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09/20/2014

For the week 9/15-9/19

[Posted 11:00 PM ET, Friday]

Edition 806

Washington and Wall Street

Stocks resumed their winning ways after a one-week pause, with the Dow Jones and S&P 500 hitting new highs, helped in no small part by the Federal Reserve’s pronouncement that it will continue to leave its key short-term interest rate near zero for a “considerable time,” failing to change the language after their latest Open Market Committee confab in Washington. So while the economy is generally improving following the first-quarter weather-related debacle, inflation remains tame and, in the Fed’s eyes, there is still a lot of slack in the labor market (or “underutilization of labor resources” as they put it) so further stimulus in zero interest rates is not only acceptable, it is necessary to keep the recovery on track, especially given the still dicey global picture.

U.S. interest rates would likely remain low anyway, at least in the interim, because U.S. Treasuries provide a solid alternative to European bonds and their ultra-low rates, ditto Japan, as well as those ever-present geopolitical risks that from time to time cause a flight to safety.

I just continue to believe that while this week’s latest inflation data for the month of August was below 2.0% for both producer and consumer prices (details below), wage pressures will pick up the balance of the year and on into 2015, which will cause the Fed to act sooner than now anticipated.

But here’s the thing. Two policy members who dissented on the Open Market Committee (Charles Plosser and Richard Fisher), drop off in December so looking ahead, Chair Janet Yellen may face zero opposition if she wants to keep rates at zero well into the second half of 2015.

[The Fed did issue new projections for the funds rate, projecting it will be between 1.25% and 1.50% in late 2015 and up to 3.00% in late 2016 from its current near zero level.]

On another issue, “quantitative easing” (QE) comes to an end in October as the Fed has been winding down the program. Remember, this was QE3.

I liked a simple explanation from Kim Gittleson of the BBC and I wanted to get this down for the archives and this long-running history of our times.

“First enacted by the Fed in the wake of the 2008-09 financial crisis, QE was basically what a central bank does when it runs out of its traditional arsenal of cutting interest rates and starts digging around in the bag for a new trick....

“At its most basic, QE is essentially when a central bank buys bonds to lower interest rates.

“There were three rounds of quantitative easing. From late 2008 until 2010, the Fed bought nearly $2.1 trillion of Treasury bonds and mortgage-backed securities. The program was halted when the Fed signaled that it believed economic conditions had improved.

“However, once the U.S. economic recovery faltered later in the year, in November 2010 the Fed announced another round of QE. QE2 ended in the middle of 2011 after the Fed bought $600bn of bonds, primarily mortgage-backed securities.

“Once more, however, the Fed was too optimistic. In late 2012, the Fed announced another round of open-ended bond buying, which eventually resulted in it buying $85bn per month. The Fed began ‘tapering’ those purchases at the start of this year, and the program is set to end in October.”

Did it work? QE1 was necessary, the next two rounds, no, in the humble opinion of your editor. In fact a paper by the San Francisco Federal Reserve Bank found that QE2 added just 0.13 percentage points to the annual rate of economic growth in 2010. As Ms. Gittleson notes: “The authors of that paper argued that it was the Fed setting expectations about when rates would rise that gave people the confidence to invest, not printing money.” I agree.

Meanwhile, the Organization for Economic Cooperation and Development (OECD) issued its latest economic outlook and it lowered expectations virtually everywhere. 

The United States is expected to grow 2.1% this year and 3.1% next (2.6% was the last forecast for 2014), while the eurozone is expected to grow just 0.8% this year and 1.1% next.

Other projections (2014/2015):

U.K. (3.1% / 2.8%); Germany (1.5% / 1.5%); France (0.4% / 1.0%); Italy (-0.4% / 0.1%); Canada (2.3% / 2.7%); Japan (0.9% / 1.1%); China (7.4% / 7.3%); India (5.7% / 5.9%) and Brazil (0.3% / 1.4%).

Save for Britain, which had its own special issue this week, growth is hardly robust anywhere, with China’s outlook increasingly dicey.

Separately, the International Monetary Fund warned the global recovery is shaky and that it is likely to reduce its growth estimates when it issues its October update, though it would seem the IMF is more concerned about the Fed reversing policy on interest rates a lot sooner than the Fed itself is signaling. 

A few other notes on the U.S. economy, August housing starts fell 14.4% on a seasonally adjusted basis, well below expectations, but July was revised upward to the best annualized pace since November 2007. And the latest weekly jobless claims figure of 280,000 is near a 14-year low, with the number receiving unemployment benefits at the lowest level in over seven years.

