period in an attempt to avoid a return of recession.

Street Bytes

--Stocks finished mixed despite the constant intraday volatility with the Dow Jones adding 21 points, 0.1%, to 16323, while the S&P 500 lost 0.5% and Nasdaq tumbled 2.8%. As alluded to above, a few of the momentum stocks have had a rough go of it.

Tesla, hit a high of $265 on Feb. 26, but at one point this week was trading at $203 before closing at $212.

Netflix was at $458 on March 6, but traded at $355 before finishing the week at $358.

Twitter was $74.70 on Dec. 26 and $43.30 this week before closing at $47.30. 

Amazon was $408 on Jan. 22 and $330 this week before finishing at $338.

There are others to be sure and I imagine I’ll be listing more examples next time.

--U.S. Treasury Yields

6-mo. 0.06% 2-yr. 0.45% 10-yr. 2.72% 30-yr. 3.55%

--The Federal Reserve shook up the banking world, specifically Citigroup Inc., by turning down its request to pay out higher dividends and reward investors with stock buybacks, which caught Citi CEO Michael Corbat with his pants down, as he was in South Korea when word hit and had to rush back to fight the fire.

Citigroup had failed the Fed’s “stress test,” specifically the issue of estimating how much money it would lose in a severe downturn. Over the last year, Citi had revised its projected losses upward by as much as $15 billion in such a scenario, according to the Wall Street Journal, but that still wasn’t enough to satisfy the Fed.

The thing is, Citigroup failed this test in 2012 and you’d think they would have rectified the situation since. For his part, Corbat has been in constant contact with regulators but this is a huge embarrassment, especially considering that he was brought in to replace Vikram Pandit to rectify the 2012 failure.

Meanwhile, other large banks, including JPMorgan Chase and Bank of America, saw their dividend and buyback programs approved. A few others such as Zions Bancorp and the U.S. unit of HSBC, must submit revised capital plans and suspend any increased dividend payments.

--Bank of America finally settled claims it sold faulty mortgage bonds from Fannie Mae and Freddie Mac for $9.3 billion, which includes $6.3 billion in cash and the rest in securities that Bank of America will purchase from Fannie and Freddie. BofA says it has now resolved 88% of its total exposure to securities in the mortgage bond litigation it faces. The second-largest U.S. bank will take a substantial hit to first-quarter profits of about 21 cents a share.

--The man expected to succeed JPMorgan Chase CEO Jamie Dimon one day, Michael Cavanagh, left his job at JPM for the private equity world, specifically to become co-chief operating officer at Carlyle Group. Cavanagh, ten years Dimon’s junior, had worked with him for a decade.

--Shares in King Digital, developer of the popular Candy Crush Saga, fell 16% on their first day of trading, Wednesday, closing at $19.00, down from the listing price of $22.50 (while finishing the week at $18.00). Candy Crush was the most downloaded free app of 2013, but because the company’s top three games accounted for 95% of total revenue in the fourth quarter, there are concerns King is a one-trick pony. [Candy Crush is 78% of sales.]

Nonetheless, King raised $500 million, with the offering valuing the company at $7 billion. It did turn a $567 million profit in 2013 on $1.9 billion in revenue, though most expect revenue to slow until it comes up with a new hit.

But many are talking about the hard luck, or dumb move, of King Media Entertainment co-founder Toby Rowland, who left the company in 2011, cashing out for roughly $3 million, when his stake today would have been worth almost $1 billion. Another former King director also sold in 2011 for $3.3 million and would be a $billionaire today.

--Facebook announced it was purchasing a virtual reality headset maker, Oculus, for $2 billion and, as with its $19 billion recent acquisition of chat app WhatsApp, many were questioning Mark Zuckerberg’s strategy and whether or not he was spending like a drunken sailor. But Zuckerberg countered, “Mobile is the platform of today, and now we’re also getting ready for the platforms of tomorrow. Oculus has the chance to create the most social platform ever, and change the way we work, play and communicate.” [Ed. I hope I’m dead if this proves to be the case.]

But Oculus itself presented an interesting issue of a different kind. The company raised $2.4 million from more than 9,500 Kickstarter users and they received nothing more than a t-shirt and a mockup of the headset. Needless to say the Kickstarter community then ripped Oculus’ founders and investors to shreds.

Granted, Kickstarter strictly forbids the transfer of stock or financial returns to backers, though the SEC is looking at relaxing the rules in this realm, but it’s too late for Oculus’ early fans.

--According to an extensive lawsuit that was filed on Monday, General Motors knew that its ignition switches in 1.62 million now-recalled cars were not only faulty, but the automaker also knew the problem was made worse by the position of the switch where it is easily bumped. The suit further alleged “GM, in our view, is continuing to mislead customers” by saying faulty ignition switches were the only cause of the problem...the potential for the key’s position to inadvertently turn from the ‘run’ to the accessory/off’ position.

I’ve thought about this issue a fair amount...not from an engineering standpoint but just as a consumer. It would scare the hell out of me to drive one of the impacted models, such as a 2006 Chevy Cobalt.

I have driven nothing but Honda Accords for literally decades but years ago I took everything off my key ring and have employed just the key itself....for no particular reason, but I imagine I’ll be doing this the rest of my driving days.

But wait...there’s more! On Friday, GM halted sales of some models of the popular Chevy Cruze car without giving any details behind the move.

--Nissan is recalling 1 million 2013-14 vehicles, including the popular Nissan Altima and Sentra, because the air bag system software might not inflate on the passenger side in a crash. Nissan, in a filing with the National Transportation Safety Administration, said that while there have been accidents, there have been no injuries.

--Bloomberg had a piece about the SEC and its examination of the stock exchanges and potential exposure to cyber-attacks. The agency is also examining companies, such as Target Corp., and what they should be required to disclose in public filings.

But the article doesn’t discuss the real elephant in the room in the immediate future. The Kremlin could easily order an attack on the exchanges in retaliation for Western sanctions on its leaders and oligarchs. No doubt over the years they have initiated probing missions to check the firewalls, so to speak, but you know Russia has the cyber ability to wreak havoc on a major-scale (including attacking the nation’s infrastructure).

--I get a kick out of those who don’t understand the damage Edward Snowden has done to U.S. business. As expounded upon in a piece by the New York Times’ Claire Cain Miller, Snowden’s revelations of the N.S.A.’s vast surveillance program is costing the likes of Microsoft and IBM, among others, $10s of billions in lost business as foreign customers turn to companies from Europe and South America, fearful their information is being used by the U.S. government.

Forrester Research said the losses for the cloud computing industry could be as high as $180 billion, or 25% of industry revenue, over time. As Claire Cain Miller writes:

“The business effect of the disclosure about the N.S.A. is felt most in the daily conversations between tech companies with products to pitch and their wary customers. The topic of surveillance, which rarely came up before, is now ‘the new normal’ in these conversations, as one tech company executive described it.”

Inaction on the part of the federal government in addressing the issue only hurts U.S. business further.

One thing that is happening is that you have outfits like IBM building new data centers overseas to allay foreign companies’ fears. Salesforce.com announced it was doing the same.

Separately, the Times reported the N.S.A. has broken into Chinese telecom giant Huawei’s equipment, including through its “sealed headquarters” in Shenzhen, according to further documents provided by Edward Snowden. Of course the United States has made a stink about the dangers of buying equipment from Huawei, which has effectively cut the company off from doing business here. This topic came up as Chinese President Xi Jinping met with President Obama in the Netherlands.

--The World Trade Organization ordered China to dismantle export restrictions on rare-earth minerals that are used in the production of items ranging from hybrid cars to smartphones. Beijing has virtually monopolized the sector and was hoarding the material. Overall, China is said to account for 90% of the world’s production of rare earths.

Back in 2011, some of the minerals, such as molybdenum, surged 500% in price amid fears of a global shortage.

China has 60 days to appeal the ruling.

--The IRS announced it would treat bitcoin and other virtual currencies as property, which helps legitimize it, but also means investors are subject to extensive record-keeping rules, while the rule imposes capital-gains taxes on any investor profits. It’s not clear, though, how any losses would be treated. The U.K., Canada and Finland had all previously announced they would tax profits on bitcoin as capital gains.

The thing is, if you use bitcoin in a retail transaction you would be required to figure out any gain and pay a tax on that.

--I have been to Macau a number of times and every time I see a story, such as that of Bettina Wassener of the New York Times this week, talking of the still-ongoing explosion in development, I can only shake my head. I’ve noted the numbers countless times but it bears repeating, for example, that Macau generated $46 billion in gambling revenue last year compared with Las Vegas’ $6.5 billion. 

Ms. Wassener, though, talks of all the new developments to come, such as a 1,700-room Wynn Resorts addition for 2016, and new Ritz-Carlton and Marriott offerings.

But here’s a figure I hadn’t seen before: “Nearly 20 million people, or one in five Chinese who ventured outside mainland China last year, came to Macau to gamble, shop and sightsee.”

--I commented recently that online gaming in New Jersey was off to a very slow start, but a new report shows that the number of accounts created in the first two months of 2014 had doubled. Revenues remain small but for advocates, you have to open the account before you can start losing money, right sports fans?!

--Not for nothing but California’s unemployment rate in February hit 8.0%, down from a peak of 12.4% in October 2010. Gotta give Democratic Gov. Jerry Brown some credit. The jobless rate in Orange County, by the way, is just 5.8%.

--U.S. advertising spending rose 1% last year to $140.2 billion. But as the Los Angeles Times’ Meg James notes, large companies increased spending 3.3%, but smaller firms cut their marketing budgets 6.6%, per a report from Kantar Media North America.

Online display ad spending rose 15.7%, but spending on radio fell 5.6% (this surprises me) and 3.7% for newspapers.

--Speaking of online advertising, according to a recent report by the Interactive Advertising Bureau trade group, about 36% of all Web traffic is considered to be fake. Ye olde click fraud.

--The Wall Street Journal reported Wal-Mart has sued Visa Inc. for more than $5 billion, claiming unreasonably high swipe fees. This is a battle that has been going on for years, with Wal-Mart alleging Visa violates antitrust regulations and generated $350 billion for card issuers over nine years. Wal-Mart then argues that this forces the retailer to raise prices and/or reduce retail services, which results in lost business.

--Five former employees of Bernard Madoff were found guilty on charges they aided and profited from the estimated $20 billion fraud. It took a jury 18 hours over four days to find the defendants guilty on a 31-count indictment. The five are free on bail, with severe restrictions, but face decades behind bars. Enjoy!

--The Motion Picture Association of America said domestic box-office sales rose to $10.9 billion last year, up from $10.8 billion in 2012, but attendance was down 1.5%. Tickets sold has fallen nearly 11% between 2004 and 2013, according to the MPAA, but, owing to higher ticket prices, revenue over the same period is up 17%.

China became the first foreign market to see box office receipts hit $3 billion, reaching $3.6 billion last year.

Foreign Affairs

Syria: Al-Qaeda types, “including some midlevel planners,” have traveled from Pakistan to establish a base of operations here for launching attacks against Europe and the United States, according to American intelligence officials. CIA Director John Brennan said the terrorists can also feed off a base of 1,200 American and European Muslims who have gone to Syria to fight and could then carry out attacks when they return home. 

