Week in Review

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Week in Review

03/15/2014

For the week 3/10-3/14

First, a brief look at how the week proceeded. Crimea’s pro-Russian parliament voted to favor independence from Ukraine days before Sunday’s referendum. The parliament said a ‘yes’ vote paves the way for Crimea to join the Russian Federation. The referendum was hastily put together less than two weeks ago and the vote on Sunday offers two choices: remain as a part of Ukraine (not really) or join Russia. But the referendum is being presented as a choice between securing peace, prosperity and security as a Russian protectorate, or be subject to discrimination and violence under a “fascist Ukraine,” as the Moscow Times’ editorial page editor Michael Bohm has put it.

Virtually the entire West considers the referendum illegitimate, and many of the Ukrainians (24% of Crimea’s population) and Tatars (12%) plan to boycott the vote (the latter while threatening a jihadist insurgency, a la Chechnya).

Russia’s parliament said it would accept the results of the referendum, but it is clear Crimea’s annexation is already a foregone conclusion as Russian troops mass on Ukraine’s eastern border. Some 20,000 Russian or pro-Russian troops already inhabit Crimea. All airspace on the peninsula has been closed except for flights coming from and going to Moscow.

--On Tuesday, a Ukrainian parliamentary resolution addressed the United States, U.K. and Russia as signatories of the 1994 Budapest memorandum, in which newly independent Ukraine gave up its nuclear weapons in return for territorial integrity guarantees.

“A country which willingly gave up its nuclear arsenal...and received guarantees from the world’s leading countries finds itself unprotected, one-on-one with a country which is armed to its teeth,” said Arseniy Yatseniuk, Ukraine’s interim prime minister. [Financial Times]

--On Wednesday, U.S. Secretary of State John Kerry rejected a Russian invitation to meet with Vladimir Putin in Russia. Russia, in turn, continued to refuse to meet with the new government in Kiev.

--Former President Viktor Yanukovych, speaking from Russia, blamed the new government in Kiev, which he described as a gang of “fascists and ultra-nationalists” for provoking Crimea to secede by refusing to protect citizens from violence. The new government “wants civil war to break out.” He insists he’s still the legitimate president.

--The European Union threatened a second round of sanctions next week if Russia further destabilizes the country. Both the U.S. and E.U. continue to promise $billions in loans, with the latter’s $15 billion slug contingent on Kiev agreeing to major reforms through the International Monetary Fund, negotiations for which have supposedly already begun, according to Ukraine’s leaders.

--Everyone in Crimea is talking about Ukrainian fascists, but no one has actually seen one. As The Economist noted: “Russian television had unleashed a propaganda campaign impressive in both its intensity and cynicism, stoking ethnic hatred and exacerbating historical divides, mixing half-truths with outright lies. Right-wing extremists and nationalists did take part in the revolution, but they do not control the government.”

In a statement issued by the Kremlin following a call between Putin, Angela Merkel and David Cameron:

“The Russian president also drew the attention of his interlocutors to the lack of any action by the present authorities in Kiev to limit the rampant behavior of ultranationalists and radical forces in the capital and in many regions.”

--More than 150 Russian cultural figures signed a letter of support to Putin for his actions, including well-known actors.

“Our common history and common roots, our cultural and spiritual origins, our fundamental values and language have united us forever. We want the collectivity of our peoples and cultures to have a strong future. This is why we strongly support the position of the Russian president on Ukraine and Crimea,” the letter read. Putin’s approval rating is said to be 67%, highest in the last three years, according to the independent (and reputable) Moscow-based Levada Center. [Moscow Times]

--Andrei Illarionov, a former Putin aide and a research fellow at the Cato Institute, said that in effectively approving Russia’s annexation of Crimea by not taking action, the response can be compared to the 1938 Munich agreement, which was aimed at appeasing Nazi Germany.

“(President) Obama has given in to Putin and given him the green light to the annexation of Crimea, destabilization and subsequent conquest of eastern and southern Ukraine and the overthrow of the current government in Kiev.” [Moscow Times]

--At least three people died in violence between rival protesters in the eastern Ukrainian cities of Donetsk and Kharkiv.

--On Thursday, German Chancellor Angela Merkel said in a speech to parliament:

“Ladies and gentlemen, if Russia continues on its course of the past weeks, it will not only be a catastrophe for Ukraine. We would not only see it, also as neighbors of Russia, as a threat. And it would not only change the European Union’s relationship with Russia. No, this would also cause massive damage to Russia, economically and politically.”

--Back to the Tatars. From Guy Chazan / Financial Times:

“Anxiety among Crimean Tatars has its roots in their tragic history under Russian rule, which began when Catherine the Great annexed the region in 1783. Josef Stalin deported the entire Tatar population in 1944, on the pretext that they had collaborated with the Nazis.

“Liniyar Belyalova was nine years old in May 1944 when Soviet soldiers arrived at her house and rounded up her family. They were taken in the clothes they stood in, put on crowded railway freight wagons and sent to Uzbekistan, thousands of miles away. ‘So many old people died on the train,’ she recalls. ‘They wouldn’t let us bury them, we had to throw their bodies out of the window.’

“Ms. Belyalova, 79, was one of tens of thousands of exiled Crimean Tatars who made their way home from central Asia during the perestroika era of the late 1980s, seizing empty land and building homes.”

--Friday, the Russian Foreign Ministry warned in a statement: “Russia is aware of its responsibility for the lives of its countrymen and citizens and reserves the right to defend people.”

Estonian Defense Minister Urmas Reinsalu said: “In addition to occupying Crimea, Putin is preparing to also invade eastern Ukraine. To deter him, a clear message needs to be sent that an attack will cost the aggressor dearly.”

Russian Foreign Minister Sergei Lavrov and U.S. Secretary of State John Kerry met in London for at least five hours of talks, with Lavrov saying Russia does not have imminent plans to invade eastern Ukraine. Kerry told reporters that there was no resolution between the two and that “Putin is not prepared to make any decision regarding Ukraine until after the referendum.”

Des Browne, Wolfgang Ischinger, Igor Ivanov, Sam Nunn and Adam Daniel Rotfeld / Nuclear Threat Initiative

“The situation that we now see in Ukraine graphically demonstrates the inadequacies of the current Euro-Atlantic security system. More than twenty years after the end of the Cold War, the states of the Euro-Atlantic region have yet to define, agree, or implement an approach to security that can ensure peace, independence, and freedom from fear of violence for all nations.

“No nation benefits from this persistent inaction to find an inclusive way to ensure mutual security for all. Events around Ukraine today are the latest confirmation of this grim reality and in the long run will be detrimental to Russia, Europe, the United States and the citizens of Ukraine.

“The heart of the problem is a corrosive lack of trust among nations in the region, exacerbated by a list of persistent, difficult issues that endanger regional security. This ‘deficit of trust’ within the Euro-Atlantic community undermines cooperation, increases tensions, raises costs, and ultimately puts our citizens at unnecessary risk.

“Ukraine’s circumstances today present a grave danger and create a necessity for joint action. Ukraine must not become a new Berlin Wall in Europe. Dividing Ukraine would mean dividing Europe again. The crisis should be a lesson for us all – a call to unite our efforts to assist Ukrainians in reaching a lasting accommodation among themselves, and to lay the foundation for a new comprehensive Euro-Atlantic security community.”

“During the Sochi Olympics, President Vladimir Putin was basking in pride and glory. Although it took a record-breaking $50 billion to do it, Putin pulled off a successful Winter Games. The world came, the world watched, and in the end, the world praised Russia for doing an excellent job as host. Putin savored the moment: Russia had finally returned to center stage, even if it was for only three weeks.

“But this Olympic glory was clearly not enough for him. Something was still very much lacking in terms of Russia’s place in the global arena. Although the ousting of his ally, Ukrainian President Viktor Yanukovych, on Feb. 22 was a crushing defeat for Putin, it nevertheless gave him a golden opportunity to fulfill his imperial ambitions – at least in part.

“Putin, who always admired the conquests of Peter and Catherine the Great...has finally received the golden opportunity to fulfill his own imperial ambitions by conquering Crimea – and perhaps more....