In a hopeful sign for the holiday shopping season, FedEx Corp. announced it would hire more than 50,000 workers, compared with 40,000 last year, while UPS said it expects to need 90,000 to 95,000 workers, compared with an initial plan for 55,000 a year ago. Kohl’s also announced it would hire thousands more seasonal workers vs. 2013. 

Finally, as part of a bill to approve the training and arming of Syrian rebels, Congress voted to fund the government beyond the Sept. 30 deadline, so no shutdown. [I believe the short-term continuing resolution is through Dec. 11.]

Europe and Asia

After some earlier scary polls concerning the Scottish referendum for independence, with the ‘Yes’ camp pulling into the lead, by the time the Scots turned out on Thursday, the polls were turning in the direction of the ‘No’ option and in the end, Scots voted by a 55.3 to 44.7 margin to remain part of the United Kingdom. Turnout was 85%, the highest ever for an election in Britain.

British Prime Minister David Cameron said the question of Scottish independence had been settled “for a generation,” after a campaign that fired up separatist movements around the world.

Cameron, who no doubt would have lost his job had the Scots voted in favor of breaking away, said “there can be no disputes, no re-runs, we have heard the settled will of the Scottish people.

“Just as Scotland will vote separately in the Scottish parliament on their issues of tax, spending and welfare, so too England, as well as Wales and Northern Ireland should be able to vote on these issues.

“And all this must take place, in tandem with and at the same pace as the settlement for Scotland.”

Yes, British government leaders, including from all three major parties, had to promise the Scots a lot to keep them in the fold, including powers over taxes and spending, and there will be many more interesting days ahead, including the major issue of whether the U.K. stays in the European Union.

For his part, pro-independence First Minister Alex Salmond said in Edinburgh, “Scotland has by majority decided not, at this stage, to become an independent country.” He then resigned as leader of the Scottish National Party (SNP) after his ambitions of a political lifetime were squelched, though some say the strong ‘Yes’ percentage leaves open the possibility of another vote in the future. Salmond said: “For me as leader my time is nearly over, but for Scotland the campaign continues and the dream shall never die.”

Salmond added: “We now have the opportunity to hold Westminster’s feet to the fire on the ‘vow’ that they have made to devolve further meaningful power to Scotland.”

But with all the proposed devolution, details of which are still to be hashed out, picture you have a situation where as former minister John Redwood described in the Financial Times, “Scotland fixes its own income tax and also sends MPs to Westminster to help set an income tax rate for England, too.”

Gideon Rachman / Financial Times

“The U.K. has just been through a near-death experience. The final result of the referendum on Scottish independence represented a clear rejection of separation. But there was no mistaking the near panic of the British government in the last two weeks before the vote – after a poll had shown the Yes campaign in front. In his last campaign appearance in Scotland, David Cameron, the British prime minister, had been near tears as he pleaded with Scottish voters not to break up the U.K.....

“But even though Scottish voters have rejected separation from the rest of the U.K., the Scottish referendum will still have consequences both for Britain – and for other nations, where separatist movements are on the rise.

“Mr. Cameron is likely to emerge from this campaign as a weaker political figure. Many in his own party believe he gambled recklessly with the future of the country – by agreeing to a referendum on terms that, in retrospect, look very favorable to the independence movement. The prime minister also stands accused of panicking in the last weeks... In any case, it is now clear that Britain is in for a long period of constitutional uncertainty – which will only get worse, if Mr. Cameron fulfills his promise to stage yet another referendum, this time on the U.K.’s membership in the EU.” [Oh yeah, this last bit is huge.]

So how did the vote resonate around the world? Catalans (see Barcelona) in Spain were most interested and no doubt the most disappointed in the outcome. The Catalan government plans a similar vote on independence Nov. 9, though in this case Madrid has been vehement in calling the referendum “illegal.” Spain’s foreign minister vowed he will use the “full force of the law” to block the non-binding independence vote.

Residents in Quebec no doubt looked on Thursday with interest, too, there having been two independence referendums there in 1980 and 1995, the latter narrowly defeated. But the separatist leader admitted the next referendum in Quebec could be a long way off, with support for breaking away at just 40% these days.

And leaders in China had to be pleased by the ‘No’ vote in Scotland, especially as it relates to Tibet and restive Xinjiang, let alone Hong Kong and Taiwan.

Back to the continent, European stocks rallied to their highest level since January 2008 after Thursday’s vote.