Iran: In its monthly report, the International Atomic Energy Agency said Iran is complying with the interim nuclear deal by refraining from enriching uranium to 20% purity and reducing its stockpile of 20% enriched uranium, while also holding off on further work at its planned heavy water reactor in Arak. The six-month deal went into force on January 20.

But, it appears Iran’s stockpile of 5% enriched uranium is still growing and that’s the toughest part of the process, especially given Iran has new centrifuges that are far more effective than the older ones.

According to Reuters, Iran is also set to sell more oil than allowed under the sanctions regime and interim nuclear deal for a fifth consecutive month. Incredibly, the Obama administration expects Iran to cuts its sales to bring exports in line with the accepted caps from back in November. Since it’s March Madness, time for an “Are you kidding me?!”

Lastly, Supreme Leader Ayatollah Khamenei feels compelled to show his true colors from time to time. The other day he used a speech to once again call into question the Holocaust.

“The Holocaust is an event whose reality is uncertain and if it has happened, it’s uncertain how it has happened.”

Israel: Jennifer Rubin / Washington Post

“In advance of Israeli Prime Minister Benjamin Netanyahu’s recent visit to the United States, President Obama gave an interview in which he viciously attacked Israel, suggesting that Israel was the cause of the peace process failure, that the United States could no longer protect Israel if the peace process failed and that Palestinian Authority President Mahmoud Abbas was a man of peace.

“This past week, Abbas came to visit Obama at the White House. In advance of his trip, Obama made no statements expressing displeasure with the Palestinian Authority’s intransigence and its continued demonization of Israel. Just before the meeting Obama told the assembled press corps:

“‘I have to commend President Abbas. He has been somebody who has consistently renounced violence, has consistently sought a diplomatic and peaceful solution that allows for two states, side by side, in peace and security; a state that allows for the dignity and sovereignty of the Palestinian people and a state that allows for Israelis to feel secure and at peace with their neighbors... I also want to point out that the Palestinian Authority has continued to try to build strong institutions in preparation for a day in which the Palestinians have their own state, and I will continue to emphasize the importance of rule of law, transparency, and effective reform so that not only do the Palestinians ultimately have a state on paper, but, more importantly, they have one that actually delivers on behalf of their people.’”

Well the actual Obama-Abbas meeting was a disaster, as I noted last “Week in Review.” But Rubin notes:

“We can therefore see that Obama’s words are entirely at odds with the conduct of the parties in the region. He either chooses to misrepresent the facts or he is blinded by unremitting hostility to Israel. In any event, he indulges the PA’s intransigence despite replete evidence that this only worsens the divide between the parties. The inescapable takeaway is that Obama lacks real affection for the Jewish state and when things fail intends to blame Israel.”

Iraq: National elections are slated for April 30 even as the violence continues unabated. In Anbar province, which abuts Baghdad, Falluja remains under siege by Iraqi soldiers and special forces arrayed against the jihadists. 300,000 residents have been displaced and as The Economist reports, “Many now live in squalor in makeshift dwellings north of Baghdad. The Iraqi government has promised aid but has failed so far to supply it.” Belatedly, the United States is supplying the Maliki government with helicopter gunships and missiles to fight the militants, who cross at will between Iraq and Syria, even as Iraq buys small arms from Iran.

Back to the election, the entire electoral commission resigned on Tuesday in protest against political interference. The issue seems to be a provision in the electoral law whereby Maliki may be allowed to eliminate rivals.

Egypt: Speaking of presidential elections, Gen. Abdel Fattah al-Sisi resigned his post as head of the military to run for president, as long expected. Sisi will win convincingly, though one has to wonder why he’d want to be president of this hellhole. I mean the perks of running the military can’t be any worse than what he’ll have as president. No date for the vote has been set.

Separately, a court sentenced to death 529 supporters of deposed President Morsi, members of the banned Muslim Brotherhood. The group was convicted of charges including the murdering of a policeman.

Afghanistan: As reported by Michelle Tan of Military Times, “The U.S. has closed nearly 290 bases across Afghanistan as of March 1 and fewer than 80 bases remain.” Just 33,000 troops remain, down from a cycle high of 100,000, and those still there are almost solely in a support role. Only about 27 bases are expected to remain open by the end of October, according to Marine Brig. Gen. Daniel O’Donohue.

While both Washington and NATO want the next Afghan government to sign a security agreement allowing foreign troops to stay beyond Dec. 31, with Russia’s move to annex Crimea, now NATO states in Eastern Europe are concerned over Russia’s future intentions so the focus is on securing their borders, which means fewer resources for Afghanistan and other overseas missions.

It is hoped that if a status of forces agreement is eventually reached, 10,000 American troops would remain and 5,000 from NATO states.

Meanwhile, the presidential election is April 5. No telling how it will go, but with numerous candidates, a run-off seems a certainty.

Turkey: The government of Prime Minister Erdogan continues to try to cut off dissent. First it banned Twitter, though opponents found ‘workarounds’ and kept tweeting, after the platform was used to distribute corruption allegations against Erdogan’s government.

Then on Thursday, the government blocked access to YouTube after a tape emerged that showed top national security figures discussing possible military action against Syria. As a local columnist told the Financial Times, “What sort of intelligence apparatus does Turkey have if even a meeting in which the intelligence chief is involved, of this sensitivity, where they talk about launching a military strike, is listened to and circulated?”

Turkey’s foreign minister blamed outside powers for bugging the meetings.

Last Sunday, Turkey shot down a Syrian plane that Ankara said had crossed into its airspace from Latakia province, the Assad stronghold. It was there that rebels killed a cousin of Assad’s during fierce fighting. Damascus condemned the “blatant aggression.”

Yemen: Al-Qaeda in the Arabian Peninsula (AQAP) was responsible for an attack on a military checkpoint that killed 20 Yemeni soldiers. 

Malaysia: Another week and still no resolution to the mystery of Flight 370. There continues to be little doubt the Malaysian government totally botched the information flow and the backlash in China (with 153 of the 239 victims) is growing, owing mainly to the Beijing government allowing it to do so.

But now Malaysians are fighting back, saying it is grossly unfair for China to say their government hasn’t done enough to find the plane. It is, after all, one of the more closed governments in the world that is upset over Malaysia’s seeming lack of transparency.

The verbal battle between the two threatens to harm key trade ties, however, and the level of Chinese tourists going to Malaysia is said to be down significantly already.

China: First Lady Michelle Obama, accompanied by her mother and daughters Sasha and Malia, spent a week touring China in what was billed as a cultural exchange. Michelle avoided politics except for a strong statement on behalf of freedom of expression and unfettered access to information as “universal rights.”

On a different issue, a senior Japanese cabinet minister told the South China Morning Post that China’s attempts to snatch the Diaoyu Islands away from Japan are similar to Russia’s behavior in taking Crimea.

Yasutoshi Nishimura, at a conference in Hong Kong, said his government’s position continues to be that the disputed islands (Senkakus to the Japanese) remain an integral part of Japan.

North Korea: Kim Jong-Un has been firing one bottle rocket after another to protest joint U.S.-South Korean military drills, but then he upped the ante by test-firing two medium-range ballistic missiles, the first such launch since 2009. The date happened to mark the four-year anniversary of the sinking of a South Korean warship and the launches violated U.N. resolutions. [The “Rodong” missiles have a range of 800 miles but these two traveled about 400 before going down in waters between the Korean Peninsula and Japan.]

Meanwhile, South Korean President Park Geun-hye met her counterpart, Japanese Prime Minister Shinzo Abe, for the first time since the two were elected.

Russia: Supporters of opposition leader Alexei Navalny, currently under house arrest, should fear for his safety.

Venezuela: At the request of a group of South American foreign ministers, President Nicolas Maduro is said to have agreed to enter talks with opposition leaders with the help of an outside facilitator, though it’s not known if such a “good faith witness” would come from within Venezuela or outside the country. The delegation did say Maduro had agreed to the creation of a human rights commission that would look into allegations of abuse by security forces.

The death toll in anti-government clashes is at least 32. This week the U.S. State Department said it was prepared to impose sanctions on Caracas if Maduro didn’t hold legitimate talks with the opposition. Earlier in the week, Maduro announced the arrest of three air force generals for allegedly plotting a coup to overthrow the government.

Guinea: This is scary. The first outbreak of Ebola fever in this West African nation has killed at least 59 and, according to Doctors Without Borders, could be spreading to neighboring countries. Earlier Ebola outbreaks have been in Central Africa. [Donald G. McNeil Jr. / New York Times]

Random Musings

--In the aforementioned CBS News poll, 43% say the image of the U.S. has grown worse since Obama became president, rather than better, 32%. Obama’s overall approval rating is also 43%, similar to a month ago. 

An AP-GfK survey gives Obama a 41% approval rating, down four points from January. 59% disapprove, an all-time high for this one. 37% believe the country is headed in the right direction, 62% the wrong one, which is a slight improvement for the president.

--The White House is extending the deadline on signing up for ObamaCare yet again. Those unable to enroll by the long-thought deadline of Monday, March 31, have until mid-April to ask for an extension. You have to check a little teeny, tiny blue box on HealthCare.gov to indicate you tried to enroll before but were interrupted by Wichita State-Kentucky in the Round of 32, or something like that. It operates on the honor system.

As reported by the Washington Post’s Amy Goldstein, “Administration officials said the accommodation is an attempt to prepare for a possible surge of people trying to sign up in the final days before the deadline.”

The White House then announced on Thursday that 6 million Americans have signed up for coverage, fulfilling a revised goal set by the Congressional Budget Office.

But, the administration has yet to release the demographic breakdown, how many actually closed the deal by paying their first month’s premium (which some experts say is between 10% and 20%), and how many had health insurance before.

The CBS News poll had 27% saying the sign-up for ObamaCare was going well, 47% not well, vs. 22% - 53% in January. An Associated Press-GfK survey found only 26% supported the Affordable Care Act, while the same percentage said the launch was going well, so consistent with the CBS findings.

--The White House and Congress are working on overhauling the National Security Agency’s phone collection program. Currently the N.S.A. retains phone data for five years, while phone companies normally hold onto your records for 18 months. The Obama administration is proposing that the collection of domestic calls be left with the phone companies and for the same period of time they currently are. The N.S.A. could then obtain specific records only with the approval of a judge, under the new plan. 

--Osama bin Laden’s son-in-law, Abu Ghaith, was convicted of conspiring to kill Americans for his role as al-Qaeda’s spokesman after the Sept. 11 attacks. He was the highest-ranking al-Qaeda figure to face trial on U.S. soil since then.

In a statement, U.S. Attorney Preet Bharara said: “He was more than just Osama bin Laden’s propaganda minister. Within hours after the devastating 9/11 attacks, Abu Ghaith was using his position in al-Qaeda’s homicidal hierarchy to persuade others to ledge themselves to al-Qaeda in the cause of murdering more Americans.”

The jury required just six hours of deliberation over two days to reach its verdict. Abu Ghaith faces life in prison.

--An internal investigation commissioned by New Jersey Gov. Chris Christie has found no evidence he knew anything about Bridgegate prior to the plan to shut down several lanes at the George Washington Bridge.

The report was written by former prosecutor Randy Mastro and while clearing the governor and his senior staff, called for the appointment of a chief ethics officer within Christie’s office and a restructuring of the Port Authority.

The investigation also found that Hoboken Mayor Dawn Zimmer’s allegations she was shaken down over Hurricane Sandy aid in exchange for help for a private developer were “demonstrably false” and “unbelievable.”

