Week in Review

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Week in Review

03/01/2014

For the week 2/24-2/28

It was last November that then Ukrainian President Viktor Yanukovych rejected a trade agreement that would have tied his nation to the European Union in favor of a Russian deal and three months of protest, mostly in Kiev, ensued.

Russian President Vladimir Putin pushed Yanukovych to use force to end the demonstrations. After they turned deadly in horrific violence the week of Feb. 17 (there had been five casualties weeks earlier), with the help of the foreign ministers from Germany, France and Poland, an agreement was reached Friday, Feb. 21, whereby a coalition government was to be formed with new elections to be held in December, earlier than 2015’s scheduled date. 

But the protesters in Independence Square (the Maidan) were none too pleased that Yanukovych was going to remain in power until year end, with Yanukovych warning a protest leader that if the opposition did not sign the plan, “you will all be dead.” [As relayed by Polish Foreign Minister Radoslaw Sikorski, who overheard the conversation.] That’s where I left things when posting midnight last Friday.

Saturday morning, Yanukovych fled, only to pop up in the afternoon from the eastern city of Kharkiv, near Ukraine’s eastern border with Russia, saying he had been forced to leave the capital because of a “coup,” and that he had not resigned, nor planned to do so.

Former Prime Minister Yulia Tymoshenko, in prison on what most would say were trumped up corruption charges, was freed after a vote from parliament. Saturday evening she returned to Kiev and the Maidan to give an impassioned speech.

“Heroes never die,” she told the crowd as it shouted her name. “I hope our whole country would be able to see the sun from today. Because the best sons of our country lost their lives...they have given up everything... Now we have one task – to make sure that each drop of blood won’t have been dropped in vain, that each drop of blood won’t be forgotten.”

Tymoshenko’s comeback, should she decide to do so, carries risks of its own kind. She is not universally popular and is tied too closely to the corrupt elite, as well as deserving of some of the blame for the chaos of the post-Orange Revolution years. Arseniy Yatsenyuk, 39, who was later appointed prime minister, is an ally.

Russia refused to recognize the interim government, now sans Yanukovych, with Foreign Minister Sergei Lavrov repeatedly insisting Ukraine’s leaders were bound by the agreement mediated by the three European foreign ministers, though Russia didn’t sign it as they were otherwise able to do.

Oleksandr Turchynov, the parliament speaker, was named new interim president and immediately called for $35 billion to avoid default. Russia had worked out a $15 billion bailout with Ukraine in December ($5 billion of it transferred thus far), as Yanukovych turned away from the E.U. and to Moscow, but following Yanukovych’s ouster, the Kremlin suspended any further funding.

It would be up to the E.U., U.S., and IMF to act decisively to save the Ukrainian economy.

Ukraine’s oligarchs, who control a disproportionate share of the wealth in the country, had not sided with the protesters, having amassed their wealth under Yanukovych, one of the oligarchs being his own son who has a wealth estimated at $200 million. It’s still not known where the oligarchs stand, with their assets now obviously at risk.

Understand Ukraine’s economy is still smaller than it was in 1992, the early post-Soviet days. The government is using up its foreign exchange reserves at a dangerous clip.

Russian Prime Minister Dmitry Medvedev spoke up on Monday and had harsh words for Ukraine’s new leaders.

“If you consider Kalashnikov-toting people in black masks who are roaming Kiev to be the government, then it will be hard for us to work with that government.”

Wednesday, President Vladimir Putin ordered the Defense Ministry to conduct massive military drills in the western district bordering Ukraine. Defense Minister Sergei Shoigu said that the armed forces in the area were already “combat ready.” Foreign Minister Lavrov said any cooperation with Ukraine was only possible if requested by “legitimate authorities,” and he didn’t consider the new Ukrainian government to be so. The Foreign Ministry office echoed Lavrov’s remarks:

“Russia is concerned with the atrocities committed by Ukrainian extremists, who, convinced of their license and impunity, continue to impose their will [on the population].”

Former Ukrainian presidents Leonid Kravchuk, Leonid Kuchma and Viktor Yushchenko lashed out at Russia on Wednesday in a joint statement:

“Russia, which has always labeled our foreign partners’ attempts to deal with the situation through political means as interference, has now itself interfered in Ukraine’s political life.”

A Russian foreign policy official told the Financial Times:

“If Ukraine goes, we could face new separatist pressures within Russia. Moreover, losing Ukraine would mean that Russia becomes weaker. How weak do you want us to become? Do you think a weak Russia is good for anyone?”

The interim government said, “The Treasury is empty, it faces debts of $75 billion and Ukraine’s overall debt is $130 billion. Pensions haven’t been paid in full for more than a month and the foreign-exchange reserves have been looted.”

Even more worrisomely, Ukraine owes about $3 billion to the Russian gas company Gazprom. Said an E.U. official to the BBC, “The gas is still flowing, but the money is not coming back.”

Thursday, Ukraine’s interim government was approved by parliament, including Prime Minister Yatsenyuk. But the Crimean parliament announced it would hold a referendum on expanding the region’s autonomy on May 25, the same day as Ukraine’s presidential vote. Yatsenyuk insisted the country wouldn’t accept the secession of Crimea. The Black Sea territory, he declared, “has been and will be a part of Ukraine.” New acting President Turchynov warned any move by Russian troops off of their base “will be considered a military aggression.”

Thursday night, armed men began to take some of the government buildings in Crimea, to which Turchynov said, “I have given orders to the military to use all methods necessary to protect the citizens, punish the criminals and to free the buildings.”

Thursday and Friday, Russian naval forces and other unidentified armed forces (assumed to be Russian troops, with some volunteers calling themselves the People’s Militia of Crimea) moved in and occupied two airports in Crimea. Ukraine’s interior minister, Arsen Avakov, said their presence represented an “armed invasion.” Amid the military exercise, Russian fighter jets were constantly maneuvering on the border regions.

It is unclear how much control Avakov has over the military and security forces, especially after he disbanded Yanukovych’s elite police, the Berkit unit, who were involved in killing the demonstrators in Kiev. It can be assumed many of them headed to Crimea.

Polish Foreign Minister Sikorski said, “Regional conflicts begin this way,” calling the situation “a very dangerous game.”

Vladimir Putin broke his silence and urged his government to maintain relations with Kiev and work with the West on a bailout, while vowing to uphold the territorial integrity of Ukraine.

Ethnic Ukrainians loyal to Kiev and Muslim Tartars, who despise Russia going back to the days of Stalin and forced deportations, are allied against any move by Moscow to retake the peninsula.

Amid the escalating tensions, Ukraine’s central bank put a 1,000 euro limit on daily bank withdrawals in hard currency.

Then Friday, Yanukovych held a news conference in the city of Rostov-on-Don, hours from the Ukrainian border. Claiming he was still the nation’s rightful leader, he urged Russia to refrain from military intervention in Crimea.

Yanukovych told reporters the country should abide by the peace accord. He labeled the parliament in Kiev illegitimate and vowed to return when it’s safe.

“The whole Ukrainian people were cheated – I’d like to get an answer from those who signed this agreement.”

Yanukovych said he had spoken with Putin by phone and that the two agreed to meet at an appropriate time.

Late Friday afternoon, President Obama appeared in the White House briefing room to read a statement that said in part:

“We are deeply concerned by reports of military movements taken by the Russian Federation inside of Ukraine.

“The United State will stand with the international community in affirming that there will be costs for any military intervention in Ukraine.”

Any violation of Ukraine’s sovereignty and territorial integrity would be “deeply destabilizing.”

“Henry Kissinger once pointed out that since Peter the Great, Russia had been expanding at the rate of one Belgium per year. All undone, of course, by the collapse of the Soviet Union, which Russian President Vladimir Putin called ‘the greatest geopolitical catastrophe of the [20th] century.’

“Putin’s mission is restoration. First, restore traditional Russian despotism by dismantling its nascent democracy.  And then, having created iron-fisted ‘stability,’ march.

“Use the 2008 war with Georgia to detach two of its provinces, returning them to the bosom of Mother Russia (by way of Potemkin independence). Then late last year, pressure Ukraine to reject a long-negotiated deal for association with the European Union, to draw Ukraine into Putin’s planned ‘Eurasian Union’ as the core of a new Russian mini-empire.