On the economic front, a preliminary reading on inflation for August came in at the same 0.4% annualized rate as July, not good, with prices in Spain falling 0.5% and 0.2% in Greece and Italy, again on an annualized basis. [The U.K. saw prices increase 1.5%, Germany +0.8% and France +0.5%.]

One encouraging note, European car sales rose a 12th consecutive month, up 1.8% in August from a year earlier, though this was the slowest growth of the year according to the Brussels-based European Automobile Manufacturers’ Association.

---

Turning to Asia, in China, factory output was disappointing, with industrial production rising just 6.9% in August from a year earlier after a 9% rise in July, further confirmation of a worrisome slowdown, with fixed asset investment up 16.5% for the period January through August, also a far less robust figure than we are used to seeing for this benchmark.

But what really rocked the markets, at least briefly, was a figure for foreign direct investment last month, down 14% from 12 months ago to a four-year low; this after it declined at a 17% pace in July. Clearly, the government’s antitrust probes into multinational companies is having a deleterious effect.

On the housing front, new-home prices fell a fourth straight month in August, and at a faster clip, 1.1% from July. Certainly potential homeowners are not rushing to buy these days, and that hits developers. Of 70 major cities surveyed, prices fell in 68 of them last month, compared with 64 in July.

So in light of much of the above, China’s central bank is reportedly injecting $81 billion into the five biggest state-owned banks, giving each about $16 billion in low-interest loans for the purpose of lifting investment. Also, China’s Golden Week holiday starts October 1 and that usually leads to a liquidity shortfall ahead of this.

Sentiment also isn’t helped by the government’s pronouncements that the Hong Kong independence movement needs to chill out, while democracy advocates say China is cheating on the agreement that turned Hong Kong over to China in not allowing a free election to choose its leaders.

Back to China’s antimonopoly investigations, U.S. Treasury Secretary Jacob Lew warned his Chinese counterpart in a letter that the inquiries into foreign companies could have serious implications for relations between the two countries, as reported by the Wall Street Journal. Not just in the U.S., but as pointed out here last week, international business lobbies have all raised concerns at probes “unfairly aimed at protecting Chinese companies rather than building a free-market economy.” [Laurie Burkitt and Bob Davis / WSJ]

In Japan, the government’s monthly economic report noted that private consumption continues to suffer from the lingering effects of April’s sales tax increase from 5% to 8%, this after the economy slumped to the tune of 7.1% annualized in the second quarter.

Prime Minister Shinzo Abe has to decide by December whether to raise the tax again October 2015 to 10%.

Separately, exports in August fell 1.3% from a year earlier, though this was better than expected. As you can see from the OECD growth forecast for Japan above, however, 0.9% for 2014 hardly makes Abenomics a major success.

Street Bytes

--The Dow Jones closed at a record high of 17279, up 1.7% on the week, while the S&P 500 gained 1.3%, having hit its all-time high of 2011 on Thursday before shedding a point Friday. Nasdaq closed up 0.3%. 

--U.S. Treasury Yields

6-mo. 0.03% 2-yr. 0.56% 10-yr. 2.57% 30-yr. 3.28%

Producer prices for August were unchanged, up 0.1% ex-food and energy, with the 12-month change 1.7%, 1.6% on core. Consumer prices fell 0.2% in the month, unchanged ex-food and energy, with the year over year gain at 1.7% for both, down from 2.0% the month before. As you’ve noticed energy prices have been a help recently.

--The long-anticipated Alibaba Group offering came out at $68, the first trade was $92.70, and it closed its first day of trading at $93.90, up 38%, for a market value of $230 billion, or larger than Procter & Gamble. It turned out to be the largest U.S. IPO ever at $21.8 billion.

Alibaba is a combination of Amazon, eBay, PayPal, business-to-business services...you name it, Alibaba has it. The company accounts for 80% of Chinese e-commerce, vs. less than 20% for Amazon.com in the U.S., while consumer spending in China, at about 35% of GDP, is still just half that of the U.S. Yahoo (22%) and Softbank (37%) are major holders.

But Mark Mobius, the world’s leading expert on emerging markets, period, told CNN Money that when it comes to BABA (its stock symbol), the corporate structure is “dangerous.” That was Thursday. Last week I wrote in this space, “I just hope shareholders understand they have zero...zero...say in how the company is run. Simply put, it’s a dictatorship.”

Mobius said two days ago, “You have a dual share class, where the minority, the founders, have control of the key assets of the company, and if something goes wrong and they decide to take all the pay away, there’s nothing you can do about it.”

Unfortunately I know firsthand how the Chinese can screw American investors. That said I was impressed by CEO Jack Ma on Friday. But we’ll be talking about this company for years and years to come. Good and bad. 