However, Democrats are denouncing the report in part because three key figures in the scandal were not interviewed and that any report ordered by Christie himself has no credibility.

In his first television interview since Bridgegate erupted, Christie told ABC’s Diane Sawyer:

“When things were first reported, I said: ‘This can’t possibly be true.’ Because who would do something like that? Sometimes, people do inexplicably stupid things.”

Sawyer asked him if having these people act under his nose without his knowledge made him clueless.

“Not clueless,” Christie responded. “It makes me feel taken advantage of. More importantly, I feel I let people down.” [Brent Johnson / Star-Ledger]

Christie then held his first news conference on Friday and announced that David Samson, the chairman of the Port Authority, had resigned that afternoon. The governor was back to his old rambunctious self in dealing with the press.

--Republican Congressman Paul Ryan’s recent remark that there has been a “tailspin of culture, in our inner cities in particular, of men not working and just generations of men not even thinking about working or learning the value and the culture of work” continues to reverberate.

George Will weighed in the other day from his Washington Post perch.

“A year from now, there surely will be conferences marking the 50th anniversary of what is now known as the Moynihan Report, a.k.a. ‘The Negro Family: The Case for National Action.’ In March 1965, Moynihan, then 37 and assistant secretary of labor, wrote that ‘the center of the tangle of pathology’ in inner cities – this was five months before the Watts riots – was the fact that 23.6 percent of black children were born to single women, compared with just 3.07 percent of white children. He was accused of racism, blaming the victims, etc.

“Forty-nine years later, 41 percent of all American children are born out of wedlock; almost half of all first births are to unmarried women, as are 54 percent and 72 percent of all Hispanic and black births, respectively. Is there anyone not blinkered by ideology or invincibly ignorant of social science who disagrees with this?

“The family is the primary transmitter of social capital – the values and character traits that enable people to seize opportunities. Family structure is a primary predictor of an individual’s life chances, and family disintegration is the principal cause of the intergenerational transmission of poverty....

“Next March, serious people will be wondering why the problem Moynihan articulated half a century earlier has become so much worse while so much else – including the astonishingly rapid receding of racism and discrimination – has become so much better. One reason is what Moynihan called ‘the leakage of reality from American life.’ Judging by the blend of malice, ignorance and intellectual sloth in the left’s reaction to Ryan’s unexceptionable remarks, the leak has become, among some factions, a cataract.”

--New York City Mayor Bill de Blasio is backing off his denunciation of charter schools. He has been calling “titans of Wall Street and philanthropy, explaining that he does not want to ‘destroy’ charter schools, according to several business executives who spoke with Mr. de Blasio.” [Javier C. Hernandez / New York Times]

We’ll see if the mayor has truly seen the light. It’s always been pretty obvious many charter schools operate in minority communities, the very neighborhoods that backed de Blasio’s candidacy in a huge way, and now they feel betrayed.

A Quinnipiac University poll last week showed 38% of voters approved of the mayor’s handling of New York City schools, while 49% disapproved. De Blasio’s overall approval was down to 45%, after less than three months in office.

--Former President George W. Bush has joined retired Army Gen. Pete Chiarelli and veterans’ groups in lobbying for a change in the designation “PTSD.”

As in drop the “D.” As reported by Patricia Kime of Military Times, Bush, as part of his Military Service Initiative, said he “aims to remove the stigma of having post-traumatic stress disorder or getting treatment for it.”

“One thing that would help, Bush believes, is lopping off the term ‘disorder.’

“ ‘As most doctors will tell you, post-traumatic stress is not a disorder. Post-traumatic stress, or PTS, is an injury that can result from the experience of war. And like other injuries, PTS is treatable,’ Bush said.”

A Rand Corp. study estimates that the number of post-9/11 veterans with PTSD is anywhere from 5 percent to 20 percent, or 125,000 to 500,000.

--We note the passing of James R. Schlesinger, 85. Schlesinger served as defense secretary under Republican Presidents Nixon and Ford, and was the nation’s first energy secretary under Democrat Jimmy Carter. The highly respected economics professor also headed up the CIA.

I always liked the man. He spoke his mind, which eventually would invariably get him in trouble.

--Hey, do you like to party? Enjoy the nightlife in big cities? Then join the U.S. Secret Service! Just don’t get caught.

The Secret Service suffered another high-profile embarrassment this week when one of its agents, who had been in Amsterdam ahead of President Obama’s trip there, was found passed out drunk in a hotel hallway. He was put on administrative leave and sent home, along with two other agents who had been out with the guy. According to a report in the Washington Post, they were partying until 2:30 a.m. Sunday, though they were scheduled to start work at 10:00 a.m. For Secret Service agents there is a ban on drinking 10 hours before an assignment.

What upset managers was that there had been a traffic incident in Miami three weeks earlier during a presidential visit in which two counter-sniper officers suspected of drinking had been involved though the driver passed a field sobriety test. Supervisors in that case had been admonished.

--Yup...corruption makes the world go ‘round. In California, State Sen. Leland Yee, a prominent Democrat, was arrested Wednesday along with a gangster who goes by the name of “Shrimp boy” and two dozen of their alleged associates. Yee, 65, is a candidate for secretary of state, yet he is accused of engaging in a conspiracy to deal firearms without a license and illegally import firearms, as well as your basic wire fraud charges and illegal moves to solicit campaign donations. Meanwhile, Shrimp Boy was a senior dirtball in the Triad, an international organized crime group.

It would appear California’s Democrats won’t be able to restore their “supermajority” (2/3s) in Sacramento as recently two of Yee’s Democratic colleagues in the Senate were swept up in separate corruption investigations. [Los Angeles Times] All three were suspended from the Senate on Friday.

And in Charlotte, N.C., Democratic Mayor Patrick Cannon resigned after he too was arrested on Wednesday on corruption charges, accused of accepting more than $48,000 in bribes from undercover FBI agents posing as businessmen wanting to do business with the city. Cannon had been in office only six months, after replacing Anthony Foxx, who was named Transportation Secretary by President Obama.

--A key summary from the Intergovernmental Panel on Climate Change (IPCC) due out on Monday, apparently has some dissenters. 

Last September, a summary on the physical science of climate change was released, arguing it was real and humans were the “dominant cause.”

The second report sets out the impact rising temperatures have on animals and ecosystems, as well as us.

According to a leaked summary seen by BBC’s Matt McGrath, among the conclusions is one that says “If the world warms by 4C towards the end of this century, this will pose a ‘significant risk to food security even with adaptation.’”

And, at levels of warming scientists say are already in place, there is a high risk to Arctic sea ice and coral reefs.

Writes McGrath: “They warn that the oceans will become more acidic as they warm, and species will move towards the poles to escape the heat.”

Kind of makes you want to invest in polar real estate, doesn’t it? I mean it sounds like there is going to be lots of demand.

Meanwhile, I’d ‘short’ anything that is currently about 18 inches above sea level, at least along the coast, unless you’re looking at operating a floating restaurant/bar with a pull-up dock.

--Separately, the World Health Organization, in a new report, estimates that air pollution kills about 7 million people a year worldwide, with more than half of the fatalities due to fumes from indoor stoves.

So, as I’ve been saying, the issue should be global pollution, far more so than climate change. Air pollution, specifically, is the single biggest environmental health risk, including the tiny particles that can get deep into lungs.

The figures are derived at through modeling but it’s felt 4.3 million deaths in 2012 were caused by the kind of indoor pollution resulting from people cooking inside using wood and coal stoves.

Said one author of the report, however, “We don’t know if dust from the Sahara is as bad as diesel fuel or burning coal.”

By the way, the above noted researcher, Majid Ezzati, added that those wearing face masks in cities such as Hong Kong and Beijing, may not be improving their odds of avoiding the worst pollution.

“The real problem is that wearing masks sends out the message we can live with polluted air,” he said. “We need to change our way of life entirely to reduce pollution.” [Associated Press]

---

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

Special prayers this week for the victims of the Oso, Washington catastrophe.

God bless America.

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Gold closed at $1293...down $86 in two weeks
Oil $101.67

Returns for the week 3/24-3/28

Dow Jones +0.1% [16323]
S&P 500 -0.5% [1857]
S&P MidCap -1.6%
Russell 2000 -3.5%
Nasdaq -2.8% [4155]

Returns for the period 1/1/14-3/28/14

Dow Jones -1.5%
S&P 500  +0.5%
S&P MidCap +1.2%
Russell 2000 -1.0%
Nasdaq -0.5%

Bulls 54.7
Bears 17.5 [Source: Investors Intelligence]

*Edition...a friend said I should put the number of “Week in Reviews” that I have published at the top so this is the total...15+ years, one week off. Actually, I could add about 75 more if I wanted to include the columns I did for PIMCO prior to starting StocksandNews.

Have a great week. I appreciate your support.

Catch me on Twitter @stocksandnews

Happy Opening Day! Play Ball! [Where the heck is spring?!]

Brian Trumbore



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-03/29/2014-      
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Week in Review

03/29/2014

For the week 3/24-3/28

[Posted 12:00 AM ET]

Edition No. 781*

Ukraine

Once again as I go to post the situation is tense on Ukraine’s eastern border with Russia. In an interview on Friday from Rome, President Barack Obama called on Russia to pull its troops away from the area and to begin talks to defuse military tensions, with Russia’s force estimated at 40,000 and growing. Ukraine says it could be closer to 100,000. With the annexation of Crimea complete, what’s next for Russian President Vladimir Putin? Late Friday, he unexpectedly tracked down Obama, now in Saudi Arabia, for an hour-long call in which Putin agreed to have Foreign Minister Lavrov meet with Secretary of State Kerry to discuss a plan put forward by the White House, details unknown. But Putin took the opportunity to complain about a “rampage of extremists” intimidating officials and residents “in various regions,” according to a statement from the Kremlin, which of course is a bunch of garbage.

Some key events as the week progressed...

--Foreign Minister Lavrov finally held talks with his Ukrainian counterpart, Andriy Deshchytsia, on the sidelines of the nuclear summit at The Hague. No other news was made.

--The G-7 suspended Russia from the G-8 and said it will hold its next summit in Brussels in June, not Sochi as originally scheduled, adding it may eventually target specific sectors (energy, finance, banking and arms) of the Russian economy if Putin doesn’t de-escalate.

“This group came together because of shared beliefs and shared responsibilities. Russia’s actions in recent weeks are not consistent with them. We will suspend our participation in the G-8 until Russia changes course and the environment comes back to where the G-8 is able to have a meaningful discussion.”

--Ukraine ordered its remaining forces in Crimea to withdraw for their own safety as Russia stormed some of the bases. Defense Minister Tenyukh was sacked by parliament on Tuesday over his handling of the crisis and there was a story only one-quarter of soldiers in Crimea plan on staying in the military.

--The Wall Street Journal reported that U.S. intelligence told the White House that Putin had an interest in Crimea becoming part of Russia back in December, with Russia beginning to move elite troops “in small quantities over the last few months.”

--On Tuesday, at the Nuclear Security Summit in The Hague, Obama said, “Crimea is not a done deal in the sense that the international community by and large is not recognizing the annexation of Crimea. [But] obviously, the facts on the ground are that the Russian military controls Crimea. There are a number of individuals inside of Crimea that are supportive of that process. There’s no expectation that they will be dislodged by force.”