“Turns out, however, Ukraine had other ideas. It overthrew Moscow’s man in Kiev, Viktor Yanukovych, and turned to the West. But the West – the E.U. and America – had no idea what to do.

“Russia does. Moscow denounces the overthrow as the illegal work of fascist bandits, refuses to recognize the new government created by parliament, withholds all economic assistance and, in a highly provocative escalation, mobilizes its military forces on the Ukrainian border.

“The response? The E.U. dithers and Barack Obama slumbers. After near total-silence during the first three months of Ukraine’s struggle for freedom, Obama said on camera last week that in his view Ukraine is no ‘Cold War chessboard.’

“Unfortunately, this is exactly what it is for Putin. He wants Ukraine back....

“What Obama doesn’t seem to understand is that American inaction creates a vacuum. His evacuation from Iraq consigned that country to Iranian hegemony, just as Obama’s writing off Syria invited in Russia, Iran and Hizbullah to reverse the tide of battle....

“Kissinger once also said, ‘In the end, peace can be achieved only by hegemony or by balance of power.' Either Ukraine will fall to Russian hegemony or finally determine its own future – if America balances Russia’s power.

“How? Start with a declaration of full-throated American support for Ukraine’s revolution. Follow that with a serious loan/aid package...to get Ukraine through its immediate financial crisis (the announcement of a $1 billion pledge of U.S. loan guarantees is a good first step). Then join with the E.U. to extend a longer substitute package, preferably through the International Monetary Fund....

“Yes, $15 billion is a lot of money... (But) expending treasure is infinitely preferable to expending blood. Especially given the strategic stakes: Without Ukraine, there’s no Russian empire.

“Putin knows that. Which is why he keeps ratcheting up the pressure. The question is, can this administration muster the counterpressure to give Ukraine a chance to breathe?”

“As to how Vladimir Putin might respond to his humiliation last week in Ukraine, the answers came in rough and rapid succession on Thursday. At least the U.S. and the European Union can’t harbor any more doubts about the Russian president’s intention to provoke a possibly violent conflict in Europe....

“As long feared, Crimea has become the flashpoint for conflict between the two large neighbors. A majority of Crimea’s residents are ethnic Russians, but a significant Ukrainian and Crimean Tatar minority lives there. The region has long been sleepy, but a pro-Russian demonstration was held last weekend and on Wednesday the Tatars put on a larger counter-protest. Now there are reports of ‘volunteers’ headed to Crimea from Russia and armed checkpoints on important access routes in the peninsula manned by Russian loyalists.

“This manufactured crisis catches Ukraine at its most vulnerable moment. A transition cabinet was only voted in on Thursday in Kiev. The interim president, who took over Sunday, warned against ‘military aggression’ and told Russian troops to stay in their bases. Ukraine has police and other security forces in Crimea. But the troubles there distract Ukraine’s new rulers from making good on promises to clean up government and save a sinking economy. As Mr. Putin no doubt intends.

“The Kremlin is testing the Western response as much as Ukraine’s. Mr. Putin saw that Washington and Europe did little to help Georgia when Russia invaded in 2008 and were phlegmatic during Ukraine’s three months of protests. This week’s moves suggest he is now contemplating a territorial carve up of Ukraine, which is one way to ensure it stays out of the E.U. and NATO....

“The future of democracy in Ukraine, and as of Thursday perhaps peace in Europe, is on the line here. The Obama Administration finally awakened to the Kremlin challenge on Ukraine in the last two weeks, but now Mr. Putin is raising the stakes again. The alarm is ringing in Crimea.”

“The hope must be that (Vladimir Putin) recognizes quickly that his options are limited. This is not 1956 in Hungary, or 1968 in Czechoslovakia when the Kremlin crushed popular uprisings with brutal force. A vicious military response by Moscow to the revolution in Kiev would see Russian troops battling insurrection everywhere. Mr. Putin could of course resort to more underhand tactics. He might cut off gas shipments to Ukraine as he did in 2006 and 2009, or impose trade embargoes. He could seek to weaken the coherence of the Ukrainian state by asserting full Russian control over Crimea. But none of this will alter a basic truth: former President Yanukovych, the designated Kremlin ally, is a busted flush. He could seek another protégé. But as a strategist, Mr. Putin must know his gambit of turning Ukraine into a Russian satellite is unworkable. Permanently destabilizing the country is a tactic, not a policy....

“Throughout recent weeks protesters in Maidan Square in Kiev have wrapped themselves not only in the blue and yellow flags of Ukraine but also in the blue and yellow stars of the E.U. flag. The E.U. has come to represent democracy, freedom and decent, if not perfect, governance. These are universal values. Over the past week, Ukrainians have shown they are prepared to sacrifice their lives for those values in the hope of a better future. In 1989 western leaders and an enlightened Kremlin leader recognized the new reality. History deserves to repeat itself.”

* On 1/4/14 in this space, as one of my 2014 predictions, I wrote, “Ukraine will continue to be roiled, but it’s not a market-moving event. Tymoshenko will be released from prison.” Well, I already nailed this one, including how it is not as yet a market-moving event. To wit...

Washington and Wall Street

Stocks rose on the week, despite the tensions in Ukraine, with the economic data mixed. The S&P/Case-Shiller home price data for December showed the 20-city index up 13.4% over December 2012, though the month-to-month gains are clearly slowing, with S&P saying “Higher home prices and mortgage rates are taking a toll on affordability.” While rates remain historically low, you still have a mortgage rate that has risen from a low of 3.35% to 4.35% so percentage wise significant.

But then we had new-home sales for January and they came in far better than expected, up 9.6% over December. However, few really believe the number.

January durable goods (big-ticket items) were down 1.0%, as expected, though ex-transportation the figure was up 1.1%, a positive, while the Chicago Purchasing Managers Index for February was a strong 59.8, also above expectations.

But the first revision of fourth quarter GDP was released on Friday and it registered up 2.4%, down from the flash estimate of 3.2%.

Q1...1.1%
Q2...2.5%
Q3...4.1%
Q4...2.4%

Not exactly robust, but the markets have liked it because the Fed gravy train continues, even if the pace is being tapered.

Speaking of which, Federal Reserve Chair Janet Yellen appeared before the Senate Banking Committee for her snowstorm-delayed testimony (first appearance before this group) and she gave the markets what they wanted to hear...the weather was to blame for the recent softness in some of the economic data, though to what extent the Fed doesn’t know as yet.

“What we need to do...is to try to get a firmer handle on exactly how much of that set of softer data can be explained by weather and what portion if any is due to a softer outlook.”

“If there is a significant change in the outlook certainly we would be open to reconsidering (the current level of tapering in the bond-purchase program, QE 3), but I wouldn’t want to jump to conclusions.”

The market, which is in constant need of heroin, just wanted to make sure Yellen knew enough to pull back on the tapering of its asset purchases if the data is soft because of more than bad weather, such as the storm now sweeping the country that promises to do a number in my area in time for the start of the new work week.

So we’ve completed two months of action in 2014 and a brief word on how I see things vs. my forecast for the year.

I said the U.S. economy would be fine, but that the first half would be better than the second and that some big picture events would interfere in the second half and the major averages would end down 2% to 5% (Nasdaq). You know I don’t change my mind and the jury is still out whether the economy is going to run at a 3% rate or a 2% one, again, at least in the first six months. I was thinking 3% and this isn’t looking that good, for now.

If we do get decent growth, however, whether it’s the first half or second, interest rates are going up. I guarantee it. In fact I said we’d see 4.00% on the 10-year at some point in 2014, largely because of an inflation scare, two consecutive quarters in a few key data points, whether it is the CPI or the Fed’s favored PCE (personal-consumption expenditure price index).

But forget the ever-present geopolitical nature of things that I always harp on, some meaningful for the markets, some not, thus far in this stupendous equity rally off the March 9, 2009 low, especially in 2013, the much-touted earnings improvement is to a certain extent nothing more than smoke and mirrors, financial engineering, think stock buybacks.

