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04/12/2014

For the week 4/7-4/11

[Posted 12:00 AM ET]

Edition 783

Washington and Wall Street

The International Monetary Fund said recoveries in the developed world, such as those in the U.S. and U.K., reduced the risks of a global recession to near zero. The fund expects the U.S. to expand 2.8% this year and 2.9% in the U.K., while the eurozone will gain 1.2% and Japan 1.4%. Overall, it sees global growth of 3.6% in 2014, rising to 3.9% next year after 3% in 2013.

But you would have had a hard time convincing investors in some technology plays this week that all is hunky-dory. Try Humpty-Dumpty...as in all the central bankers and all the market bulls couldn’t put the likes of Netflix, Amazon, Facebook and Twitter back together again. At least for now.

Nasdaq has endured its worst stretch since November 2012 in terms of its first 3-week decline since then, while the action on Thursday, a 3.1% decline, was the worst single-day drop since Nov. 2011.

Some of Nasdaq’s former leaders were simply in nosebleed territory, way overvalued, and perhaps in some cases with shaky futures, i.e., a few of the Internet offerings in a highly-fickle sector in terms of consumer tastes.

It also doesn’t help we are now entering earnings season in full, with the few that have reported thus far not exactly warming the cockles, particularly JPMorgan Chase.

Earnings for the first quarter are expected to be flat for S&P 500 companies, with revenues up 1 or 2 percent. Whoopty-damn-do. Financial engineering, see buybacks, has helped with the bottom line for quite some time now, but you can’t hide putrid revenues.

Of course we’ll all be looking for the guidance that is provided and whether the hoped-for pick-up in business spending (cap-ex) finally materializes. I suspect we won’t like what we hear, and this is where, even if not mentioned in formal reports, the likes of Russia come into play in terms of CEO sentiment.

Let’s face it. Most CEOs, whether you like ‘em or not, are among the brighter people on the planet. They tend to read more intellectual stuff, travel more, follow the news. So they are also more likely to be more cautious when the geopolitical scene is increasingly iffy, especially if they are running a large multi-national corporation.

Yes, the above is a gross generalization but grade me by the language that comes forth over the coming weeks. I mean if you were a CEO, would you commit to a new plant in, say, Poland today, if it wasn’t already under construction? Just sayin’.

[I urge you to read my “Wall Street History” and “Hot Spots” pieces if you care about such things. Both represent Putin’s potential playbook, and in the case of the former give you a sense of how Wall Street may react over the coming year or so under Vlad the Great (or Impaler, take your pick) if he is not reined in.]

On to the Federal Reserve. Wednesday, stocks rallied strongly after release of the latest minutes from the Fed’s Open Market Committee as the governors seemed to push back against Chair Janet Yellen’s now famous press conference comment that the Fed may raise rates by next summer. Nope. It seems that the Fed wants us to believe, au contraire, mon frère. ‘We won’t be hiking the funds rate off the zero level until late 2015, if ever!’

Now this type of talk is flat out idiotic. It totally depends on the data, as they surely know, and some have offered over the years. If the economy picks up steam after what will surely be an ugly first quarter, or at best more of the same, i.e., 2% growth, then there will be major pressures in the bond market that the Fed will not be able to ignore. There is no way they can just issue blanket statements this far ahead.

Now I’m not a big follower of market doom and gloomer Marc Faber. He is clearly very entertaining though his forecasts haven’t been the best in a long time.

But I totally concur with some statements he made this week concerning the Federal Reserve.

Faber, in a CNBC interview, said the Fed was to blame for some of the ridiculous valuations and on this he’s right. He’s also spot on when he says:

“I believe that the market is slowly waking up to the fact that the Federal Reserve is a clueless organization. They have no idea what they’re doing. And so the confidence level of investors is diminishing, in my view.

“This year, for sure – maybe from a higher diving board – the S&P will drop 20%,” before he then said we could see, “in the next 12 months, an ’87-type of crash. And I suspect it will be even worse.”

I won’t go that far. In fact I’m not changing my 2014 outlook that the major averages finish down 2% to 5%. But Faber, and before him Jeremy Grantham, are surely right in their misgivings about the Fed and central bankers around the world.

Finally, a word on ObamaCare. HHS Secretary Kathleen Sebelius resigned after five years and the disastrous HealthCare.gov rollout. In the end, though, Sebelius can claim she, and the administration, met their goal of enrolling 7 million by end of March; or, as she announced, 7.5 million by this week. Sebelius will be replaced by Sylvia Mathews Burwell, the director of the Office of Management and Budget, who should sail through confirmation because she was already confirmed 96-0 by the Senate before and has been vetted.

Speaking for the Republican side, Senate minority leader Mitch McConnell said of the Sebelius resignation: “ObamaCare has been a rolling disaster and her resignation is cold comfort to the millions of Americans who were deceived about what it would mean for them and their families.

“Countless Americans have unexpectedly been forced out of the plans they had and liked, are now shouldering dramatically higher premiums, and can no longer use the doctors and hospitals they choose.”

Nancy Pelosi, the Democratic minority leader in the House, said Sebelius’ leadership had been “forceful, effective, and essential. Her legacy will be found in the 7.5m Americans signed up on the marketplaces so far, the 3.1m people covered on their parents’ plans, and the millions more gaining coverage through the expansion of Medicaid.”

Sen. Rand Paul (R-KY) tweeted that Sebelius’ legacy “will be one of the most unpopular & undemocratic [government] overreaches in our lifetime.”

As the Wall Street Journal’s Gerald F. Seib notes, “the Affordable Care Act now is entrenched as the most deeply divisive social program in recent memory, and it figures to stay that way through the November election and beyond.

“That means there simply won’t be any serious attempt to fine-tune the law until the political situation sorts out. Until then, ObamaCare will have to rise or fall as it is, with the White House doing what it can unilaterally to adjust the health-care law.”

For Republicans, November is all about retaking the Senate and Sen. Rob Portman (R-OH), who is overseeing the Republicans’ Senate campaign committee, has advised GOP candidates to take on ObamaCare: “I would advise all of them to run on repeal and replace.”

Plus crucial details remain lacking, such as how many of the 7.5m didn’t have insurance before, what is the demographic makeup, and how many have actually paid?

Then, late this summer we’ll begin to hear about premium increases and millions more having their policies canceled, just in time for the elections. 

Europe and Asia

The big story in Europe this week was Greece. For the first time in four years, the government was able to return to the long-term debt market, selling 3 billion euro of five-year bonds at a stupendously low yield, for Greece, of 4.95%, even better than the initial target of 5.25% to 5.50%. Demand for any kind of yield these days, around the world, is such that a nation with a debt to GDP ratio in excess of 175%, and one that is still in the midst of a 240 billion euro bailout, possibly in need of a third bailout, can sell longer-term debt below 5.00%.

And it’s not as if Greek politics are stable. The ruling party, New Democracy, polls at only 20%, second to opposition Syriza (marginally), with critical European Parliament elections coming up end of May that could expose anew just how shaky the government is. 

Plus a return to sustained growth is hardly a certainty, with unemployment remaining at 27% and nearly 60% among the volatile youth.

But to be fair, recent labor protests in Greece have been on the muted side (though a large car bomb did go off outside the Greek Central Bank offices the day of the bond offering...albeit with ample warning so the streets were cleared) and it seems the people are fatigued.

More broadly speaking, across the eurozone inflation, or lack thereof, is a big issue. The European Central Bank is expected to cut interest rates and/or initiate asset purchases that could come in the form of public and private debt, as ECB President Mario Draghi said he’ll take “unconventional measures if needed.”

Inflation at 0.5% in March for the eurozone may indeed require unconventional methods to prevent it from tumbling into euro-wide deflation territory and even a hawk such as Bundesbank President Jens Weidmann is now supporting in theory large-scale asset purchases, or quantitative easing. So you’ll see one more inflation data point before the ECB’s May meeting and that could be a critical one.

But back to the yield on the Greek five-year, the 10-year bonds of both Spain and Italy are trading with a yield of just 3.20%, or 60 basis points higher than U.S. government paper of the same duration. That’s insane. Yes, the ECB and Draghi have said they’ll do what it takes to keep the euro intact, but that doesn’t mean we all live in a risk-free world. Far from it.

Gideon Rachman / Financial Times

“ ‘Whatever it takes.’ Mario Draghi’s declaration that he would save the euro could well go down as the most effective three-word statement by a Roman since Julius Caesar’s veni, vidi, vici.

“The president of the European Central Bank’s statement, followed up with a portentous and vaguely threatening – ‘and believe me it will be enough’ – was made in July 2012. Almost two years later, Mr. Draghi’s intervention is widely regarded as the turning point in the euro crisis. Investors who were running screaming from the eurozone in the summer of 2012 are now rushing back in.

“But whatever the thundering herd of investors may think, it is too soon to declare that Mr. Draghi has won the war for the euro. The eurozone still faces deep underlying economic and political problems that are beyond the control of the president of the ECB and his colleagues.

“What Mr. Draghi has managed to do is to buy the euro some time. The borrowing costs of Spain, Italy and even Greece have fallen sharply – easing the pressure on their economies and government finances. But the underlying economic situation in many eurozone countries is still grim. And the political consequences of prolonged slumps are only just beginning to emerge.”

Rachman also notes that Europe is highly vulnerable to a further Ukraine shock.

“If Russian forces move into eastern Ukraine – and, unfortunately, the signs are mounting that this may be imminent – then the EU will be forced to impose tougher economic sanctions on Russia. The Russians can be expected to retaliate by using the most powerful weapon they have at their disposal: energy. Much higher energy prices would have a severe impact on Europe’s fragile economy. And a return to deep recession would almost certainly favor the radical fringes in Europe.”

Euro Bits

Industrial production for the month of February rose at a 4.8% annual rate in Germany, 2.8% in Spain, and 2.7% in the U.K.

The Irish government is forecasting growth of 2.6% this year and 3.5% in 2015, which may make further austerity cuts unnecessary after six vicious years. While cuts will probably still be in the next budget, hoped for tax cuts next year appear likely if the forecast is accurate. The government’s goal of cutting the deficit to 3% of GDP by end of 2015 remains unchanged.

Inflation, however, is exceedingly low, 0.2%, and thus the risk of deflation remains.

Italy’s Prime Minister Matteo Renzi said his cabinet approved a three-year budget plan and that the Italian economy will grow 0.8% this year, down from a previous 1.0% estimate but above the IMF’s new 0.6% forecast.

Renzi claimed the budget deficit will be just 2.6% of GDP despite slower growth, and there are questions how the new national plan will implement 26 billion euro in further austerity moves when the cuts need to be approved by a parliament that barely gives Renzi an edge.

A key is for tax cuts to go into effect within weeks so that workers get wage hikes before they go to the polls for the European parliament vote.

Finally, Hungarian Prime Minister Viktor Orban handily won a second term as his center-right party took 45% of the vote in parliamentary elections, or 133 of 199 seats. The center-left alliance had 25%, while far-right Jobbik took 21%, though it will have the second-largest number of seats, 23. Jobbik’s adoption of a softer image apparently helped.

Turning to China, the World Bank still expects the country to grow 7.6% in 2014, with a stronger second half, but when the government releases its official figure for the first quarter next week, most expect it to come in around 7.3%, below the 7.5% target, though this figure is massaged anyway so I’m thinking the government thinks, hey, if we say 7.3% that seems more legitimate (even if it’s really 6.0%).

There was a poor number this week that was grossly misinterpreted by many, that being exports for March which came in down 6.6% year-over-year when a gain was expected. But we are still comparing new data to grossly inflated figures from early 2013 when double invoicing was rampant. Give the Chinese government credit on this one. They are trying to address the ‘funny numbers’ issue and the decline seems real, however if you adjust for March 2013 fake data, exports probably rose a bit. Imports were down 11.3%, though here part of the reason was a decline in commodity prices.

Auto vehicle sales rose 8% in March vs. year ago levels. The target for the full year is 10%.

And then there is inflation. The March consumer price index rose just 2.4%, with the government’s target at 3.5%. Producer, or factory-gate, prices fell 2.3%, a 25th monthly decline. This does not speak well for domestic demand.

Premier Li Keqiang, who has been more visible than he was in his early days in office compared with President Xi Jinping, has given a number of speeches on the economy and government policy and he said this week that China “won’t adopt short-term and strong stimulus policies in response to temporary fluctuations in the economy. Instead we will focus more on healthy growth in the medium to long term and will make efforts to achieve sustainable and healthy development.”

Street Bytes

--The Dow Jones fell 2.4% on the week to 16027 and is now down 3.3% for the year. The S&P 500 lost 2.7%, while Nasdaq, down 3.1% to close below 4000 (3999) for the first time since last November, had its worst week since June 2012 and is now down 8.2% since hitting a 14-year high on March 5.

--U.S. Treasury Yields

6-mo. 0.05%  2-yr. 0.36% 10-yr. 2.62%   30-yr. 3.48%

Producer prices for the month of March were hotter than expected, up 0.5%, up 0.6% ex-food and energy, perhaps a sign of increasing demand. Both were up 1.4% year-over-year.

--About $275 billion in market value has been taken out of the 14 biggest publicly traded Internet companies with the rout in the technology sector. The 14 – nine in the U.S., five in Asia – have lost a combined fifth of their value.

--Five-year annualized returns for various fund categories thru March 31.

Large-Cap Growth...19.8%
Large-Cap Value...19.8% [yes, the same]

Small-Cap Growth...24.7%
Small-Cap Value...25.1%

Health/Biotechnology...25.3%
Science & Technology...22.0%

International Large-Cap Growth...15.2%
Emerging Markets...14.4%

S&P 500 Index...20.5%

Short-Intermediate U.S. Govt. ...2.0%
High Yield...15.9%

Money Market...0.03%

Reversion to the mean from here, anyone?

Source: Barron’s / Lipper

--A computer bug, “Heartbleed,” became known this week and all are in agreement it is the most serious to come along, allowing cyber criminals the ability to access anything stored in a computer’s short-term memory, from user passwords to intellectual property.

It is not known if hackers exploited the vulnerability before it was discovered by a group of researchers but since it was announced on Monday, there is little doubt cyber criminals were seeking those Web sites that were still vulnerable because they haven’t updated their software. 

Cisco Systems and Juniper Networks confirmed on Thursday that some of its router products used to create virtual private networks relied on the infected software.

The FDIC said there have been no reports of the vulnerability being exploited in the banking sector, probably because they use their own secure computer language for their online banking systems.

But the likes of Netflix, Google, Facebook and Yahoo were at risk initially, which is why they were all urging their users to immediately change their passwords as they rushed to update their systems. Amazon was also impacted. Canada’s tax collection agency shut down its site amid fears it had the bug.

Supposedly, the larger sites, given an early warning that wasn’t supposed to go public, fixed the problem quickly. But the router issue with the likes of Cisco and Juniper could be different, primarily because it involves businesses that might not check the status of their equipment.

One man is responsible for the chaos. Software developer Robin Seggelmann, who admitted to the Sydney Morning Herald that he was working on security software most of the Internet uses when in one of the new features he was submitting to fix bugs, “I missed validating a variable containing a length.”