But, Obama also said, “Russia is a regional power that is threatening some of its immediate neighbors, not out of strength but out of weakness.”

‘Regional power.’ I’m sure Putin loved that. It was one of many stupid descriptions Mr. Obama used this week.

A senior administration official told reporters traveling with the president on Air Force One to Brussels that “there’s no question that NATO is prepared to defend any ally against any aggression.”

--Former Ukrainian Prime Minister Yulia Tymoshenko denied the authenticity of a taped conversation wherein she allegedly called for Russia to be turned into “scorched earth” and for ethnic Russians in Ukraine to be killed, as reported by BBC News. Tymoshenko claimed it was produced by Russia’s security services. While she admitted to speaking by telephone with a member of Ukraine’s parliament, she said her words were altered.

Who knows...but this is classic MO for the FSB (the security apparatus that replaced the KGB).

Meanwhile, Tymoshenko said she would run for president in the May 25 election, pledging to build a strong army. Former heavyweight champion Vitaly Klitschko also announced he was a candidate.   Moscow will no doubt have its own pick in the race, if it can’t force the vote to be canceled.

--In a rather surprising statement, at least for me, Belarusian President Lukashenko said Russia’s annexation of Crimea was a “bad precedent,” while acknowledging the region was now a “de facto” part of Russia.

Lukashenko, long an ally of Putin’s, said that “Crimea is not an independent state unlike Ossetia or Abkhazia,” though he said Ukrainians had brought the current crisis on themselves after years of corruption. Which is rather rich, coming from Lukashenko.

At the same time, Lukashenko requested war planes from Moscow and said they would stay in his country “as long as Belarus and Russia want.” [Radio Free Europe/Radio Liberty]

--The IMF and Ukraine reached agreement on a $14bn to $18bn aid package over the next two years that would unlock a further $25bn to $27bn from the European Union and U.S. The interim Ukrainian government agreed to initiate a reform program in return and took the first painful step, hiking gas prices 50%.

--Washington has suspended missile defense cooperation talks with Moscow and on Thursday, both houses of Congress approved bills supporting Ukraine with direct assistance and $1 billion in loan guarantees.

--Friday, ousted Ukrainian President Viktor Yanukovych said the people should “Demand a referendum on the determination of the status of each region within Ukraine” rather than a presidential election, in what is seen as another attempt to destabilize the east and thus provide a pretext for a further invasion.

--A Levada Center poll in Russia had Putin’s approval rating at 80%, 14 years to the day he first became head of state. It was 65% in January and has never been below 63%.

According to a CBS News poll, 56% of Americans support U.S. sanctions against Russia, but...46% disapprove of how Obama is handling events and only 38% approve.

--Lastly, the Brooklyn Nets NBA team is owned by Russian billionaire oligarch Mikhail Prokhorov, who has supported Putin. Prokhorov said he planned on relocating his company that runs the Nets to Russia, which Putin is calling others like him to do even as some pull their assets out of the country.

The NBA said it hasn’t been notified of Prokhorov’s move. He hasn’t been hit by U.S. or European sanctions as yet.

Opinion.....

Editorial / The Economist

“Nobody knows what Mr. Putin will do next. He probably realizes that Kiev, which he refers to as ‘the mother of Russian cities,’ is lost to him. But he will try to claw back what he considers to be part of the ‘Russian world’ – a concept which has no legal borders. If Ukraine implodes, as in its post-revolutionary weakness it might, he will pick off some pieces. The military threat remains. And at the very least he will insist on a deep federalization of Ukraine which would allow a de facto Russian protectorate in the southern and eastern parts of the country, and thus forestall any further movement towards the European Union....

“(Separately), the Ukrainian troops who deified the Russians in Crimea with dignity, if not success, are heroes to their fellow countrymen. The government, though, is seen as having let them down. This could strengthen the hand of Ukraine’s right-wing nationalists.”

Charles Krauthammer / Washington Post

“The United States does not view Europe as a battleground between East and West, nor do we see the situation in Ukraine as a zero-sum game. That’s the kind of thinking that should have ended with the Cold War.”

--Barack Obama, March 24

“Should. Lovely sentiment. As lovely as what Obama said five years ago to the United Nations: ‘No one nation can or should try to dominate another nation.’

“That’s the kind of sentiment you expect from a Miss America contestant asked to name her fondest wish, not from the leader of the free world explaining his foreign policy.

“The East Europeans know they inhabit the battleground between the West and a Russia that wants to return them to its sphere of influence. Ukrainians see tens of thousands of Russian troops across their border and know they are looking down the barrel of quite a zero-sum game.

“Obama thinks otherwise. He says that Vladimir Putin’s kind of neo-imperialist thinking is a relic of the past – and advises Putin to transcend the Cold War.

“Good God. Putin hasn’t transcended the Russian revolution....

“Putin’s irredentist grievances go very deep. Obama seems unable to fathom them. Asked whether he’d misjudged Russia, whether it really is our greatest geopolitical foe, he disdainfully replied that Russia is nothing but ‘a regional power’ acting ‘out of weakness.’

“Where does one begin? Hitler’s Germany and Tojo’s Japan were also regional powers, yet managed to leave behind at least 50 million dead.”

Michael McFaul, former ambassador to Russia:

“I am very depressed today. For those of us, Russians and Americans alike, who have believed in the possibility of a strong, prosperous, democratic Russia fully integrated into the international system and as a close partner of the United States, Putin’s recent decisions represent a giant step backwards. Tragically, we are entering a new period with some important differences, but many similarities to the Cold War. The ideological struggle between autocracy and democracy is resurgent. Protection of European countries from Russian aggression is paramount again. Shoring up vulnerable states, including first and foremost Ukraine, must become a top priority again for the United States and Europe. And doing business with Russian companies will once again become politicized. Most tragically, in seeking to isolate the Russian regime, many Russians with no connection to the government will also suffer the effects of isolation. My only hope is that this dark period will not last as long as the last Cold War.” [Todd Lindberg / The Weekly Standard]

Editorial / Wall Street Journal

“Delivering the keynote address of this week’s European tour, President Obama rejected Russia’s invasion of Ukraine point-by-point with lawyerly logic. If the stately Palais des Beaux-Arts in Brussels on Wednesday had been the Oxford Union debating society, the American would have carried the evening.

“But Vladimir Putin has no time for another tutorial ‘that in the 21st century the borders of Europe cannot be redrawn with force, that international law matters.’ He gobbled up Crimea in three weeks at zero cost in the 21st century and may want a bigger chunk of Ukraine’s south or east. Nothing Mr. Obama said or did in Europe gives the Russian leader a compelling reason to rethink his assault on the post-Cold War order.

“In five years at the White House, Mr. Obama ignored America’s relations with Europe and failed to anticipate Russian revanchism. Yet the leader of the Atlantic alliance and the world’s sole superpower can still rally long-standing allies – as long as he leads and argues for a robust strategy to deter Russian aggression. This week he has not. Instead he has settled for minor sanctions, rhetorical pleading, and more diplomatic ‘off-ramps’ than I-95. To a KGB man like Mr. Putin, that sounds like weakness....

“Mr. Obama also didn’t make any new commitments to boost missile defenses or announce a halt to the U.S. troop drawdown in Europe....

“The message that Kiev will hear in all this is: You’re on your own.

“As he has since the Ukrainian crisis began, President Obama sounded almost a defeated tone, beseeching the Russian czar to stop and talk it over. ‘Russia has resisted diplomatic overtures,’ he said at one point, plaintively stating the obvious – before calling again on Russia to ‘de-escalate’ and take the diplomatic off-ramp.

“The Kremlin isn’t dumb. If the off-ramp is always available and nothing stands in the road ahead, why get off the road at all?”

Matthew Kaminski / Wall Street Journal

“In his speech annexing Ukraine’s Crimea last week, Mr. Putin added a pointed retro-Stalinist warning about ‘a fifth column, this disparate bunch of ‘national traitors’.’ He’s signaling a worse purge to come after two years of unrelenting repression of dissent inside Russia – and a wider and ongoing conflict with Ukraine fought with higher natural gas prices, trade embargoes, KGB-style subversion and possibly tanks and soldiers. Mr. Putin has no good reason to stop with Crimea....

“Neo-Sovietism offers up Russian jingoism stripped bare of Marxist internationalist pretenses, which scares its neighbors and could be used to further isolate a friendless Moscow in the region. The Kremlin elite’s unimaginable wealth and power offers another opportunity to end the Putin march...

“Will Moscow tycoons sit by as the ruble tumbles, the economy stalls and their access to bank accounts, yachts and schools for their kids in the West is endangered? Much harder sanctions than the European Union and America have so far proved willing to consider could test these propositions.

“There’s another familiar note from the past. Over the last four months, Kiev came to resemble Gdansk or Prague in 1989 or Lithuania’s rebellious capital Vilnius a few years later – the scene of a society coming of age, demanding a say over its own future, preferably in a free Europe. Then as now, standing in the way is a little man at the Kremlin desperate to hold on to the Soviet/Russian Empire and his own thrown.”

Ian Bremmer (Eurasia Group) / New York Times

“The United States has once again twisted itself into a rhetorical pretzel. As when it threatened military action against Syria if a ‘red line’ was crossed, the Obama administration’s rhetoric about Russia and Ukraine goes far beyond what it will be willing and able to enforce.

“Earlier this month, President Obama warned that America would ‘isolate Russia’ if it grabbed more land, and yesterday, he suggested that more sanctions were possible. Likewise, Secretary of State John Kerry said the Group of 7 nations were ‘prepared to go to the hilt’ in order to isolate Russia.

“But Washington’s rhetoric is dangerously excessive, for three main reasons: Ukraine is far more important to Vladimir V. Putin than it is to America; it will be hard for the United States and Europe to make good on their threats of crippling sanctions; and other countries could ultimately defang them....

“Such sharp rhetoric from the West could push Mr. Putin to be even more aggressive. That’s because he does not believe that the West would ever treat Russia like Iran and implement robust sanctions that would cut off vast areas of Russia’s economy from the West. As Mr. Putin recently explained, in a globalized world ‘it’s possible to damage each other – but this would be mutual damage.’”

George Will / Washington Post

“In last week’s Kremlin address, (Putin) said, ‘do not believe those who want you to fear Russia, shouting that other regions will follow Crimea. We do not want to divide Ukraine; we do not need that.’ The word ‘need’ is not reassuring. It suggests that Russia’s needs are self-legitimizing and recalls the definition of a barbarian as someone who thinks his appetites are their own justification.

“Speaking of which: Six months after Germany’s absorption of Austria, which was quickly ratified by a plebiscite, Adolf Hitler, on Sept. 26, 1938, discussed the Sudeten region of Czechoslovakia, home of many ethnic and linguistic Germans. Three days before the Munich Conference began, he said: ‘This is the last territorial demand I have to make in Europe.’ On March 15, 1939, six months after Germany’s annexation of the Sudetenland, agreed to at Munich, Hitler swallowed the rest of Czechoslovakia.

“Then his attention turned to ‘protecting’ the German-speaking population in Poland. On Sept. 1, 1939, Germany invaded Poland on the pretext of responding to a Polish provocation. Ten days before, he had told senior military officers, ‘I shall give a propagandistic cause for starting the war, whether it be plausible or not. The victor shall not be asked, later on, never mind whether we told the truth or not.’ On the night of Aug. 31, a German prisoner was dressed in a Polish uniform, killed and displayed as a casualty of a Polish attack on a German radio station.”