For example, this week Thomson Reuters reported that fourth quarter earnings per share were up a robust 9.6% for the 80% of the S&P 500 reporting thus far, but revenues were up only 1%.

I had a discussion this week with long-time friend Mark R. who said, “You never talk about the real earnings picture.” “Yes I do,” I replied. “All the time.”

In fact that’s all I’ve been talking about, revenues vastly underperforming earnings. And I have brought up the financial engineering aspect before.

Now if you tell me that Corporate America is going to start growing revenues by 5, 6, and 7 percent in 2014 and beyond, well, there’s a good reason for rising share prices because this will auger pricing power, not the pricing pressure environment we’ve been in. That’s good.

But, this will also mean the Fed will be under increasing pressure to not only take away the punch bowl more quickly in terms of its bond purchases, but if my inflation scare comes to pass, the Fed is finally going to have to hike interest rates off the zero level. And that would scare the equity markets (and do a number on bond funds’ net asset values, too).

Couple that scenario with some of the geopolitics we’ll see, including, finally, a resolution one way or another on Iran’s nuclear program (either they’ll get the bomb or the U.S. and Israel will ensure they don’t for years to come), stock prices will finish the year lower, even if not by much.

So that’s my story as of February 28, 2014, and I’m sticking to it.

Europe and Asia

There were a number of key data points this week. The European Commission revised its 18-nation eurozone forecast for growth to 1.2% for this year and 1.8% in 2015. [For the full 28-nation E.U., 1.5% in 2014, 2% next year. U.K. GDP is estimated at 2.5% this year.]

Economics commissioner Olli Rehn said the “recovery is gaining ground,” but “still modest.”

Then Eurostat, the E.U.’s statistics arm, released the latest unemployment data and it remained awful. For the eurozone-18, the rate is still 12.0%, unchanged since October and the same rate as January 2013. The EU28 jobless rate is 10.8%. It was 10.9% a year earlier.

Among the key countries you have Germany at 5.0% (the German government pegs it at 6.8%), while France was at 10.9% in January, Italy 12.9%, Spain 25.8% and Greece 28.0% (November).

Year-over-year, the most noticeable improvement was in Ireland, which saw its jobless rate fall from 13.8% to 11.9%. 

Then you have the youth rates, still a sickening 54.6% in Spain, 59.0% in Greece (Nov.), 42.4% in Italy and 34.7% in Portugal (though here down from 40.3% Jan. ’13).

So, overall, zero improvement in euroland on the labor front, which makes for a volatile European Union parliamentary election come May. There is no reason to believe some far-right parties won’t receive 15% to 20% of the vote, closer to the latter in the case of France’s National Front (FN).

One other big picture item. Eurostat released its flash estimate of inflation for February, 0.8%, same as December and January and still far below the European Central Bank’s target of 2.0%. Germany is running at an annualized inflation rate of 1.2% and France 0.8%, while Greece continues to suffer from deflation, with prices down 1.4% (though as in the case of Spain, with falling wages its economy becomes more competitive...at least that’s the plan).

The French government actually reported its unemployment rate was 11.0%, not Eurostat’s 10.9%, which does President Francois Hollande no good, especially ahead of municipal elections.

Germany reported exports rose a solid 2.6% in the fourth quarter over the third.

And Spain’s official GDP figure for the fourth quarter was up just 0.2% over the previous quarter vs. an earlier estimate of 0.3%. Home prices here are off 45% from the peak.

Denmark’s GDP fell 0.5% in the fourth quarter after a rise of 0.3% in the third. This country continues to suffer the aftereffects of its own housing bubble that triggered a community banking crisis.

And in Italy, it’s official. 39-year-old Matteo Renzi is the new prime minister after winning a vote of confidence in the Senate 169-139 (out of 320 seats) and in the lower house, 378-220 (630 total here). Many in Italy are unhappy, however, because Renzi becomes an unelected prime minister. I mean talk about dodging a vote. The legislature is expected to remain in power until 2018 and Renzi hopes to tag along. Renzi removed the former prime minister, Enrico Letta, in a party coup and only 29% of the people supported Letta’s removal.

Renzi is promising some tax cuts and stimulus for small business, while paying down Italy’s  debts.

But before Italy takes over the rotating presidency of the E.U. on July 1, he wants rapid approval of his reform agenda, including electoral reform.

I know I throw a lot at you every week. I’m well aware some readers skip this section, others Wall Street stuff, others random musings, but aside from trying to give you a broad understanding of the situation in Ukraine this week, if you learn nothing else, just look again at the numbers in Italy’s parliament. 320 seats in one chamber, 630 in the other. 950!

Italy has a population of about 60 million compared to the United States’ 320 million, yet we have 535 congressional seats and they have 950. It’s beyond absurd.

And of course it has led to a stagnant bureaucracy, with legislators doing nothing more than protecting their turf and privileges (like fancy chauffer-driven cars) and the entire apparatus is very expensive.

So Renzi, like politicians before him tried to do, wants to reduce the number of lawmakers, which would produce large savings and simplify the public administration.

Good luck. My guess, ain’t gonna happen. Plus the record unemployment rate of 12.9% in January, the highest since they began keeping such data here in 1977, doesn’t help. And you have a humongous debt, the largest in Europe.

On the other hand, Renzi represents generational change of the kind never before seen in post-World War II Italy. One lawmaker was quoted by Bloomberg as saying, “I, for that man, Matteo Renzi... He belongs, like us, to the Apple generation of Steve Jobs, who told young people, ‘Stay hungry, stay foolish.’”

Lastly, on a different issue, the Financial Times’ Peter Spiegel reported that the German and Finnish finance ministries issued a blistering statement concerning Brussels’ attempt to ease the austerity demands of struggling countries like France and Spain, saying such flexibility was improper and totally “arbitrary.”

The E.U. mandates a deficit cap of 3% of GDP and France, which was given an extension to 2015 is on track for 3.9% while Spain, which must reach 3% in 2016, will see its deficit rise instead to 6.5% next year.

The austere Germans and Finns (I’m liking the Finns more and more, by the way) say many of the E.U. nations talk a good game of reform but the numbers never stand up.

Then there is Greece. Not for nothing, sports fans, but while some of their economic metrics are improving, the troika supplying their bailout funds are at odds with the Greek government over the banking sector. Greece contends its financial system requires less than 6bn euro of new capital, while the troika (ECB, EC and IMF) says the banks need over three times that level.

The troika is ticked off that less than half of the economic reform commitments Greece previously agreed to haven’t been implemented.

So, Greece and the troika are headed to a major fight as the potential exists Greece could require a third bailout down the road, and what do you think the Germans and Finns would say to that? The crisis would start all over again.

Yes, Europe needs growth, and quickly, and this is where turmoil in Ukraine could be a major hindrance in achieving that goal.

Turning to China, the latest look at the housing sector in its main 70-city index saw prices rise 9.6% in January over a year earlier, down from December’s 9.9% pace. It’s a sign that banks could be pulling back on lending to developers.

And late Friday, we learned that the government’s official purchasing managers index for manufacturing fell to 50.2 in February from 50.5 in January, just barely indicating expansion. A PMI subindex for new export orders fell to 48.2 from 49.3, casting doubt on the strength of global demand for Chinese goods.

But the big story concerned the Chinese government’s manipulation of the currency, the yuan, or renminbi, which capped off its biggest weekly decline in years, as the government gets set, supposedly, to allow the currency to float in a wide band. The thing is the currency had been a one-way bet, up, only to have the government reverse course in an attempt to whack speculators, who have been flooding the country with inflows. [Everyone has a different opinion as to what is really going on, this just happens to be mine.]

Chinese companies and hedge funds could both face big losses from complex hedging strategies based on prior renminbi appreciation. On this I am far from an expert. For now I agree with those who say China is not depreciating its currency to boost exports.

As for Japan, a slew of data was released. Industrial production soared 4% in January over December, important because fourth quarter GDP was recently reported at a very disappointing 1% annualized pace so the production figure alleviates some concern. January retail sales were also the best ever for the month, up 4.4% year on year.

The surging business and consumer numbers make sense ahead of April’s sales-tax hike which will crush demand for a quarter, or maybe more, with the government already projecting GDP for Q2 will decline at a whopping 4% rate.