“The other leader Putin admires, surprisingly enough, is U.S. President George W. Bush – a modern-day ‘imperialist’ in his own right. Despite all of Putin’s outspoken criticisms of Bush’s unilateralism and expansionist foreign policy, Putin was always a Bush wannabe. Deep down, he marveled at Bush’s strength and defiance in defending what he believed to be his country’s national interests.

“Although he would never admit it, Putin probably even admired Bush’s invasion of Iraq in 2003. In Putin’s mind, the invasion highlights all of the ‘privileges’ of being a modern superpower: dictating terms and conditions to other countries, flaunting your double standards, expanding your country’s influence on the global arena, and breaking United Nations resolutions by invading other nations at will – and getting away with it. This is what superpowers do....

“For those who doubt that the Kremlin’s annexation of Crimea is a premeditated, carefully orchestrated special operation, they need look no further than a bill that is currently being raced through the State Duma. The legislation, which was introduced the day before the Federation Council approved the use of military force in Crimea on March 1, would ease the procedure for annexing new territories.

“Unlike the preposterous official explanation that it was not the Russian Army but ‘local pro-Russian self-defense forces’ that had seized the Crimea, the sponsors of the annexation bill were completely upfront, saying the legislation is directly linked to Crimea. At least they deserve credit for being honest on this point.

“The real question, however, is whether Putin will stop with Crimea. The Russians have a saying: ‘Appetite comes with eating.’ As soon as Putin starts devouring a chunk of Ukraine and really savoring it, the more Ukrainian territory he will want.....

“Meanwhile, if the West applies tough sanctions against Putin’s inner circle, targeting their assets held abroad, Putin’s political elite will ask a different and more dangerous question: ‘If our multimillion-dollar assets that we worked so hard to accumulate as government officials are being frozen because of Putin’s reckless imperial ambitions, why should we support him anymore?’

“And this is Putin’s real Achilles’ heel. Just as Yanukovych’s demise was accelerated when he lost the support of his inner circle and oligarchs, the same could also happen to Putin....It all depends on how painful and effective the Western sanctions against Putin’s elite end up being.”

“President Obama and European leaders are ratcheting up their rhetoric against Russia. Too bad Vladimir Putin is a man of action who hasn’t seen anything worth stopping his assault on Ukraine.

“In the two weeks since Russia invaded Crimea, the U.S. has put a handful of unnamed officials in Moscow on a visa-ban list. The Europeans suspended talks on trade and visa liberalization. That’s about it....

“The Kremlin says Russia will match Western measures tit-for-tat, and Mr. Putin no doubt means it. But Russia’s economy is barely the size of Italy’s. It has oil, gas and little else. Russian capital flees at every opportunity, and nervous outside investors have sent Russian equities down sharply*. In other words, the pain of economic war will be far worse for Russia than for the rest of the world.

“ ‘If Russia continues on its course of the past weeks, it will not only be a catastrophe for Ukraine,’ German Chancellor Angela Merkel said on Thursday. ‘No, this would also cause massive damage to Russia, economically and politically.’ Strong and welcome words, but Mr. Putin only understands the language of action.”

“The alternative to passivity is not war but a serious foreign policy. For the past five years, Obama’s fruitless accommodationism has invited the kind of aggressiveness demonstrated by Iran in Syria, China in the East China Sea and Russia in Ukraine. But what’s done is done. Put that aside. What is to be done now?

“We have three objectives. In ascending order of difficulty: Reassure NATO. Deter further Russian incursion into Ukraine. Reverse the annexation of Crimea....

“Obama is not the first president to conduct a weak foreign policy. Jimmy Carter was similarly inclined – until Russia invaded Afghanistan, at which point the scales fell from Carter’s eyes. He responded boldly: imposing the grain embargo on the Soviets, boycotting the Moscow Olympics, increasing defense spending and ostentatiously sending a machine-gun-toting Zbigniew Brzezinski to the Khyber Pass, symbolizing the massive military aid we began sending the mujahideen, whose insurgency so bled the Russians over the next decade that they not only lost Afghanistan but were fatally weakened as a global imperial power.

“As things stand, mindful of their fragile economies, and with the Kremlin hinting at revenge against sanctions, many Europeans worry about the cost of all this. But Mr. Putin will gauge whether the West is resolute about its eastern borders partly by the price it is prepared to pay. Others argue that the West needs Russia to help deal with Syria and Iran’s nuclear program. But Russia is fuelling the war in Syria, and it has just torn up the deal that promised Ukraine security after it surrendered its nuclear weapons – a terrible precedent. For too long Western leaders have hoped that their countries’ economic ties with Russia could be impervious to the Kremlin’s belligerence. This week Mr. Putin proved them wrong.”

Oleksandr V. Turchynov (acting president of Ukraine) / New York Times

“In 1994, Ukraine surrendered its nuclear weapons in exchange for security guarantees from the United States, Russia and Britain, and for their pledge to respect its sovereignty and territorial integrity. If this agreement is violated, it may lead to nuclear proliferation around the world. The rule of law and the credibility of international institutions would also be severely undermined as deterrents to military aggression.

“An escalation of conflict would be catastrophic for the whole of Western Europe. It would put an end to the global security system, breaching its very foundation. These are very real risks. Yet Russia’s reckless actions would be unbecoming of Somali pirates....

“Ukraine is open to any constructive dialogue with the Russian Federation that is rooted in partnership. We wish to develop fair and mutually beneficial relations. Russia must choose how it will respond.

“The Soviet Union is no more. We must all come to terms with that fact and begin a new era of cooperation based on equality and the right of the Ukrainian people to choose their own government and their own destiny.”

Democratic Sen. Robert Menendez (NJ) / Washington Post

“The Russian invasion and occupation of parts of Ukraine is the most recent example in a series of events involving disruptive Russian behavior throughout the world.

“In Syria, Russian President Vladimir Putin is actively propping up President Bashar al-Assad and perpetuating the world’s worst humanitarian disaster.

“In Iran, the ink of the Joint Plan of Action signed in Geneva was barely dry when reports surfaced that Tehran and Moscow were negotiating an oil-for-goods swap worth $1.5 billion a month and planned to build a new nuclear plant.

“In our own hemisphere, a Russian spy ship paid an unannounced visit to Havana Bay, and Defense Minister Sergei Shoigu announced plans to expand Russia’s military footprint abroad in Cuba, Nicaragua and Venezuela.

“Today, our concern is for Ukraine. Tomorrow, it could be for Georgia again or perhaps Moldova, two nations waiting to finalize their association agreements with the European Union, a process Ukraine had been engaged in to the displeasure of the Russian government.

“Putin has miscalculated by starting a game of Russian roulette with the international community, but we refuse to blink, and we will never accept this violation of international law....

“Less than six months ago, in an op-ed about the unfolding disaster in Syria, Putin admonished his American audience: ‘We must stop using the language of force and return to the path of civilized diplomatic and political settlement.’

“The Ukrainian people and the international community expect Putin to heed his own advice.”

“It is simply not true, as some defeatists suggest, that the West does not have the potential to force a Russian change of course. The real question is whether Western leaders are prepared to accept the damage to their own citizens and economies that would be the side effect. Russia would probably freeze Western investments on its territory; it might cut off gas exports to Ukraine, through which supplies to several E.U. countries flow. Seventy percent of Russian exports are oil and gas, most of which go to Europe.

“With elections approaching in both the European Union and the United States, it will be easy to shrink from measures that would command Mr. Putin’s attention. Clearly he is counting on such a reaction. But the price of failing to take robust steps now will, in the end, be higher. If Mr. Putin is not stopped in Crimea, he will set his sights on other parts of Ukraine and maybe other former Soviet bloc states with Russian minorities. That could lead not just to economic disruption but also to war.”

Washington and Wall Street

It was “risk off” in the markets this week, primarily because of weak data from China and of course the ongoing tension ahead of the Crimea vote and what Putin will do next. The Dow Jones finished down 2.4%, with all the other averages tumbling a like amount.

The only significant economic data point on the week was the release of the retail sales figure for February, up a better than expected 0.3% and up 0.3% ex-autos, so pretty strong, though January was revised to down 0.6%. So, combine the two and you still have a weather story. Thus, we’ll turn to March for the first true picture of the economy. January and February have simply been a ton of noise and as Thomson-Reuters notes, the weather has forced a lowering in first-quarter earnings expectations for the S&P 500 to an increase of just 2.4% from over 6% as earlier forecast.