[Ed. William Shirer’s “The Rise and Fall of the Third Reich” is once again a must read these days.]

Yulia Latynina, Moscow radio host / Moscow Times

“Will war break out? A mere glance at the map shows that the annexation of Crimea is just the beginning of the division of Ukraine. Crimea has no local source of electricity, gas or even water. Controlling territory when it lacks a land corridor is like owning a suitcase without a handle. This particularly applies to the self-proclaimed Transdniester republic [Ed. part of Moldova], Russia’s de facto client state. To create a land corridor to Transdniester, Putin needs to control Odessa and the Mykolaiv and Kherson regions of Ukraine. [Ed. Think southern Ukraine]

“How will Russia fight this war? Unfortunately, it will likely be fought using women and children as shields. Putin said as much at a news conference on March 4: ‘And let’s see those troops try to shoot their own people, with us behind them – not in the front, but behind. Let them just try to shoot at women and children!’

“It was not an empty threat. The Ukrainian naval headquarters in Crimea were stormed in the same fashion: by an angry mob supported from behind by Russian troops.”

Editorial / Wall Street Journal

“Vladimir Putin and his American apologists like to blame NATO’s post-Cold War expansion for his territorial conquests, which ignores that the alliance refused in 2008 to let Georgia and Ukraine even begin the process of joining. Those are the two countries the Russian has since carved up, and the question now is whether Russia’s expansionism will slap Western leaders out of their self-defense slumbers.

“NATO Secretary-General Anders Fogh Rasmussen sounded the alarm last week in a visit to Washington. ‘I see Crimea as an element in a greater pattern’ of Russian strategy... Moscow’s annexation of Crimea, he said, is ‘a wake-up call’ that ‘must be followed by increased European investment in defense.’ He might have included the U.S.

“The combined GDP of NATO’s 28 member states tops $30 trillion. Yet with few exceptions, most notably Poland, NATO defense expenditures have declined since the end of the Cold War.... Only four members – the U.S., U.K., Greece and Estonia – spent at least 2% of GDP on defense (in 2013).

“At 1.9%, France last year fell short of the 2% that is supposed to be the technical requirement for membership. Mr. Rasmussen’s Denmark spent 1.4% of its GDP on defense, Angela Merkel’s Germany 1.3%, Italy 1.2% and Spain 0.9%. This is what a country spends if it thinks its main security threat is Belgium....

“The cuts have created ‘gaps in meeting core NATO tasks’ and resulted in ‘forces that are not ready, not trained, and not sufficiently equipped,’ according to a 2012 study from the U.S. National Defense University. In plain English, this means that if Vladimir Putin sets his sights on NATO’s eastern periphery – by targeting the Baltic States, for example – the alliance may not have the capability to resist even if it has the political will.”

Robert Kagan / Washington Post

“For many decades Americans thought of their nation as special. They were the self-proclaimed ‘leader of the free world,’ the ‘indispensable nation,’ the No. 1 superpower. It was a source of pride. Now, pundits and prognosticators are telling them that those days are over, that it is time for the United States to seek more modest goals commensurate with its declining power. And they have a president committed to this task. He has shown little nostalgia for the days of U.S. leadership and at times seems to conceive it as his job to deal with the ‘reality’ of decline.

“Perhaps this is what they want from him. But it is not something they will thank him for. To follow a leader to triumph inspires loyalty, gratitude and affection. Following a leader in retreat inspires no such emotions.”

Washington and Wall Street

It was a volatile week, particularly for the momentum stocks as I’ll detail below in Street Bytes. The markets are also beginning to weigh the impact of the Federal Reserve’s change in interest rate policy that is coming in 2015. One Fed governor, Charles Plosser, said he expects the short-term funds rate to rise to 3% by end of ‘15 (from essentially zero) and 4% in 2016. Another, James Bullard, echoed Plosser’s view in forecasting a 4% funds rate by end of ’16.

Savers should rejoice should this come to pass. Finally, a return on your CDs. But the speed of the change, and the reaction on other parts of the yield curve, like the 10-year, is what could roil markets. But this is down the road. For now it’s a tug of war over valuation and tensions in Ukraine.

Regarding the former, valuation, many noted the fact the Russell 2000 small cap index has rallied seven straight quarters, the longest stretch ever, and is at a valuation 26% over 1990s level. Heading into this week, it was up some 248% since March 2009, with price-earnings multiples 3 times that of the S&P 500; 49 times reported earnings vs. 39 in March 2000. [The Russell proceeded to fall hard this week, down 3.5%, and is suddenly down with one day to go in Q1.]

Plus now we’re at the end of the quarter and earnings for the S&P are expected to rise just 0.3% (down from an estimated increase of 4.4% at the start of the quarter), versus Q4’s 8.5% eps gain.

Separately, the S&P / Case-Shiller home price index for January, while up 13.2% over January 2013 for the 20-city index, continued to show signs of deceleration, while the data on February new-home sales was in line and nothing exciting (blame the weather in part), and a figure on pending home sales fell for an eighth consecutive month.

The figure on durable good for February was up 2.2%, which sounds good, but when you strip out volatile transportation, it rose only 0.2%, not good. A final reading on fourth-quarter GDP came in at 2.6%.

But the Conference Board’s latest on consumer confidence came in at the highest level in six years.

Mohamed El-Erian / Financial Times

“Do not look to global co-operation as a way to diffuse most of today’s geopolitical tensions. Hampered by national politics, the effectiveness of multilateral institutions has failed to keep up with the increasing complexities on the ground.

“This weakness could even start playing out in earnest in Ukraine in the next few weeks. All it would take is for additional blatant territorial intervention by Russia to trigger comprehensive financial and economic sanctions by the West. With Russia likely to retaliate by disrupting the supply of energy to Western Europe, the world would be thrown into recession, along with renewed financial instability – a situation that would certainly derail capital markets.

“While a notable risk, this is not the most likely scenario for the next few weeks. Instead, the situation is likely to stabilize temporarily at a new geopolitical equilibrium, albeit a fragile one, in which the West tolerates the annexation of Crimea and Russia’s ‘legitimate interests’ there, while Russia pays lip service to Ukrainian territorial integrity and supports international help for the country while deferring some of its own claims.

“Should this indeed materialize, markets would again feel vindicated in having responded rather calmly to the Crimea crisis. Yet they should guard against complacency based on a simple extrapolation of the past. Underlying geopolitical tensions around the world have been gradually building towards a tipping point. Should this continue, it would quickly become evident that many markets are underpricing geopolitical risk.”

Noted investor Jeremy Grantham of GMO:

“Over the next seven years we think the market will have negative returns. The next bust will be unlike any other because the Fed and other central banks around the world have taken on all this leverage that was out there and put it on their balance sheets. We have never had this before.

“Assets are overpriced generally. They will become cheap again. That’s how we will pay for this. It’s going to be very painful for investors.” [Fortune / Sydney Morning Herald]

Europe and Asia

A flash composite reading on manufacturing and the service economy for March in the eurozone came in at 53.2 vs. 53.3 in February (50 being the dividing line between growth and contraction). The flash report also gives estimates for Germany and France and in the former, the preliminary reading on manufacturing for this month is 53.8 vs. 54.8 in February; 54.0 on services, down from 55.9. In France the manufacturing PMI expanded for the first time in two years, 51.9 vs. 49.7 in February, while services rose to 51.4 from 47.2. So two better readings for France, but then the labor ministry reported the number of jobless in the country rose to a new high in February.

There was also a release on Friday that reignited fears of deflation as prices unexpectedly dipped in Spain while Germany’s inflation rate came in at just 0.9%.

According to a flash report by Spain’s national statistics office, consumer prices fell by 0.2% in March compared with a year earlier, the second time the year-on-year rate has dropped into negative territory in recent months.

So there remain serious concerns about the eurozone recovery, with Jens Weidmann, the president of the Bundesbank and the European Central Bank’s leading hawk, stating that he could support outright bond-buying by the central bank to spur growth if the recovery falters. Eurostat will be publishing more inflation data on Monday.

Meanwhile, earlier in the week the Bank of Spain said the nation’s debt to GDP ratio was 7.1% in 2013, vs. a target of 6.5% and well above the ECB’s 3% required threshold for all eurozone nations. Spain had been granted an extension to get to that level in a few years but with all the hard austerity measures already having been taken, it won’t be easy. This week Spain saw violent, anti-austerity protests in Madrid.

But the U.K. reported more good news, a solid gain in retail sales for February, up 1.7% over January (up 3.7% from a year ago), while household-spending is expected to grow 3% this year. Fourth-quarter GDP rose 2.7% year-on-year.

As for Greece, it is due to receive its next tranche of aid in the bailout program, some $11.4 billion, which is needed to avert default on about $16 billion in government debt due in May. As I noted before, this is also important because the Greek government wants to put its best face on the economy prior to the European Parliament elections end of May.

Euro Bits...

--Russia’s deputy economics minister projected some $70 billion in assets will be pulled out of the country the first three months of the year owing to sanctions and tensions over Ukraine. He also expects growth in the quarter to be “around zero.” [BBC News]

--To keep its budget balanced, Russia requires an oil price of about $110 barrel (Brent...normally I am quoting West Texas Intermediate...which is about $7 less).

--Unrest in Ukraine led to a 17% decline in Russian tourism to the U.K. in February. Russians are also among the top-five spending tourists there.

--Though Russia is only Germany’s 11th-leading trade partner, after Poland, some 300,000 German jobs depend on exports there. Russia in turn supplies about 35% of Germany’s imports of both oil and gas.

BMW has a big stake in Russia and saw its sales rise 12% last year to 44,871 vehicles. Volkswagen sold about 287,000 cars in Russia, accounting for 3.2% of VW’s global sales. [Bloomberg]

--The Italian government is selling off hundreds of car used by politicians and government officials as part of Prime Minister Matteo Renzi’s effort to end a symbol of wasteful spending. Renzi had adopted a similar stance when he was mayor of Florence, saying at one point: “Why should an undersecretary have an official car? The undersecretary should go by foot.”

--Pilots at Lufthansa have called a three-day strike for April 1 over pay and work conditions.

--Britain’s Royal Mail, which is a public company listed on the London Stock Exchange, said it would cut a net 1,300 jobs, though not frontline employees including delivery personnel. The union is threatening a job action.

--Despite what some are calling a turnaround in Greece, car sales for the last 12 months are nearly 79% below the level of 2007. [Floyd Norris / New York Times]

Finally, German Chancellor Angela Merkel said her government is considering limits on the rights of unemployed migrants from other EU states, similar to a crackdown proposed by British Prime Minister David Cameron. Immigration to Germany has been soaring with the country’s stronger economy (ditto the U.K.) vs. the stagnation in much of southern and eastern Europe.

So we move to France and last weekend, in the first round of municipal elections across the country, the far-right National Front (FN) won its first mayoral seat outright since 1995 and will now appear in run-offs this Sunday in more than 200 cities and towns, most notably in Marseille, where it finished second, ahead of President Francois Hollande’s ruling socialist party.