--On a related issue, from Richard Waters / Financial Times:

“The U.S. tech industry has failed to appreciate the mounting global concern over its record on online privacy and security and must act fast to prevent deeper damage to its image, Silicon Valley’s top executives and investors have conceded....

“Peter Thiel, a prominent start-up investor and Facebook director, said: ‘Silicon Valley is quite oblivious to the degree to which this crescendo of concern is building up in Europe. It’s an extremely important thing and Silicon Valley is underestimating it badly.’....

“Jim Breyer, an early investor and former board member of Facebook, said: ‘The U.S. government and [tech] companies will have to step up significantly if they want to regain the world’s trust’”....

“U.S. commercial cloud companies will lose $22bn-$45bn over the next three years as a result of the Snowden backlash, according to the Information Technology and Innovation Foundation.

“ ‘Some in our industry have underestimated the degree to which people care about privacy,’ said Brad Smith, general counsel of Microsoft, which is trying to refocus its business on commercial cloud services. ‘I’m not sure across Silicon Valley people have completely woken up to this.’”

--The net worth of U.S. households – the value of homes, stocks and other assets minus debts and other liabilities – rose $1.4 trillion between April and June to $81.5 trillion, the highest level on record, according to the Federal Reserve. But obviously rising wealth hasn’t benefited the economy that much.

Meanwhile, the Census Bureau’s latest snapshot of U.S. living standards states the median annual household income rose 0.3% in 2013, or an insignificant $180, to an inflation-adjusted $51,939, nonetheless the first time its ticked up in six years, but leaving it still 8% below the level of 2007.

--The death toll in the Ebola crisis is well over 2,600, according to the World Health Organization, as the World Bank said the outbreak could have a catastrophic impact on the economies of Guinea, Sierra Leone and Liberia.* President Obama announced the U.S. was sending 3,000 troops to the region to build scores of healthcare facilities at a projected cost of $750 million over the next six months.

*For the record, on 7/26/14 I wrote this: “Needless to say the economic impact could be severe if Ebola spreads much further.”

A regional command will be based in Liberia to oversee U.S. and international relief efforts, with engineers setting up 17, 100-bed capacity treatment centers in the country, with medical personnel training up to 500 health-care workers a week for the region. It will also send basic Ebola response kits to supply 400,000 households in Liberia.

Republican Senator Lamar Alexander (Tenn.) said, “This is an instance where we should be running toward the burning flames with our fireproof suits on.”

And as the Washington Post opined, “No one knows if the package outlined by Mr. Obama...will be sufficient, but at least the United States has started to act like the world’s indispensable nation....

“What we are witnessing underscores an essential truth often overlooked: National security threats come not only from malevolent countries or groups but also lie in zoonosis, the process of disease transmission from animals to humans. The examples of SARS, the swine flu pandemic, the MERS coronavirus and now Ebola should leave little doubt that prevention, surveillance, detection and rapid response to infectious disease must be taken more seriously than in the past. The tardy response to Ebola ought to prompt deep soul-searching about how not to let it happen again.”

The U.S. effort is a recognition, finally, of how the crisis is spiraling out of control. But we’ll see how quickly personnel and supplies get there.

Meanwhile, Sierra Leone began a three-day curfew or lockdown to keep people confined to their homes while health workers attempt to isolate new cases and prevent Ebola from spreading further. The people rushed to supermarkets ahead of the move.

The medical charity Medecins Sans Frontiers says the lockdown will “end up driving people underground and jeopardizing the trust between people and health providers.”

Along these lines, in Guinea, eight officials and journalists who went to a remote village to dispel rumors about the outbreak were killed by a rock-hurling mob that claimed the eight were there to spread the virus. 

Finally, the U.S. Centers for Disease Control and Prevention may release a report this week that puts one worst-case scenario for Ebola at 550,000 or more infections. You’re reading that right. The WHO said last month there could be 20,000 cases before its brought under control, which it now admits is already outdated. [Bloomberg]

--Home Depot finally gave some details on its security breach going back to last April and the company announced about 56 million credit and debit cards were potentially compromised, though HD insists PIN numbers were not accessed. It also said it had completed a major security upgrade.

--EBay said some of its buyers were automatically diverted to a spoof site designed to steal their credentials. It was alerted to the hack Wednesday night but took 12 hours to remove the listings, according to the BBC, which forced the issue. A security expert in London said “EBay is a large company and it should have a 24/7 response team to deal with this – and this case is unambiguously bad.” This particular researcher was able to analyze the listing before the company removed it.