Separately, the White House is forecasting growth for 2014 of 3.1% and 3.4% next year, which would be great, but Morgan Stanley’s economists are now projecting a rise in GDP for 2014 of just 2%.

Well the news stream will pick up next week with the Federal Reserve’s Open Market Committee meeting and Chair Janet Yellen holding her first press conference. There is zero reason for the Fed to pause in its tapering efforts in terms of its bond-buying program, but the Street will look for further guidance when it comes to not only the taper, but, more importantly, what the Fed is looking for before it begins hiking short-term interest rates again.

In terms of the big picture, while I said I wouldn’t focus on President Obama’s budget for 2015 because like his other ones it was dead on arrival, I do have to note that it will be five years without our leader tackling entitlements, and it will end up being eight, no doubt, before we bid him adieu.

I have been harping on one item in particular for the better part of a year, since February 2013 when the Congressional Budget Office issued its deficit projections. That item is interest expense.

So I have to note the following comments of William A. Galston in Wednesday’s Wall Street Journal:

“In the decade between 2014 and 2024, if the president’s budget became law, spending for defense and nondefense ‘discretionary’ programs – the outlays subject to annual appropriations – would barely budge. By contrast, Social Security spending would rise by $644 billion, Medicare by $350 billion, and Medicaid by $243 billion. During that same period, interest on the government’s debt would nearly quadruple to $812 billion, from $223 billion (emphasis mine), becoming the third-largest line item in the budget.

“Corrected for inflation, the differences are even more dramatic. While discretionary spending would fall by more than 20%, Social Security, Medicare, and Medicaid would increase by more than 20%, and debt payments would nearly triple.

“Here’s the third, perhaps most revealing, view of what’s happening. The president’s budget projects that federal spending in 2014 will be 21.5% of GDP, not much different from today’s share. But the composition of that spending changes radically. In the fiscal year ending October 2013, in the aggregate we spent 10.8% of gross domestic product on Social Security, Medicare, Medicaid and interest payments combined. By 2024, that total would rise to 13.5%. In contrast, we spent 3.8% of GDP on defense in 2013, with that spending projected to drop to 2.3% in 2024. Meanwhile, nondefense discretionary spending would fall to 2.2%, from 3.2%. Even with these reductions, the debt stabilizes as a share of GDP only because revenues rise by 2.6 percentage points of GDP over the next decade....

“The Congressional Budget Office’s baseline projections, which reflect current policy, show a very similar pattern over the next decade. Even if the president’s proposals were accepted in full, they would change the country’s path only marginally.

“So what? Maybe that trajectory is right for us, or at least better than the feasible alternatives. I doubt it, and here’s one big reason why. As many analysts (including the president’s own representatives) have pointed out, discretionary spending is slated to fall to its lowest share of GDP in more than half a century. If that were to happen, we would put at risk both national security and the economy.”

Finally, Seth Klarman is a reclusive $27 billion hedge fund manager and the Financial Times got hold of his quarterly investment letter this week, wherein he declared the capital markets were in the grip of a wild bubble.

“Any year in which the S&P jumps 32 percent and the Nasdaq 40 percent while corporate earnings barely increase should be a cause for concern,” he wrote, pointing to “bubbles” in bond and credit markets, and “nosebleed stock market valuations of fashionable companies like Netflix and Tesla.”

In a commentary, the FT’s Gillian Tett honed in on Klarman’s concerns about the debt bubble.

“In recent years an astonishing amount of money has quietly flooded into fixed income funds, which buy corporate bonds, emerging markets bonds and mortgage debt. And as the U.S. looks more likely to raise interest rates, creating potential losses for bondholders, the flows could reverse – creating destabilizing shocks for regulators and investors alike.

“Consider the numbers. Just after Mr. Klarman issued his warnings, the investment research group Morningstar produced analysis that suggests U.S. investors have put $700 billion of new money into the most mainstream taxable U.S. bond funds since 2009. Since bond prices have risen, too, the value of these funds has doubled to $2 trillion. That is striking. But more notable is that these inflows to fixed income have outstripped the inflows to equity funds during the 1990s tech bubble – in both absolute and relative terms.

“Meanwhile, Goldman Sachs estimates (using slightly different forms of calculation) that $1.2 trillion has flowed into global bond funds since 2009, compared with a mere $132 billion into equities. And a new paper from the Chicago Booth business school estimates that inflows to global fixed income funds have been almost $2 trillion since 2008, four times that of equity funds....

“(The Chicago Booth) authors warn that ‘bond markets could experience another tantrum (ed. like last year’s when the market feared Fed tapering)’ when the ‘extraordinary monetary accommodation in the U.S. is withdrawn.’ And since it is now the bond funds, not banks, that hold the lion’s share of corporate bonds, if another taper tantrum does take hold that could be very destabilizing.

“Today, as in 1999, nobody knows when that turning point might come. But the more money that floods into fixed income, the more dangerous any reversal could be.”

Europe and Asia

It was a light week for economic news in the eurozone. The only data point of note was industrial production for January, which fell 0.2% over December. It was down 0.3% in France, but up 0.4% in Germany, again, over December, up 0.1% in non-euro U.K. and up 1.0% in Italy.

Regarding this last one, Italian Prime Minister Renzi unveiled his economic package of tax cuts for small business and lower-income workers, while the cap-gains rate will rise. Electoral reforms are also progressing thru parliament but none of this is a sure thing.

Billionaire investor George Soros issued a warning this week, saying Europe faced 25 years of Japanese-style stagnation unless politicians looked for the common good of the currency bloc and changed policies that have discouraged lending. Soros said in a Bloomberg television interview that “Europe is lagging behind the rest of the world in sorting out its banks.”

Said banks are now facing dreaded stress tests, as conducted by the European Central Bank. One, Italy’s biggest, UniCredit, reported a record annual loss of $19 billion and said it plans on slashing 8,500 jobs, which is the last thing Italy needs at this point. 

But, the bank is saying it did this ahead of the stress tests and expected a clean bill of health, offering it decided to take all its losses in one fell swoop rather than attempting to stagger them. UniCredit’s losses were primarily in Eastern Europe as well as Italy.

Finally, speaking more broadly, George Soros said: “Europe needs to rediscover its own European identity – instead of each country just pursuing its own national interests and getting further into conflict with the others. I hope Europe passes this test” in Ukraine, he added.

Turning to China, last week I reported the late news that February exports had cratered 18.1% from a year earlier, but upon further analysis, it’s clear the figure was distorted not just by the Lunar New Year holiday but also by comparisons with last year’s issue of false invoicing that the government appears to have done a decent job of cleaning up. Further, the Lunar New Year always distorts numbers so the government combines January and February and for the two months, exports were actually down just 1.6%.

The markets, though, did not like another slug of data at mid-week that showed industrial production for January and February up just 8.6%, less than expected and the worst start to the year since 2009, while retail sales, up 11.8% for the two months, represented the slowest start since 2004. 

Then you had fixed-asset investment (infrastructure), up 17.9%, which was a 13-year low.

Two others...consumer prices for February rose just 2%, a 13-month low, but passenger vehicle sales in February rose a solid 18%, though the government will force this rate of growth down as it seeks to reduce air pollution. Japanese brands, by the way, have rebounded smartly from the 2012 anti-Japanese protests, with Toyota and Honda seeing 43% and 28% gains last month over the prior year. Ford’s rose 67%, GM’s 20%. Bottom line, Chinese brands still suck in terms of quality and service, while sales have fallen six straight months.

Add the above all up, however, and it shows an economy in deceleration mode. Premier Li Keqiang, who last week talked of 7.5% growth in 2014, amended this somewhat the other day in calling the 7.5% target “flexible,” adding the government cares more about jobs and improving quality of life than a single growth rate.

Li also called future corporate defaults inevitable, but that the government won’t let it get out of hand.

So everyone now expects China to loosen monetary policy to ensure the economy doesn’t slide into the abyss, and take the rest of the world with it. Longer term, say two years, China announced it would be freeing up interest rates on bank deposits, forcing lenders to compete for customers for the first time.