Overall, the right-wing UMP of former President Nicolas Sarkozy took 47% and the National Front 5%, but the latter is deceiving. The FN ran candidates in only about 600 of 37,000 municipalities and when viewed in this proper context, you can see where FN leader Marine Le Pen is confident her party will gain 20%, or more, of the European Parliament vote in May.

Le Pen’s aim is to continue building to 2017, when she hopes to gain the second round of the next presidential election, same as her father, the virulently racist and anti-Semitic Jean-Marie Le Pen did in 2002. Marine has been trying to change the image of the party her father founded and she is meeting with obvious success, which needless to say has the Jewish community in France on edge.

As for Hollande, his Socialists only gained about 38% of the vote last week and there is pressure on him to remove Prime Minister Jean-Marc Ayrault and replace him with popular Interior Minister Manuel Valls, who has continually fought against anti-Semitism and the rise of Islamism.

I have long warned of the rise of the far-right in Europe and no doubt I was years early. But we’ll see what happens in May and the Euro parliament vote. In yet another worrisome sign, a new study in Hungary by a local researcher, Andras Kovacs, finds that between 15 and 20 percent of Hungarians consider themselves “extreme anti-Semites.” [Jerusalem Post]

The neo-Nazi Jobbik party in Hungary is the third-largest faction in parliament. Hungarians go to the polls April 6 so Jobbik’s vote total will be closely watched.

Turning to Asia, there are reports of slower urbanization in China which would hurt GDP. 300 million have moved from rural areas to the cities since 1995 and the government is calling for another 300 million to do the same over the coming years, but among the many questions of such a policy is what impact would this have on the environment and already strained resources, along with an infrastructure (think sewers) that can’t handle it. So there is talk of moving the people to smaller cities, like the one I was in two months ago, Fuzhou.

Separately, HSBC released its flash PMI for March and at 48.1, it’s the continuation of a trend, a real slowdown. The 48.1 is down from 48.5 in February, while the government releases its official reading on April 1st.

As for Japan, this is a big week coming up. On Tuesday, the government hikes the sales (VAT) tax to 8% from 5% and it is expected to have a major negative impact in the short run.

The problem appears to be compounded by the fact consumer spending in February, as just announced the other day, fell 2.5% from a year earlier and the first drop in six months, when it was expected to rise as consumers bought goods ahead of the tax hike. It’s also a sign, perhaps,  that with inflation finally returning, up 1.3% in February and per the government’s wishes, purchasing power was damaged, which is why Prime Minister Abe has been pushing companies to hike wages in a significant way.

Abe said he would push 40% of annual government spending into the April-June period in an attempt to avoid a return of recession.

Street Bytes

--Stocks finished mixed despite the constant intraday volatility with the Dow Jones adding 21 points, 0.1%, to 16323, while the S&P 500 lost 0.5% and Nasdaq tumbled 2.8%. As alluded to above, a few of the momentum stocks have had a rough go of it.

Tesla, hit a high of $265 on Feb. 26, but at one point this week was trading at $203 before closing at $212.

Netflix was at $458 on March 6, but traded at $355 before finishing the week at $358.

Twitter was $74.70 on Dec. 26 and $43.30 this week before closing at $47.30. 

Amazon was $408 on Jan. 22 and $330 this week before finishing at $338.

There are others to be sure and I imagine I’ll be listing more examples next time.

--U.S. Treasury Yields

6-mo. 0.06% 2-yr. 0.45% 10-yr. 2.72% 30-yr. 3.55%

--The Federal Reserve shook up the banking world, specifically Citigroup Inc., by turning down its request to pay out higher dividends and reward investors with stock buybacks, which caught Citi CEO Michael Corbat with his pants down, as he was in South Korea when word hit and had to rush back to fight the fire.

Citigroup had failed the Fed’s “stress test,” specifically the issue of estimating how much money it would lose in a severe downturn. Over the last year, Citi had revised its projected losses upward by as much as $15 billion in such a scenario, according to the Wall Street Journal, but that still wasn’t enough to satisfy the Fed.

The thing is, Citigroup failed this test in 2012 and you’d think they would have rectified the situation since. For his part, Corbat has been in constant contact with regulators but this is a huge embarrassment, especially considering that he was brought in to replace Vikram Pandit to rectify the 2012 failure.

Meanwhile, other large banks, including JPMorgan Chase and Bank of America, saw their dividend and buyback programs approved. A few others such as Zions Bancorp and the U.S. unit of HSBC, must submit revised capital plans and suspend any increased dividend payments.

--Bank of America finally settled claims it sold faulty mortgage bonds from Fannie Mae and Freddie Mac for $9.3 billion, which includes $6.3 billion in cash and the rest in securities that Bank of America will purchase from Fannie and Freddie. BofA says it has now resolved 88% of its total exposure to securities in the mortgage bond litigation it faces. The second-largest U.S. bank will take a substantial hit to first-quarter profits of about 21 cents a share.

--The man expected to succeed JPMorgan Chase CEO Jamie Dimon one day, Michael Cavanagh, left his job at JPM for the private equity world, specifically to become co-chief operating officer at Carlyle Group. Cavanagh, ten years Dimon’s junior, had worked with him for a decade.

--Shares in King Digital, developer of the popular Candy Crush Saga, fell 16% on their first day of trading, Wednesday, closing at $19.00, down from the listing price of $22.50 (while finishing the week at $18.00). Candy Crush was the most downloaded free app of 2013, but because the company’s top three games accounted for 95% of total revenue in the fourth quarter, there are concerns King is a one-trick pony. [Candy Crush is 78% of sales.]

Nonetheless, King raised $500 million, with the offering valuing the company at $7 billion. It did turn a $567 million profit in 2013 on $1.9 billion in revenue, though most expect revenue to slow until it comes up with a new hit.

But many are talking about the hard luck, or dumb move, of King Media Entertainment co-founder Toby Rowland, who left the company in 2011, cashing out for roughly $3 million, when his stake today would have been worth almost $1 billion. Another former King director also sold in 2011 for $3.3 million and would be a $billionaire today.

--Facebook announced it was purchasing a virtual reality headset maker, Oculus, for $2 billion and, as with its $19 billion recent acquisition of chat app WhatsApp, many were questioning Mark Zuckerberg’s strategy and whether or not he was spending like a drunken sailor. But Zuckerberg countered, “Mobile is the platform of today, and now we’re also getting ready for the platforms of tomorrow. Oculus has the chance to create the most social platform ever, and change the way we work, play and communicate.” [Ed. I hope I’m dead if this proves to be the case.]

But Oculus itself presented an interesting issue of a different kind. The company raised $2.4 million from more than 9,500 Kickstarter users and they received nothing more than a t-shirt and a mockup of the headset. Needless to say the Kickstarter community then ripped Oculus’ founders and investors to shreds.

Granted, Kickstarter strictly forbids the transfer of stock or financial returns to backers, though the SEC is looking at relaxing the rules in this realm, but it’s too late for Oculus’ early fans.

--According to an extensive lawsuit that was filed on Monday, General Motors knew that its ignition switches in 1.62 million now-recalled cars were not only faulty, but the automaker also knew the problem was made worse by the position of the switch where it is easily bumped. The suit further alleged “GM, in our view, is continuing to mislead customers” by saying faulty ignition switches were the only cause of the problem...the potential for the key’s position to inadvertently turn from the ‘run’ to the accessory/off’ position.

I’ve thought about this issue a fair amount...not from an engineering standpoint but just as a consumer. It would scare the hell out of me to drive one of the impacted models, such as a 2006 Chevy Cobalt.

I have driven nothing but Honda Accords for literally decades but years ago I took everything off my key ring and have employed just the key itself....for no particular reason, but I imagine I’ll be doing this the rest of my driving days.

But wait...there’s more! On Friday, GM halted sales of some models of the popular Chevy Cruze car without giving any details behind the move.

--Nissan is recalling 1 million 2013-14 vehicles, including the popular Nissan Altima and Sentra, because the air bag system software might not inflate on the passenger side in a crash. Nissan, in a filing with the National Transportation Safety Administration, said that while there have been accidents, there have been no injuries.

--Bloomberg had a piece about the SEC and its examination of the stock exchanges and potential exposure to cyber-attacks. The agency is also examining companies, such as Target Corp., and what they should be required to disclose in public filings.

But the article doesn’t discuss the real elephant in the room in the immediate future. The Kremlin could easily order an attack on the exchanges in retaliation for Western sanctions on its leaders and oligarchs. No doubt over the years they have initiated probing missions to check the firewalls, so to speak, but you know Russia has the cyber ability to wreak havoc on a major-scale (including attacking the nation’s infrastructure).

--I get a kick out of those who don’t understand the damage Edward Snowden has done to U.S. business. As expounded upon in a piece by the New York Times’ Claire Cain Miller, Snowden’s revelations of the N.S.A.’s vast surveillance program is costing the likes of Microsoft and IBM, among others, $10s of billions in lost business as foreign customers turn to companies from Europe and South America, fearful their information is being used by the U.S. government.

Forrester Research said the losses for the cloud computing industry could be as high as $180 billion, or 25% of industry revenue, over time. As Claire Cain Miller writes:

“The business effect of the disclosure about the N.S.A. is felt most in the daily conversations between tech companies with products to pitch and their wary customers. The topic of surveillance, which rarely came up before, is now ‘the new normal’ in these conversations, as one tech company executive described it.”

Inaction on the part of the federal government in addressing the issue only hurts U.S. business further.

One thing that is happening is that you have outfits like IBM building new data centers overseas to allay foreign companies’ fears. Salesforce.com announced it was doing the same.

Separately, the Times reported the N.S.A. has broken into Chinese telecom giant Huawei’s equipment, including through its “sealed headquarters” in Shenzhen, according to further documents provided by Edward Snowden. Of course the United States has made a stink about the dangers of buying equipment from Huawei, which has effectively cut the company off from doing business here. This topic came up as Chinese President Xi Jinping met with President Obama in the Netherlands.

--The World Trade Organization ordered China to dismantle export restrictions on rare-earth minerals that are used in the production of items ranging from hybrid cars to smartphones. Beijing has virtually monopolized the sector and was hoarding the material. Overall, China is said to account for 90% of the world’s production of rare earths.

Back in 2011, some of the minerals, such as molybdenum, surged 500% in price amid fears of a global shortage.

China has 60 days to appeal the ruling.

--The IRS announced it would treat bitcoin and other virtual currencies as property, which helps legitimize it, but also means investors are subject to extensive record-keeping rules, while the rule imposes capital-gains taxes on any investor profits. It’s not clear, though, how any losses would be treated. The U.K., Canada and Finland had all previously announced they would tax profits on bitcoin as capital gains.

The thing is, if you use bitcoin in a retail transaction you would be required to figure out any gain and pay a tax on that.

--I have been to Macau a number of times and every time I see a story, such as that of Bettina Wassener of the New York Times this week, talking of the still-ongoing explosion in development, I can only shake my head. I’ve noted the numbers countless times but it bears repeating, for example, that Macau generated $46 billion in gambling revenue last year compared with Las Vegas’ $6.5 billion. 

Ms. Wassener, though, talks of all the new developments to come, such as a 1,700-room Wynn Resorts addition for 2016, and new Ritz-Carlton and Marriott offerings.

But here’s a figure I hadn’t seen before: “Nearly 20 million people, or one in five Chinese who ventured outside mainland China last year, came to Macau to gamble, shop and sightsee.”