--According to the chief executive of internet security firm FireEye, ISIS poses the next great cyber threat, following in the footsteps of the Syrian Electronic Army to target western countries and companies.

David DeWalt told the Financial Times, “ISIS has already had success in utilizing technology, using the web for recruiting, distribution of terrorist information and scare tactics.”

--Larry Ellison, the co-founder of Oracle and one of the world’s richest men, announced he was stepping down as CEO to take on a dual role of chairman and chief technology officer. Oracle will be run by co-chief executives – Mark Hurd, former CEO of Hewlett-Packard, and Safra Catz, a longtime Ellison confidant. The two have worked as co-presidents for four years.

Oracle reported earnings that fell shy of expectations as it attempts to keep up with seismic changes in its industry and the shift to cloud computing. Also on Thursday, rival SAP announced it was acquiring Concur, an expenses management company, for $8.3 billion.

The 70-year-old Ellison will no doubt still be in charge and he continues to hold a quarter of the company’s stock. His fortune is estimated at $51 billion according to Forbes. Your editor, like many others, has been critical of his yearly pay, in the neighborhood of $70 million, almost all of it as a result of an annual stock option award, which is finally being reduced.

--Microsoft confirmed 2,100 layoffs as part of a plan to eventually cut 18,000 jobs, or 14% of its workforce. About 750 are in the Seattle area. The company has already cut 13,000, most of these at the Nokia phone division. In July, CEO Satya Nadella said the company will move away from software to online services, apps and devices.

--With the NFL in turmoil over its domestic violence issue, sponsors lined up to issue warnings, such as this from Anheuser-Busch:

“We are disappointed and increasingly concerned by the recent incidents that have overshadowed this NFL season. We are not yet satisfied with the league’s handling of behaviors that so clearly go against our own company culture and moral code.”

Bud is one of the league’s largest sponsors, spending $149 million just on Super Bowl commercials from 2009-13, according to Adweek. It is also a local sponsor of more than three-quarters of the 32 teams. [USA TODAY Sports]

Overall, advertisers spent $3.9 billion on NFL games last season, up from $2.5 billion during the 2008-09 seasons, according to Kantar Media. [Wall Street Journal]

[I watched NFL Commissioner Roger Goodell’s press conference on Friday and to say the least was underwhelmed. Yes, the league is kicking the can down the road and it’s pathetic Goodell said they wouldn’t come up with any new personal conduct policies until perhaps the Super Bowl.]

--FedEx beat the Street’s expectations on earnings and sales for the quarter ended August, with widening profit margins, as the company had growing ecommerce volumes and continues to see success in its cost-cutting objectives. The company also said it will increase shipping rates by an average of 4.9% for U.S. services, which speaks well of the economy.

--General Motors is slashing production at its Opel subsidiary plant in St. Petersburg, Russia amid declining sales. Until the Ukraine crisis, Russia was on track to surpass Germany as Europe’s biggest car market, as reported by the Wall Street Journal.

Meanwhile, the death toll in GM’s faulty ignition-switch episode is now 19, according to compensation expert Ken Feinberg, who is overseeing the automaker’s claims process. Feinberg said this week he is evaluating another 125 death claims. GM has set aside $400 million for the program, though it could add another $200 million. There is no cap to the payouts.

--Sony warned it expects an annual net loss exceeding $2 billion for the year ending March 2015, or a staggering five times what was initially predicted. So much for its turnaround efforts, as the company cut its sales target for its Xperia smartphones, the biggest single business segment for Sony, generating about a fifth of its total revenues.

--China is banning use of low-grade coal as part of the country’s anti-pollution efforts. China’s coal imports for the first eight months of the year are 5% lower than the same period last year. 

Australia, a major exporter to China, has seen its coal prices drop more than 20% this year, with the new measures threatening further damage to the industry.

--The jobless rate in New York City fell to 7.3% in August, down from 7.8% in July, the biggest month-over-month decline ever recorded in the city.

--Trump Plaza Hotel & Casino officially closed its doors early Tuesday, the fourth Atlantic City casino to go down this year. It opened its doors in 1984. Donald Trump has had essentially zero to do with the operation for years. The parent company is threatening to shutter the Trump Taj Mahal Casino in November.

[Casino revenues in A.C. for the month of August were down 1.2% vs. year ago levels. Trump Plaza’s were down 45%.]

--I saw piece in BloombergBusinessweek on Venezuela’s collapsing economy, a prime example of which is the line to get into state-run supermarkets that sell food at subsidized prices is often four hours long.