Consumer prices in January, ex-fresh food (their core metric) rose 1.3% from a year earlier. The unemployment rate is just 3.7%.

Street Bytes

--As noted above, stocks rose, with the Dow Jones adding 1.4% to 16321, while the S&P 500 hit a new all-time high, Thursday and Friday, finishing at 1859, up 1.3%, while Nasdaq added 1.1% to 4308, just 740 points shy of its high-water mark set back on 3/10/00.

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.32% 10-yr. 2.65% 30-yr. 3.58%

The long end of the curve rallied back some with the uncertainty in Ukraine.

--Canada’s GDP grew at a 2.9% annualized pace in the fourth quarter, compared with 2.7% in Q3 and better than expected. Consumer spending increased at a 3.1% annualized rate for the quarter. Inflation is well under control, 1.5% in January.

--India’s Q4 GDP grew at an annual rate of 4.7%, down from 4.8% in the previous quarter and the fifth quarter in a row that the rate of growth has been below 5%. Manufacturing fell 1.9% compared with the previous year.

--Brazil’s government announced its economy grew 0.7% in the fourth quarter over the third, and 2.3% for the year, better than expected. President Dilma Rousseff is standing for re-election in October. Inflation has fallen back to 5.6% after peaking at 6.7% in June.

--Australian capex, business spending, fell 5.2% in the fourth quarter, far worse than expected. It’s no longer just the mining sector.

--Profits at giant retailer Target plunged 46% after the massive security breach suffered over the holiday shopping season, but slightly exceeded expectations, though sales fell 5.3% in the three-month period ending February 1. CEO Gregg Steinhafel said, “Results softened meaningfully following our December announcement of a data breach. As we plan for the new fiscal year, we will continue to work tirelessly to win back the confidence of our guests and deliver irresistible merchandise and offers, and we are encouraged that sales trends have improved in recent weeks.”

It’s that last bit, improving sales trends, that helped Target’s shares avoid a further fall, and in fact they surged higher.

--JCPenney narrowed its loss for the fourth quarter (it had a profit due to a special charge, otherwise it was an operating loss), and the shares rose as CEO Mike Ullman said, “The most challenging parts of the turnaround are behind us.” Not sure I believe the guy, but the stock rose 25% nonetheless.

--Macy’s handily beat on the bottom line for the fourth quarter, but revenue slipped 1.6% and same-store sales rose just 1.4%, below forecast. Macy’s, like every other retailer, cited the severe weather, saying at one time during January, 244 Macy’s and Bloomingdale’s stores were shut down.

But CEO Terry Lundgren was confident that “Once warm spring weather arrives and our full assortment of fresh spring merchandise is in place, we believe customers will return to a more normalized pattern of shopping.”

--Tesla Motors, the U.S. electric car manufacturer, announced plans to raise at least $1.6 billion through the sale of convertible securities for building a new battery factory. CEO Elon Musk is calling the facility a “gigafactory” and analysts have said it will challenge the U.S. power industry.

Meanwhile, Consumer Reports named the Tesla Model S the best vehicle on the road. [Five of the magazine’s 10 top picks were Japanese nameplates, including Honda’s Accord (I’m like an eight-time owner of this particular vehicle) and Toyota’s Prius hybrid.]

Tesla’s shares soared further into nosebleed territory as a Morgan Stanley analyst essentially doubled his price target, recalling the worst of the dot-com bubble, though the analyst is basing his projection on Tesla dominating the power storage industry, as well as becoming a leader in self-driving vehicles.

--As the home refinancing market continues to cool, Wells Fargo & Co. announced it was cutting another 700 mortgage jobs, on top of at least 6,900 since July. Mortgage originations fell 60% in the fourth quarter over Q4 2012.

--JPMorgan Chase announced it would cut 8,000 jobs in its mortgage and retail banking sectors. Last year, JPM laid off more than 16,500 in those same areas. But the bank also said it was hiring 3,000 elsewhere.

--Citigroup Inc. announced it had discovered fraud on loans to a Mexican oil-services company, with invoices to Oceanografia having been falsified and processed by a Citigroup employee.

Citigroup was forced to restate 2013 earnings, lowering them by $235 million, while as much as $400 million was misappropriated according to CEO Michael Corbat. Corbat, in noting the restatement of earnings, added, “The impact to our credibility is harder to calculate.”

--Royal Bank of Scotland Group PLC, 81% owned by the British government, announced a plan to cut $8.3 billion in costs over the next four years.

--Allianz SE, parent of PIMCO, backed the direction of the Newport Beach, Ca., fixed-income behemoth as Bill Gross has pledged not to be a one-man show and, under a new management structure, will share authority with six deputy chief investment officers, as well as a new CEO; this following the departure of co-CIO, CEO Mohamed El-Erian.

Allianz CEO Michael Diekmann said on Thursday, “We are very active in the governance issues, but we’re not getting involved in investment decisions because those are third-party assets.”

The PIMCO segment of Allianz’s business suffered a 23% drop in operating profit in the fourth quarter owing to declines in assets under management. PIMCO contributes about 80% of Allianz’s asset-management revenue.

As for the Wall Street Journal report that cited Gross and his behavior as a major cause for El-Erian’s departure, I said my piece on this earlier. I am right in thinking El-Erian was simply burned out, while no doubt Bill Gross is difficult to work for. I also respect the man tremendously.

--The Mt. Gox bitcoin exchange in Tokyo closed this week, convulsing the bitcoin market. Chinese investors actually rushed to buy bitcoin as the value dropped, considering it undervalued

Japanese authorities announced a probe into the shutdown. A leaked company document said its customers’ 625,000 bitcoins and its own 120,000 holding, together worth $470 million at current prices, had been stolen through a hack attack.

The trading platform went offline, preventing customers contacting it. Then on Friday, Mt. Gox filed for bankruptcy.

So, is this the beginning of the end? Mark Williams, a risk-management expert and former Federal Reserve Bank examiner, told the Los Angeles Times: “This is extremely destructive. What we’re seeing is a lot of the flaws. It’s not only fragile, it’s fragile as eggshells.”

There have been other issues this year. The chief executive of another bitcoin exchange was arrested on money-laundering charges. Russia has banned it.

Federal Reserve Chair Janet Yellen told senators Thursday the central bank can’t regulate bitcoin because it operates outside the banking system.

--The National Highway Traffic Safety Administration announced it had launched an investigation into “the timeliness of General Motors’ recall of faulty ignition switches to determine whether GM properly followed the legal processes and requirements for reporting recalls.”

The recall involves various GM models from 2003-2007 and now totals 1.37 million vehicles in the U.S. and another 253,000 in Canada and Mexico.

There have been 33 crashes and 13 deaths linked to the recall. Eight of the deaths involved the Chevy Cobalt and nearly identical Pontiac G5.

The problem has to do with the key ring and GM is saying “use only the ignition key with nothing else on the ring” when driving until you get it repaired. 

--Credit Suisse CEO Brady Dougan was finally forced to admit the Swiss banking giant helped U.S. clients evade paying taxes in a secret operation Dougan claims was limited to a small group of Swiss-based employees.

A Senate subcommittee report blasted Credit Suisse, proving that bankers from at least 2001 to 2008 enabled as many as 22,000 Americans controlling an estimated $12 billion in assets to avoid paying the IRS.

The Senate report showed that bankers secretly traveled to the U.S. on tourist visas to solicit the American business, doing their recruiting at parties and golf outings. They would meet pre-existing U.S. clients in five-star hotels and pass account statements tucked into magazines, the report disclosed.

Testifying before the subcommittee, Dougan confirmed the findings. Sen. John McCain, R-Ariz., criticized the Swiss government for secrecy laws that barred Credit Suisse from complying with U.S. Department of Justice subpoenas issued in 2011.

“Any idea that the Swiss government is cooperating with us is a joke,” said McCain. Thus far, information on only 238 U.S. accounts has been turned over.

Dougan said he faced potential prosecution under Swiss law if the bank complied with U.S. subpoenas, to which Sen. Carl Levin, D-Mich., reminded him that the bank generated some of its profits in the U.S.

“You want to do business here, you’ve got to comply with our laws. Pony up the names.”