--I commented recently that online gaming in New Jersey was off to a very slow start, but a new report shows that the number of accounts created in the first two months of 2014 had doubled. Revenues remain small but for advocates, you have to open the account before you can start losing money, right sports fans?!

--Not for nothing but California’s unemployment rate in February hit 8.0%, down from a peak of 12.4% in October 2010. Gotta give Democratic Gov. Jerry Brown some credit. The jobless rate in Orange County, by the way, is just 5.8%.

--U.S. advertising spending rose 1% last year to $140.2 billion. But as the Los Angeles Times’ Meg James notes, large companies increased spending 3.3%, but smaller firms cut their marketing budgets 6.6%, per a report from Kantar Media North America.

Online display ad spending rose 15.7%, but spending on radio fell 5.6% (this surprises me) and 3.7% for newspapers.

--Speaking of online advertising, according to a recent report by the Interactive Advertising Bureau trade group, about 36% of all Web traffic is considered to be fake. Ye olde click fraud.

--The Wall Street Journal reported Wal-Mart has sued Visa Inc. for more than $5 billion, claiming unreasonably high swipe fees. This is a battle that has been going on for years, with Wal-Mart alleging Visa violates antitrust regulations and generated $350 billion for card issuers over nine years. Wal-Mart then argues that this forces the retailer to raise prices and/or reduce retail services, which results in lost business.

--Five former employees of Bernard Madoff were found guilty on charges they aided and profited from the estimated $20 billion fraud. It took a jury 18 hours over four days to find the defendants guilty on a 31-count indictment. The five are free on bail, with severe restrictions, but face decades behind bars. Enjoy!

--The Motion Picture Association of America said domestic box-office sales rose to $10.9 billion last year, up from $10.8 billion in 2012, but attendance was down 1.5%. Tickets sold has fallen nearly 11% between 2004 and 2013, according to the MPAA, but, owing to higher ticket prices, revenue over the same period is up 17%.

China became the first foreign market to see box office receipts hit $3 billion, reaching $3.6 billion last year.

Foreign Affairs

Syria: Al-Qaeda types, “including some midlevel planners,” have traveled from Pakistan to establish a base of operations here for launching attacks against Europe and the United States, according to American intelligence officials. CIA Director John Brennan said the terrorists can also feed off a base of 1,200 American and European Muslims who have gone to Syria to fight and could then carry out attacks when they return home. 

Iran: In its monthly report, the International Atomic Energy Agency said Iran is complying with the interim nuclear deal by refraining from enriching uranium to 20% purity and reducing its stockpile of 20% enriched uranium, while also holding off on further work at its planned heavy water reactor in Arak. The six-month deal went into force on January 20.

But, it appears Iran’s stockpile of 5% enriched uranium is still growing and that’s the toughest part of the process, especially given Iran has new centrifuges that are far more effective than the older ones.

According to Reuters, Iran is also set to sell more oil than allowed under the sanctions regime and interim nuclear deal for a fifth consecutive month. Incredibly, the Obama administration expects Iran to cuts its sales to bring exports in line with the accepted caps from back in November. Since it’s March Madness, time for an “Are you kidding me?!”

Lastly, Supreme Leader Ayatollah Khamenei feels compelled to show his true colors from time to time. The other day he used a speech to once again call into question the Holocaust.

“The Holocaust is an event whose reality is uncertain and if it has happened, it’s uncertain how it has happened.”

Israel: Jennifer Rubin / Washington Post

“In advance of Israeli Prime Minister Benjamin Netanyahu’s recent visit to the United States, President Obama gave an interview in which he viciously attacked Israel, suggesting that Israel was the cause of the peace process failure, that the United States could no longer protect Israel if the peace process failed and that Palestinian Authority President Mahmoud Abbas was a man of peace.

“This past week, Abbas came to visit Obama at the White House. In advance of his trip, Obama made no statements expressing displeasure with the Palestinian Authority’s intransigence and its continued demonization of Israel. Just before the meeting Obama told the assembled press corps:

“‘I have to commend President Abbas. He has been somebody who has consistently renounced violence, has consistently sought a diplomatic and peaceful solution that allows for two states, side by side, in peace and security; a state that allows for the dignity and sovereignty of the Palestinian people and a state that allows for Israelis to feel secure and at peace with their neighbors... I also want to point out that the Palestinian Authority has continued to try to build strong institutions in preparation for a day in which the Palestinians have their own state, and I will continue to emphasize the importance of rule of law, transparency, and effective reform so that not only do the Palestinians ultimately have a state on paper, but, more importantly, they have one that actually delivers on behalf of their people.’”

Well the actual Obama-Abbas meeting was a disaster, as I noted last “Week in Review.” But Rubin notes:

“We can therefore see that Obama’s words are entirely at odds with the conduct of the parties in the region. He either chooses to misrepresent the facts or he is blinded by unremitting hostility to Israel. In any event, he indulges the PA’s intransigence despite replete evidence that this only worsens the divide between the parties. The inescapable takeaway is that Obama lacks real affection for the Jewish state and when things fail intends to blame Israel.”

Iraq: National elections are slated for April 30 even as the violence continues unabated. In Anbar province, which abuts Baghdad, Falluja remains under siege by Iraqi soldiers and special forces arrayed against the jihadists. 300,000 residents have been displaced and as The Economist reports, “Many now live in squalor in makeshift dwellings north of Baghdad. The Iraqi government has promised aid but has failed so far to supply it.” Belatedly, the United States is supplying the Maliki government with helicopter gunships and missiles to fight the militants, who cross at will between Iraq and Syria, even as Iraq buys small arms from Iran.

Back to the election, the entire electoral commission resigned on Tuesday in protest against political interference. The issue seems to be a provision in the electoral law whereby Maliki may be allowed to eliminate rivals.

Egypt: Speaking of presidential elections, Gen. Abdel Fattah al-Sisi resigned his post as head of the military to run for president, as long expected. Sisi will win convincingly, though one has to wonder why he’d want to be president of this hellhole. I mean the perks of running the military can’t be any worse than what he’ll have as president. No date for the vote has been set.

Separately, a court sentenced to death 529 supporters of deposed President Morsi, members of the banned Muslim Brotherhood. The group was convicted of charges including the murdering of a policeman.

Afghanistan: As reported by Michelle Tan of Military Times, “The U.S. has closed nearly 290 bases across Afghanistan as of March 1 and fewer than 80 bases remain.” Just 33,000 troops remain, down from a cycle high of 100,000, and those still there are almost solely in a support role. Only about 27 bases are expected to remain open by the end of October, according to Marine Brig. Gen. Daniel O’Donohue.

While both Washington and NATO want the next Afghan government to sign a security agreement allowing foreign troops to stay beyond Dec. 31, with Russia’s move to annex Crimea, now NATO states in Eastern Europe are concerned over Russia’s future intentions so the focus is on securing their borders, which means fewer resources for Afghanistan and other overseas missions.

It is hoped that if a status of forces agreement is eventually reached, 10,000 American troops would remain and 5,000 from NATO states.

Meanwhile, the presidential election is April 5. No telling how it will go, but with numerous candidates, a run-off seems a certainty.

Turkey: The government of Prime Minister Erdogan continues to try to cut off dissent. First it banned Twitter, though opponents found ‘workarounds’ and kept tweeting, after the platform was used to distribute corruption allegations against Erdogan’s government.

Then on Thursday, the government blocked access to YouTube after a tape emerged that showed top national security figures discussing possible military action against Syria. As a local columnist told the Financial Times, “What sort of intelligence apparatus does Turkey have if even a meeting in which the intelligence chief is involved, of this sensitivity, where they talk about launching a military strike, is listened to and circulated?”

Turkey’s foreign minister blamed outside powers for bugging the meetings.

Last Sunday, Turkey shot down a Syrian plane that Ankara said had crossed into its airspace from Latakia province, the Assad stronghold. It was there that rebels killed a cousin of Assad’s during fierce fighting. Damascus condemned the “blatant aggression.”

Yemen: Al-Qaeda in the Arabian Peninsula (AQAP) was responsible for an attack on a military checkpoint that killed 20 Yemeni soldiers. 

Malaysia: Another week and still no resolution to the mystery of Flight 370. There continues to be little doubt the Malaysian government totally botched the information flow and the backlash in China (with 153 of the 239 victims) is growing, owing mainly to the Beijing government allowing it to do so.

But now Malaysians are fighting back, saying it is grossly unfair for China to say their government hasn’t done enough to find the plane. It is, after all, one of the more closed governments in the world that is upset over Malaysia’s seeming lack of transparency.

The verbal battle between the two threatens to harm key trade ties, however, and the level of Chinese tourists going to Malaysia is said to be down significantly already.

China: First Lady Michelle Obama, accompanied by her mother and daughters Sasha and Malia, spent a week touring China in what was billed as a cultural exchange. Michelle avoided politics except for a strong statement on behalf of freedom of expression and unfettered access to information as “universal rights.”

On a different issue, a senior Japanese cabinet minister told the South China Morning Post that China’s attempts to snatch the Diaoyu Islands away from Japan are similar to Russia’s behavior in taking Crimea.

Yasutoshi Nishimura, at a conference in Hong Kong, said his government’s position continues to be that the disputed islands (Senkakus to the Japanese) remain an integral part of Japan.

North Korea: Kim Jong-Un has been firing one bottle rocket after another to protest joint U.S.-South Korean military drills, but then he upped the ante by test-firing two medium-range ballistic missiles, the first such launch since 2009. The date happened to mark the four-year anniversary of the sinking of a South Korean warship and the launches violated U.N. resolutions. [The “Rodong” missiles have a range of 800 miles but these two traveled about 400 before going down in waters between the Korean Peninsula and Japan.]

Meanwhile, South Korean President Park Geun-hye met her counterpart, Japanese Prime Minister Shinzo Abe, for the first time since the two were elected.

Russia: Supporters of opposition leader Alexei Navalny, currently under house arrest, should fear for his safety.

Venezuela: At the request of a group of South American foreign ministers, President Nicolas Maduro is said to have agreed to enter talks with opposition leaders with the help of an outside facilitator, though it’s not known if such a “good faith witness” would come from within Venezuela or outside the country. The delegation did say Maduro had agreed to the creation of a human rights commission that would look into allegations of abuse by security forces.

The death toll in anti-government clashes is at least 32. This week the U.S. State Department said it was prepared to impose sanctions on Caracas if Maduro didn’t hold legitimate talks with the opposition. Earlier in the week, Maduro announced the arrest of three air force generals for allegedly plotting a coup to overthrow the government.

Guinea: This is scary. The first outbreak of Ebola fever in this West African nation has killed at least 59 and, according to Doctors Without Borders, could be spreading to neighboring countries. Earlier Ebola outbreaks have been in Central Africa. [Donald G. McNeil Jr. / New York Times]

Random Musings

--In the aforementioned CBS News poll, 43% say the image of the U.S. has grown worse since Obama became president, rather than better, 32%. Obama’s overall approval rating is also 43%, similar to a month ago. 

An AP-GfK survey gives Obama a 41% approval rating, down four points from January. 59% disapprove, an all-time high for this one. 37% believe the country is headed in the right direction, 62% the wrong one, which is a slight improvement for the president.