--As anticipated, NASA awarded up to $6.2 billion to Boeing and SpaceX to finish development of a new crew capsule, with the seven-person crafts ready to take over the role of shuttling astronauts to the International Space Station by late 2017. Currently, Russia is charging NASA $70 million per U.S. astronaut seat.

Foreign Affairs

Iraq/Syria/ISIS: The House and Senate gave overwhelming approval to a measure on training and arming up to 5,000 Syrian rebels, though Congress adjourned for the fall campaign without debating the extent of U.S. military action. [The Senate approved 78-22; the House 273-156 (159 Republicans, 114 Democrats).]

In a New York Times/CBS News poll, 57% say President Obama is not tough enough on ISIS, but 55% oppose ground troops to fight the terrorist army.

Geoff Dyer / Financial Times

“Just one week after Mr. Obama went on national television to announce what is effectively a new American war against Islamist militants of ISIS, the president is already facing this political reality – with disquiet among his senior generals on one front and, on another, tepid support from fellow Democrats.

“It has not taken long for tensions to flare between the White House and the Pentagon. General Martin Dempsey, Chair of the Joint Chiefs of Staff, told Congress on Tuesday that he could imagine circumstances when American soldiers in Iraq went along with Iraqi forces on missions – a statement that appeared to contradict Mr. Obama’s oft-repeated claim that there would be ‘no boots on the ground.’

“For the time being, the rift is more semantic than strategic....

“(But) military people tend to bristle when politicians say that troops acting as ‘advisers’ are somehow immune from the conflict around them.”

As for the mighty coalition...Australia has committed aircraft and military advisers to the effort, and France became the first to participate in airstrikes on Friday in Iraq. But otherwise it’s totally up in the air just what level of support the United States can expect from its Arab allies. Glaringly, Turkey said it would provide some humanitarian assistance but little more. President Erdogan’s government has supported groups such as the Nusra Front, al-Qaeda’s Syrian branch, in the fight against Assad.

Michael Rubin, a scholar at the American Enterprise Institute and a former Pentagon official, told the Jerusalem Post that Turkey’s “explanation about Islamic State holding Turkish hostages is nonsense” since the country has not hesitated to fight against the Kurdish PKK, even when it held Turks hostage.

“And the fact that Turkey refuses to label Islamic State a terrorist group speaks volumes about its true position....

“The simple fact is that Erdogan ideologically leans more toward the Islamic State than NATO,” said Rubin.

Russia weighed in, saying: “In the absence of an appropriate decision of the UN Security Council, such a step would become an act of aggression, a crude violation of the norms of international law,” according to a foreign ministry spokesman.

To which Sec. of State Kerry replied he was “really rather surprised that Russia would dare to assert any notion of international law after what has happened in Crimea and eastern Ukraine.”

Officials are saying President Obama will be exerting a high degree of personal control when it comes to air strikes in Syria, which he has not given the green light to as yet. According to a report in the Daily Star (Lebanon), ISIS is already repositioning its forces and abandoning some bases in preparation for U.S. strikes.

Separately, Syrian Kurdish militias pleaded for help from Turkish Kurds at week’s end as ISIS seized 21 Kurdish villages in northwestern Syria, within sight of the Turkish border. Activists said ISIS is surrounding the area, part of Aleppo province which is otherwise largely in ISIS’ hands.

The situation is critical for the government in Ankara. It can’t afford to have the Kurds in Syria slaughtered without Turkey’s Kurds reacting.

The Kurds have, however, been beating back ISIS near the Iraqi border with Syria.

On a different topic, Jennifer Rubin of the Washington Post cited a report from the Jerusalem Post concerning Syria’s WMD.

“Israel believes Syria has retained caches of combat-ready chemical weapons after giving up raw materials used to produce such munitions under pressure from foreign powers, a senior Israeli official said on Thursday.

“Summarizing Israeli intelligence estimates that were previously not disclosed to avoid undermining the Syrians’ surrender of their declared chemical arsenal, the official said they had kept some missile warheads, air-dropped bombs and rocket-propelled grenades primed with toxins like sarin.

“ ‘There is, to my mind, still in the hands of Syria a significant residual capability...that could be used in certain circumstances and could be potentially very serious,’ the official told Reuters on condition of anonymity.”

Back in Iraq, Prime Minister Haider al-Abadi promised to end strikes on cities in order to reduce civilian casualties, which was seen as an effort to win over some in the Sunni Muslim community that for good reason have been deeply suspicious of Baghdad. Abadi also said his government does not want U.S. troops involved in any anti-ISIS ground offensive.