Federal efforts against offshore tax evasion have prompted 40,000 Americans who held offshore accounts to step forward under IRS leniency programs and pay more than $6 billion in back taxes, interest and penalties. [Kevin McCoy / USA TODAY]

Credit Suisse is actually one of about 14 Swiss banks under criminal investigation by the U.S. for using Switzerland’s secrecy laws to hide assets.

--Enterprise cloud applications leader Workday, Inc. saw its shares surge to yet another new high after the company reported revenues soared 74% in the fourth quarter of fiscal 2014, with subscription revenues up 86% from the same period a year earlier. Total revenues for the year rose 71% to $469 million. Workday still reported a loss but the Street is focused on revenue growth for now.

Aneel Bhusri, chairman, co-founder, and co-CEO, said, “Fiscal 2014 marked a significant year of growth with more than 200 new customers and 800 new employees joining Workday.”

--Best Buy Co. Inc. reported better than expected earnings, even as sales fell 2.6%. The company expects total revenues and same-store sales to remain “slightly negative” in the first half of the year. Up to 2,000 mid-level managers face the ax in a major cost-cutting initiative. The bloodbath is said to be taking place at the regional level to minimize the damage inside the stores. Remaining regional managers will now be stretched very thin, however.

--After four months, the Hawaii Health Connector had signed up only about 4,300 people for ObamaCare, the worst performance in the country, despite allocating at least $120 million on setting up the exchange. Colorado, by contrast, spent far less and had signed up more than 68,000 people by Feb. 1, plus they can smoke pot legally! Dudes!

--Qantas Airlines is catching a lot of heat in Australia as it announced plans to cut 5,000 jobs after reporting a pre-tax loss of A$252 million for the second half of 2013.  The airline also plans to cut its fleet by more than 50 aircraft as it faces tougher domestic and international competition.

Qantas is trying to convince the Aussie government it deserves backing. Foreign ownership of the airline is limited to 49% and Qantas wants this relaxed to encourage overseas investment.

--U.S. cattle futures hit a record this week and are up 10% so far this year, while hog futures reached their highest level since August 2011 with supplies declining due to a swine virus. Moooo....Oink oink...

--Walt Disney raised the price of a one-day ticket to its Magic Kingdom theme park in Orlando by $4 to $99. Prices at Walt Disney World, including Epcot, also jumped $4. This is a good economic sign. Pricing power.

--Netflix announced it is paying Comcast an unspecified amount, no doubt $millions, for more broadband access. Netflix, though, treats us like morons, saying it is not receiving “preferential network treatment.”

Of course it will be. And now Verizon is scrambling to give Netflix the same preferential treatment, for a hefty fee of course.

According to a story by David Lazarus of the Los Angeles Times, “Netflix accounts for about a third of prime-time Internet traffic in North America.... Stir YouTube into the mix, and that’s half of all online traffic between 6 and 10 PM.”

The average schmo who doesn’t use either is going to be paying increasingly more for those who do.

“The notion that private-sector workers earn more than their government counterparts has endured for decades, and has been reinforced in New York City by a drumbeat of complaints from public-sector unions that their members have not received raises in years.

“Close observers of city government have always known better, based on comparisons of similarly qualified workers that found public-sector compensation has been slightly greater for quite a while.

“But it turns out that these observers were also off the mark; The pay discrepancy here is no longer modest. It’s actually massive.

“The median salary of municipal workers was $65,300 in 2012, compared with $34,100 in the private sector, according to a recent analysis by the city’s Independent Budget Office. Those numbers do not account for any differences in education and experience, but they are striking nonetheless.

“Moreover, the IBO found that the discrepancy increased substantially between 2005 and 2012. The median salary rose by $6,000 for city workers as it fell $3,000 for their private-sector counterparts, adjusted for inflation.”

--Need a job and like rain...and maybe some golf? The new president of the Irish Hotels Federation (who replaced a friend of mine) said the industry has over 3,000 unfilled jobs, including chefs, bar staff (Me! Me!), supervisory roles and housekeeping.

Anyway, in all seriousness, if you have hotel experience there are worse places to work, though if you go to Dublin, where the need is said to be acute, the cost of living is outrageous.

--NBC averaged 21.4 million viewers a night for the Sochi Olympics, or about the same as the average “Sunday Night Football” audience last season, 21.7 million. Not too shabby. The average was 24.4 for the 2010 Vancouver Winter Games, but the difference is largely due to Vancouver’s main events being in prime time vs. the Sochi issue of knowing results like nine hours ahead, which sucked.

--To say the least, the pothole situation in the area, and throughout the Southeast and Midwest, is awful. For example, the AP’s Allen Breed reported that in New York City as of Tuesday, 136,476 potholes had been filled since Jan. 1, vs. 57,000 this time last year.

Boston’s Public Works Commissioner reported 6,000 filled since Jan. 1 vs. a comparable figure of 1,600.

Needless to say, municipal budgets are suffering. And now there are growing tire shortages in some parts.

--England and Wales endured the wettest winter since weather records have been kept, going back to at least 1766, with an average 17 inches from Dec. 1 to Feb. 24, according to the Met Office.

--Sales of Cuban cigars rose 8% in 2013, according to Habanos SA, owing to strong demand both in Cuba and China. Cuban cigars are still banned in the U.S.

Foreign Affairs

Syria: The U.S. State Department announced on Wednesday that the Syrian government is arresting relatives of opposition leaders who participated in the Geneva peace talks. State Department spokeswoman Jen Psaki said, “We call on the regime to immediately and unconditionally release all those unfairly arrested....

“Political and arbitrary imprisonment, and the systematic torture and death of tens of thousands of people without access to due process, are but a few of the regime’s documented human rights violations.”

There was another story that a jihadist group, the Islamic State in Iraq and the Levant (ISIS) said it would give Christian residents in the northern city of Raqqa “protection” if they agreed to pay a levy in gold and accept curbs on their faith...or face death.

The directive from the ISIS also says that aside from paying a tax in gold, they must not make renovations to churches, display crosses or other religious symbols outside churches, ring church bells or pray in public.

And these bastards give Katy Perry a hard time?! How can you be optimistic about the future of Planet Earth with stuff like this going on?! 

The New York Times’ Thomas Friedman wrote a column the other day on how sometimes the best thing for the U.S. to do is just sit there. He concludes thusly:

“In the Cold War, policy-making was straightforward. We had ‘containment.’ It told us what to do and at almost any price. Today, Obama’s critics say he must do ‘something’ about Syria. I get it. Chaos there can come around to bite us. If there is a policy that would fix Syria, or even just stop the killing there, in a way that was self-sustaining, at a cost we could tolerate and not detract from all the things we need to do at home to secure our own future, I’m for it.

“But we should have learned some lessons from our recent experience in the Middle East: First, how little we understand about the social and political complexities of the countries there; second, that we can – at considerable cost – stop bad things from happening in these countries but cannot, by ourselves, make good things happen; and third, that when we try to make good things happen we run the risk of assuming the responsibility for solving their problems, a responsibility that truly belongs to them.”

No, no, no! As I wrote back in August 2012, yes, it was already over in Syria, but because of U.S. inaction. Early on we could have established a no-fly zone working with Turkey, creating a safe corridor, first and foremost, and if the Assad regime hadn’t allowed humanitarian aid into the country, we could have taken out his airfields so that he didn’t have the capacity to bomb his own people in the brutal fashion he has.

This would have been done before the jihadists entered the country in force, which wasn’t until early 2013. We had an opposition to support in 2012. They should have been armed. Tens of thousands of lives, at a minimum, would have been saved. Millions would have respected the United States of America for doing its best to save innocents. A generation of young people might have been saved from hating everything America supposedly stands for.

But the Obama administration, as I’ve well-documented in these pages like no other, blew it.

The other day a picture emerged from Jan. 31, just released, that many of you have no doubt seen. It was taken in Yarmouk and captured the desperation of 160,000.  “Gaunt, exhausted, their strength of will almost spent, they stand amid the devastated buildings of Yarmouk refugee camp in Damascus.” [Ruth Sherlock / Daily Telegraph]

The U.N. has only been able to deliver a few thousand food parcels there, blocked by the Assad regime from delivering more.