A reviewer “apparently also didn’t notice the missing validation,” Seggelmann told the paper, “so the error made its way from the development branch into the released version.”

Seggelmann is a 31-year-old living in Munster, Germany, who is a contributor to the Internet Engineering Task Force (IETF), a not-for-profit global group whose mission is to make the Internet work better.

The hole in the Internet was supposed to be fixed quietly and wasn’t to be made public until Wednesday, after major sites were told how to fix it the bug. But after it was feared the issue had been leaked to hackers, the information was made public Monday.

The problem this weekend is no one knows how much damage has been done and how widely the bug was exploited.

--The government released the most detailed data on the 880,000 doctors and other health care providers who take Medicare patients in Medicare’s 50-year history and we learned that in 2012, 100 doctors received a total of $610 million, including numero uno, a Florida ophthalmologist who was paid $21 million (another report said $26 million) by Medicare, while dozens of others, including cancer specialists, received more than $4 million each that year. No personal information on patients was disclosed.

While regular office visits make up the bulk of the cost, of the $77 billion paid out, $1 billion is for a single treatment for age-related macular degeneration, the leading cause of severe vision loss in the elderly, for which the primary treatment is the drug Lucentis.

Overall, 2% of healthcare providers accounted for 23% of the Medicare fees, the data showed, which includes doctor visits, lab tests and other treatments typically provided outside a hospital.

It does need to be pointed out that the billings could fall under one physician’s name but include the entire practice. As AMA President Dr. Ardis Dee Hoven said, “How does a physician or a practice get their reputation back?” Very true, but no doubt there are major abuses in the system.

--Shares in JPMorgan Chase fell hard on Friday as the bank came in short of first-quarter profit and revenue expectations. JPM reported it had its worst start to a year in fixed income trading since the depths of the financial crisis. All revenues from trading fixed income, currencies and commodities fell 21% in the quarter compared with the same period in 2013. Earnings per share declined to $1.28 vs. $1.59 (and compared with analysts’ estimates of $1.40).

[On the other hand, Wells Fargo & Co. beat on both EPS and revenues.]

--General Motors announced it will take a $1.3 billion write-down, not the $750 million the automaker originally set aside, to cover the cost of repairs on its ignition switch recall, while suspending two engineers as an internal investigation under new CEO Mary Barra continues. GM has known about the issue for more than a decade. It also told the National Highway Traffic Safety it will replace the ignition lock cylinders on all 2.6 million cars it recalled (2.2 million of which are in the United States). Additionally, GM admitted it knows of a new ignition issue involving “several hundred complaints of keys coming out of ignitions.”

GM said it is just beginning to get replacement parts to dealers and it may not be until year end before all the vehicles are repaired.

Also, on Friday it was revealed that then head of product development, Mary Barra, was informed in 2011 of a widening government investigation of steering problems with 2004-2007 Saturn Ion sedans, at a time when GM was fighting a recall of the cars, according to a document released by the House Energy and Commerce committee. But this doesn’t link Barra to earlier knowledge of the ignition recall. Nonetheless, it raises new questions.

--Toyota is recalling 6.4 million vehicles globally over a number of different issues, including one where the airbag may not deploy in a crash. Another involved an engine starter problem that could result in a fire. This is Toyota’s fifth major recall in recent months and involves 27 different models. Earlier this year, the auto company settled with U.S. regulators over prior safety issues for $1.2 billion.

--Shares in Herbalife fell 14% on Friday as the Department of Justice and the FBI have reportedly launched a criminal probe into the company and allegations it is a pyramid scheme. Herbalife has not been accused of any wrongdoing and the inquiry may not lead to any charges. But the company is already facing a number of other civil inquiries from multiple government agencies. Neither the U.S. attorney’s office nor the FBI commented.

--Sony Corp. issued a warning over the batteries used in its newest Vaio personal computers which could overheat and catch fire. Sony is asking customers to stop using its Vaio Fit 11A laptop as soon as possible. The batteries are made by Panasonic Corp., as Sony had previously unveiled plans to sell off its PC business and the impacted laptop is the final version in the series.

--Alcoa Inc. reported sales fell 6.5% in the first quarter amid oversupply issues that led to production being cut in Brazil, while closing plants in Australia and New York. The global glut in aluminum led to price cuts of 8%. On Friday, Fitch downgraded Alcoa’s credit rating to junk status.

--Bank of America agreed to pay $783 million in fines and refunds to settle accusations it misled customers on identity theft protection add-on services affecting nearly three million customers. The U.S. Consumer Financial Protection Bureau said the bank had been “unfairly billing consumers” and “using deceptive marketing and sales practices.”

--The unemployment rate in Australia fell to 5.8% after hitting a decade-high of 6.1% last month. 

--The World Bank cut its growth estimate for Thailand to 3% in 2014 from a previous forecast of 4.5%, owing mostly to ongoing political unrest, which is impacting tourism and investor confidence.

--The Illinois legislature passed a plan to overhaul Chicago’s pension system for municipal employees and laborers, which are 37.6% and 56.3% funded, part of a combined $27 billion unfunded liability for the city and its school district, but Moody’s, which downgraded the city last month on pension concerns, said the bill fails to deal with the nearly $10 billion unfunded liability of the police and fire systems, which are currently funded 31.3% and 24.7%, respectively.

Chicago Mayor Rahm Emanuel said the reform would be funded in part by a property tax increase, but fellow Democrat, Gov. Pat Quinn, who faces a tough re-election, blasted the plan.

--Family Dollar Stores, the discount retailer, said it will close 370 underperforming stores in response to falling sales, down 6% year-over-year in fiscal second quarter, which ended March 1. CEO Howard Levine said in a statement: “The 2013 holiday season was challenged by a more promotional competitive environment and a more financially constrained consumer.” But Family Dollar is also adding 525 stores this year, with a further 350 to 400 planned for fiscal 2015.

--SAC Capital Advisers, the giant hedge fund run by Steven A. Cohen, was ordered to pay a $900-million fine in its insider-trading case, part of a $1.8-billion deal that prosecutors say includes the largest criminal penalty ever imposed in an insider-trading case. U.S. Atty. Preet Bharara said, “Today marks the day of reckoning for a fund that was riddled with criminal conduct.” Thus far, eight employees have been convicted of insider trading.

Cohen has not been charged criminally but still faces a civil suit brought against him by the SEC. He has had to close his investment advisory business but can continue to trade his own fortune.

--Swiss cement maker Holcim acquired France’s Lafarge to create the world’s biggest cement make with combined sales of $44 billion.

--Online gaming in New Jersey generated only $27 million between the launch in November and end of February, vs. the goal of $1 billion set by Gov. Chris Christie for July. The administration has been counting on online tax revenue of $180 million for this fiscal year. Many supporters blame a poor advertising campaign.

Meanwhile, Atlantic City’s 12 casinos (now 11, one closed in 2013) reported their gross operating profits declined by nearly 35% last year.

--A.C. will continue to suffer as the casino industry in general becomes further oversaturated. As a piece in BloombergBusinessweek pointed out, 39 states have casino gambling of some kind today, with Vegas-style resorts on the way in the likes of Pennsylvania, Massachusetts, Maryland and upstate New York.

Casino revenue fell in February for the sixth consecutive month in the four largest Midwest states: Indiana, Missouri, Illinois, and Michigan. Sales are down in Las Vegas thus far in 2014.

--Beef prices hit an all-time high as extreme weather has thinned cattle herds to levels last seen in 1951, when there were far fewer people to feed in the U.S. USDA choice-grade beef hit a record $5.28 a pound in February, up from $4.91 a year earlier. As recently as 2008, the same grade cost $3.97. Needless to say, these increases are finding their way into the fast-food industry, for one. [David Pierson and Tiffany Hsu / Los Angeles Times]

--It was really pathetic that Mozilla Corp. CEO Brendan Eich was forced to resign after being criticized for donating $1,000 to an anti-gay marriage group in 2008. The issue is now creating a backlash against seeming hypocrisy among those who otherwise advocate unrestricted freedom of expression.

--I forgot to note last time that Goldman Sachs Group CEO Lloyd Blankfein received $23 million in salary and bonus for 2013, according to a filing. Our microphones then caught a lunch at the Four Seasons where Mrs. Blankfein gathered with her friends.

“I’m so proud of my Lloyd!” she said.

“You seem to say that every year,” said Mrs. Dimon. “My Jamie had issues Lloyd didn’t have to face.”

“Ladies, are you ready to order?” asked waiter Charles.

“I’ll have the Chatham Cod.”

“But I thought you always got the Wagyu Hanger Steak?” Mrs. Dimon said to Mrs. Blankfein.   “Those truffled parsnips are to die for!”

Stay tuned for another episode of “Wall Street Wives Club” next year around this time.

--Workday, the high-flying company specializing in enterprise cloud applications for human resources and finances, has had a tough time recently in terms of its share price, but I couldn’t help but notice its logo being worn by golfers Matt Kuchar and Brandt Snedeker, Workday’s first foray in the sponsorship game, best I know. They picked two winners.

--I really don’t get Stephen Colbert being tabbed to replace David Letterman. Then again, since he’s retiring the faux conservative character he currently portrays, who knows? What does seem clear is that the show will stay in New York.

Foreign Affairs

Ukraine: After a lull in activity as Russia consolidated its gains in annexing Crimea, last weekend pro-Russian forces/separatists/paid goons took over government buildings in the eastern Ukraine cities of Luhansk, Donetsk and Kharkiv. In one, Luhansk, separatists took 56 hostages at the security services complex but later released them, though last I saw still controlled the building. In Kharkiv, Ukrainian special forces regained control after the goons took over a facility.

As the protests spread, Ukraine’s Prime Minister Arseny Yatseniuk said, “An anti-Ukrainian plan is being put into operation...under which foreign troops will cross the border and seize the territory of the country. We will not allow this.” [Reuters]

Andrei Illarionov, a former aide of President Putin and now in the opposition, said a Russian invasion was inevitable because popular support for accession to Russia in southeastern Ukraine was lacking. [Irish Independent]

NATO Secretary-General Anders Fogh Rasmussen said, “I urge Russia to step back and not escalate the situation in east Ukraine. If Russia were to intervene further...it would be an historic mistake. It would have grave consequences for our relationship with Russia and it would further isolate Russia internationally.”

The Russian foreign ministry warned of civil war if Ukraine cracked down on pro-Russia sympathizers.

Secretary of State John Kerry and his Russian counterpart, Foreign Minister Sergei Lavrov, announced they would hold a meeting next week that included the European Union and representatives of the new Ukrainian government in what was viewed as a de-escalation and demobilization, though Lavrov was insisting on constitutional reforms that Kiev would never approve, including “enhanced decentralization,” which would be a de facto annexation of the south and east; all of this as the May 25 presidential election draws near.

Tensions in the area settled down a bit by week’s end and it was interesting there was little public support for the separatist moves. In one survey, for example, only 26.5% of Donetsk residents supported pro-Russian allies, with just 4% wanting the region to breakaway. 

Though most people in Ukraine’s eastern regions are Russian-speaking, ethnic Ukrainians make up 57% in Donetsk, 71% in Kharkiv and 58% in the Luhansk region, according to a 2001 census, as opposed to just 24% in Crimea.

That said, Russian Prime Minister Medvedev said Ukraine’s debt to Russia was $16 billion, while Gazprom said Kiev owed it $2.2 billion for supplies of natural gas.

President Putin warned European leaders on Thursday that Russia would cut natural gas supplies to Ukraine if it did not pay its bills and said this could impact deliveries to Western Europe as well. Putin made it clear his patience was running thin.

In a letter sent to European leaders, Putin said, “(Gazprom) is compelled to switch over to advance payment for gas deliveries and in the event of further violation of the conditions of payment will completely or partially cease gas deliveries.

“Undoubtedly, this is an extreme measure.” [Reuters]

Recall, Russia meets 30% of Europe’s natural gas demand and half of this goes through Ukraine.

At week’s end it was clear Russia was not de-escalating in the least. German Chancellor Angela Merkel reiterated “Ukraine has a right to its own development path. We demand this. Ukraine must decide its own future.”

Russia’s Foreign Ministry office said, “Russia has stated many times that it is not carrying out any unusual or unplanned activity on its territory near the border with Ukraine that would be of military significance.”

But on Thursday, NATO released satellite photographs showing Russia had a full deployment of at least 40,000 near the border, complete with fighter jets and tanks.

Bottom line: Moscow wants to destabilize the May 25 vote...and then some.

Editorial / Washington Post

“For nearly three weeks after announcing the annexation of Crimea, Vladimir Putin held off on further dismemberment of Ukraine. No doubt he was measuring the West’s reaction to the first forcible change of borders in Europe since 1945. Apparently, he wasn’t impressed – and given U.S. and European inertia, why would he have been?

“The vague warnings from President Obama and the limited sanctions imposed by the United States and European Union in late March were followed by more than two weeks of inactivity – apart from U.S.-Russian discussions from which Ukrainians were excluded. So on Sunday, another Russian-backed operation that looked a lot like the beginning of the Crimea invasion got underway in three eastern Ukrainian cities.

“In Kharkiv, Luhansk and Donetsk, rent-a-mobs seized government buildings, declared independence or plans for referendums and appealed for Moscow’s protection.... At a congressional hearing, Secretary of State John F. Kerry accused Russia of an ‘illegal and illegitimate effort to destabilize a sovereign state and create a contrived crisis with paid operatives.’

“Mr. Kerry threatened further sanctions, which administration officials said may be announced in the coming days. If so, they will be welcome but overdue....

“It’s not too late to prevent Russia from destroying Ukraine, but this time the West must act quickly. A presidential election scheduled for May 25 is vital to stabilizing the country, by creating a new government with a clear mandate.... The provocations in eastern Ukraine, if they do not presage an invasion by the Russian troops still massed on the border, are likely the beginning of an effort to disrupt the vote and make the country ungovernable.”

Editorial / Wall Street Journal

“John Kerry told the Senate Foreign Relations Committee on Tuesday that ‘Russian provocateurs’ had infiltrated eastern Ukraine in order to foment ‘an illegal and illegitimate effort to destabilize a sovereign state and create a contrived crisis.’ Also on Tuesday, the Pentagon announced steep cuts to U.S. nuclear forces, four years ahead of schedule, in accordance with the 2010 New Start treaty with Russia.

“At this point in Barack Obama’s Presidency we should be used to the mental whiplash. But we still feel concussed.

“So let’s slow down and follow the thread. Russia has seized Crimea and has 50,000 troops as a potential invasion force on the border with eastern Ukraine. The Kremlin is also abrogating the 1994 Budapest Memorandum, in which Kiev agreed to give up its nuclear arsenal – at the time the third largest in the world – in exchange for guarantees of its territorial integrity from Russia, the U.S. and U.K.....

“The Kremlin is also violating the 1987 intermediate-range Nuclear Forces Treaty, which bans the testing, production and possession of nuclear missiles with a range between 310 and 3,400 miles. Russia has tested at least three missiles – the R-500 cruise missile, the RS-26 ballistic missile and the Iskander-M semi-ballistic missile – that run afoul of the proscribed range limits.