Lastly, there was much talk about the slide in copper, below $3.00 to multi-year lows. This has always been viewed as a China barometer, though now for a little different reason. It’s not just about deceleration in manufacturing and infrastructure investment, but also because copper is often pledged as collateral in the shadow banking sector. When problems arise, liquidate the copper position first.

“(Our) fear is that the last banks in...the smaller banks; the regional banks; the banks that are always last to the feeding trough...are still holding copper collateralized loans that have gone from badly performing to horrid to now deeply under water in the matter of days. Panic liquidation has set in; the margin clerks are in charge and it is then that prices make their lows, but there is no way to tell when or where and at what prices those loans shall be finally liquidated.” [CNBC.com]

A few notes on Japan. Fourth-quarter GDP was lowered again to an annualized rate of just 0.7% from the preliminary estimate of 1.0%; up 0.2% over Q3. Business investment was up only 0.8% vs. an earlier estimate of 1.3%, Q4 over Q3.

On the wage front, as I’ve been writing, Prime Minister Shinzo Abe has been imploring business to hike wages ahead of the April sales tax/VAT increase to 8% from 5%. Some of Japan’s larger companies, like the automakers, have decided to hike wages 2.9%, but small business is holding off, much to Abe’s dismay. Everyone in Japan knows the economic data in the second quarter is going to be very ugly.

Street Bytes

--Aside from the Dow Jones falling 2.4% to 16065 on the week, the S&P 500 lost 2.0% and Nasdaq fell 2.1%, breaking a five-week winning streak. For the year, Nasdaq is still up 1.7%, but the Dow and S&P are down 3.1% and 0.4%, respectively.

Overseas, Tokyo’s Nikkei average is down 12% thus far in 2014, while London’s FTSE is down 3.3% and Frankfurt’s DAX is off 5.2%.

Once again a flight to quality on the long end of the curve.

Producer prices for the month of February came in less than expected, down 0.1% and down 0.2% ex-food and energy. For the 12 months, the PPI is up just 0.9%, up 1.1% on core.

--A study released by the Center for Auto Safety said U.S. safety regulators have recorded 303 deaths involving non-deployment of airbags in 1.6 million compact cars recalled last month by General Motors Co., not the previously reported 12 deaths in 34 crashes in cars including the 2005-07 Chevy Cobalt and 2003-07 Saturn Ion vehicles. GM admitted this week that it first learned of problems with the ignition switch back in 2001, but just discovered a record of it last month.

GM says the earliest report until now was 2004 during development of the Cobalt.

“Engineers were able to replicate the problem and proposed solutions, according to GM’s filing, but a decision was made not to adopt them, ‘after consideration of the lead time required, cost and effectiveness.’” [USA TODAY]

GM disputed the new report, saying it was “without rigorous analysis” and based on pure speculation. The Center for Auto Safety examined crash and fatality data from the National Highway Traffic Safety Administration’s Fatal Analysis Reporting System.

If you have one of these vehicles, and you are driving it before you get it fixed, strip everything off the key ring.

Congressional hearings are expected within weeks and are almost guaranteed to be explosive, assuming one or two whistleblowers come forward. For starters, GM admitted in a filing that in 2005, an engineer proposed a fix, but it was canceled. Instead, a service bulletin was issued for dealers to warn car owners to take additional items off the key chain, but not a full recall.

--Speaking of whistleblowers, former JPMorgan Chase employee Keith Edwards picked up nearly $64 million for providing tips leading to a payment of $614 million by the bank to the U.S. government over home-loan insurance. JPM agreed to the settlement with the Federal Housing Administration and the Dept. of Veterans Affairs last month, in admitting many of the loans approved didn’t meet underwriting standards. Edwards benefited from the False Claims Act.

--Shares in nutrition and weight loss company Herbalife plummeted as the U.S. Federal Trade Commission opened up an inquiry into its operations. Hedge fund manager William Ackman has been very public in placing a $1 billion bet against the company, saying Herbalife is running a pyramid scheme. The company said it would fully cooperate with the FTC.

Earlier, Ackman had renewed his attack on the company, saying it was breaking direct-selling laws in China, its fastest growing market, this as the New York Times had an extensive report on Ackman’s political agitation for his ‘short’ position. He has been lobbying members of Congress, for example, incessantly.

And “His team...paid civil rights organizations at least $130,000 to join his effort by helping him collect the names of people who claimed they were victimized by Herbalife in order to send the leads to regulators... Mr. Ackman’s team also provided the money used by some of these individuals to travel to Washington to participate in a rally against Herbalife last month.” [Ackman has claimed lower-income Latinos and African-Americans are victimized by Herbalife’s business practices.]

--Amazon.com said it would raise the annual price for its Prime shipping and streaming-video service from $79 to $99, the first increase in its nine-year history. It’s been absurd Amazon kept the price at $79 despite rising shipping costs, but it also goes hand-in-hand with Amazon’s goal of simply dominating all retail, profits be damned, in the short run.

Last year, shipping expenses rose to $6.6 billion, while shipping revenues hit $3.1 billion.

Analysts expect about 10% of Amazon’s 20 million Prime members to drop their accounts as a result of the hike, which was less than some analysts wanted.

A market research firm recently estimated Prime members spend more than twice as much - $1,340 per year – as non-Prime members. [Greg Bensinger / Wall Street Journal]

--The state of New Jersey’s Motor Vehicle Commission unanimously passed new rules limiting Tesla’s direct sales business model in the state. The electric carmaker says the “anti-Tesla rules completely change the law in New Jersey,” and, “if adopted, would curtail Tesla’s sales operations and jeopardize our existing retail licenses in the state.” Tesla claims it was licensed to sell cars in my state and that the move by the MVC was simply a political one, seeing as the association of car dealers and individual dealers have contributed heavily to the governor.

An association of auto retailers in New Jersey says cutting out the dealer hurts the consumer.

I have one of the two New Jersey dealers about a minute from me at the Short Hills Mall. New York could be the next to do what Jersey did.

--Australia reported its biggest jobs gain in more than 22 years in the month of February, 80,500. I was struck by the report that Woolworths Ltd., Australia’s largest retailer, said it was creating nearly 7,000 jobs in opening a net 108 new stores in its current financial year.

Americans have a different memory of the Woolworths name. But I’ve been to Woolworths Down Under and suffice it to say it’s quite different. Largely a food retailer, with some clothing and other goods mixed in.

--Denise D., traveling in Hawaii, tells me tourist traffic from the mainland is down some but up from Asia and Australia...simply anecdotal evidence she adds. I welcome similar comments from those of you traveling the world.

--The median sales price in Southern California’s key six-county region edged up just 0.8% in February over January to $383,000, according to DataQuick. Sales fell 12% vs. last year and were the lowest in any February since 2008. Prices do remain 19.7% ahead of February 2013, but the data overall reflects nationwide trends that the housing market has stalled.

--The average bonus for Wall Street employees rose 15% last year to $164,000 – the most since 2008, according to New York State. Profits, though, fell 30% in the industry to $16.7 billion. The higher bonuses were mostly due to deferred compensation from previous years being realized.

Wall Street generated about $3.8 billion in New York City taxes in fiscal 2013 and $10.3 billion in state taxes.

As for the start to 2014, the Financial Times reported that the Street’s fixed income divisions are likely to see revenue declines of up to 25% in the first quarter, which will lead to further layoffs. Many banks are warning declines could exceed 25% for all of 2014.

--Speaking of fixed income, according to a report by Morningstar Inc., PIMCO was the only outfit among the top 10 U.S. mutual-fund families to suffer net withdrawals in February, with redemptions now at $56.1 billion during the past year. 90% of its $1.91 trillion in assets are in fixed income and Bill Gross’ $236 billion Total Return Fund continues to suffer, hurt in no small part by the fallout from the resignation of co-CIO and CEO Mohamed El-Erian and some awful press.

Separately, speaking of ill-timed press, William J. Popejoy, a longtime PIMCO trustee, is questioning Gross’ $200 million annual salary. “I don’t know what Bill should be paid, but $200 million is not appropriate,” he told the Los Angeles Times’ E. Scott Reckard. Popejoy is among five independent trustees who oversee 88 PIMCO funds on behalf of investors, and heads the board’s governing committee.