Separately, Syrian state media reported some 175 Islamist fighters, most of them foreigners, were killed in an ambush by the Assad regime on Wednesday, aided in a big way by fighters from Hizbullah.

And there were a number of car bombings close to the border with Turkey at refugee camps, with Turkish ambulances streaming across the border to help.

Sec. of State Kerry blamed Russia for helping the Syrian regime in an increasing way. Kerry said:

“What Assad is doing is outrageous, unconscionable, unacceptable, disgraceful, craven, it’s horrendous. And we all know that. Everybody knows that.”

I’m so sick of Kerry and his meaningless bluster. The secretary continues to want to work through Geneva, which the Washington Post editorial board calls “profoundly wrong...Now (Kerry) says that ‘the international community must use this recess in the Geneva talks to determine how best...to find a political solution.’ But more appeals to the world will not end Syria’s nightmare or the growing threat it poses to vital U.S. interests. That can be addressed only by a new U.S. policy, one that aims at directly weakening the Assad regime’s ability to wage war and that strengthens the moderate forces opposing it and al-Qaeda. It won’t happen in Geneva.”

“Syria has been one of the great fiascos of post-World War II American foreign policy. When President Obama might have intervened effectively, he hesitated. When he did intervene, it was ineffectual. The Free Syrian Army of rebels fighting against the regime of Bashar Assad has not been given sufficient assistance to hold together, much less to defeat the forces loyal to Assad. The president’s non-threat to launch airstrikes – if Congress agreed – handed the initiative to Russia. Last year’s Russian-brokered agreement to get Assad to hand over his chemical weapons is being honored only in the breach, as Secretary of State John Kerry admitted last week.

“The result of this U.S. inaction is a disaster. At a minimum, 130,000 Syrian civilians have been killed and nine million driven from their homes by forces loyal to the tyrant. At least 11,000 people have been tortured to death. Hundreds of thousands are besieged, their supplies of food and medicine cut off, as bombs and shells rain down.

“Worse, the Syrian civil war has escalated into a sectarian proxy war between Sunni and Shiite Muslims, with jihadist groups such as the Islamic State of Iraq and Syria and the Nusra Front fighting against Assad, while the Shiite Hizbullah and the Iranian Quds Force fight for him. Meanwhile, a flood of refugees from Syria and the free movement of militants is helping to destabilize neighboring states like Lebanon, Jordan and Iraq. The situation in Iraq is especially dire....

“The scale of the strategic U.S. failure is best seen in the statistics for total fatalities in the region the Bush administration called the ‘Greater Middle East’ – essentially the swath of mainly Muslim countries stretching from Morocco to Pakistan. In 2013, according to the International Institute of Strategic Studies, more than 75,000 people died as a result of armed conflict in this region or as a result of terrorism originating there, the highest number since the IISS Armed Conflict database began in 1998. Back then, the Greater Middle East accounted for 38% of conflict-related deaths in the world; last year it was 78%.

“Mr. Obama’s supporters like nothing better than to portray him as the peacemaker to George W. Bush’s warmonger. But it is now almost certain that more people have died violent deaths in the Greater Middle East during this presidency than during the last one.”

Iran: On Wednesday, Secretary of State Kerry said the U.S. must continue to pursue nuclear negotiations with Iran before it considers going to war with Tehran to force it to give up its nuclear activities.

“Before you send young people to war you ought to find out if there is a better alternative. That is an obligation we have as leaders to exhaust all the remedies available to you before you ask people to give up their lives and that is what we are doing” with Iran, he added.

But there is increasing evidence the easing of sanctions pressure on Tehran has boosted Iran’s oil exports and Republican lawmakers are threatening to revive a bill that would impose new sanctions.

Last Sunday in Belgium, Iranian Foreign Minister Mohammad Javad Zarif said, “Iran is open for business.” The Petroleum Ministry has been aggressively pursuing long-term contracts over crude sites of up to 25 years. Said the oil minister, “We welcome the presence of all international oil companies, including American companies, to develop oil and gas fields and enhance [production] capacities.” [Jerusalem Post]

Separately, Iran signed a deal to sell Iraq arms and ammunition, which clearly breaks the U.N. embargo on weapons sales by Tehran.

It turns out the agreement goes back to November and was signed just weeks after Iraq’s Prime Minister al-Maliki had returned from Washington, where he lobbied the White House for more arms to fight al-Qaeda.

A Washington analytical group said satellite photographs show new movements at Iran’s Parchin military base following an apparent lull in activities there, according to the Institute for Science and International Security. Yes, the place I have written of frequently for years that remains off-limits to the International Atomic Energy Agency’s inspectors. New construction materials and debris have appeared. In the past, however, other parts of Parchin suspected of housing sites for nuclear trigger tests, were paved over.

Israeli Prime Minister Benjamin Netanyahu, who will be in the U.S. this week to meet with Congressional leaders and President Obama, warned anew:

“Iran will practically realize its plan to become a nuclear threshold state, with enrichment [capability] and the ability to develop intercontinental missiles,” if it is allowed to keep even a small nuclear program, as U.S. Under Secretary of State Wendy Sherman hinted could be the case when she met with Israeli leaders this week to brief them on the latest nuclear talks in Vienna.

Israel: The Israeli Air Force hit Hizbullah targets inside Lebanon, a very risky move, with the government later admitting it was targeting another weapons cache and possible missile shipments from Syria. That brings the number of such attacks to five or six over the past year, with the others being against targets on Syrian soil so this was a major escalation on Israel’s part to strike inside Lebanon. Hizbullah’s Sheikh Nasrallah promised a response at a time of their choosing.

Afghanistan: As I wrote last week, it is increasingly looking like the U.S. is pulling all of its troops out by end of the year, with President Obama conveying this message in a phone call to Afghan President Hamid Karzai. Karzai has refused to sign a security agreement that would offer legal protection for U.S. troops and define a post-2014 NATO training and anti-insurgent mission, as previously agreed to.

A new president will be elected this spring, but there will be a runoff and it will be late summer before a new leader takes over. Even though some of the 11 candidates have said they would sign the bilateral security agreement, there is zero guarantee any of them will emerge the winner.

In a sign of things to come, a Taliban attack on an Afghan army outpost killed at least 21 Afghan soldiers. When the U.S. leaves, many of the Afghans will desert and the Taliban will roll up the rest.

Iraq: Just another typical week, with at least 38 killed in a series of bombings on Thursday alone, three of them in Baghdad. 

Egypt: In a surprise move, the government submitted their resignations though this is seen as a move intended to pave the way for the minister of defense, Field Marshal Abdel Fattah al-Sisi, to run for president in elections this spring.

Russia: With the Sochi Olympics over, President Putin resumed his repression. On Monday, seven of eight defendants from a May 2012 protest in Moscow that turned violent were sentenced to prison terms of 2 ½ to four years. The eighth was given a suspended sentence. Then, three opposition leaders, including Alexei Navalny, were arrested for protesting the sentences and handed jail sentences of up to 10 days. Two other opposition leaders are on trial for the May 2012 incident.

Stella Anton, the mother of one of the first eight defendants of what was called the Bolotnaya demonstration, told the New York Times, “Why did they sentence him? To frighten people, so that they won’t go to demonstrations, so that they won’t protest, to put them on their knees and so they’ll put up with everything that’s happening in the country.”

“Russian President Vladimir Putin hoped to win the world’s respect with his staging of the Winter Olympics. But a ruler who does not respect his own people will never be truly respected. One day after the Olympics ended, Mr. Putin showed, with the sentencing of eight protesters in Moscow, that he fears his people more than he respects them....

“What is striking is that the objects of Mr. Putin’s repression this time are not leaders but ordinary people, selected from the demonstration apparently at random. As in Soviet times, the law is used in an arbitrary and capricious way.”

As for the future of Sochi, the gold-rush town of $50 billion, it will play host to some of the 2018 World Cup games, and, starting this fall, a Formula One race (as well as the G-8 summit...a probable casualty of the Ukraine crisis), but the Krasnaya Polyana and Rosa Khutor ski resorts do not seem commercially viable in the least. Watching the Olympics, I couldn’t believe the likes of Marriott building there, though I’m sure it was with the thought it would help them get other business in the country.