“The Obama Administration has suspected for years that Vladimir Putin was violating the INF Treaty, which supporters hail as the triumph of arms control....

“Which brings us to the Administration’s announcement on cutting U.S. nuclear forces to levels specified by New Start four years before the treaty’s 2018 compliance deadline. The news comes a few days after Hans Kristensen of the Federation of American Scientists reported that ‘Russia has increased its counted deployed strategic nuclear forces over the past six months.’ Yet at the same time America’s stockpile of warheads and launchers has declined.

“Mr. Obama has dismissed Russia as a regional power, but he is maneuvering the U.S. closer to a position of absolute nuclear inferiority to Russia. The imbalance becomes even worse when one counts tactical nuclear weapons, where Russia has a four-to-one numerical advantage over the U.S. ....

“Nuclear arsenals aside, the timing of Mr. Obama’s nuclear dismantling couldn’t be worse as Mr. Putin contemplates his next moves in Ukraine and sizes up a possible Western response. Someone said recently that Mr. Putin plays chess while Mr. Obama plays checkers, but that’s unfair to the noble game of checkers.”

David B. Rivkin Jr. and Lee A. Casey / Wall Street Journal

“Moscow’s use of troops that have removed their Russian insignia, coupled with explicit denials that its military forces were even engaged in operations in Crimea, violates the Geneva Conventions. The failure to promptly repatriate captured Ukrainian troops and equipment after the invasion of Crimea was complete, and ended, and Russia’s attempt to coerce Ukrainian soldiers to join the Russian military, are also major violations.

“The laws of war are already under assault from terrorist organizations, whose fighters routinely operate out of uniform to blend into the civilian population. Having a major power like Russia engage in similar conduct further erodes respect for these vital norms – and encourages such rogue behavior by other governments and by rebel movements.

“Moscow’s disregard of its treaty commitments has also gravely undermined the cause of nuclear nonproliferation. [Ed. Again, the 1994 Budapest Memorandum.]....

“Now Russia has demonstrated that military force in general, and nuclear weapons in particular, may well remain the only reliable means of protection against hostile actions by larger, more powerful states. If the Russian takeover of Crimea continues to meet with only a tepid international response, the message is clear: Security commitments among states are worthless. This development is certain to have profoundly destabilizing consequences world-wide.”

Bret Stephens / Wall Street Journal

“(Mr. Putin) should move quickly. Russia’s chokehold on Europe’s energy supplies won’t last forever. The easy Fed money that jacks up the price of commodities won’t last forever. Even Mr. Obama’s presidency won’t last forever. On present course, Russia will get weaker, which leaves Mr. Putin with two options: liberalize or conquer. The first option would ultimately require him to step down from power and put him at risk of legal prosecution. The second option gives him the chance to re-legitimize his regime by whipping Russians into a nationalist frenzy and stay in power till he dies in bed.

“If you were Mr. Putin, which option would you choose?

“That’s what makes the White House’s repeated offers of an ‘off-ramp’ so silly. For the Kremlin, foreign conquest is the off-ramp. And if a Western off-ramp is offered with every fresh Russian insult and assault, why take the first one? Let’s take this metaphor to its logical conclusion: If the Obama diplomatic freeway has an off-ramp every few miles, it means Mr. Putin is probably betting he can drive all the way to the state line before he pulls over to fill the tank.

“Which, in his case, is a T-72.

“Mr. Obama has a habit of underestimating his foes. He thought al Qaeda was on the run. He thought Bashar Assad would be gone by now. He thinks Iran will abandon its nuclear programs in exchange for sanctions relief. He thinks of Vladimir Putin as the kid with the bored expression, slouching in the back of the classroom.

“News for the law professor. That kid is smarter than you are. He’s bored because you bore him. He’s about to eat your lunch.”

Israel: The latest round of peace talks between Israeli and Palestinian negotiators broke down after Israel delayed, then canceled, the fourth phase of a Palestinian prisoner release after the Palestinian Authority applied to the United Nations for membership in more than a dozen international agencies. As I noted last time, the Palestinians have long been warned not to take this step.

But Secretary of State Kerry appeared to blame Israel, telling the U.S. Senate Foreign Relations Committee, in describing the negotiations: “A day went by. Day two went by. Day three went by. And then in the afternoon, when they were about to maybe get there, 700 settlement units were announced in Jerusalem and, poof, that was sort of the moment,” he said.

A State Department spokesman immediately tried to backtrack, saying Kerry was clear both sides had taken unhelpful steps.

But Israeli Economy Minster Naftali Bennett quickly responded, “Israel will never apologize for building in Jerusalem.”

Bennett then urged Prime Minister Benjamin Netanyahu to annex some 60% of the West Bank in response to Palestinians stopping talks and turning to the U.N.

“It is clear that the diplomatic process has run its course and that we are entering a new era,” Bennett wrote Netanyahu. “We have been hitting our heads against the wall of negotiations over and over again for years and we kept getting surprised when the wall did not break. The time has come for new thinking.” [Jerusalem Post]

But as a reflection of the problems Netanyahu faces in keeping his fragile coalition together, Finance Minister Yair Lapid vowed his centrist Yesh Atid party would leave if Netanyahu were responsible for a breakdown in the peace process. Lapid supports freezing settlement growth.

Netanyahu ordered all high-level contacts between Israeli ministers and their Palestinian counterparts halted, except for those related to security.

Thursday, Israel imposed further economic sanctions against the Palestinians and will not transfer tax revenue it collects on behalf of the Palestinian Authority. Instead it will use the money to cover Palestinian debts to Israel, a tactic employed many times before and one the PA fears as much as any. It comes out to about $100 million per month. The Palestinians, in turn, have debts of about $150 million to Israel’s electric company.

Norman Podhoretz / Wall Street Journal

“Let me leave aside the Palestinians who live in Israel as Israeli citizens and who enjoy the same political rights as Israeli Jews (which is far more than can be said of Palestinians who live in any Arab country), and let me concentrate on those living under Israeli occupation on the West Bank.

“Well, to judge by the most significant measure and applying it only to two instances of what is going on at this very moment: In Syria, untold thousands of fellow Arabs are starving, while according to the United Nations official on the scene in South Sudan, 3.7 million people, amounting to one-third of the population, are now facing imminent death by starvation.

“And the Palestinians? True, when they wish to go from the West Bank into Israel proper, they are forced to stop at checkpoints and subjected to searches for suicide vests or other weapons in the terrorist arsenal. Once, when she was secretary of state, Condoleezza Rice bemoaned the great inconvenience and humiliation inflicted by such things on the poor Palestinians. Yet she had nothing to say about Palestinians dying of starvation on the West Bank, for the simple reason that there were none to be found.

“Nor did anyone starve to death in Gaza when it too was under Israeli occupation. And despite propaganda to the contrary, neither is anyone facing the same fate in Gaza today because of the blockade the Israelis have set up to prevent clandestine shipments of arms intended for use against them....

“Meanwhile little or nothing of the billions in aid being poured into Gaza – some of it from wealthy American Jewish donors – went to improving the living conditions of the general populace. Which did not prevent a majority of those ordinary Palestinians from supporting Hamas, under whose leadership this order of priorities was more faithfully followed than it was under Fatah, its slightly less militant rival....

“Another thing that never changes: When John Kerry testified on Capitol Hill on Tuesday, it was the Israelis he blamed for this latest diplomatic fiasco.”

John Podhoretz / New York Post

“John Kerry, our secretary of state, is very angry with Israel. ‘Poof,’ he said on Tuesday – describing how Israel destroyed his ‘peace process’ the other week. Just like that.

“The first thing to say is that if a peace process can go ‘poof,’ it can’t have been much of a peace process. Any serious discussion in which two parties are motivated to reach a negotiated arrangement wouldn’t be susceptible to going up in smoke all at once.

“That would indicate it never had any form or substance to begin with.

“And how on earth was it Israel who made Kerry’s fantasy deal go ‘poof’? After all, it sure looked like the key moment that tossed Kerry’s ‘peace process’ onto the dungheap of history was last week’s Palestinian decision to seek membership as a sovereign country in international organizations – a move that’s always been universally seen as complete rejection of negotiating a ‘two-state solution.’

“Not according to Kerry, who apparently sees it as a justifiable response by the Palestinians to unconscionable Israeli actions.

“In Kerry’s telling, the first death blow came when the Israeli government refused to release 26 murderous terrorists from its jails.

“He neglected to mention, of course, that Israel had already freed 78 terrorists as part of the Kerry ‘peace process’ – including a vicious monster who bashed in a 72-year-old Holocaust survivor’s head and is now living on a $100,000 stipend from the Palestinian Authority....

“(What Kerry wants) is a Nobel Peace Prize he’s never going to get.

“That’s why he started this ludicrous process in the first place – to secure himself a consolation trophy after his humiliating defeat at the hands of George W. Bush in the 2004 presidential race. Now, here is John Kerry’s monument: By whoring after a deal he couldn’t get to satisfy his own wounded pride and fulfill his own vainglorious wants, he has been exposed for all to see as a deceitful, pompous, self-righteous and vindictive fool – not to mention a world-historical two-time loser.”

Syria: The White House and Pentagon are apparently at odds on the level of support, especially of the military kind, to lend to the rebel forces, with the Pentagon pushing back on even minimal moves Secretary Kerry and others propose. While both approve of training rebel forces, the Pentagon is concerned Assad will push back on his cooperation in removing his chemical weapons stockpile, which is kind of a joke (see below).

Gen. Martin Dempsey, Chairman of the Joint Chiefs of Staff, is the main opponent of military action. As reported by the Wall Street Journal, Dempsey is afraid “even a limited military operation could embroil the U.S. in a broader regional conflict than advocates realize.”

I want to scream. By some accounts the death toll is up to 160,000, with 9 million+ displaced. What the heck does Dempsey mean?

I was watching CNN’s Fareed Zakaria this week and he said “The idea that if we had invaded Syria” everything would have been better is wrong.

But that’s the same freakin’ straw man such opponents have been echoing since the war started three years ago!

No one has been calling for an invasion, not even Sen. John McCain. I advocated a no-fly zone back in 2012 to protect civilians. That’s not an invasion. And if Gen. Dempsey says an action like that would have led to a broader regional conflict, for starters, he’s wrong. But look what we have today? One million refugees in Lebanon that are destabilizing that country. Another million or so in Jordan, threatening a critical ally there. An absolute disaster in Iraq.

So what is Dempsey talking about? 

And as to that new saw, “Americans are tired,” spare me. That’s what leadership is about. As in presidential leadership.

But as I wrote in 2012, it’s too late. We lost. We lost an entire generation of Syrians, who will despise the United States. That will one day rebound on us.

Meanwhile, Israeli security sources said the Assad regime used a non-lethal chemical weapon on March 27 on the outskirts of Damascus.

Benny Avni / New York Post

“Reports of a chemical attack in Syria last month should raise enough alarm bells in Washington, where a re-evaluation of America’s policy (or lack thereof) on the horrific civil war is much needed.

“Rebel groups say the regime of President Bashar al Assad attacked them with nonlethal chemical agents late last month and possibly before. If true, such reports put a major dent in a rare ‘success’ for U.S. policy in the world’s deadliest active war.

“That success, of course, is Assad’s ongoing voluntary handover of his chem arsenal.

“The rebel claims got a major boost this week from a top Israeli defense official, who confirmed at least one March 27 use of a ‘neutralizing chemical weapon’ against rebels....

“The weapon ‘neutralizes but doesn’t kill,’ the official told reporters. Rebels described symptoms including ‘hallucination, accelerated pulse, trouble breathing and, in some cases, suffocation.’....

“True: Syria can say it didn’t declare the ‘hallucinogenic weapon’ because, being non-lethal, it doesn’t fit the classic definition of a chemical weapon. Then again, a few tweaks can quickly transform an agent that’s already a borderline killer into a deadly one.

“Anyway, this highlights the fact that the assessment that ’50 percent’ of all Syrian chemicals have been eliminated relies on the regime’s accounting. What does ‘half’ mean if the only credible report of the ‘whole’ comes from Damascus itself?”

Finally, a Dutch Jesuit priest, Frans van der Lugt, was shot to death in Homs. Van der Lugt, 75, had refused to leave the besieged city in solidarity with a rebel-held area. He also sought to raise awareness of the suffering of civilians.

But on Monday, he was clearly targeted by a regime gunman who walked into the garden at the monastery and shot him in the head.

Said a friend, “We learned humanity from him, and he used to love Muslims as much as he loves Christians,” Albert Abdul-Massih told the Daily Star. 

The Vatican praised Van der Lugt as a “man of peace, who showed great courage in remaining loyal to the Syrian people despite an extremely risky and difficult situation.”

Lebanon: The head of the Maronite Church suggested that Syrian refugees in Lebanon should be housed in camps inside Syria, reflecting the growing frustration within Lebanon, a nation of just 4.5 million that’s been overrun with one million refugees. Many of the Syrians are now taking Lebanese jobs and tensions are rising rapidly.

In a separate refugee issue, at least eight were killed in fighting between Palestinian factions in a refugee camp in the south of the country. Lebanon has 12 Palestinian camps, home to 200,000. 

Iran: The P5+1 nations (five permanent U.N. Security Council members plus Germany) and Iran completed what officials called “substantive and detailed discussions” on elements of a possible long-range nuclear deal, with the parties meeting again on May 13. Iranian Deputy Foreign Minister Araqchi said his country’s negotiators had “narrowed” their differences. There were reports Iran was prepared to make some concessions on its heavy-water reactor at Arak, but this is trivial compared to the broader topic of enriching uranium and Iran’s ongoing ballistic missile program, which the talks weren’t intended to address!

The goal is to finish a long-term comprehensive agreement by July 20. A draft could be spelled out next month. It’s possible, though, that the parties will just agree to continue the talks another six months while Iran plays its brilliant stall game.

But even Sec. Kerry said this week that Iran’s “breakout” period, the time needed to develop an atomic weapon, was as little as two months.

David H. Petraeus and Vance Serchuk / Washington Post

“It is possible that a nuclear deal would pave the way to a broader détente in Iran’s relations with the United States and its neighbors. It is, however, more plausible that removing sanctions would strengthen Tehran’s ability to project malign influence in its near-abroad, including Syria, Lebanon, Iraq, the Arabian peninsula and the Palestinian territories.

“Rather than marking the end of our long struggle with Iran, therefore, a successful nuclear deal could result in the United States and our partners in the Middle East facing a better-resourced and, in some respects, more dangerous adversary.

“This does not mean we should abandon diplomacy with Tehran....

“But we need to recognize there are genuine trade-offs involved in even the best possible nuclear deal....

“There should also be a clear plan for immediate re-imposition of crippling sanctions in the event of inadequate Iranian implementation of an agreement.

“All too often in U.S. foreign policy, we set a strategic objective and pursue it doggedly – only to be insufficiently prepared for the consequences when we achieve our goal. While it remains uncertain whether a worthwhile nuclear agreement with Iran is attainable, the time for thinking through and preparing for its implications is now.”