He’s right. This is different, at least in my opinion, from a hedge fund titan raking it in in good times with a set sharing arrangement, like 2 and 20 (fee off assets and share of the profits).

--The Wall Street Journal had a front-page story by Matt Wirz on the high costs associated with investing in municipal bonds, as in investors are paying twice as much as they would buying corporate paper. As a former Wall Streeter, I know this has always been a dirty little secret.

“A study of 53,000 municipal and corporate bonds by S&P Dow Jones Indices for The Journal shows how much more...

“Individual investors trading $100,000 in bonds of a municipality, such as Washington state, in December paid brokers an average ‘spread’ of 1.73%, or $1,730. That compares with 0.87%, or $870, paid on a comparable corporate bond, such as one issued by General Electric Capital Corp., the data show.

“Brokers of stocks and corporate bonds must disclose market pricing and give individuals ‘best execution’ on trades, ensuring they receive the best prices possible. In the municipal-bond industry, those protections are absent, allowing brokers to pocket higher spreads by buying the bonds low and selling them high.”

Brokerage firms say the costs on munis are higher because they are less liquid, among other things.

--The four largest U.S. airlines, American, Delta, Southwest and United said they canceled a combined 74,500 flights in the first two months of the year due to the extreme weather.

--Shares in Fannie Mae and Freddie Mac dropped sharply following release of a Senate plan that would unwind the mortgage finance giants without providing an outlet for investors to share in their profits.

The plan, approved by the Senate banking committee, would maintain government backing of mortgages while eventually eliminating the two, which have paid back their $188 billion bailout from the financial crisis.

Hedge fund investors have been betting the common equity and preferred shares would survive and, recognizing the profit potential, would thrive.

However, I won’t waste any more time on this topic because there will be no action in Congress in terms of a final vote until after the November elections; at least that’s the feeling today. The fight with the hedgies is far from over.

--McDonald’s is always an interesting barometer as it publishes its monthly same-store sales. For February, U.S. sales fell 1.4%, but were down ‘just’ 0.3% globally and up 0.6% in Europe. However the shares rallied some on word the company will be improving its advertising to better connect with customers and drive incremental visits, according to CFO Pete Bensen.

--A year ago, New Jersey Gov. Chris Christie predicted Internet gaming revenue in New Jersey would hit $180 million in its first year. It is now looking like $100 million less, or even far more. The Division of Gaming Enforcement reported that the state brought in $3 million in taxes from online gamblers from the first clicks in November to the end of February. That’s it.

--The Energy Department released a report showing that those living in mostly rural and Midwestern areas that depend on propane will spend 54% more to heat their homes this winter than last. But those relying mostly on heating oil in the Northeast will be paying only 7% more. Natural gas consumers 10% more and electricity consumers an additional 5%.

But gasoline prices are averaging about 25 cents a gallon less than last year.

The Energy Department said the Northeast was 13% colder and the Midwest and South were 19% colder than last year, while the West was 5% warmer. [Clifford Krauss / New York Times]

--After a six-month battle over who was going to acquire who, Men’s Wearhouse is buying Jos. A. Bank, with Men’s Wearhouse paying a 56% premium to the share price on Oct. 8, before Jos. A. Bank first proposed it takeover its rival. Regulators still must rule on the combined company having too much power.

--We note the passing of the last surviving grandchild of Henry Ford, William Clay Ford, 88. His 57-year career at the automaker spanned its glory years, as well as decades of booms and busts. At one point he ran the Continental luxury-car unit and was chairman of the company’s design committee for 32 years, starting in 1957.

But for most he is best known as the owner of the Detroit Lions.

--The Federal Energy Regulatory Commission concluded in a study that coordinated attacks on just nine of 55,000 electric-transmission substations could cause a coast-to-coast blackout in the U.S., as reported by the Wall Street Journal’s Rebecca Smith.

“A small number of the country’s substations play an outsize role in keeping power flowing across large regions. The FERC analysis indicates that knocking out nine of those key substations could plunge the country into darkness for weeks, if not months.”

There are no federal rules requiring utilities to protect these substations.

--8 died in a catastrophic gas explosion in East Harlem, New York, that leveled two buildings. The Big Apple, like every other major city in the United States, has an aging infrastructure and such incidents will only multiply.

--Jimmy Fallon is doing just fine after his first three weeks as “Tonight Show” host. In week 3, the audience was still above the pre-transition average for Jay Leno, and handily ahead of rivals David Letterman and Jimmy Kimmel...like 4.5 million to roughly 2.75 million for each of the other two. [Nielson/Horizon Media/Wall Street Journal]

--Check out my “Wall Street History” column on the five-year anniversary of the market bottom.

Foreign Affairs

Syria: A senior U.N. disarmament official said Syria may meet a mid-April timeline for surrendering all its chemical arms. We’ll see. U.S.-Russian relations over Crimea won’t help in this regard, let alone the Assad regime hasn’t met one deadline yet. Plus there are serious doubts Syria catalogued its full inventory in the first place.

The number of children caught up in Syria’s war is now 5.5 million, many trapped in besieged areas and beyond reach, according to a U.N. report, issued through UNICEF, which warned the situation may only get worse.

“Cut off from aid, living in rubble and struggling to find food, many Syrian children have been left without protection, medical care or psychological support, and have little or no access to education. In the very worst cases children and pregnant women have been deliberately wounded or killed by snipers,” the report says.

I watched the heart-wrenching coverage of Syria’s children on NBC this week, and while I was glad the network covered the topic in depth, I wish they had had the guts to at least mention President Obama could have done something, early on, to alleviate a large amount of the suffering.

“Why can’t we help the innocent Syrians control some territory of their own?

“To help resolve the humanitarian crisis, we should gather a coalition of the willing – NATO members plus interested Arab countries – and lead them on a mission to carve out a Western-backed zone inside the country, where Syrians in need can flee.

“That base can also house a small number of American Arab-speakers and specialists who would help local Syrian leaders defeat Assad and the outsiders....

“In the 2008 surge, Gen. David Petraeus led a successful effort to help Sunni Iraqis repel similar foreign fighters. There’s no reason such an effort can’t succeed in Syria – except it requires a small number of, yes, American boots on the ground.

“Consider too: A U.S.-led international humanitarian-oriented campaign can have the added benefit of changing world attitudes toward America.

“Russia’s Vladimir Putin might think twice about extending his Crimea grab into other parts of Central Europe. China might pause before annexing yet another disputed atoll. Iran might even reexamine its assumption that the true meaning of Obama’s ‘all options are on the table’ is that America has no options left.

“Yes, we often hear these days that military efforts don’t belong in the 21st century. Nice slogan. But if we allow Syria’s carnage to fester for another three years, is our time any better than past centuries?”

“News that Syrian President Bashar Assad had been accepted into the Russian Academy of Sciences makes us wonder about the institution.

“Perhaps not surprisingly, last year the academy was placed under tighter government control. Assad didn’t complain, declaring ‘Russia has re-established balance in international relations, after long years of hegemony’ by the United States. For three years, Russia has indeed underwritten the most barbaric crimes of the Syrian regime. Yet it was only when President Vladimir Putin began preparing the annexation of Crimea that many people in the West realized the kind of individual they were up against.

“President Barack Obama has declared any secession vote in Crimea illegitimate, and warned: ‘We are well beyond the days when borders can be redrawn over the heads of democratic leaders.’ George Kennan once lamented the American tendency to make foreign policy pronouncements that had no practical consequences and that the United States was unwilling to bolster in a forceful way. We will have to see what Obama does in Crimea, but we can say that, when it comes to Syria, the U.S. has repeatedly confirmed Kennan’s doubts.

“What does it tell us if Assad ultimately wins the Syrian conflict? This will surely take years, if it happens at all. But for the sake of simplicity, let’s assume that it does happen. Will it not send a message even more damning to the notion of an international community based on the rule of law than Putin’s maneuvers in Crimea?....