Within a year or two, you will hear stories of foreign investors, hotel chains, losing a fortune in the mountains. No one from the U.S. would take such a difficult trip with far better locales for skiing not only in the States, but also British Columbia and Europe. Plus you don’t need a visa.

And further, you saw how snow is not guaranteed in this region.

So, no, Sochi will not become a destination resort, and I haven’t even brought up the geopolitics of the region, which obviously are now only going to get worse.

China: Well whaddya know. Chinese President Xi Jinping called preventing air pollution the “most prominent” problem Beijing faces, according to a report on China National Radio. Where have you heard that before? Xi understands, as China’s Communist Party recognizes, that pollution could bring down the government. For starters, it will cripple the economy. 

You’ve seen examples of foreign investors and businesses pulling back. What corporate executive wants to move to, say, Beijing, to oversee local or regional operations, when he or she is endangering their health? It’s all pretty basic.

“John, we’re going to send you to Beijing for a year to gain some experience running the operation there and when you return you’ll receive a big promotion stateside. We’ll put your family up in the best quarters and your children will go to an American school there.”

But it’s China’s middle class President Xi has most to fear. They are growing increasingly vocal. Who wants to raise a family in a nation constantly enveloped in soot?

Just this week, Beijing’s air quality was as unhealthy as it’s been in a year, ironically ahead of an annual gathering of Chinese leaders in the city. While at week’s end there was some improvement, the particulate matter had moved to Japan, where the government there was forced to issue all kinds of alerts. Not exactly good for relations between the two countries.

Separately, mainland scientists are warning that smog in China is blocking light and will lead to disaster in agricultural production. For example, a test conducted by China Agricultural University’s College of Water Resources and Civil Engineering found that “chili and tomato seeds, which normally took about 20 days to grow into full-grown seedlings under artificial light in a laboratory, took more than two months to sprout at a greenhouse farm in Beijing’s Changping district....

“Most seedlings in the farm were weak or sick.” [Stephen Chen / South China Morning Post]

On a different matter, North Korea, China’s Foreign Ministry department has sent two delegations in recent months to gauge just where Kim Jong-Un’s head is at these days; specifically whether Pyongyang still believes China is its best ally. As reported by the South China Morning Post, “Beijing may be seeking changes in how it engages with North Korea.”

On Thursday, North Korea test-fired four short-range missiles into the Sea of Japan during joint U.S.-South Korea military exercises. South Korea called the firings a “calculated, provocative act.”

Pakistan: A high-level Pakistani government official, speaking to reporters this week on the condition he was not named, tried to reassure the world that the country’s nuclear arms would not be under the control of unit commanders, but rather from “The smallest to the largest – all weapons are under the central control of the National Command Authority, which is headed by the prime minister.”

The worry has been that with India having a superior size army to Pakistan’s, that Pakistani military units would use battle nuclear weapons as a last resort, such as in a case where they are being overwhelmed by India’s more capable forces.

Both nations have about the same number of nukes, 100. But then the official backtracked in acknowledging any use of tactical nuclear arms is left in military hands. So we’re back to square one. [Elaine M. Grossman / Global Security Newswire]

Venezuela: Government attacks on protesters across the country have killed at least 17, going back to last weekend, as opposition to President Nicolas Maduro grows. As I predicted on Jan. 4, he won’t last. He’ll be removed in a coup, though perhaps not as quickly as I would have thought. One key governor who once supported the president, as well as Hugo Chavez, has now denounced Maduro for using excessive force against the demonstrators, who are protesting a government that is corrupt and incompetent, with the economy in freefall despite its ample oil wealth.

Separately, there was another fatal kidnapping.   Former world boxing champ Antonio Cermeno was kidnapped and killed Monday night in a suburb of Caracas. His relatives, also kidnapped, escaped after the captors stopped to refuel the car.

Nigeria: Gunmen from the Islamist group Boko Haram stormed another boarding school and killed at least 40 pupils, many of them burning to death as their schools were set on fire. Boko Haram has killed thousands in northern Nigeria. The name means “Western education is sinful.” You can only wish these bastards the worst.

Mexico: The world’s most wanted drug baron, Joaquin Guzman, known as El Chapo or “Shorty,” was arrested in Mexico.   Leader of the Sinaola cartel, he is responsible for up to 25% of all the drugs entering the United States, including 80% of the drugs in Chicago. The number of deaths he is responsible for numbers up to 80,000. Mexico was aided by U.S. anti-drug forces and it is highly encouraging the Mexican government was able to pull this off.

As to the impact on the drug trade over all, the Sinaola cartel had expanded to more than 50 countries and there’s no reason to believe they won’t continue without him.

While he is wanted in the United States on a myriad of charges, I’m in the camp that believes he should be first tried in Mexico, before any possible extradition to the U.S. The Mexican people need to see that their system works. 

El Chapo was once imprisoned back in 1993, but escaped in 2001.

Random Musings

63% of Americans say the country is on the wrong track. 57% disapprove of President Obama’s handling of the economy (38% approve).

Obama’s overall job approval rating is 41%, 51% disapprove, his worst standing in the past two years with the exception of last November and the ObamaCare rollout fiasco. Obama’s approval rating a year ago was 52%.

House Speaker John Boehner has an approval rating of just 26% (only 33% among Republicans). Just 13% approve of the job Congress is doing, 80% disapprove.

When the question is, are you satisfied with the Obama presidency so far? Independents say they are disappointed by a 66% to 33% margin.

42% say they will back Republicans in November, 39% will back Democrats. [I’m assuming the other 19% will be smoking weed in Colorado, having emigrated there, and will forget to vote.]

Republican support for same-sex marriage is rising rapidly. In the fall of 2012, just 24% backed legalizing the unions; now it’s 40%, a big leap.

2/3s favor raising the minimum wage to $10.10 an hour from $7.25.

As for ObamaCare, 50% say some changes are needed to make it work better, while 42% say it needs to be repealed. Some will spin the former figure. To me, it certainly doesn’t mean 50% like it, they approve of some of it.

In the war on terrorism, 45% of Americans think the government has gone too far in infringing on people’s privacy, while 42% think the balance is about right.

And when it comes to 2016, eight in 10 Democrats say they want Hillary Clinton to run. 40% of Republicans want Jeb Bush and Rand Paul to run, while only 31% want Chris Christie to run vs. 41% who do not want him to. Not good for the governor.

“Senator Ted Cruz has not yet reached the point where he can make policy, rather than just make political trouble. But there are already disquieting signs that he is looking out for Ted Cruz – even if that sets back the causes he claims to be serving.

“Those causes are not being served when Senator Cruz undermines the election chances of the only political party that has any chance of undoing the disasters that Barack Obama has already inflicted on the nation – and forestalling new disasters that are visible on the horizon.

“ObamaCare is not just an issue about money or even an issue about something as important as medical care. ObamaCare represents a quantum leap in the power of the federal government over the private lives of individual Americans....

“(The) Obama administration is busy quietly dismantling other bulwarks against the unbridled power of the government in general, and the unbridled power of the presidency in particular.

“The Federal Communications Commission, for example, is already floating the idea of placing observers in newspaper editorial offices to ‘study’ how decisions are made there.   Nothing in the Constitution grants the FCC this dangerous power, nor is there any legislation authorizing any such activity....

“The basic, brutal reality is that the federal government can do whatever it wants to do, if nobody stops them. The Supreme Court’s ObamaCare decision shows that we cannot depend on them to protect our freedom. Nor will Congress, as long as the Democrats control the Senate.

“The most charitable interpretation of Ted Cruz and his supporters is that they are willing to see the Republican Party weakened in the short run, in hopes that they will be able to take it over in the long run, and set it on a different path as a more purified conservative party.

“Like many political ideas, this one is not new. It represents a political strategy that was tried long ago – and failed long ago.

“In the German elections of 1932, the Nazi party received 37 percent of the vote. They became part of a democratically elected coalition government, in which Hitler became chancellor. Only step by step did the Nazis dismantle democratic freedoms and turn the country into a complete dictatorship.