Friday, the White House refused a visa to Iran’s nomination for UN ambassador, Hamid Aboutalebi, who was linked to the student group that took dozens of Americans hostage in 1979.   Both the House and Senate voted in favor of a bill barring Aboutalebi from the country.

Libya: Rebel forces have agreed to partially lift their oil blockade in a deal with the government that would reopen two ports (two others later) that could increase Libya’s oil exports by about 200,000 barrels per day; desperately needed cash.

China: It’s a dicey time, with the U.S. and the West facing off against Russia, so what lessons will China learn?

“On one hand, Russia’s strong-arm tactics and meddling in Ukraine are at odds with China’s long-standing commitment to the inviolability of state sovereignty,” said Benjamin Herscovitch, a research fellow with Australia’s Centre for Independent Studies. “On the other hand, Moscow’s disregard for Washington’s denunciations pleases Beijing.”

By the way, China’s first aircraft carrier was made in Ukraine and Ukrainian companies help maintain the engines of Chinese fighter jets. [South China Morning Post]

So this week U.S. Defense Secretary Chuck Hagel went to China where he warned officials there that China does not have the right to unilaterally establish an air defense zone over disputed islands as it did last year without consultation.

Hagel also made it clear the United States would protect Japan, the Philippines and other allies currently locked in dispute with China over various territories.

Hagel’s counterpart, General Chang, said China prefers to resolve disputes diplomatically, but is always ready to respond militarily to threats, adding the Philippines illegally occupies some of China’s islands and reefs in the South China Sea.

Separately, the Chinese military is being accused of continuing to hack western companies despite denying last year’s accusations to this effect.

Mandiant, the U.S. cyber security company that first exposed China’s hacking campaign, said at first activity dropped following its report last year, but it seems the hackers simply changed their IP addresses, which help locate them, and now were back to their old ways, going after the same targets and seeking to gain access to intellectual property, research and development. [Financial Times]

And in yet another example of the mammoth pollution issue, residents in the northwestern Chinese city of Lanzhou “swarmed to supermarkets and cleared bottled water off the shelves on Friday after local authorities warned the city’s drinking water contained ‘excessive’ levels of a toxic chemical, state media reported.”

The chemical is benzene, at levels 20 times the national safety limit. [South China Morning Post]

The above pollution issue was days after an op-ed in the New York Times by Chinese novelist Sheng Keyi, who wrote a piece on “China’s Poisonous Waterways.” As in “More than 50% of China’s rivers have disappeared altogether, and few of the surviving waterways are not completely polluted. Some 280 million Chinese people drink unsafe water, according to the Ministry of Environmental Protection. Nearly half of the country’s rivers and lakes carry water that is unfit even for human contact.

“And China’s cancer mortality rate has soared, climbing 80% in the last 30 years.”

Russia: On top of the Ukraine situation, the crackdown inside Russia continues as this week the Justice Ministry ordered the Russian branch of American Councils, a U.S.-based nonprofit organization (NGO) that administers student exchanges and other educational programs, to immediately cease operations as part of the Kremlin’s ongoing operation to embarrass the U.S. and other foreign governments.

Russia also pulled Voice of America radio off the air by not renewing the U.S.-funded station’s contract, with a senior official calling VOA broadcasts “spam.”

The station began broadcasting in Russia in 1947, but the radio frequency it has used was yanked.

Dmitry Kiselyov, the Putin butt-boy and veteran journalist who was recently named head of the news agency that took over RIA Novosti and was one of the first upon whom the European Union imposed visa and financial sanctions following the annexation of Crimea, notified the U.S. agency that controls Voice of America of the move.

“I view Voice of America and Radio Liberty as spam on our airwaves,” he was quoted as saying.

The U.S. Embassy issued a statement saying it was “disturbed by the latest Russian effort to decrease space for independent and free media in this country.”

The embassy statement added: “In the last year, the Russian government has passed laws imposing unprecedented censorship and restrictions on media. ...It turned the respected news wire service RIA Novosti into a propaganda service...and forced leadership changes at several media outlets simply because those outlets dared to challenge the Kremlin’s extremist policies.” [Moscow Times]

Afghanistan: It would appear the two front-runners in the presidential election were Ashraf Ghani, a former World Bank executive, and Abdullah Abdullah, a former foreign minister. Both claim they scored more than 50% and would thus win outright without a runoff, but it’s not clear when a final tally will be announced. [It was to begin dribbling out this weekend.]

North Korea: One of South Korea’s leading newspapers reported that Kim Jong Un killed or imprisoned 11 high-ranking officials associated with his recently-executed uncle, but an anonymous source to The Chosun Ilbo reported that the deputy public security minister was “executed by flamethrower.” [Washington Post]

Now this might not be true...but then it could be.

India: A five-week election process is underway and in the end, Narendra Modi will be the new leader of India as his Bharatiya Janata Party leads the ruling Congress Party in the polls by as much as 3 to 1. Modi, a highly charismatic figure, promises big change and he has a track record on the economic front. As chief minister of Gujarat state, Modi oversaw growth of 10% a year over the past decade. The Indian stock market has been rallying in anticipation with a wave of foreign investment.

But he was pilloried for his failure to act after anti-Muslim riots in Gujarat in 2002, which killed more than 1,000 people. His exploitation of an anti-Muslim feeling in an election campaign led the U.S. State Department to deny him a visa.

But Modi says he has abandoned anti-Muslim rhetoric – “My real thought is toilets first, temples later.”

As the Washington Post points out, Modi has an autocratic style and a record of hostility toward journalists.

Modi and his party also got in hot water this week when a party manifesto promised to “study in detail India’s nuclear doctrine, and revise and update it,” which led some to believe India was abandoning its no-first-use nuclear-weapons doctrine. Party officials sought to reassure the outside world, and Pakistan, this was not the case.

West Africa: The Ebola virus is now threatening every country in the region, according to the World Health Organization, which announced emergency training for 70 people who would track people in the Guinean capital Conakry who have had close contact with Ebola patients. Conakry, as I wrote last time, is particularly worrisome as it is a port city of 2 million. 110 have died in Guinea and Liberia since January, but there are now suspected cases in Sierra Leone and Mali.

Random Musings

--From a Quinnipiac poll: President Obama has a 42% job approval rating. 50% disapprove.

58% disapprove of his health care policy. 39% approve.

55% disapprove of his handling of the economy. 40% approve.

55% disapprove of his foreign policy. 39% approve.

--The latest Associated Press-GfK poll found that registered voters who are most strongly interested in politics favored Republicans by 14 points, 51% to 37%. In January it was 45-42, Republicans.

Congress continues to score horrendously in this survey. 82% disapprove of its performance. 16% approve.

--Peggy Noonan / Wall Street Journal...on Jeb Bush.

“The Republican establishment, such as it is, has the right to back Jeb if they think he can win. The grassroots has the right to oppose him. Let it be a fight if he chooses it.

“What is jelling into a cliché is true: Jeb Bush’s problem is not immigration per se. That issue is still dynamic; people are arguing and thinking it through. Jeb has an argument to make. When he told an interviewer last weekend that some illegal immigration can be seen as ‘an act of love,’ I read of it and assumed it was an act of phony eloquence – insufficient, tin-eared, a sign that he’d grown rusty. But then I saw the interview. It was clear he was simply expressing a sincere respect for, and a kind of bond with, immigrants who have crossed the border to get the job that will feed the family. I thought of how I would experience his comments if I were here illegally or had a family member who was. I’d appreciate it, a lot. I’d hear what he said as a signal of empathy and understanding. I’d think he was saying ‘have a heart,’ which is what Rick Perry said in 2012. And that’s not the worst thing a Republican could say right now, is it?

“Jeb Bush’s real problem, and not just with members of the tea party, is his early and declared support for the Common Core national school curriculum. He decided to back federal standards for what should be taught in the public schools at the exact moment the base of the Republican Party had had it up to here with federal anything.”

Beyond issues like this, Ms. Noonan observes, you have “the father-brother thing, which is the foreign-policy question. His father is now seen as a foreign-policy realist. He was prudent after the end of the Soviet Union, he was tactful, and when he felt he had to go to war in Kuwait he built a world-wide coalition, did the job he said he would do, and stopped when that job was done. Jeb’s brother is associated with neoconservatism: Be daring, break the tectonic plates, force the realities to reconstitute themselves in new and better ways, invade, spread democracy.

“Where does Jeb stand? What philosophical assumptions guide his decisions? Whichever policy view he declares will seem like an implicit rebuke of someone he loves....

“It will all be complicated. But if you really want the presidency, you accept the complications. You can’t run ambivalently. Mr. Bush knows this, of course, which is why he talks about only running if he feels the joy of it.”

--A New Jersey Superior Court judge ruled that Bridget Anne Kelly, Gov. Chris Christie’s former deputy chief of staff, and Bill Stepien, his two-time campaign manager, do not have to turn over records related to Bridgegate, a major blow to the Democratic legislative committee heading up the investigation. Kelly and Stepien had argued turning over their records violated their Fifth Amendment rights against self-incrimination. Judge Mary Jacobson agreed, writing in part:

“The subpoenas would require compelled testimonial evidence from Ms. Kelly and Mr. Stepien and thus run afoul of defendants’ privilege against self-incrimination.”

The records of Kelly and Stepien are seen as critical to understanding the motivations behind the George Washington Bridge traffic debacle.

But an editorial in the Star-Ledger does give the legislative committee a “clear path to pursuing its investigation.

“Yes, she slapped the committee hard for issuing subpoenas that were so broad they amounted to a ‘fishing expedition.’ And she vigorously defended the important constitutional right against self-incrimination....

“But the judge also gave the committee a big win by affirming its right to grant immunity to witnesses... And once immunity is granted, she ruled, the committee can compel testimony.”

To be continued....

--Regarding the above-mentioned Medicare filings and the physician disclosures, it is very ironic that the number one doctor who was singled out for being the largest recipient, Dr. Salomon Melgen, who was paid $20.8 million by Medicare in 2012, is New Jersey Democratic Sen. Robert Menendez’s close friend and major donor. It was the relationship between the two that came under scrutiny last year when Menendez had to acknowledge he had accepted trips to the Dominican Republic on the doctor’s personal jet without reporting them on his financial disclosure forms.

According to the Washington Post, Menendez had defended Melgen when the latter was under investigation for $8.9 million in billings, going back to 2009. The FBI raided Melgen’s West Palm Beach office last year.

Melgen and his family have given $34,000 to Menendez’s campaigns and another $15,000 to his leadership PAC. [Susan K. Livio / Star-Ledger]

--It’s all come together...an old tape from 1983 showing the Rev. Al Sharpton in an undercover sting operation, discussing cocaine with an FBI agent, and then later working for the FBI to rat out mob bosses. Sharpton was doing nothing more than saving his own skin, though the reverend was scrambling on Tuesday after The Smoking Gun Web site broke the story, saying he wore a wire for the feds because he had been threatened by the mob.

According to The Smoking Gun, Sharpton was shown the undercover drug video by the FBI and agreed on the spot to cooperate with federal agents.

--New York City Mayor Bill de Blasio completed his first 100 days and according to a poll conducted by the New York Times, NY1 and Siena College, the mayor has a 49 percent approval rating among New Yorkers, while 31 percent disapprove of his job performance. By comparison, in Michael Bloomberg’s last month as mayor, 53 percent approved, 35 percent disapproved. About 1,350 days to go. Enjoy!

[59 percent, by the way, oppose the mayor’s plan to get rid of carriage horses. The horses have been scrambling to re-do their resumes. Not knowing any of them personally, someone in New York tell the horses that perhaps Charleston, S.C. is an option.]

--I noted last time that New York City Police Commissioner criticized his predecessor Ray Kelly’s stop-and-frisk policy and a poll for Crain’s New York Business says 87% feel Bratton was wrong to do so.

--A yearlong review of information the U.S. intelligence community had prior to the Boston Marathon reveals that the Russians withheld information from the U.S. that could have made a difference. As reported by Eileen Sullivan of the Associated Press:

“In 2011, Russian authorities told the FBI they were worried that one of the suspected bombers and his mother were religious extremists. The Russians were unresponsive when pressed by the FBI for more details. It was only after the 2013 attack that the U.S. intelligence community learned that the Russians withheld some details that might have led to a more thorough FBI investigation.”

It’s not clear if the cooperation had been better between Russia and the U.S. whether the attack would have been foiled. What is clear is that the relationship between the two has crumbled on all manner of fronts.

--Ted Nordhaus and Michael Shellenberger / New York Times op-ed:

“If you were looking for ways to increase public skepticism about global warming, you could hardly do better than the forthcoming nine-part series on climate change and natural disasters, starting this Sunday on Showtime. A trailer for ‘Years of Living Dangerously’ is terrifying, replete with images of melting glaciers, raging wildfires and rampaging floods. ‘I don’t think scary is the right word,’ intones one voice. ‘Dangerous, definitely.’

“Showtime’s producers undoubtedly have the best of intentions. There are serious long-term risks associated with rising greenhouse gas emissions, ranging from ocean acidification to sea-level rise to decreasing agricultural output.

“But there is every reason to believe that efforts to raise public concern about climate change by linking it to natural disasters will backfire. More than a decade’s worth of research suggests that fear-based appeals about climate change inspire denial, fatalism and polarization.

“For instance, Al Gore’s 2006 documentary, ‘An Inconvenient Truth,’ popularized the idea that today’s natural disasters are increasing in severity and frequency because of human-caused global warming. It also contributed to public backlash and division. Since 2006, the number of Americans telling Gallup that the media was exaggerating global warming grew to 42 percent today from about 34 percent. Meanwhile, the gap between Democrats and Republicans on whether global warming is caused by humans rose to 42 percent last year from 26 percent in 2006, according to the Pew Research Center....

“(Claims) linking the latest blizzard, drought or hurricane to global warming simply can’t be supported by the science. Our warming world is, according to the United Nations Intergovernmental Panel on Climate Change, increasing heat waves and intense precipitation in some places, and is likely to bring more extreme weather in the future. But the panel also said there is little evidence that this warming is increasing the loss of life or the economic costs of natural disasters....

“While the urgency that motivates exaggerated claims is understandable, turning down the rhetoric and embracing solutions like nuclear energy will better serve efforts to slow global warming.”

--According to WWF-Hong Kong, trade in shark fins from Hong Kong to mainland China dropped 90 percent last year. The fall is not only due to pressure from environmental groups to stamp out the trade, but also the crackdown on extravagance and corruption among China’s elite.

--Finally, my late godmother was from Murrysville, Pa., and I have cousins in the area today, so my thoughts and prayers are with the community after this week’s school tragedy there.

---

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

God bless America.

---

Gold closed at $1318
Oil $103.74

Returns for the week 4/7-4/11

Dow Jones -2.4% [16027]
S&P 500 -2.7% [1815]
S&P MidCap -3.6%
Russell 2000 -3.6%
Nasdaq -3.1% [3999]

Returns for the period 1/1/14-4/11/14

Dow Jones -3.3%
S&P 500 -1.8%
S&P MidCap -1.8%
Russell 2000 -4.5%
Nasdaq -3.4%

Bulls 54.6
Bears 18.6   [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Note to new readers, check out the iPad app.