“At the heart of the international community, and the U.N. in particular, lies a glaring contradiction. It is commonly believed that the establishment of an international body after World War II was designed to serve as the cornerstone of a global order based on the rule of law. In reality, as historian Mark Mazower has written, the U.N., like its predecessor the League of Nations, ‘was a product of empire and indeed, at least at the outset, regarded by those with colonies to keep as a more than adequate mechanism for its defense. The U.N., in short, was the product of evolution not revolution....’

“Yet over time, there have been numerous efforts to reinforce the universalist ideals of the U.N. In the aftermath of the Rwandan genocide of 1994 and the Srebrenica massacre a year after, there emerged a new notion in international relations that came to be called the responsibility to protect, or R2P. States had a responsibility to protect their citizens from crimes such as genocide, war crimes and crimes against humanity. When they failed to do so, the international community had the responsibility to intervene and could, as a last resort, act militarily after a vote in the Security Council.....

“Today, the Security Council seems utterly incapable of agreeing to such a resolution when it comes to Syria. Mass slaughter is continuing, while room is being made for Assad in the Russian Academy of Sciences by a man directing the takeover of the sovereign territory of a foreign state. Meanwhile, publics in the United States and Europe continue to adamantly oppose any kind of military intervention in Syria, regardless of what happens to civilians....

“(The) frequent inability of the U.N. to act decisively on humanitarian matters, as in Syria, has pushed states to act unilaterally in given crises, further eroding the idea of a common interest in defending human rights and international law.

“This reality takes us back to the Hobbesian notion of ‘all against all.’ But if so, if power and force alone are what shape foreign policy, then so be it, in Syria as in Crimea. Let’s stop wasting our time by evoking international law and principles in a world that seems so little disposed to ensuring they prevail or, worse, that cites international law as an excuse to avoid taking any humanitarian action whatsoever.”

“Washington’s seeming inability to focus on more than one international crisis at a time has been a boon to Syrian dictator Bashar al-Assad. It also has diverted attention from the bankruptcy of Obama administration policy.

“As Russia invaded Ukraine, the Assad regime proceeded unmolested and almost unnoticed with a merciless offensive of ‘barrel-bombing,’ in which helicopters drop explosive containers filled with nails and other deadly shrapnel on apartment buildings, schools and hospitals. The latest target is the town of Yabroud, near the Lebanese border. In other areas, the regime continued to wage a war of starvation, besieging civilians in violation of a U.N. Security Council resolution approved more than two weeks ago. According to a new report by Amnesty International, at least 194 civilians have died in Yarmouk, a Palestinian refugee camp, since a siege began in July. The leading causes of death are starvation, lack of medical care and shooting by snipers....

“Deputy Secretary of State William J. Burns stated bluntly that Syria now presents ‘enormous challenges’ to U.S. interests that ‘require a steady, comprehensive American strategy.’...

“Yet when senators asked about the U.S. response, Mr. Burns could offer only vague phrases about ‘ways to support the moderate opposition’ and coordination with other rebel supporters. As Sen. Bob Corker (R-Tenn.) noted, ‘We have been hearing this for years now, and since we first began hearing it, I would guess a hundred thousand people have died.’”

It’s more like 120,000, Senator. I said it was over (as in we lost) in August 2012. Sadly, I was right.

Iran: Nuclear talks resume next week between Iran and the P5+1 (U.S., U.K., France, Russia, China and Germany). Prior to this, Iran’s Deputy Foreign Minister Abbas Araqchi met with his Russian and Chinese counterparts in Moscow and Beijing. In Moscow it was announced that Russia would build Iran two additional nuclear plants at Bushehr, which clearly seems to violate international sanctions against Iran. In exchange it appears Iran would pay for the new plants in oil; oil-for-goods sales being previously condemned by the United States.

But this week, President Obama issued a statement that said the interim atomic pact “marks the first time in a decade that Iran has agreed to and taken specific actions to halt its nuclear program and roll it back in key aspects,” though he added Tehran still poses “an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States.”

Israel: Unbelievably, Sec. of State Kerry told Congress on Thursday that Prime Minister Benjamin Netanyahu’s insistence on a public declaration of Israel’s Jewish character from the Palestinians was “a mistake” in the diplomatic process. Kerry said international law already declares Israel to be a Jewish state.

“I think it’s a mistake for some people to be raising it again and again as the critical decider of their attitude toward the possibility of a state, and peace, and we’ve obviously made that clear,” Kerry told the House Foreign Relations Committee.

Earlier, addressing a Senate panel, Kerry said Israel and the Palestinians had less trust in one another than at any stage of the current negotiations.

I totally concur with Netanyahu on this issue. [And disagree with him on the aggressive expansion of settlements in the West Bank.]

On the issue of the seized Iranian arms smuggling ship, Iran’s deputy chief of staff said:

“The Americans and the Zionists have probably ordered to Hollywood the production of a movie with the scenario of a cargo ship carrying Iranian weapons to Gaza in Palestine. Their fake and repetitious media products as well as psychological operations will have no achievement other than defeat, humiliation and deepening the Iranian nation and even the world people’s mistrust of them.” [Jerusalem Post]

Prime Minister Netanyahu said the world’s ignoring Iran’s involvement in the deadly shipment “is more evidence of the era of hypocrisy in which we live.”

“This time there were long-range missiles in these containers. In the containers in the future Iran can arm nuclear suitcases that it can send to every port in the world. The world must wake up from its illusions before it is too late and prevent Iran from getting the capability to manufacture nuclear weapons.”

A senior Iranian Revolutionary Guard commander said Tuesday Iran was keeping its finger “on the trigger” to attack and destroy Israel at any time.

Separately, Israeli warplanes attacked Palestinian targets in the Gaza Strip following an Islamic Jihad rocket barrage into Israel on Wednesday, the heaviest such barrage since November 2012.

Libya: Talk about a mess. The elected General National Congress voted to oust Prime Minister Ali Zeidan after the government’s weak security forces failed to stop a North Korean-flagged oil tanker from departing Libya’s coast with an unauthorized $36 million cargo of crude oil. Militants have been seeking autonomy in Libya’s east and laid siege to some of the country’s key oil wells and ports. Ergo, the rebels have $36 million and the government doesn’t.

Egypt: The presidential election, initially set for mid-April, is now being pushed back to July 17 as political parties argue over a new election law that rules out legal challenges to the results as determined by the country’s election body.

While he is still expected to do so, army chief Field Marshal Abdel-Fattah Sisi still hasn’t declared his candidacy.

Turkey: Anti-government protests erupted again in Istanbul after a teenager died nine months after being hit by a police tear-gas canister in last year’s demonstrations.

China: Addressing the National People’s Congress gathering in Beijing, President Xi Jinping warned military leaders they would have to bear greater responsibility as China’s military grows and that they must not shy away from defending China’s interests.

“We hope for peace, but at any time and under any circumstance, we cannot give up defending the nation’s reasonable interests,” Xi is quoted as saying.

Earlier, the Chinese government revealed defense spending would rise 12.2% this year, or $14.4 billion, to $132 billion total, second in the world to the United States, while many insist it is even higher.

Last week, Premier Li Keqiang told the National People’s Congress that the government would “declare war on pollution.” This week the government revealed only three of 74 major cities met national air quality standards throughout last year. The deputy minister for environmental protection said the Beijing-Tianjin-Hebei area experienced air pollution on more than 60% of days in 2013, the worst in the country. The area has seven of China’s 10 most polluted cities.

Wu Xiaoqing said China was paying a “heavy, massive” environmental price for economic growth.

“Our measures to curb air, water and other types of pollution may somewhat stall the growth of our gross domestic product, but this is what we have to do,” he said.

And whaddya know...with all my talk of how foreign companies are going to be increasingly hesitant to operate in China given the pollution mess, this week Panasonic became “the first international company to declare it will pay employees it sends to China a premium to compensate them for the dangerous levels of pollution in the country.” [Jennifer Thompson / Financial Times] Score one for your editor.

I still maintain pollution will one day bring down the government.

Separately, Taiwan’s spy chief revealed on March 10 that it passed on warnings to China of possible terrorist attacks on the mainland, specifically on Beijing airport and the city’s subway system. The warnings were issued on March 4 and do not appear to have anything to do with the disappearance of MH370, which vanished in the early hours of March 8.