--The White House is extending the deadline on signing up for ObamaCare yet again. Those unable to enroll by the long-thought deadline of Monday, March 31, have until mid-April to ask for an extension. You have to check a little teeny, tiny blue box on HealthCare.gov to indicate you tried to enroll before but were interrupted by Wichita State-Kentucky in the Round of 32, or something like that. It operates on the honor system.

As reported by the Washington Post’s Amy Goldstein, “Administration officials said the accommodation is an attempt to prepare for a possible surge of people trying to sign up in the final days before the deadline.”

The White House then announced on Thursday that 6 million Americans have signed up for coverage, fulfilling a revised goal set by the Congressional Budget Office.

But, the administration has yet to release the demographic breakdown, how many actually closed the deal by paying their first month’s premium (which some experts say is between 10% and 20%), and how many had health insurance before.

The CBS News poll had 27% saying the sign-up for ObamaCare was going well, 47% not well, vs. 22% - 53% in January. An Associated Press-GfK survey found only 26% supported the Affordable Care Act, while the same percentage said the launch was going well, so consistent with the CBS findings.

--The White House and Congress are working on overhauling the National Security Agency’s phone collection program. Currently the N.S.A. retains phone data for five years, while phone companies normally hold onto your records for 18 months. The Obama administration is proposing that the collection of domestic calls be left with the phone companies and for the same period of time they currently are. The N.S.A. could then obtain specific records only with the approval of a judge, under the new plan. 

--Osama bin Laden’s son-in-law, Abu Ghaith, was convicted of conspiring to kill Americans for his role as al-Qaeda’s spokesman after the Sept. 11 attacks. He was the highest-ranking al-Qaeda figure to face trial on U.S. soil since then.

In a statement, U.S. Attorney Preet Bharara said: “He was more than just Osama bin Laden’s propaganda minister. Within hours after the devastating 9/11 attacks, Abu Ghaith was using his position in al-Qaeda’s homicidal hierarchy to persuade others to ledge themselves to al-Qaeda in the cause of murdering more Americans.”

The jury required just six hours of deliberation over two days to reach its verdict. Abu Ghaith faces life in prison.

--An internal investigation commissioned by New Jersey Gov. Chris Christie has found no evidence he knew anything about Bridgegate prior to the plan to shut down several lanes at the George Washington Bridge.

The report was written by former prosecutor Randy Mastro and while clearing the governor and his senior staff, called for the appointment of a chief ethics officer within Christie’s office and a restructuring of the Port Authority.

The investigation also found that Hoboken Mayor Dawn Zimmer’s allegations she was shaken down over Hurricane Sandy aid in exchange for help for a private developer were “demonstrably false” and “unbelievable.”

However, Democrats are denouncing the report in part because three key figures in the scandal were not interviewed and that any report ordered by Christie himself has no credibility.

In his first television interview since Bridgegate erupted, Christie told ABC’s Diane Sawyer:

“When things were first reported, I said: ‘This can’t possibly be true.’ Because who would do something like that? Sometimes, people do inexplicably stupid things.”

Sawyer asked him if having these people act under his nose without his knowledge made him clueless.

“Not clueless,” Christie responded. “It makes me feel taken advantage of. More importantly, I feel I let people down.” [Brent Johnson / Star-Ledger]

Christie then held his first news conference on Friday and announced that David Samson, the chairman of the Port Authority, had resigned that afternoon. The governor was back to his old rambunctious self in dealing with the press.

--Republican Congressman Paul Ryan’s recent remark that there has been a “tailspin of culture, in our inner cities in particular, of men not working and just generations of men not even thinking about working or learning the value and the culture of work” continues to reverberate.

George Will weighed in the other day from his Washington Post perch.

“A year from now, there surely will be conferences marking the 50th anniversary of what is now known as the Moynihan Report, a.k.a. ‘The Negro Family: The Case for National Action.’ In March 1965, Moynihan, then 37 and assistant secretary of labor, wrote that ‘the center of the tangle of pathology’ in inner cities – this was five months before the Watts riots – was the fact that 23.6 percent of black children were born to single women, compared with just 3.07 percent of white children. He was accused of racism, blaming the victims, etc.

“Forty-nine years later, 41 percent of all American children are born out of wedlock; almost half of all first births are to unmarried women, as are 54 percent and 72 percent of all Hispanic and black births, respectively. Is there anyone not blinkered by ideology or invincibly ignorant of social science who disagrees with this?

“The family is the primary transmitter of social capital – the values and character traits that enable people to seize opportunities. Family structure is a primary predictor of an individual’s life chances, and family disintegration is the principal cause of the intergenerational transmission of poverty....

“Next March, serious people will be wondering why the problem Moynihan articulated half a century earlier has become so much worse while so much else – including the astonishingly rapid receding of racism and discrimination – has become so much better. One reason is what Moynihan called ‘the leakage of reality from American life.’ Judging by the blend of malice, ignorance and intellectual sloth in the left’s reaction to Ryan’s unexceptionable remarks, the leak has become, among some factions, a cataract.”

--New York City Mayor Bill de Blasio is backing off his denunciation of charter schools. He has been calling “titans of Wall Street and philanthropy, explaining that he does not want to ‘destroy’ charter schools, according to several business executives who spoke with Mr. de Blasio.” [Javier C. Hernandez / New York Times]

We’ll see if the mayor has truly seen the light. It’s always been pretty obvious many charter schools operate in minority communities, the very neighborhoods that backed de Blasio’s candidacy in a huge way, and now they feel betrayed.

A Quinnipiac University poll last week showed 38% of voters approved of the mayor’s handling of New York City schools, while 49% disapproved. De Blasio’s overall approval was down to 45%, after less than three months in office.

--Former President George W. Bush has joined retired Army Gen. Pete Chiarelli and veterans’ groups in lobbying for a change in the designation “PTSD.”

As in drop the “D.” As reported by Patricia Kime of Military Times, Bush, as part of his Military Service Initiative, said he “aims to remove the stigma of having post-traumatic stress disorder or getting treatment for it.”

“One thing that would help, Bush believes, is lopping off the term ‘disorder.’

“ ‘As most doctors will tell you, post-traumatic stress is not a disorder. Post-traumatic stress, or PTS, is an injury that can result from the experience of war. And like other injuries, PTS is treatable,’ Bush said.”

A Rand Corp. study estimates that the number of post-9/11 veterans with PTSD is anywhere from 5 percent to 20 percent, or 125,000 to 500,000.

--We note the passing of James R. Schlesinger, 85. Schlesinger served as defense secretary under Republican Presidents Nixon and Ford, and was the nation’s first energy secretary under Democrat Jimmy Carter. The highly respected economics professor also headed up the CIA.

I always liked the man. He spoke his mind, which eventually would invariably get him in trouble.

--Hey, do you like to party? Enjoy the nightlife in big cities? Then join the U.S. Secret Service! Just don’t get caught.

The Secret Service suffered another high-profile embarrassment this week when one of its agents, who had been in Amsterdam ahead of President Obama’s trip there, was found passed out drunk in a hotel hallway. He was put on administrative leave and sent home, along with two other agents who had been out with the guy. According to a report in the Washington Post, they were partying until 2:30 a.m. Sunday, though they were scheduled to start work at 10:00 a.m. For Secret Service agents there is a ban on drinking 10 hours before an assignment.

What upset managers was that there had been a traffic incident in Miami three weeks earlier during a presidential visit in which two counter-sniper officers suspected of drinking had been involved though the driver passed a field sobriety test. Supervisors in that case had been admonished.

--Yup...corruption makes the world go ‘round. In California, State Sen. Leland Yee, a prominent Democrat, was arrested Wednesday along with a gangster who goes by the name of “Shrimp boy” and two dozen of their alleged associates. Yee, 65, is a candidate for secretary of state, yet he is accused of engaging in a conspiracy to deal firearms without a license and illegally import firearms, as well as your basic wire fraud charges and illegal moves to solicit campaign donations. Meanwhile, Shrimp Boy was a senior dirtball in the Triad, an international organized crime group.

It would appear California’s Democrats won’t be able to restore their “supermajority” (2/3s) in Sacramento as recently two of Yee’s Democratic colleagues in the Senate were swept up in separate corruption investigations. [Los Angeles Times] All three were suspended from the Senate on Friday.

And in Charlotte, N.C., Democratic Mayor Patrick Cannon resigned after he too was arrested on Wednesday on corruption charges, accused of accepting more than $48,000 in bribes from undercover FBI agents posing as businessmen wanting to do business with the city. Cannon had been in office only six months, after replacing Anthony Foxx, who was named Transportation Secretary by President Obama.

--A key summary from the Intergovernmental Panel on Climate Change (IPCC) due out on Monday, apparently has some dissenters. 

Last September, a summary on the physical science of climate change was released, arguing it was real and humans were the “dominant cause.”

The second report sets out the impact rising temperatures have on animals and ecosystems, as well as us.

According to a leaked summary seen by BBC’s Matt McGrath, among the conclusions is one that says “If the world warms by 4C towards the end of this century, this will pose a ‘significant risk to food security even with adaptation.’”

And, at levels of warming scientists say are already in place, there is a high risk to Arctic sea ice and coral reefs.

Writes McGrath: “They warn that the oceans will become more acidic as they warm, and species will move towards the poles to escape the heat.”

Kind of makes you want to invest in polar real estate, doesn’t it? I mean it sounds like there is going to be lots of demand.

Meanwhile, I’d ‘short’ anything that is currently about 18 inches above sea level, at least along the coast, unless you’re looking at operating a floating restaurant/bar with a pull-up dock.

--Separately, the World Health Organization, in a new report, estimates that air pollution kills about 7 million people a year worldwide, with more than half of the fatalities due to fumes from indoor stoves.

So, as I’ve been saying, the issue should be global pollution, far more so than climate change. Air pollution, specifically, is the single biggest environmental health risk, including the tiny particles that can get deep into lungs.

The figures are derived at through modeling but it’s felt 4.3 million deaths in 2012 were caused by the kind of indoor pollution resulting from people cooking inside using wood and coal stoves.

Said one author of the report, however, “We don’t know if dust from the Sahara is as bad as diesel fuel or burning coal.”

By the way, the above noted researcher, Majid Ezzati, added that those wearing face masks in cities such as Hong Kong and Beijing, may not be improving their odds of avoiding the worst pollution.

“The real problem is that wearing masks sends out the message we can live with polluted air,” he said. “We need to change our way of life entirely to reduce pollution.” [Associated Press]

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

Special prayers this week for the victims of the Oso, Washington catastrophe.

God bless America.

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Gold closed at $1293...down $86 in two weeks
Oil $101.67

Returns for the week 3/24-3/28

Dow Jones +0.1% [16323]
S&P 500 -0.5% [1857]
S&P MidCap -1.6%
Russell 2000 -3.5%
Nasdaq -2.8% [4155]

Returns for the period 1/1/14-3/28/14

Dow Jones -1.5%
S&P 500  +0.5%
S&P MidCap +1.2%
Russell 2000 -1.0%
Nasdaq -0.5%

Bulls 54.7
Bears 17.5 [Source: Investors Intelligence]

*Edition...a friend said I should put the number of “Week in Reviews” that I have published at the top so this is the total...15+ years, one week off. Actually, I could add about 75 more if I wanted to include the columns I did for PIMCO prior to starting StocksandNews.

Have a great week. I appreciate your support.

Catch me on Twitter @stocksandnews

Happy Opening Day! Play Ball! [Where the heck is spring?!]

Brian Trumbore