Brian Trumbore



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Week in Review

04/12/2014

For the week 4/7-4/11

[Posted 12:00 AM ET]

Edition 783

Washington and Wall Street

The International Monetary Fund said recoveries in the developed world, such as those in the U.S. and U.K., reduced the risks of a global recession to near zero. The fund expects the U.S. to expand 2.8% this year and 2.9% in the U.K., while the eurozone will gain 1.2% and Japan 1.4%. Overall, it sees global growth of 3.6% in 2014, rising to 3.9% next year after 3% in 2013.

But you would have had a hard time convincing investors in some technology plays this week that all is hunky-dory. Try Humpty-Dumpty...as in all the central bankers and all the market bulls couldn’t put the likes of Netflix, Amazon, Facebook and Twitter back together again. At least for now.

Nasdaq has endured its worst stretch since November 2012 in terms of its first 3-week decline since then, while the action on Thursday, a 3.1% decline, was the worst single-day drop since Nov. 2011.

Some of Nasdaq’s former leaders were simply in nosebleed territory, way overvalued, and perhaps in some cases with shaky futures, i.e., a few of the Internet offerings in a highly-fickle sector in terms of consumer tastes.

It also doesn’t help we are now entering earnings season in full, with the few that have reported thus far not exactly warming the cockles, particularly JPMorgan Chase.

Earnings for the first quarter are expected to be flat for S&P 500 companies, with revenues up 1 or 2 percent. Whoopty-damn-do. Financial engineering, see buybacks, has helped with the bottom line for quite some time now, but you can’t hide putrid revenues.

Of course we’ll all be looking for the guidance that is provided and whether the hoped-for pick-up in business spending (cap-ex) finally materializes. I suspect we won’t like what we hear, and this is where, even if not mentioned in formal reports, the likes of Russia come into play in terms of CEO sentiment.

Let’s face it. Most CEOs, whether you like ‘em or not, are among the brighter people on the planet. They tend to read more intellectual stuff, travel more, follow the news. So they are also more likely to be more cautious when the geopolitical scene is increasingly iffy, especially if they are running a large multi-national corporation.

Yes, the above is a gross generalization but grade me by the language that comes forth over the coming weeks. I mean if you were a CEO, would you commit to a new plant in, say, Poland today, if it wasn’t already under construction? Just sayin’.

[I urge you to read my “Wall Street History” and “Hot Spots” pieces if you care about such things. Both represent Putin’s potential playbook, and in the case of the former give you a sense of how Wall Street may react over the coming year or so under Vlad the Great (or Impaler, take your pick) if he is not reined in.]

On to the Federal Reserve. Wednesday, stocks rallied strongly after release of the latest minutes from the Fed’s Open Market Committee as the governors seemed to push back against Chair Janet Yellen’s now famous press conference comment that the Fed may raise rates by next summer. Nope. It seems that the Fed wants us to believe, au contraire, mon frère. ‘We won’t be hiking the funds rate off the zero level until late 2015, if ever!’

Now this type of talk is flat out idiotic. It totally depends on the data, as they surely know, and some have offered over the years. If the economy picks up steam after what will surely be an ugly first quarter, or at best more of the same, i.e., 2% growth, then there will be major pressures in the bond market that the Fed will not be able to ignore. There is no way they can just issue blanket statements this far ahead.

Now I’m not a big follower of market doom and gloomer Marc Faber. He is clearly very entertaining though his forecasts haven’t been the best in a long time.

But I totally concur with some statements he made this week concerning the Federal Reserve.

Faber, in a CNBC interview, said the Fed was to blame for some of the ridiculous valuations and on this he’s right. He’s also spot on when he says:

“I believe that the market is slowly waking up to the fact that the Federal Reserve is a clueless organization. They have no idea what they’re doing. And so the confidence level of investors is diminishing, in my view.

“This year, for sure – maybe from a higher diving board – the S&P will drop 20%,” before he then said we could see, “in the next 12 months, an ’87-type of crash. And I suspect it will be even worse.”

I won’t go that far. In fact I’m not changing my 2014 outlook that the major averages finish down 2% to 5%. But Faber, and before him Jeremy Grantham, are surely right in their misgivings about the Fed and central bankers around the world.

Finally, a word on ObamaCare. HHS Secretary Kathleen Sebelius resigned after five years and the disastrous HealthCare.gov rollout. In the end, though, Sebelius can claim she, and the administration, met their goal of enrolling 7 million by end of March; or, as she announced, 7.5 million by this week. Sebelius will be replaced by Sylvia Mathews Burwell, the director of the Office of Management and Budget, who should sail through confirmation because she was already confirmed 96-0 by the Senate before and has been vetted.

Speaking for the Republican side, Senate minority leader Mitch McConnell said of the Sebelius resignation: “ObamaCare has been a rolling disaster and her resignation is cold comfort to the millions of Americans who were deceived about what it would mean for them and their families.

“Countless Americans have unexpectedly been forced out of the plans they had and liked, are now shouldering dramatically higher premiums, and can no longer use the doctors and hospitals they choose.”

Nancy Pelosi, the Democratic minority leader in the House, said Sebelius’ leadership had been “forceful, effective, and essential. Her legacy will be found in the 7.5m Americans signed up on the marketplaces so far, the 3.1m people covered on their parents’ plans, and the millions more gaining coverage through the expansion of Medicaid.”

Sen. Rand Paul (R-KY) tweeted that Sebelius’ legacy “will be one of the most unpopular & undemocratic [government] overreaches in our lifetime.”

As the Wall Street Journal’s Gerald F. Seib notes, “the Affordable Care Act now is entrenched as the most deeply divisive social program in recent memory, and it figures to stay that way through the November election and beyond.

“That means there simply won’t be any serious attempt to fine-tune the law until the political situation sorts out. Until then, ObamaCare will have to rise or fall as it is, with the White House doing what it can unilaterally to adjust the health-care law.”

For Republicans, November is all about retaking the Senate and Sen. Rob Portman (R-OH), who is overseeing the Republicans’ Senate campaign committee, has advised GOP candidates to take on ObamaCare: “I would advise all of them to run on repeal and replace.”

Plus crucial details remain lacking, such as how many of the 7.5m didn’t have insurance before, what is the demographic makeup, and how many have actually paid?

Then, late this summer we’ll begin to hear about premium increases and millions more having their policies canceled, just in time for the elections. 

Europe and Asia

The big story in Europe this week was Greece. For the first time in four years, the government was able to return to the long-term debt market, selling 3 billion euro of five-year bonds at a stupendously low yield, for Greece, of 4.95%, even better than the initial target of 5.25% to 5.50%. Demand for any kind of yield these days, around the world, is such that a nation with a debt to GDP ratio in excess of 175%, and one that is still in the midst of a 240 billion euro bailout, possibly in need of a third bailout, can sell longer-term debt below 5.00%.

And it’s not as if Greek politics are stable. The ruling party, New Democracy, polls at only 20%, second to opposition Syriza (marginally), with critical European Parliament elections coming up end of May that could expose anew just how shaky the government is. 

Plus a return to sustained growth is hardly a certainty, with unemployment remaining at 27% and nearly 60% among the volatile youth.

But to be fair, recent labor protests in Greece have been on the muted side (though a large car bomb did go off outside the Greek Central Bank offices the day of the bond offering...albeit with ample warning so the streets were cleared) and it seems the people are fatigued.

More broadly speaking, across the eurozone inflation, or lack thereof, is a big issue. The European Central Bank is expected to cut interest rates and/or initiate asset purchases that could come in the form of public and private debt, as ECB President Mario Draghi said he’ll take “unconventional measures if needed.”

Inflation at 0.5% in March for the eurozone may indeed require unconventional methods to prevent it from tumbling into euro-wide deflation territory and even a hawk such as Bundesbank President Jens Weidmann is now supporting in theory large-scale asset purchases, or quantitative easing. So you’ll see one more inflation data point before the ECB’s May meeting and that could be a critical one.

But back to the yield on the Greek five-year, the 10-year bonds of both Spain and Italy are trading with a yield of just 3.20%, or 60 basis points higher than U.S. government paper of the same duration. That’s insane. Yes, the ECB and Draghi have said they’ll do what it takes to keep the euro intact, but that doesn’t mean we all live in a risk-free world. Far from it.

Gideon Rachman / Financial Times

“ ‘Whatever it takes.’ Mario Draghi’s declaration that he would save the euro could well go down as the most effective three-word statement by a Roman since Julius Caesar’s veni, vidi, vici.

“The president of the European Central Bank’s statement, followed up with a portentous and vaguely threatening – ‘and believe me it will be enough’ – was made in July 2012. Almost two years later, Mr. Draghi’s intervention is widely regarded as the turning point in the euro crisis. Investors who were running screaming from the eurozone in the summer of 2012 are now rushing back in.

“But whatever the thundering herd of investors may think, it is too soon to declare that Mr. Draghi has won the war for the euro. The eurozone still faces deep underlying economic and political problems that are beyond the control of the president of the ECB and his colleagues.

“What Mr. Draghi has managed to do is to buy the euro some time. The borrowing costs of Spain, Italy and even Greece have fallen sharply – easing the pressure on their economies and government finances. But the underlying economic situation in many eurozone countries is still grim. And the political consequences of prolonged slumps are only just beginning to emerge.”

Rachman also notes that Europe is highly vulnerable to a further Ukraine shock.

“If Russian forces move into eastern Ukraine – and, unfortunately, the signs are mounting that this may be imminent – then the EU will be forced to impose tougher economic sanctions on Russia. The Russians can be expected to retaliate by using the most powerful weapon they have at their disposal: energy. Much higher energy prices would have a severe impact on Europe’s fragile economy. And a return to deep recession would almost certainly favor the radical fringes in Europe.”

Euro Bits

Industrial production for the month of February rose at a 4.8% annual rate in Germany, 2.8% in Spain, and 2.7% in the U.K.

The Irish government is forecasting growth of 2.6% this year and 3.5% in 2015, which may make further austerity cuts unnecessary after six vicious years. While cuts will probably still be in the next budget, hoped for tax cuts next year appear likely if the forecast is accurate. The government’s goal of cutting the deficit to 3% of GDP by end of 2015 remains unchanged.

Inflation, however, is exceedingly low, 0.2%, and thus the risk of deflation remains.

Italy’s Prime Minister Matteo Renzi said his cabinet approved a three-year budget plan and that the Italian economy will grow 0.8% this year, down from a previous 1.0% estimate but above the IMF’s new 0.6% forecast.

Renzi claimed the budget deficit will be just 2.6% of GDP despite slower growth, and there are questions how the new national plan will implement 26 billion euro in further austerity moves when the cuts need to be approved by a parliament that barely gives Renzi an edge.

A key is for tax cuts to go into effect within weeks so that workers get wage hikes before they go to the polls for the European parliament vote.

Finally, Hungarian Prime Minister Viktor Orban handily won a second term as his center-right party took 45% of the vote in parliamentary elections, or 133 of 199 seats. The center-left alliance had 25%, while far-right Jobbik took 21%, though it will have the second-largest number of seats, 23. Jobbik’s adoption of a softer image apparently helped.

Turning to China, the World Bank still expects the country to grow 7.6% in 2014, with a stronger second half, but when the government releases its official figure for the first quarter next week, most expect it to come in around 7.3%, below the 7.5% target, though this figure is massaged anyway so I’m thinking the government thinks, hey, if we say 7.3% that seems more legitimate (even if it’s really 6.0%).

There was a poor number this week that was grossly misinterpreted by many, that being exports for March which came in down 6.6% year-over-year when a gain was expected. But we are still comparing new data to grossly inflated figures from early 2013 when double invoicing was rampant. Give the Chinese government credit on this one. They are trying to address the ‘funny numbers’ issue and the decline seems real, however if you adjust for March 2013 fake data, exports probably rose a bit. Imports were down 11.3%, though here part of the reason was a decline in commodity prices.

Auto vehicle sales rose 8% in March vs. year ago levels. The target for the full year is 10%.

And then there is inflation. The March consumer price index rose just 2.4%, with the government’s target at 3.5%. Producer, or factory-gate, prices fell 2.3%, a 25th monthly decline. This does not speak well for domestic demand.

Premier Li Keqiang, who has been more visible than he was in his early days in office compared with President Xi Jinping, has given a number of speeches on the economy and government policy and he said this week that China “won’t adopt short-term and strong stimulus policies in response to temporary fluctuations in the economy. Instead we will focus more on healthy growth in the medium to long term and will make efforts to achieve sustainable and healthy development.”

Street Bytes

--The Dow Jones fell 2.4% on the week to 16027 and is now down 3.3% for the year. The S&P 500 lost 2.7%, while Nasdaq, down 3.1% to close below 4000 (3999) for the first time since last November, had its worst week since June 2012 and is now down 8.2% since hitting a 14-year high on March 5.

--U.S. Treasury Yields

6-mo. 0.05%  2-yr. 0.36% 10-yr. 2.62%   30-yr. 3.48%

Producer prices for the month of March were hotter than expected, up 0.5%, up 0.6% ex-food and energy, perhaps a sign of increasing demand. Both were up 1.4% year-over-year.

--About $275 billion in market value has been taken out of the 14 biggest publicly traded Internet companies with the rout in the technology sector. The 14 – nine in the U.S., five in Asia – have lost a combined fifth of their value.

--Five-year annualized returns for various fund categories thru March 31.

Large-Cap Growth...19.8%
Large-Cap Value...19.8% [yes, the same]

Small-Cap Growth...24.7%
Small-Cap Value...25.1%

Health/Biotechnology...25.3%
Science & Technology...22.0%

International Large-Cap Growth...15.2%
Emerging Markets...14.4%

S&P 500 Index...20.5%

Short-Intermediate U.S. Govt. ...2.0%
High Yield...15.9%

Money Market...0.03%

Reversion to the mean from here, anyone?

Source: Barron’s / Lipper

--A computer bug, “Heartbleed,” became known this week and all are in agreement it is the most serious to come along, allowing cyber criminals the ability to access anything stored in a computer’s short-term memory, from user passwords to intellectual property.

It is not known if hackers exploited the vulnerability before it was discovered by a group of researchers but since it was announced on Monday, there is little doubt cyber criminals were seeking those Web sites that were still vulnerable because they haven’t updated their software. 

Cisco Systems and Juniper Networks confirmed on Thursday that some of its router products used to create virtual private networks relied on the infected software.

The FDIC said there have been no reports of the vulnerability being exploited in the banking sector, probably because they use their own secure computer language for their online banking systems.

But the likes of Netflix, Google, Facebook and Yahoo were at risk initially, which is why they were all urging their users to immediately change their passwords as they rushed to update their systems. Amazon was also impacted. Canada’s tax collection agency shut down its site amid fears it had the bug.

Supposedly, the larger sites, given an early warning that wasn’t supposed to go public, fixed the problem quickly. But the router issue with the likes of Cisco and Juniper could be different, primarily because it involves businesses that might not check the status of their equipment.

One man is responsible for the chaos. Software developer Robin Seggelmann, who admitted to the Sydney Morning Herald that he was working on security software most of the Internet uses when in one of the new features he was submitting to fix bugs, “I missed validating a variable containing a length.”