North Korea: Congratulations to Kim Jong-Un for receiving 100% of the vote in his district, which also had 100% turnout, as part of parliamentary “elections,” cough cough. That’s a heck of an accomplishment. In fact, no one in the history of the world has exceeded 100%. [Except for JFK in certain Illinois precincts in 1960, but I digress.] Coupled with the record turnout, political strategists will be studying Kim’s campaign for centuries to come.

Japan: The Abe administration is determined to restart the nation’s dormant nuclear reactors, after the prior government sought to give up on nuclear power.

Following the Fukushima disaster on March 11, 2011, the Japanese shut 48 reactors, but three years later, the anti-nuclear campaign is running out of steam, as Kristine Kwok of the South China Morning Post put it the other day.

It seems public opinion is divided, but Abe’s cabinet is expected to approve a restart plan later this month.

Philippines: With China’s increasing aggressiveness in the South China Sea, the Philippine government has agreed to allow the United States access to its military bases under a new security agreement, similar to that reached with Singapore and Australia.

Enhanced joint-exercises and training will also only strengthen the Filipino military.

Venezuela: It’s been flying under the radar with the disappearance of MH370 and tensions in Ukraine dominating the news cycle, but violence here has now claimed at least 28 lives, with Sec. of State Kerry saying the government must end its “terror campaign against its own citizens.” Venezuela accuses Washington of helping “right-wing fascists” to plot a coup with the unrest. President Nicolas Maduro said his government had stopped a coup in recent days.

Nigeria: This hellhole continues to see worsening violence, only this time it wasn’t at the hands of Islamists’ Boko Haram. Instead, Fulani cattle herders were responsible for the deaths of at least 69 villagers in a dispute with local farmers. The attackers rode motorcycles into villages in broad daylight and killed anyone in their path, including women and children.

*Regarding Malaysia Air flight #370, what can I say when I’m the “wait 24 hours” guy? As I go to post, having watched another hour of CNN coverage, everyone has a different opinion and who the heck knows? My own theories change with each new report. For the purposes of this column, however, it isn’t right to speculate in a matter of this kind. 

The public, however, needs an explanation, and soon. I feel for China, in particular, with 150 of its citizens being passengers and this incident occurring just days after the Kunming terror attack of March 1 that killed 29. For the first time in recent memory, China as a nation feels a vulnerability it hasn’t before.

Separately, it was disturbing to learn that, according to Interpol, 1 billion passengers last year were able to board aircraft around the world without having their passports screened against Interpol’s stolen passport database.

As the Financial Times noted, after an Air India Express flight from Dubai crashed in Mangalore, southern India, in 2010, killing all 158 on board, “accident investigators identified 10 individuals on the flight who had been travelling with forged or stolen documents. The incident raised serious concerns at the time about the reliability of Dubai’s security checks.”

Many of these potentially compromised flights eventually find their way to the United States, or the airports of our staunch allies. 

Random Musings

--Interesting point by Gwynn Guilford of the National Journal.

“One likely, if under-appreciated, source of short-term instability around the globe – in both financial markets and violent conflict – is a huge boom in male youth.

“There’s a close relationship between surging populations of young men and ‘revolutions, wars and upheavals,’ argue Ajay Kapur, Ritest Samadhiya, and Umesha de Silva. The Bank of America/Merrill Lynch analysts cite ‘civil war in medieval Portugal (1384), the English Revolution (1642-51), the Spanish conquistadores ravaging Latin America were secundones (second sons), the French Revolution of 1789, and the emergence of Nazism in the 1920s in Germany.’”

So, for example, today, male youth booms in India, Africa and China are “massive,” and a look at the charts compared with everywhere else in the world, especially, Europe, the U.S., Middle East and Japan, graphically proves this to be the case.

“When there aren’t enough jobs to employ the supply of young men, that can galvanize conflict, argue the analysts – as can stagflation, rising income inequality, unaffordable property, and other problems facing emerging markets. Particularly if they’re unmarried, these young men have less to lose by banding together and committing crimes, unrest or violence.”

This is huge in India and China, “where a cultural preference for boy children has led to sex selection of infants that now means there are tens of millions more young men than young women.” [Global Security Newswire]

Recall, a few months ago I said you don’t want to know how prevalent the issue of infanticide is in China.

--The White House announced 943,000 enrolled in ObamaCare in February, down from 1.2 million in January. Overall, enrollment stood at 4.2 million as of the end of last month.

There seems little doubt the revised target of 6 million people signing up by end of March will not be met. Last year congressional budget analysts pegged the target at 7 million by spring. The goal was reduced due to the pathetic rollout of HeatlhCare.gov.

Further, it was hoped 40% of those signing up would be under the age of 35, but in February, only 27% of enrollments were young adults, the same as January’s pace. [Figures out of California reflect the exact same percentage of young enrolling.   The California exchange was also recently down for five days due to web issues.]

In keeping with the administration’s need to sign up more young people, President Obama hit the comedy circuit, appearing on Zach Galifianakis’ web show, “Between Two Ferns.”

“In case you missed it, which you won’t want to admit because this would mean you don’t follow what’s trending on Twitter, which would mean you are frozen in a time no one cares about anymore and are, therefore, irrelevant. Let me rephrase that: You’re not cool – even if you’re frozen.

“The president, a.k.a. the leader of the free world, appeared on the show allegedly to pitch health care to the demographic worshipped by producers and presidents alike – Young People. This is because young people rule and, specifically, they rule over the success or failure of the Affordable Care Act. If the young and healthy don’t buy insurance to help cover the sick and elderly, the plan could collapse.

“I might have missed the show were it not for Twitter telling me what people are paying attention to. Other trending topics, at least during the time I checked in, concerned ‘Teen Wolf,’ ‘The Bachelor’ and Juan Pablo, who, Google tells me, was ‘The Bachelor.’ Such topics remind us that all is right with the world, at least nothing that would distract a president. Absent was any mention of such downers as Ukraine, Crimea, Vladimir Putin, China, Russia, Venezuela, Syria, Iran, North Korea or other trouble spots, never mind a missing airplane.

“What better time for a president to kick back and be a comic foil in service to the greater good of universal health care? Health care is important, of course, but, I repeat, he’s the leader of the fee world, parts of which are under siege.”

Oh, anyone watching, as I did, had to smile. Ms. Parker did, too. But was this an appropriate venue for the president, “especially in consideration of current events”?

--Meanwhile, a Republican who railed against ObamaCare won a special election in Florida, but by a slim margin, 48.5% to 46.6%. David Jolly defeated Alex Sink in the race for the late Bill Young’s seat. But with Young a Republican who held the seat for 43 years, too much is being read into the ObamaCare aspect. Jolly has to run again in the fall.

--In a Bloomberg National Poll, 48% of Americans approve of Barack Obama’s job performance, up from 42% in December. [42% of Independents gave the president a thumbs up vs. 35% in December.]

69% of Americans, including 45% of Republicans, support Obama’s call to raise the minimum wage to $10.10 over the next three years. 28% oppose. But when told 500,000 could lose their job, even as 16.5 million saw their wages rise, per a Congressional Budget Office study, 57% found this tradeoff unacceptable.

--But...a Wall Street Journal/NBC News poll had Obama’s approval rating ticking down to 41%, a new low, from 43% in January.

Only 25% view the Republican Party positively, 45% have negative views; weaker numbers than for the Democratic Party.

65% of Americans said the country is on the wrong track, compared with 26% who said it was on the right one.

On the minimum wage hike issue, 58% said they were more likely to support someone who backs the increase and 29% said they would oppose that person.

--Facebook’s Mark Zuckerberg phoned President Obama to “express frustration” over NSA surveillance. The 29-year-old founder said in a Facebook post that the U.S. government “should be the champion for the Internet, not a threat.”

“When our engineers work tirelessly to improve security, we imagine we’re protecting you against criminals, not our own government,” he added.

--To say the Republican Party is a mess is an understatement. Here’s one example, courtesy of the Jennifer Rubin / Washington Post:

“Sen. Marco Rubio (R-Fla.) has tried to impress conservative hawks and serious Republicans of all stripes with his policy expertise. But at crucial junctures, he resorts to moves that can be seen only as pandering to the far right. In doing so, he makes his own record identical to that of Sen. Rand Paul (R-Ky.).