Opinion....

David Ignatius / Washington Post

“The United States has made the same mistake in evaluating fighters from the Islamic State that it did in Vietnam – underestimating the enemy’s will, according to James Clapper, the director of national intelligence....

“Asked whether the intelligence community had succeeded in its goal of providing ‘anticipatory intelligence’ about the extremist movement in Syria and Iraq that has declared itself the Islamic State, Clapper said his analysts had reported the group’s emergence and its ‘prowess and capability,’ as well as the ‘deficiencies’ of the Iraqi military. Then he offered a self-critique:

“ ‘What we didn’t do was predict the will to fight. That’s always a problem. We didn’t do it in Vietnam. We underestimated the Viet Cong and the North Vietnamese and overestimated the will of the South Vietnamese. In this case, we underestimated ISIL and overestimated the fighting capability of the Iraqi army....I didn’t see the collapse of the Iraqi security force in the north coming. I didn’t see that. It boils down to predicting the will to fight, which is an imponderable.’”

Charles Krauthammer / Washington Post

“(ISIS knows) we always win the battles but they are convinced that, as war drags on, we lose heart and go home.

“They count on Barack Obama quitting the Iraq/Syria campaign just as he quit Iraq and Libya in 2011 and is in the process of leaving Afghanistan now. And this goes beyond Obama. They see a post-9/11 pattern: America experiences shock and outrage and demands action. Then, seeing no quick resolution, it tires and seeks out leaders who will order the retreat. In Obama, they found the quintessential such leader.

“As for the short run, the Islamic State knows it will be pounded from the air. But it deems that price worth paying, given its gains in propaganda and prestige – translated into renown and recruiting – from (its) public executions.

“Understanding this requires an adjustment to our thinking. A common mantra is that American cruelty – Abu Ghraib, Guantanamo, ‘torture,’ the Iraq war itself – is the great jihadist recruiting tool. But leaving Iraq, closing Abu Ghraib and prohibiting ‘enhanced interrogation’ had zero effect on recruiting. In fact, jihadi cadres from Mali to Mosul have only swelled during Obama’s outstretched-hand presidency.

“Turns out the Islamic State’s best recruiting tool is indeed savagery – its own. Deliberate, defiant, triumphant. The beheadings are not just a magnet for psychopaths around the world. They are choreographed demonstrations of its unbounded determination and of American helplessness. In Osama bin Laden’s famous formulation, who is the ‘strong horse’ now?”

Editorial / Wall Street Journal

“A President at war can survive a military setback, but lost credibility is fatal. So President Obama ought to be worried that his promise never to put ground troops into Iraq or Syria is already undermining the campaign before serious fighting begins against the Islamic State. Few believe him, and they shouldn’t if Mr. Obama wants to defeat the jihadists.

“Martin Dempsey...started this week’s air war about ground troops, when he told the Senate on Tuesday that he wouldn’t rule out advising the President to use ground forces if necessary. This prompted a White House dance that the President and General are in perfect agreement, though there would still be no ground troops, followed by a predictable liberal panic about slippery slopes and Tonkin Gulf resolutions.

“The uproar prompted Mr. Obama to double down on his promise. ‘The American forces that have been deployed to Iraq do not and will not have a combat mission, he told troops at MacDill Air Force Base on Wednesday. ‘As your Commander in Chief, I will not commit you and the rest of our Armed Forces to fighting another ground war in Iraq.’

“This is bad military strategy and worse politics. As strategy, it is never smart to tell your enemy in advance what you won’t do. All the more so when some U.S. troops or CIA spies on the ground may be needed for success. This needn’t be an invasion a la 2003. But it certainly could require several thousand Americans in various roles supporting Kurdish, Iraqi or Syrian troops on the ground....

“Mr. Obama would be smarter to rule nothing out and be honest about the sacrifices that might be required to ‘degrade and destroy’ Islamic State. He should explain the stakes without limiting the options for his generals.”

Editorial / The Economist

“The strength of IS reflects the political implosion in much of the Middle East, from the destruction of Saddam Hussein’s Baathist dictatorship by the Americans to the cracking of Bashar al-Assad’s Syrian one in the succession of Arab uprisings known as the Arab Spring, ISIS both the product and the chief instigator of the ever deepening Sunni-Shia enmity that runs from Bahrain to Lebanon.