A reviewer “apparently also didn’t notice the missing validation,” Seggelmann told the paper, “so the error made its way from the development branch into the released version.”

Seggelmann is a 31-year-old living in Munster, Germany, who is a contributor to the Internet Engineering Task Force (IETF), a not-for-profit global group whose mission is to make the Internet work better.

The hole in the Internet was supposed to be fixed quietly and wasn’t to be made public until Wednesday, after major sites were told how to fix it the bug. But after it was feared the issue had been leaked to hackers, the information was made public Monday.

The problem this weekend is no one knows how much damage has been done and how widely the bug was exploited.

--The government released the most detailed data on the 880,000 doctors and other health care providers who take Medicare patients in Medicare’s 50-year history and we learned that in 2012, 100 doctors received a total of $610 million, including numero uno, a Florida ophthalmologist who was paid $21 million (another report said $26 million) by Medicare, while dozens of others, including cancer specialists, received more than $4 million each that year. No personal information on patients was disclosed.

While regular office visits make up the bulk of the cost, of the $77 billion paid out, $1 billion is for a single treatment for age-related macular degeneration, the leading cause of severe vision loss in the elderly, for which the primary treatment is the drug Lucentis.

Overall, 2% of healthcare providers accounted for 23% of the Medicare fees, the data showed, which includes doctor visits, lab tests and other treatments typically provided outside a hospital.

It does need to be pointed out that the billings could fall under one physician’s name but include the entire practice. As AMA President Dr. Ardis Dee Hoven said, “How does a physician or a practice get their reputation back?” Very true, but no doubt there are major abuses in the system.

--Shares in JPMorgan Chase fell hard on Friday as the bank came in short of first-quarter profit and revenue expectations. JPM reported it had its worst start to a year in fixed income trading since the depths of the financial crisis. All revenues from trading fixed income, currencies and commodities fell 21% in the quarter compared with the same period in 2013. Earnings per share declined to $1.28 vs. $1.59 (and compared with analysts’ estimates of $1.40).

[On the other hand, Wells Fargo & Co. beat on both EPS and revenues.]

--General Motors announced it will take a $1.3 billion write-down, not the $750 million the automaker originally set aside, to cover the cost of repairs on its ignition switch recall, while suspending two engineers as an internal investigation under new CEO Mary Barra continues. GM has known about the issue for more than a decade. It also told the National Highway Traffic Safety it will replace the ignition lock cylinders on all 2.6 million cars it recalled (2.2 million of which are in the United States). Additionally, GM admitted it knows of a new ignition issue involving “several hundred complaints of keys coming out of ignitions.”

GM said it is just beginning to get replacement parts to dealers and it may not be until year end before all the vehicles are repaired.

Also, on Friday it was revealed that then head of product development, Mary Barra, was informed in 2011 of a widening government investigation of steering problems with 2004-2007 Saturn Ion sedans, at a time when GM was fighting a recall of the cars, according to a document released by the House Energy and Commerce committee. But this doesn’t link Barra to earlier knowledge of the ignition recall. Nonetheless, it raises new questions.

--Toyota is recalling 6.4 million vehicles globally over a number of different issues, including one where the airbag may not deploy in a crash. Another involved an engine starter problem that could result in a fire. This is Toyota’s fifth major recall in recent months and involves 27 different models. Earlier this year, the auto company settled with U.S. regulators over prior safety issues for $1.2 billion.

--Shares in Herbalife fell 14% on Friday as the Department of Justice and the FBI have reportedly launched a criminal probe into the company and allegations it is a pyramid scheme. Herbalife has not been accused of any wrongdoing and the inquiry may not lead to any charges. But the company is already facing a number of other civil inquiries from multiple government agencies. Neither the U.S. attorney’s office nor the FBI commented.

--Sony Corp. issued a warning over the batteries used in its newest Vaio personal computers which could overheat and catch fire. Sony is asking customers to stop using its Vaio Fit 11A laptop as soon as possible. The batteries are made by Panasonic Corp., as Sony had previously unveiled plans to sell off its PC business and the impacted laptop is the final version in the series.

--Alcoa Inc. reported sales fell 6.5% in the first quarter amid oversupply issues that led to production being cut in Brazil, while closing plants in Australia and New York. The global glut in aluminum led to price cuts of 8%. On Friday, Fitch downgraded Alcoa’s credit rating to junk status.

--Bank of America agreed to pay $783 million in fines and refunds to settle accusations it misled customers on identity theft protection add-on services affecting nearly three million customers. The U.S. Consumer Financial Protection Bureau said the bank had been “unfairly billing consumers” and “using deceptive marketing and sales practices.”

--The unemployment rate in Australia fell to 5.8% after hitting a decade-high of 6.1% last month. 

--The World Bank cut its growth estimate for Thailand to 3% in 2014 from a previous forecast of 4.5%, owing mostly to ongoing political unrest, which is impacting tourism and investor confidence.

--The Illinois legislature passed a plan to overhaul Chicago’s pension system for municipal employees and laborers, which are 37.6% and 56.3% funded, part of a combined $27 billion unfunded liability for the city and its school district, but Moody’s, which downgraded the city last month on pension concerns, said the bill fails to deal with the nearly $10 billion unfunded liability of the police and fire systems, which are currently funded 31.3% and 24.7%, respectively.

Chicago Mayor Rahm Emanuel said the reform would be funded in part by a property tax increase, but fellow Democrat, Gov. Pat Quinn, who faces a tough re-election, blasted the plan.

--Family Dollar Stores, the discount retailer, said it will close 370 underperforming stores in response to falling sales, down 6% year-over-year in fiscal second quarter, which ended March 1. CEO Howard Levine said in a statement: “The 2013 holiday season was challenged by a more promotional competitive environment and a more financially constrained consumer.” But Family Dollar is also adding 525 stores this year, with a further 350 to 400 planned for fiscal 2015.

--SAC Capital Advisers, the giant hedge fund run by Steven A. Cohen, was ordered to pay a $900-million fine in its insider-trading case, part of a $1.8-billion deal that prosecutors say includes the largest criminal penalty ever imposed in an insider-trading case. U.S. Atty. Preet Bharara said, “Today marks the day of reckoning for a fund that was riddled with criminal conduct.” Thus far, eight employees have been convicted of insider trading.

Cohen has not been charged criminally but still faces a civil suit brought against him by the SEC. He has had to close his investment advisory business but can continue to trade his own fortune.

--Swiss cement maker Holcim acquired France’s Lafarge to create the world’s biggest cement make with combined sales of $44 billion.

--Online gaming in New Jersey generated only $27 million between the launch in November and end of February, vs. the goal of $1 billion set by Gov. Chris Christie for July. The administration has been counting on online tax revenue of $180 million for this fiscal year. Many supporters blame a poor advertising campaign.

Meanwhile, Atlantic City’s 12 casinos (now 11, one closed in 2013) reported their gross operating profits declined by nearly 35% last year.

--A.C. will continue to suffer as the casino industry in general becomes further oversaturated. As a piece in BloombergBusinessweek pointed out, 39 states have casino gambling of some kind today, with Vegas-style resorts on the way in the likes of Pennsylvania, Massachusetts, Maryland and upstate New York.

Casino revenue fell in February for the sixth consecutive month in the four largest Midwest states: Indiana, Missouri, Illinois, and Michigan. Sales are down in Las Vegas thus far in 2014.

--Beef prices hit an all-time high as extreme weather has thinned cattle herds to levels last seen in 1951, when there were far fewer people to feed in the U.S. USDA choice-grade beef hit a record $5.28 a pound in February, up from $4.91 a year earlier. As recently as 2008, the same grade cost $3.97. Needless to say, these increases are finding their way into the fast-food industry, for one. [David Pierson and Tiffany Hsu / Los Angeles Times]

--It was really pathetic that Mozilla Corp. CEO Brendan Eich was forced to resign after being criticized for donating $1,000 to an anti-gay marriage group in 2008. The issue is now creating a backlash against seeming hypocrisy among those who otherwise advocate unrestricted freedom of expression.

--I forgot to note last time that Goldman Sachs Group CEO Lloyd Blankfein received $23 million in salary and bonus for 2013, according to a filing. Our microphones then caught a lunch at the Four Seasons where Mrs. Blankfein gathered with her friends.

“I’m so proud of my Lloyd!” she said.

“You seem to say that every year,” said Mrs. Dimon. “My Jamie had issues Lloyd didn’t have to face.”

“Ladies, are you ready to order?” asked waiter Charles.

“I’ll have the Chatham Cod.”

“But I thought you always got the Wagyu Hanger Steak?” Mrs. Dimon said to Mrs. Blankfein.   “Those truffled parsnips are to die for!”

Stay tuned for another episode of “Wall Street Wives Club” next year around this time.

--Workday, the high-flying company specializing in enterprise cloud applications for human resources and finances, has had a tough time recently in terms of its share price, but I couldn’t help but notice its logo being worn by golfers Matt Kuchar and Brandt Snedeker, Workday’s first foray in the sponsorship game, best I know. They picked two winners.

--I really don’t get Stephen Colbert being tabbed to replace David Letterman. Then again, since he’s retiring the faux conservative character he currently portrays, who knows? What does seem clear is that the show will stay in New York.

Foreign Affairs

Ukraine: After a lull in activity as Russia consolidated its gains in annexing Crimea, last weekend pro-Russian forces/separatists/paid goons took over government buildings in the eastern Ukraine cities of Luhansk, Donetsk and Kharkiv. In one, Luhansk, separatists took 56 hostages at the security services complex but later released them, though last I saw still controlled the building. In Kharkiv, Ukrainian special forces regained control after the goons took over a facility.

As the protests spread, Ukraine’s Prime Minister Arseny Yatseniuk said, “An anti-Ukrainian plan is being put into operation...under which foreign troops will cross the border and seize the territory of the country. We will not allow this.” [Reuters]

Andrei Illarionov, a former aide of President Putin and now in the opposition, said a Russian invasion was inevitable because popular support for accession to Russia in southeastern Ukraine was lacking. [Irish Independent]

NATO Secretary-General Anders Fogh Rasmussen said, “I urge Russia to step back and not escalate the situation in east Ukraine. If Russia were to intervene further...it would be an historic mistake. It would have grave consequences for our relationship with Russia and it would further isolate Russia internationally.”

The Russian foreign ministry warned of civil war if Ukraine cracked down on pro-Russia sympathizers.

Secretary of State John Kerry and his Russian counterpart, Foreign Minister Sergei Lavrov, announced they would hold a meeting next week that included the European Union and representatives of the new Ukrainian government in what was viewed as a de-escalation and demobilization, though Lavrov was insisting on constitutional reforms that Kiev would never approve, including “enhanced decentralization,” which would be a de facto annexation of the south and east; all of this as the May 25 presidential election draws near.

Tensions in the area settled down a bit by week’s end and it was interesting there was little public support for the separatist moves. In one survey, for example, only 26.5% of Donetsk residents supported pro-Russian allies, with just 4% wanting the region to breakaway. 

Though most people in Ukraine’s eastern regions are Russian-speaking, ethnic Ukrainians make up 57% in Donetsk, 71% in Kharkiv and 58% in the Luhansk region, according to a 2001 census, as opposed to just 24% in Crimea.

That said, Russian Prime Minister Medvedev said Ukraine’s debt to Russia was $16 billion, while Gazprom said Kiev owed it $2.2 billion for supplies of natural gas.

President Putin warned European leaders on Thursday that Russia would cut natural gas supplies to Ukraine if it did not pay its bills and said this could impact deliveries to Western Europe as well. Putin made it clear his patience was running thin.

In a letter sent to European leaders, Putin said, “(Gazprom) is compelled to switch over to advance payment for gas deliveries and in the event of further violation of the conditions of payment will completely or partially cease gas deliveries.

“Undoubtedly, this is an extreme measure.” [Reuters]

Recall, Russia meets 30% of Europe’s natural gas demand and half of this goes through Ukraine.

At week’s end it was clear Russia was not de-escalating in the least. German Chancellor Angela Merkel reiterated “Ukraine has a right to its own development path. We demand this. Ukraine must decide its own future.”

Russia’s Foreign Ministry office said, “Russia has stated many times that it is not carrying out any unusual or unplanned activity on its territory near the border with Ukraine that would be of military significance.”

But on Thursday, NATO released satellite photographs showing Russia had a full deployment of at least 40,000 near the border, complete with fighter jets and tanks.

Bottom line: Moscow wants to destabilize the May 25 vote...and then some.

Editorial / Washington Post

“For nearly three weeks after announcing the annexation of Crimea, Vladimir Putin held off on further dismemberment of Ukraine. No doubt he was measuring the West’s reaction to the first forcible change of borders in Europe since 1945. Apparently, he wasn’t impressed – and given U.S. and European inertia, why would he have been?

“The vague warnings from President Obama and the limited sanctions imposed by the United States and European Union in late March were followed by more than two weeks of inactivity – apart from U.S.-Russian discussions from which Ukrainians were excluded. So on Sunday, another Russian-backed operation that looked a lot like the beginning of the Crimea invasion got underway in three eastern Ukrainian cities.

“In Kharkiv, Luhansk and Donetsk, rent-a-mobs seized government buildings, declared independence or plans for referendums and appealed for Moscow’s protection.... At a congressional hearing, Secretary of State John F. Kerry accused Russia of an ‘illegal and illegitimate effort to destabilize a sovereign state and create a contrived crisis with paid operatives.’

“Mr. Kerry threatened further sanctions, which administration officials said may be announced in the coming days. If so, they will be welcome but overdue....

“It’s not too late to prevent Russia from destroying Ukraine, but this time the West must act quickly. A presidential election scheduled for May 25 is vital to stabilizing the country, by creating a new government with a clear mandate.... The provocations in eastern Ukraine, if they do not presage an invasion by the Russian troops still massed on the border, are likely the beginning of an effort to disrupt the vote and make the country ungovernable.”

Editorial / Wall Street Journal

“John Kerry told the Senate Foreign Relations Committee on Tuesday that ‘Russian provocateurs’ had infiltrated eastern Ukraine in order to foment ‘an illegal and illegitimate effort to destabilize a sovereign state and create a contrived crisis.’ Also on Tuesday, the Pentagon announced steep cuts to U.S. nuclear forces, four years ahead of schedule, in accordance with the 2010 New Start treaty with Russia.

“At this point in Barack Obama’s Presidency we should be used to the mental whiplash. But we still feel concussed.

“So let’s slow down and follow the thread. Russia has seized Crimea and has 50,000 troops as a potential invasion force on the border with eastern Ukraine. The Kremlin is also abrogating the 1994 Budapest Memorandum, in which Kiev agreed to give up its nuclear arsenal – at the time the third largest in the world – in exchange for guarantees of its territorial integrity from Russia, the U.S. and U.K.....

“The Kremlin is also violating the 1987 intermediate-range Nuclear Forces Treaty, which bans the testing, production and possession of nuclear missiles with a range between 310 and 3,400 miles. Russia has tested at least three missiles – the R-500 cruise missile, the RS-26 ballistic missile and the Iskander-M semi-ballistic missile – that run afoul of the proscribed range limits.