“It happened on the vote to authorize the use of force in Syria (Rubio voted no) and on the shutdown (Rubio was among the shutdown squad). He seemed to recover his bearings with strong statements on Russia and Ukraine.

“But today (Wed.) he postured once again, saying he’d vote against the Ukraine aid bill before the Senate because it includes funding for the International Monetary Fund, which conservatives want to reform. Opponents claim that this is new funding, not simply leftovers from the previous year, but a committee minority aide is emphatic: ‘This claim is false... These rescissions come from programs under accounts that were canceled or under executing and slated for cancellation, and if not rescinded they will expire at the end of the fiscal year.’....

“Rubio’s conduct has dismayed and angered foreign policy hawks who see this as opportunism to cuddle up to the far right. But the senator is hardly going to make inroads with the paranoid anti-internationalists. I confess it makes no sense. It does, however, tell us that he has not been able to re-establish his credibility with the segments of the party that might otherwise support him. Rep. Paul Ryan (R-Wis.) anyone?”

--Sen. Rand Paul won the Conservative Political Action Conference straw poll a second straight year with 31% of 2,459 voting. Sen. Ted Cruz was second with 11%. Whatever.

--New Jersey Gov. Chris Christie’s poll numbers continue to plummet on the heels of Bridgegate. A Fairleigh Dickinson University PublicMind survey has only 41% of New Jerseyans approving of Christie’s job performance and 44% disapproving – the first time with this negative split since he took office in January 2010.

As executive director of PublicMind, Krista Jenkins, told the Star-Ledger’s Matt Friedman, “One of the defining characteristics of the governor that makes him a nationally sought after Republican is his widespread appeal in a Democratic state. Bridgegate continues to erode that asset.”

Let’s say nothing is ever revealed that links Christie directly to the GWB mess. Republicans would return to the fold for the most part, at least in their private feelings about the man. But support from Democrats is gone...finis...

Frankly, I don’t have to make a decision to vote for the guy anymore in my home state and I just don’t see him being a factor in 2016.

Long ago, I quoted a Rutgers prof who said Christie, politically, is brilliant. He’s thinking three or four steps ahead of the rest of us. But whether he knew of Bridgegate or not, he was blindsided as to the reaction...and won’t recover.

--New York City Mayor Bill de Blasio picked up a win in his battle for funding universal pre-K, with the New York state Senate passing a resolution that includes funding for free, full-day prekindergarten and after-school programs in NYC.

But, chances of de Blasio getting approval from the state legislature for his plan to tax the rich to fund pre-K are nil with Gov. Andrew Cuomo and Senate Republican leader Dean Skelos being against the hike.

And then on Friday, Cuomo said de Blasio isn’t even guaranteed full funding. Which is really funny. 

“In September 1958, a future columnist, then 17, was unpacking as a college freshman when upperclassmen hired by tobacco companies knocked on his dormitory door, distributing free mini-packs of cigarettes. He and many other aspiring sophisticates became smokers. Nearly six years later – 50 years ago: Jan. 11, 1964 – when the surgeon general published the report declaring tobacco carcinogenic, more than 40 percent of U.S. adults smoked. Today, when smoking is considered déclassé rather than sophisticated, fewer than one-fifth do.

“In 1971, a New York couple decided their Bon Vivant brand vichyssoise tasted strange so they put aside their bowls, too late. Within hours he was dead and she was paralyzed from botulism poisoning. And within a month Bon Vivant was bankrupt, proof of the power of health-related information to change Americans’ behavior.

“These two excursions into the sociology of health are occasioned by the remarkable recent report of a 43 percent reduction in the obesity rate among children ages 2 to 5. In 2004, about 14 percent of those children were obese; in 2012, about 8 percent were. The New York Times, which showed sound news judgment in making this the lead story on its front page, reported that the result of the large federal survey was ‘a welcome surprise to researchers.’

“It was welcome because obesity begins early – people obese from age 3 to 5 are five times more likely than others to be overweight or obese as adults, when being so makes people more susceptible to cancer, heart disease and stroke. It was a surprise because no one knows why the rate dropped.

“A reasonable surmise, however, is that one cause is the cumulative effect of talk about sensible eating and exercising. Certainly one lesson of the past 50 years is that one of the most cost-effective things government does is disseminate public health information concerning behaviors as disparate as smoking and using seat belts.”

[When I was a freshman at Wake Forest, 1976, packs of cigarettes were still being placed on the cafeteria tables. That longstanding practice was discontinued the following year. Had a little something to do with the school being located in Winston-Salem, you see.]

--Attorney General Eric Holder told the U.S. Sentencing Commission that he proposes reduced sentences for 70 percent of drug offenders to cut the burgeoning U.S. prison population, while reserving stiff sentences for the most violent traffickers.

“Certain types of cases result in too many Americans going to prison for far too long, and at times for no truly good public safety reason.”

The seven-member sentencing panel is expected to approve Holder’s proposal, that then guides federal judges, as soon as April.

The lower sentencing guidelines “would result in a 17 percent decrease in the average length of time imposed on a drug offender, according to Justice Department officials.” [Sari Horwitz / Washington Post]

--While I squirm when someone touts a reduced crime rate over such a short period of time, such was the case with New York City Mayor Bill de Blasio, who after his first ten weeks gloated that homicides were down 21%, from an already historic low level. From Feb. 13 to 22, in fact, there were no murders in Gotham. Yes, that is extraordinary, first time ever, in fact.

All of us want such trends to continue, of course, but the mayor and his police commissioner, William Bratton, were reminded that the weather not only can keep people out of the malls, but also the criminals off the streets as well.

--Sunday, there was a 6.8 earthquake off Eureka, California, which did not produce a tsunami. However, as Rong-Gong Lin II and Rosanna Xia of the Los Angeles Times note, the location of the temblor was in a worrisome area.

“If a 9.0 earthquake were to strike along California’s sparsely populated North Coast, it would have a catastrophic ripple effect.

“A giant tsunami created by the quake would wash away coastal towns, destroy U.S. 101 and cause $70 billion in damage over a large swath of the Pacific coast. More than 100 bridges would be lost, power lines toppled and coastal towns isolated. Residents would have as few as 15 minutes’ notice to flee to higher ground, and as many as 10,000 would perish.

“Scientists last year published this grim scenario for a massive rupture along the Cascadia fault system, which runs 700 miles off shore from Northern California to Vancouver Island.

“The Cascadia subduction zone is less known than the San Andreas fault, which scientists have long predicted will produce The Big One. But in recent years, scientists have come to believe that the Cascadia is far more dangerous than originally believed and have been giving the system more attention.”

Having traveled along the Oregon and California coasts a number of times the past few years, one is struck by all the tsunami evacuation route signs.  Yet another reason to sleep with one eye open.

--This week, March 13, marked the 50th anniversary of a famous New York City murder, that of Kitty Genovese, whose screams for help outside her apartment were ignored.

Genovese was stabbed to death by a stranger and the case became a sensation when the New York Times reported that “38 respectable, law-abiding citizens” in Queens watched the attack unfold over more than half an hour and didn’t call police during the assault.

Follow-up reporting concluded the number of witnesses was exaggerated and that some may have tried to help, but the case left its mark on the public and helped, over time, spur the development of the 911 system, as well as various theories on how people react in certain situations, the “bystander effect.”

--Good news...a biologist studying white nose syndrome among bats in Vermont said he thinks the worst is over and that one affected species could be making a comeback. We need the bats to help us combat the mosquito. 

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

God bless America.

Gold closed at $1379...highest since last Sept.
Oil $98.89

Returns for the week 3/10-3/14

Dow Jones -2.4% [16065]
S&P 500 -2.0% [1841]
S&P MidCap -1.8%
Russell 2000 -1.8%
Nasdaq -2.1% [4245]

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

Dow Jones -3.1%
S&P 500 -0.4%
S&P MidCap +1.6%
Russell 2000 +1.5%
Nasdaq +1.7%

Bulls 55.1
Bears 17.4 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Catch me on Twitter @stocksandnews

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