“The political majority could have united to stop Hitler from becoming a dictator. But they did not unite. They fought each other over their differences. Some figured that they would take over after the Nazis were discredited and defeated.

“Many who plotted this clever strategy died in Nazi concentration camps. Unfortunately, so did millions of others.

“What such clever strategies overlook is that there can be a point of no return. We may be close to that point of no return, not only with ObamaCare, but also with the larger erosion of personal freedom, of which ObamaCare is just the most visible part.”

--According to a Gallup Poll released days after Defense Secretary Chuck Hagel proposed a Pentagon budget with major cuts, 37% of respondents said the country spends too much on defense, while 28% said it spends too little.

--Former Defense Secretary Leon Panetta, speaking at a California gathering, said the biggest threat to security in the 21st century comes from cyberattacks.

“We have to be vigilant. We have to be prepared. There are a lot of threats out there.”

Panetta said that industrial espionage is just the start of the problem. He’s more concerned with viruses that can take down whole computer networks, pointing to the incident with Saudi Aramco in 2012, where a cyberattack was blamed on the destruction of 30,000 computers.

“They’re looking at our grid. They’re looking at our transportation system. This could destroy the world.” [Donna Jones / Santa Cruz Sentinel]

--According to a new report from Paris-based reinsurer, SCOR SE, a powerful solar storm is inevitable, such as the one in 1859 that knocked out telegraph systems across Europe and North America. Today, SCOR concludes there would be longer blackouts, causing trillions of dollars in damage. Last year Lloyd’s reported that a major solar storm could impact 20 million-40 million people in the U.S. with outages lasting from two weeks to two years. [Wall Street Journal]

--Under pressure from big business to U.S. senators to professional sports leagues, Republican Arizona Gov. Jan Brewer vetoed a bill that would have given business owners a legal defense for refusing service to customers on religious grounds, such as discrimination against same-sex couples. Gov. Brewer understood, in the end, that the state stood to lose a ton of business.

--New Jersey Gov. Chris Christie, in his state budget speech, said that pension changes he instituted three years ago aren’t doing enough in reiterating that too much of state spending is going towards “entitlements.” And this time he didn’t call for a tax cut, nor did he mention Hurricane Sandy recovery, even though he tells his other audiences it continues to take up 40% of his time.

Democratic opponents in New Jersey ripped the governor for not offering any concrete proposals to tackle the pension mess, while being offended at the use of the word “entitlement” for “something that people have paid into.” –Senate President Stephen Sweeney (D-Gloucester).

My point a few months ago, before Bridgegate, is that Christie’s record as governor is vastly overrated. The unemployment rate is higher than in neighboring New York and Pennsylvania, and growth hasn’t been as strong. It’s that simple. Plus, while he did institute some needed pension reforms, the state’s debt load keeps soaring.

According to the latest Monmouth University poll, Christie’s approval rating among New Jersey voters has fallen from 70% to 50% over the past year.

--After 59 years in the House – longer than anyone in the history of Congress – Michigan Democratic Congressman John Dingell announced he would retire. The frail 87-year-old, who should have hung it up long ago, told the Detroit News, “I find serving in the House to be obnoxious. It’s become very hard because of the acrimony and bitterness, both in Congress and in the streets.”

--Most afternoons after the market closes I watch CNN’s Jake Tapper and Wolf Blitzer from 4:00-6:00 to get a fix of politics and hard news. But that’s it as far as the network goes for me. Clearly, I’m not alone.

For example, “Erin Burnett Outfront” saw her audience drop 39% in February over last year to the smallest monthly haul (293,000 average viewers) in the timeslot in more than two decades, while Anderson Cooper at 8 PM saw his audience drop 47% February to February. Piers Morgan, who as you heard was canned, lost 46% of his viewers at 9 PM.

Fox News Channel, on the other hand, has reached 146 consecutive months at No. 1 in total viewers, and for February was the only cable network up in total viewers compared to last February ‘13.

FNC claimed the Top 13 cable news programs in total viewers, with “The O’Reilly Factor” still leading the pack with an overall audience of 2,937 million.

Rachel Maddow is tops at MSNBC with an average 996,000 total viewers in her 9 PM slot.

I watch Greta most of the time at 7:00 and she is fifth in total viewers at 1,938,000. [Lisa De Moraes / Deadline.com]

“Last week, South by Southwest – the hugely influential technology and music festival held in Austin every spring – announced its keynote speaker for 2014. The keynote speaker last year was Elon Musk, of Pay-Pal, SpaceX, and Tesla Motors fame. Other South by Southwest keynotes in recent years have been given by a litany of cultural and business superstars including Mark Zuckerberg, Bruce Springsteen, and Twitter CEO Evan Williams. This year, though, organizers have selected Chelsea Clinton to keynote the event.

“Without dredging up painfully awkward footage of her work as an NBC News correspondent, it’s not much of an exaggeration to say that Chelsea’s accomplishments begin and end with her parentage.”

--A few weeks ago, the New York Post “exposed a scheme at Manhattan’s Murry Bergtraum HS for Business Careers in which failing students could get full credit without attending class, but instead watch video lessons and take tests online. One social-studies teacher had a roster of 475 students in all grades and subjects.”

So embarrassed administrators urged students to write the Post, to attack it, and defend the school’s “blended learning” program. Eighteen kids e-mailed to argue their school was getting a bad rap.

“Almost every letter was filled with spelling, grammar and punctuation errors.”

Last Sunday, the Post reprinted eight of them, leaving out the names. Here are a few, exactly as written....

“I’ve heard lots of students say Blended Learning helps them to understand it more because you can digest in the information at your own paste and go back for seconds, thirds, and fourths.”

“To deeply criticize a program that has helped many students especially seniors to graduate I should not see no complaints.”

“What do you get of giving false accusations im one of the students that has blended learning I had a course of English and I passed and and it helped a lot you’re a reported your support to get truth information other than starting rumors for your information if it wasn’t for blended learning seniors wouldn’t be graduating come to Bergtraum one day and get information real information.”

--In a report published in the Journal of the American Medical Association, during the past decade there has been a 43% drop in obesity rates among children ages 2 to 5. But, for women older than 60, obesity rates rose about 21% during that period.

--Particularly if you are a Catholic, I strongly urge you to watch PBS’ “Frontline” program from last Tuesday on the Vatican, easily found on pbs.org/frontline. It’s highly disturbing, sickening in parts, but in the end there is a ray of hope with the selection of Francis. You really get to see what he is up against in his reform efforts.

Including on Monday when he announced the creation of a single authority to centralize Vatican finances after the rash of scandals that have come to light. In a statement the Vatican said the new Secretariat for the Economy will draw up the budget, with the assistance of lay experts, and there will be surprise internal audits, all to help ensure “a more formal commitment to adopting accounting standards and generally accepted financial management and reporting practices, as well as enhanced internal controls, transparency and governance.” [Tom Kingston / Los Angeles Times]

Recall, Monsignor Nunzio Scarano, a former accountant at the Vatican, was arrested and put on trial for allegedly plotting to smuggle $27 million into Italy.

--Finally, scientists using the planet-hunting Kepler telescope have nearly doubled the number of planets discovered in the galaxy. The figure is now about 1,700. To put this in perspective, as an Associated Press report put it, “Twenty years ago, astronomers had not found any planets circling stars other than our sun....

“All the new planets are in systems like ours where multiple planets circle a star. Four of those new planets are in habitable zones where it is not too hot or too cold.”

I’ll go! I’ll go!

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

Gold closed at $1321
Oil $102.59

Returns for the week 2/24-2/28

Dow Jones +1.4% [16321]
S&P 500 +1.3% [1859....new record]
S&P MidCap +1.4%
Russell 2000 +1.6%
Nasdaq +1.1% [4308]

Returns for the period 1/1/14-2/28/14

Dow Jones -1.5%
S&P 500 +0.6%
S&P MidCap +2.4%
Russell 2000 +1.7%
Nasdaq +3.2%

Bulls 53.5
Bears 17.2 [Source: Investors Intelligence]

Have a great week. I appreciate your support. Spring will eventually arrive, perhaps June.

Dr. Bortrum posted a new column.

Catch me on Twitter @stocksandnews

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