“The Obama Administration has suspected for years that Vladimir Putin was violating the INF Treaty, which supporters hail as the triumph of arms control....

“Which brings us to the Administration’s announcement on cutting U.S. nuclear forces to levels specified by New Start four years before the treaty’s 2018 compliance deadline. The news comes a few days after Hans Kristensen of the Federation of American Scientists reported that ‘Russia has increased its counted deployed strategic nuclear forces over the past six months.’ Yet at the same time America’s stockpile of warheads and launchers has declined.

“Mr. Obama has dismissed Russia as a regional power, but he is maneuvering the U.S. closer to a position of absolute nuclear inferiority to Russia. The imbalance becomes even worse when one counts tactical nuclear weapons, where Russia has a four-to-one numerical advantage over the U.S. ....

“Nuclear arsenals aside, the timing of Mr. Obama’s nuclear dismantling couldn’t be worse as Mr. Putin contemplates his next moves in Ukraine and sizes up a possible Western response. Someone said recently that Mr. Putin plays chess while Mr. Obama plays checkers, but that’s unfair to the noble game of checkers.”

David B. Rivkin Jr. and Lee A. Casey / Wall Street Journal

“Moscow’s use of troops that have removed their Russian insignia, coupled with explicit denials that its military forces were even engaged in operations in Crimea, violates the Geneva Conventions. The failure to promptly repatriate captured Ukrainian troops and equipment after the invasion of Crimea was complete, and ended, and Russia’s attempt to coerce Ukrainian soldiers to join the Russian military, are also major violations.

“The laws of war are already under assault from terrorist organizations, whose fighters routinely operate out of uniform to blend into the civilian population. Having a major power like Russia engage in similar conduct further erodes respect for these vital norms – and encourages such rogue behavior by other governments and by rebel movements.

“Moscow’s disregard of its treaty commitments has also gravely undermined the cause of nuclear nonproliferation. [Ed. Again, the 1994 Budapest Memorandum.]....

“Now Russia has demonstrated that military force in general, and nuclear weapons in particular, may well remain the only reliable means of protection against hostile actions by larger, more powerful states. If the Russian takeover of Crimea continues to meet with only a tepid international response, the message is clear: Security commitments among states are worthless. This development is certain to have profoundly destabilizing consequences world-wide.”

Bret Stephens / Wall Street Journal

“(Mr. Putin) should move quickly. Russia’s chokehold on Europe’s energy supplies won’t last forever. The easy Fed money that jacks up the price of commodities won’t last forever. Even Mr. Obama’s presidency won’t last forever. On present course, Russia will get weaker, which leaves Mr. Putin with two options: liberalize or conquer. The first option would ultimately require him to step down from power and put him at risk of legal prosecution. The second option gives him the chance to re-legitimize his regime by whipping Russians into a nationalist frenzy and stay in power till he dies in bed.

“If you were Mr. Putin, which option would you choose?

“That’s what makes the White House’s repeated offers of an ‘off-ramp’ so silly. For the Kremlin, foreign conquest is the off-ramp. And if a Western off-ramp is offered with every fresh Russian insult and assault, why take the first one? Let’s take this metaphor to its logical conclusion: If the Obama diplomatic freeway has an off-ramp every few miles, it means Mr. Putin is probably betting he can drive all the way to the state line before he pulls over to fill the tank.

“Which, in his case, is a T-72.

“Mr. Obama has a habit of underestimating his foes. He thought al Qaeda was on the run. He thought Bashar Assad would be gone by now. He thinks Iran will abandon its nuclear programs in exchange for sanctions relief. He thinks of Vladimir Putin as the kid with the bored expression, slouching in the back of the classroom.

“News for the law professor. That kid is smarter than you are. He’s bored because you bore him. He’s about to eat your lunch.”

Israel: The latest round of peace talks between Israeli and Palestinian negotiators broke down after Israel delayed, then canceled, the fourth phase of a Palestinian prisoner release after the Palestinian Authority applied to the United Nations for membership in more than a dozen international agencies. As I noted last time, the Palestinians have long been warned not to take this step.

But Secretary of State Kerry appeared to blame Israel, telling the U.S. Senate Foreign Relations Committee, in describing the negotiations: “A day went by. Day two went by. Day three went by. And then in the afternoon, when they were about to maybe get there, 700 settlement units were announced in Jerusalem and, poof, that was sort of the moment,” he said.

A State Department spokesman immediately tried to backtrack, saying Kerry was clear both sides had taken unhelpful steps.

But Israeli Economy Minster Naftali Bennett quickly responded, “Israel will never apologize for building in Jerusalem.”

Bennett then urged Prime Minister Benjamin Netanyahu to annex some 60% of the West Bank in response to Palestinians stopping talks and turning to the U.N.

“It is clear that the diplomatic process has run its course and that we are entering a new era,” Bennett wrote Netanyahu. “We have been hitting our heads against the wall of negotiations over and over again for years and we kept getting surprised when the wall did not break. The time has come for new thinking.” [Jerusalem Post]

But as a reflection of the problems Netanyahu faces in keeping his fragile coalition together, Finance Minister Yair Lapid vowed his centrist Yesh Atid party would leave if Netanyahu were responsible for a breakdown in the peace process. Lapid supports freezing settlement growth.

Netanyahu ordered all high-level contacts between Israeli ministers and their Palestinian counterparts halted, except for those related to security.

Thursday, Israel imposed further economic sanctions against the Palestinians and will not transfer tax revenue it collects on behalf of the Palestinian Authority. Instead it will use the money to cover Palestinian debts to Israel, a tactic employed many times before and one the PA fears as much as any. It comes out to about $100 million per month. The Palestinians, in turn, have debts of about $150 million to Israel’s electric company.

Norman Podhoretz / Wall Street Journal

“Let me leave aside the Palestinians who live in Israel as Israeli citizens and who enjoy the same political rights as Israeli Jews (which is far more than can be said of Palestinians who live in any Arab country), and let me concentrate on those living under Israeli occupation on the West Bank.

“Well, to judge by the most significant measure and applying it only to two instances of what is going on at this very moment: In Syria, untold thousands of fellow Arabs are starving, while according to the United Nations official on the scene in South Sudan, 3.7 million people, amounting to one-third of the population, are now facing imminent death by starvation.

“And the Palestinians? True, when they wish to go from the West Bank into Israel proper, they are forced to stop at checkpoints and subjected to searches for suicide vests or other weapons in the terrorist arsenal. Once, when she was secretary of state, Condoleezza Rice bemoaned the great inconvenience and humiliation inflicted by such things on the poor Palestinians. Yet she had nothing to say about Palestinians dying of starvation on the West Bank, for the simple reason that there were none to be found.

“Nor did anyone starve to death in Gaza when it too was under Israeli occupation. And despite propaganda to the contrary, neither is anyone facing the same fate in Gaza today because of the blockade the Israelis have set up to prevent clandestine shipments of arms intended for use against them....

“Meanwhile little or nothing of the billions in aid being poured into Gaza – some of it from wealthy American Jewish donors – went to improving the living conditions of the general populace. Which did not prevent a majority of those ordinary Palestinians from supporting Hamas, under whose leadership this order of priorities was more faithfully followed than it was under Fatah, its slightly less militant rival....

“Another thing that never changes: When John Kerry testified on Capitol Hill on Tuesday, it was the Israelis he blamed for this latest diplomatic fiasco.”

John Podhoretz / New York Post

“John Kerry, our secretary of state, is very angry with Israel. ‘Poof,’ he said on Tuesday – describing how Israel destroyed his ‘peace process’ the other week. Just like that.

“The first thing to say is that if a peace process can go ‘poof,’ it can’t have been much of a peace process. Any serious discussion in which two parties are motivated to reach a negotiated arrangement wouldn’t be susceptible to going up in smoke all at once.

“That would indicate it never had any form or substance to begin with.

“And how on earth was it Israel who made Kerry’s fantasy deal go ‘poof’? After all, it sure looked like the key moment that tossed Kerry’s ‘peace process’ onto the dungheap of history was last week’s Palestinian decision to seek membership as a sovereign country in international organizations – a move that’s always been universally seen as complete rejection of negotiating a ‘two-state solution.’

“Not according to Kerry, who apparently sees it as a justifiable response by the Palestinians to unconscionable Israeli actions.

“In Kerry’s telling, the first death blow came when the Israeli government refused to release 26 murderous terrorists from its jails.

“He neglected to mention, of course, that Israel had already freed 78 terrorists as part of the Kerry ‘peace process’ – including a vicious monster who bashed in a 72-year-old Holocaust survivor’s head and is now living on a $100,000 stipend from the Palestinian Authority....

“(What Kerry wants) is a Nobel Peace Prize he’s never going to get.

“That’s why he started this ludicrous process in the first place – to secure himself a consolation trophy after his humiliating defeat at the hands of George W. Bush in the 2004 presidential race. Now, here is John Kerry’s monument: By whoring after a deal he couldn’t get to satisfy his own wounded pride and fulfill his own vainglorious wants, he has been exposed for all to see as a deceitful, pompous, self-righteous and vindictive fool – not to mention a world-historical two-time loser.”

Syria: The White House and Pentagon are apparently at odds on the level of support, especially of the military kind, to lend to the rebel forces, with the Pentagon pushing back on even minimal moves Secretary Kerry and others propose. While both approve of training rebel forces, the Pentagon is concerned Assad will push back on his cooperation in removing his chemical weapons stockpile, which is kind of a joke (see below).

Gen. Martin Dempsey, Chairman of the Joint Chiefs of Staff, is the main opponent of military action. As reported by the Wall Street Journal, Dempsey is afraid “even a limited military operation could embroil the U.S. in a broader regional conflict than advocates realize.”

I want to scream. By some accounts the death toll is up to 160,000, with 9 million+ displaced. What the heck does Dempsey mean?

I was watching CNN’s Fareed Zakaria this week and he said “The idea that if we had invaded Syria” everything would have been better is wrong.

But that’s the same freakin’ straw man such opponents have been echoing since the war started three years ago!

No one has been calling for an invasion, not even Sen. John McCain. I advocated a no-fly zone back in 2012 to protect civilians. That’s not an invasion. And if Gen. Dempsey says an action like that would have led to a broader regional conflict, for starters, he’s wrong. But look what we have today? One million refugees in Lebanon that are destabilizing that country. Another million or so in Jordan, threatening a critical ally there. An absolute disaster in Iraq.

So what is Dempsey talking about? 

And as to that new saw, “Americans are tired,” spare me. That’s what leadership is about. As in presidential leadership.

But as I wrote in 2012, it’s too late. We lost. We lost an entire generation of Syrians, who will despise the United States. That will one day rebound on us.

Meanwhile, Israeli security sources said the Assad regime used a non-lethal chemical weapon on March 27 on the outskirts of Damascus.

Benny Avni / New York Post

“Reports of a chemical attack in Syria last month should raise enough alarm bells in Washington, where a re-evaluation of America’s policy (or lack thereof) on the horrific civil war is much needed.

“Rebel groups say the regime of President Bashar al Assad attacked them with nonlethal chemical agents late last month and possibly before. If true, such reports put a major dent in a rare ‘success’ for U.S. policy in the world’s deadliest active war.

“That success, of course, is Assad’s ongoing voluntary handover of his chem arsenal.

“The rebel claims got a major boost this week from a top Israeli defense official, who confirmed at least one March 27 use of a ‘neutralizing chemical weapon’ against rebels....

“The weapon ‘neutralizes but doesn’t kill,’ the official told reporters. Rebels described symptoms including ‘hallucination, accelerated pulse, trouble breathing and, in some cases, suffocation.’....

“True: Syria can say it didn’t declare the ‘hallucinogenic weapon’ because, being non-lethal, it doesn’t fit the classic definition of a chemical weapon. Then again, a few tweaks can quickly transform an agent that’s already a borderline killer into a deadly one.

“Anyway, this highlights the fact that the assessment that ’50 percent’ of all Syrian chemicals have been eliminated relies on the regime’s accounting. What does ‘half’ mean if the only credible report of the ‘whole’ comes from Damascus itself?”

Finally, a Dutch Jesuit priest, Frans van der Lugt, was shot to death in Homs. Van der Lugt, 75, had refused to leave the besieged city in solidarity with a rebel-held area. He also sought to raise awareness of the suffering of civilians.

But on Monday, he was clearly targeted by a regime gunman who walked into the garden at the monastery and shot him in the head.

Said a friend, “We learned humanity from him, and he used to love Muslims as much as he loves Christians,” Albert Abdul-Massih told the Daily Star. 

The Vatican praised Van der Lugt as a “man of peace, who showed great courage in remaining loyal to the Syrian people despite an extremely risky and difficult situation.”

Lebanon: The head of the Maronite Church suggested that Syrian refugees in Lebanon should be housed in camps inside Syria, reflecting the growing frustration within Lebanon, a nation of just 4.5 million that’s been overrun with one million refugees. Many of the Syrians are now taking Lebanese jobs and tensions are rising rapidly.

In a separate refugee issue, at least eight were killed in fighting between Palestinian factions in a refugee camp in the south of the country. Lebanon has 12 Palestinian camps, home to 200,000. 

Iran: The P5+1 nations (five permanent U.N. Security Council members plus Germany) and Iran completed what officials called “substantive and detailed discussions” on elements of a possible long-range nuclear deal, with the parties meeting again on May 13. Iranian Deputy Foreign Minister Araqchi said his country’s negotiators had “narrowed” their differences. There were reports Iran was prepared to make some concessions on its heavy-water reactor at Arak, but this is trivial compared to the broader topic of enriching uranium and Iran’s ongoing ballistic missile program, which the talks weren’t intended to address!

The goal is to finish a long-term comprehensive agreement by July 20. A draft could be spelled out next month. It’s possible, though, that the parties will just agree to continue the talks another six months while Iran plays its brilliant stall game.

But even Sec. Kerry said this week that Iran’s “breakout” period, the time needed to develop an atomic weapon, was as little as two months.

David H. Petraeus and Vance Serchuk / Washington Post

“It is possible that a nuclear deal would pave the way to a broader détente in Iran’s relations with the United States and its neighbors. It is, however, more plausible that removing sanctions would strengthen Tehran’s ability to project malign influence in its near-abroad, including Syria, Lebanon, Iraq, the Arabian peninsula and the Palestinian territories.

“Rather than marking the end of our long struggle with Iran, therefore, a successful nuclear deal could result in the United States and our partners in the Middle East facing a better-resourced and, in some respects, more dangerous adversary.

“This does not mean we should abandon diplomacy with Tehran....

“But we need to recognize there are genuine trade-offs involved in even the best possible nuclear deal....

“There should also be a clear plan for immediate re-imposition of crippling sanctions in the event of inadequate Iranian implementation of an agreement.

“All too often in U.S. foreign policy, we set a strategic objective and pursue it doggedly – only to be insufficiently prepared for the consequences when we achieve our goal. While it remains uncertain whether a worthwhile nuclear agreement with Iran is attainable, the time for thinking through and preparing for its implications is now.”

Friday, the White House refused a visa to Iran’s nomination for UN ambassador, Hamid Aboutalebi, who was linked to the student group that took dozens of Americans hostage in 1979.   Both the House and Senate voted in favor of a bill barring Aboutalebi from the country.

Libya: Rebel forces have agreed to partially lift their oil blockade in a deal with the government that would reopen two ports (two others later) that could increase Libya’s oil exports by about 200,000 barrels per day; desperately needed cash.

China: It’s a dicey time, with the U.S. and the West facing off against Russia, so what lessons will China learn?

“On one hand, Russia’s strong-arm tactics and meddling in Ukraine are at odds with China’s long-standing commitment to the inviolability of state sovereignty,” said Benjamin Herscovitch, a research fellow with Australia’s Centre for Independent Studies. “On the other hand, Moscow’s disregard for Washington’s denunciations pleases Beijing.”

By the way, China’s first aircraft carrier was made in Ukraine and Ukrainian companies help maintain the engines of Chinese fighter jets. [South China Morning Post]

So this week U.S. Defense Secretary Chuck Hagel went to China where he warned officials there that China does not have the right to unilaterally establish an air defense zone over disputed islands as it did last year without consultation.

Hagel also made it clear the United States would protect Japan, the Philippines and other allies currently locked in dispute with China over various territories.

Hagel’s counterpart, General Chang, said China prefers to resolve disputes diplomatically, but is always ready to respond militarily to threats, adding the Philippines illegally occupies some of China’s islands and reefs in the South China Sea.

Separately, the Chinese military is being accused of continuing to hack western companies despite denying last year’s accusations to this effect.

Mandiant, the U.S. cyber security company that first exposed China’s hacking campaign, said at first activity dropped following its report last year, but it seems the hackers simply changed their IP addresses, which help locate them, and now were back to their old ways, going after the same targets and seeking to gain access to intellectual property, research and development. [Financial Times]

And in yet another example of the mammoth pollution issue, residents in the northwestern Chinese city of Lanzhou “swarmed to supermarkets and cleared bottled water off the shelves on Friday after local authorities warned the city’s drinking water contained ‘excessive’ levels of a toxic chemical, state media reported.”

The chemical is benzene, at levels 20 times the national safety limit. [South China Morning Post]

The above pollution issue was days after an op-ed in the New York Times by Chinese novelist Sheng Keyi, who wrote a piece on “China’s Poisonous Waterways.” As in “More than 50% of China’s rivers have disappeared altogether, and few of the surviving waterways are not completely polluted. Some 280 million Chinese people drink unsafe water, according to the Ministry of Environmental Protection. Nearly half of the country’s rivers and lakes carry water that is unfit even for human contact.

“And China’s cancer mortality rate has soared, climbing 80% in the last 30 years.”

Russia: On top of the Ukraine situation, the crackdown inside Russia continues as this week the Justice Ministry ordered the Russian branch of American Councils, a U.S.-based nonprofit organization (NGO) that administers student exchanges and other educational programs, to immediately cease operations as part of the Kremlin’s ongoing operation to embarrass the U.S. and other foreign governments.

Russia also pulled Voice of America radio off the air by not renewing the U.S.-funded station’s contract, with a senior official calling VOA broadcasts “spam.”

The station began broadcasting in Russia in 1947, but the radio frequency it has used was yanked.

Dmitry Kiselyov, the Putin butt-boy and veteran journalist who was recently named head of the news agency that took over RIA Novosti and was one of the first upon whom the European Union imposed visa and financial sanctions following the annexation of Crimea, notified the U.S. agency that controls Voice of America of the move.

“I view Voice of America and Radio Liberty as spam on our airwaves,” he was quoted as saying.

The U.S. Embassy issued a statement saying it was “disturbed by the latest Russian effort to decrease space for independent and free media in this country.”

The embassy statement added: “In the last year, the Russian government has passed laws imposing unprecedented censorship and restrictions on media. ...It turned the respected news wire service RIA Novosti into a propaganda service...and forced leadership changes at several media outlets simply because those outlets dared to challenge the Kremlin’s extremist policies.” [Moscow Times]

Afghanistan: It would appear the two front-runners in the presidential election were Ashraf Ghani, a former World Bank executive, and Abdullah Abdullah, a former foreign minister. Both claim they scored more than 50% and would thus win outright without a runoff, but it’s not clear when a final tally will be announced. [It was to begin dribbling out this weekend.]

North Korea: One of South Korea’s leading newspapers reported that Kim Jong Un killed or imprisoned 11 high-ranking officials associated with his recently-executed uncle, but an anonymous source to The Chosun Ilbo reported that the deputy public security minister was “executed by flamethrower.” [Washington Post]

Now this might not be true...but then it could be.

India: A five-week election process is underway and in the end, Narendra Modi will be the new leader of India as his Bharatiya Janata Party leads the ruling Congress Party in the polls by as much as 3 to 1. Modi, a highly charismatic figure, promises big change and he has a track record on the economic front. As chief minister of Gujarat state, Modi oversaw growth of 10% a year over the past decade. The Indian stock market has been rallying in anticipation with a wave of foreign investment.

But he was pilloried for his failure to act after anti-Muslim riots in Gujarat in 2002, which killed more than 1,000 people. His exploitation of an anti-Muslim feeling in an election campaign led the U.S. State Department to deny him a visa.

But Modi says he has abandoned anti-Muslim rhetoric – “My real thought is toilets first, temples later.”

As the Washington Post points out, Modi has an autocratic style and a record of hostility toward journalists.

Modi and his party also got in hot water this week when a party manifesto promised to “study in detail India’s nuclear doctrine, and revise and update it,” which led some to believe India was abandoning its no-first-use nuclear-weapons doctrine. Party officials sought to reassure the outside world, and Pakistan, this was not the case.

West Africa: The Ebola virus is now threatening every country in the region, according to the World Health Organization, which announced emergency training for 70 people who would track people in the Guinean capital Conakry who have had close contact with Ebola patients. Conakry, as I wrote last time, is particularly worrisome as it is a port city of 2 million. 110 have died in Guinea and Liberia since January, but there are now suspected cases in Sierra Leone and Mali.

Random Musings

--From a Quinnipiac poll: President Obama has a 42% job approval rating. 50% disapprove.

58% disapprove of his health care policy. 39% approve.

55% disapprove of his handling of the economy. 40% approve.

55% disapprove of his foreign policy. 39% approve.

--The latest Associated Press-GfK poll found that registered voters who are most strongly interested in politics favored Republicans by 14 points, 51% to 37%. In January it was 45-42, Republicans.

Congress continues to score horrendously in this survey. 82% disapprove of its performance. 16% approve.

--Peggy Noonan / Wall Street Journal...on Jeb Bush.

“The Republican establishment, such as it is, has the right to back Jeb if they think he can win. The grassroots has the right to oppose him. Let it be a fight if he chooses it.

“What is jelling into a cliché is true: Jeb Bush’s problem is not immigration per se. That issue is still dynamic; people are arguing and thinking it through. Jeb has an argument to make. When he told an interviewer last weekend that some illegal immigration can be seen as ‘an act of love,’ I read of it and assumed it was an act of phony eloquence – insufficient, tin-eared, a sign that he’d grown rusty. But then I saw the interview. It was clear he was simply expressing a sincere respect for, and a kind of bond with, immigrants who have crossed the border to get the job that will feed the family. I thought of how I would experience his comments if I were here illegally or had a family member who was. I’d appreciate it, a lot. I’d hear what he said as a signal of empathy and understanding. I’d think he was saying ‘have a heart,’ which is what Rick Perry said in 2012. And that’s not the worst thing a Republican could say right now, is it?

“Jeb Bush’s real problem, and not just with members of the tea party, is his early and declared support for the Common Core national school curriculum. He decided to back federal standards for what should be taught in the public schools at the exact moment the base of the Republican Party had had it up to here with federal anything.”

Beyond issues like this, Ms. Noonan observes, you have “the father-brother thing, which is the foreign-policy question. His father is now seen as a foreign-policy realist. He was prudent after the end of the Soviet Union, he was tactful, and when he felt he had to go to war in Kuwait he built a world-wide coalition, did the job he said he would do, and stopped when that job was done. Jeb’s brother is associated with neoconservatism: Be daring, break the tectonic plates, force the realities to reconstitute themselves in new and better ways, invade, spread democracy.

“Where does Jeb stand? What philosophical assumptions guide his decisions? Whichever policy view he declares will seem like an implicit rebuke of someone he loves....

“It will all be complicated. But if you really want the presidency, you accept the complications. You can’t run ambivalently. Mr. Bush knows this, of course, which is why he talks about only running if he feels the joy of it.”

--A New Jersey Superior Court judge ruled that Bridget Anne Kelly, Gov. Chris Christie’s former deputy chief of staff, and Bill Stepien, his two-time campaign manager, do not have to turn over records related to Bridgegate, a major blow to the Democratic legislative committee heading up the investigation. Kelly and Stepien had argued turning over their records violated their Fifth Amendment rights against self-incrimination. Judge Mary Jacobson agreed, writing in part:

“The subpoenas would require compelled testimonial evidence from Ms. Kelly and Mr. Stepien and thus run afoul of defendants’ privilege against self-incrimination.”

The records of Kelly and Stepien are seen as critical to understanding the motivations behind the George Washington Bridge traffic debacle.

But an editorial in the Star-Ledger does give the legislative committee a “clear path to pursuing its investigation.

“Yes, she slapped the committee hard for issuing subpoenas that were so broad they amounted to a ‘fishing expedition.’ And she vigorously defended the important constitutional right against self-incrimination....

“But the judge also gave the committee a big win by affirming its right to grant immunity to witnesses... And once immunity is granted, she ruled, the committee can compel testimony.”

To be continued....

--Regarding the above-mentioned Medicare filings and the physician disclosures, it is very ironic that the number one doctor who was singled out for being the largest recipient, Dr. Salomon Melgen, who was paid $20.8 million by Medicare in 2012, is New Jersey Democratic Sen. Robert Menendez’s close friend and major donor. It was the relationship between the two that came under scrutiny last year when Menendez had to acknowledge he had accepted trips to the Dominican Republic on the doctor’s personal jet without reporting them on his financial disclosure forms.

According to the Washington Post, Menendez had defended Melgen when the latter was under investigation for $8.9 million in billings, going back to 2009. The FBI raided Melgen’s West Palm Beach office last year.

Melgen and his family have given $34,000 to Menendez’s campaigns and another $15,000 to his leadership PAC. [Susan K. Livio / Star-Ledger]

--It’s all come together...an old tape from 1983 showing the Rev. Al Sharpton in an undercover sting operation, discussing cocaine with an FBI agent, and then later working for the FBI to rat out mob bosses. Sharpton was doing nothing more than saving his own skin, though the reverend was scrambling on Tuesday after The Smoking Gun Web site broke the story, saying he wore a wire for the feds because he had been threatened by the mob.

According to The Smoking Gun, Sharpton was shown the undercover drug video by the FBI and agreed on the spot to cooperate with federal agents.

--New York City Mayor Bill de Blasio completed his first 100 days and according to a poll conducted by the New York Times, NY1 and Siena College, the mayor has a 49 percent approval rating among New Yorkers, while 31 percent disapprove of his job performance. By comparison, in Michael Bloomberg’s last month as mayor, 53 percent approved, 35 percent disapproved. About 1,350 days to go. Enjoy!

[59 percent, by the way, oppose the mayor’s plan to get rid of carriage horses. The horses have been scrambling to re-do their resumes. Not knowing any of them personally, someone in New York tell the horses that perhaps Charleston, S.C. is an option.]

--I noted last time that New York City Police Commissioner criticized his predecessor Ray Kelly’s stop-and-frisk policy and a poll for Crain’s New York Business says 87% feel Bratton was wrong to do so.

--A yearlong review of information the U.S. intelligence community had prior to the Boston Marathon reveals that the Russians withheld information from the U.S. that could have made a difference. As reported by Eileen Sullivan of the Associated Press:

“In 2011, Russian authorities told the FBI they were worried that one of the suspected bombers and his mother were religious extremists. The Russians were unresponsive when pressed by the FBI for more details. It was only after the 2013 attack that the U.S. intelligence community learned that the Russians withheld some details that might have led to a more thorough FBI investigation.”

It’s not clear if the cooperation had been better between Russia and the U.S. whether the attack would have been foiled. What is clear is that the relationship between the two has crumbled on all manner of fronts.

--Ted Nordhaus and Michael Shellenberger / New York Times op-ed:

“If you were looking for ways to increase public skepticism about global warming, you could hardly do better than the forthcoming nine-part series on climate change and natural disasters, starting this Sunday on Showtime. A trailer for ‘Years of Living Dangerously’ is terrifying, replete with images of melting glaciers, raging wildfires and rampaging floods. ‘I don’t think scary is the right word,’ intones one voice. ‘Dangerous, definitely.’

“Showtime’s producers undoubtedly have the best of intentions. There are serious long-term risks associated with rising greenhouse gas emissions, ranging from ocean acidification to sea-level rise to decreasing agricultural output.

“But there is every reason to believe that efforts to raise public concern about climate change by linking it to natural disasters will backfire. More than a decade’s worth of research suggests that fear-based appeals about climate change inspire denial, fatalism and polarization.

“For instance, Al Gore’s 2006 documentary, ‘An Inconvenient Truth,’ popularized the idea that today’s natural disasters are increasing in severity and frequency because of human-caused global warming. It also contributed to public backlash and division. Since 2006, the number of Americans telling Gallup that the media was exaggerating global warming grew to 42 percent today from about 34 percent. Meanwhile, the gap between Democrats and Republicans on whether global warming is caused by humans rose to 42 percent last year from 26 percent in 2006, according to the Pew Research Center....

“(Claims) linking the latest blizzard, drought or hurricane to global warming simply can’t be supported by the science. Our warming world is, according to the United Nations Intergovernmental Panel on Climate Change, increasing heat waves and intense precipitation in some places, and is likely to bring more extreme weather in the future. But the panel also said there is little evidence that this warming is increasing the loss of life or the economic costs of natural disasters....

“While the urgency that motivates exaggerated claims is understandable, turning down the rhetoric and embracing solutions like nuclear energy will better serve efforts to slow global warming.”

--According to WWF-Hong Kong, trade in shark fins from Hong Kong to mainland China dropped 90 percent last year. The fall is not only due to pressure from environmental groups to stamp out the trade, but also the crackdown on extravagance and corruption among China’s elite.

--Finally, my late godmother was from Murrysville, Pa., and I have cousins in the area today, so my thoughts and prayers are with the community after this week’s school tragedy there.

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

God bless America.

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Gold closed at $1318
Oil $103.74

Returns for the week 4/7-4/11

Dow Jones -2.4% [16027]
S&P 500 -2.7% [1815]
S&P MidCap -3.6%
Russell 2000 -3.6%
Nasdaq -3.1% [3999]

Returns for the period 1/1/14-4/11/14

Dow Jones -3.3%
S&P 500 -1.8%
S&P MidCap -1.8%
Russell 2000 -4.5%
Nasdaq -3.4%

Bulls 54.6
Bears 18.6   [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Note to new readers, check out the iPad app.

Brian Trumbore