“Misrule and cynicism play a part, too. IS could not have established itself in Raqqa, in Syria’s northeast, had Mr. Assad not held off from bombing it, though he had no qualms about killing civilians elsewhere in his attempt to crush less extreme opponents; Mr. Assad’s aim was to present himself as the only alternative to the most terrifying of jihadists. And IS could not have taken control of swathes of Iraq this summer, including Mosul, the second-largest city, had it not been for the systematic marginalization of Sunnis by the Shia-led government of Nouri al-Maliki.”

Some final notes:

New York City Police Commissioner Bill Bratton said ISIS has mastered social media as a recruiting tool.

“This is the evolving world of terrorism,” he said. “We are staying ahead of it. We are focusing on it, and I believe that we are as prepared as any entity could be to deal with the threats. But the reality is that we are living in a new era of potential terrorism.”

The Department of Homeland Security insisted “There is no credible intelligence to suggest that there is an active plot by ISIL to attempt to cross the southern border,” but at a congressional hearing last week, Republican Rep. Jeff Duncan (S.C.) said officials were ignoring a gathering threat.

“Wake up, America. With a porous southern border, we have no idea who’s in our country.” [New York Times]

Israeli officials are warning that ISIS could launch terror attacks on Jews abroad, as well as Israeli targets.

And Iraq’s ambassador to the Vatican warned ISIS is targeting Pope Francis. I am very concerned about the pontiff’s one-day visit to Albania on Sunday.

Iran: Supreme Leader Ayatollah Ali Khamenei said Iran rejected the U.S. offer to tackle the Islamic State due to the Americans’ “dirty hands.” The U.S. has said the door remains open for  cooperating with Iran, and there have been discussions on the sideline of the ongoing nuclear talks. But it does need to be noted that any cooperation with Shia Iran would doom an alliance between Iraq and Sunni states in the region. Saudi King Abdullah warned Sec. of State Kerry that if Iran attended a meeting in Paris on the ISIS issue, the Saudis would boycott.

As for the nuclear talks, as diplomats gather at the United Nations this coming week for the General Assembly, it’s been one year since Iranian President Hassan Rouhani introduced himself to the world as his nation’s new president and there was some optimism that relations with the West would improve.

But when it comes to Iran’s nuclear program, the paramount issue, by all accounts talks are going nowhere after an interim accord was signed back in November.

Now a Nov. 24 deadline looms and one Middle Eastern diplomat told the Los Angeles Times’ Paul Richter, “we’ve actually gotten further away from a deal.”

A year ago, with Ayatollah Khamenei’s blessing, Rouhani was given the right to negotiate a deal, but in recent months, it seems Khamenei is taking over, determined to “sharply increase the country’s uranium enrichment capability in seven years, and not roll it back, as the West demands.” [Paul Richter]

Cliff Kupchan of the Eurasia Group said, “Khamenei is preparing his country for a no-deal outcome.”

U.S. Under Sec. of State Wendy Sherman said the two governments remain “far apart” in the talks.

According to a poll carried out by the University of Tehran and the Center for International and Security Studies at Maryland, 94% of Iranians said their country needed a nuclear energy program, while 79% said they would back a deal that included Iranian assurances never to produce an atomic bomb, but that demands such as dismantling half of Iran’s centrifuges and limiting nuclear research would be unacceptable. [Daily Star]

Separately, a blogger was sentenced to death for being found guilty of insulting the Prophet Mohammad on Facebook, though a loophole in the Islamic Penal Code could result in the death sentence being reduced to 74 lashes, as reported in the Irish Independent.

Ukraine: President Petro Poroshenko received a rousing ovation in an address to both houses of Congress on Thursday, but he didn’t receive what he wanted from President Obama, weapons.

“Blankets, night-vision goggles are important, but one cannot win the war with blankets,” he said. In his criticism of Russia, Poroshenko declared:

“With just one move, the world has been thrown back in time – to a reality of territorial claims, zones of influence, criminal aggression and annexations. The postwar international system of checks and balances was effectively ruined.”

Poroshenko said Russia’s annexation of Crimea in March was one of the “most cynical acts of treachery in modern history,” warning Moscow’s next move might be to cross “a European border.”

According to EU officials, Russian President Vladimir Putin told Poroshenko that Russian troops could be in six central and eastern European capitals within two days – including five that are capitals of NATO members. Poroshenko advised European Commission President Jose Manuel Barroso of Putin’s threats last week in a meeting in Kiev. Putin had issued similar pronouncements to Barroso in August, specifically talking about taking Kiev in less than a week. [Financial Times]

Editorial / Wall Street Journal

“Petro Poroshenko on Thursday gave an impassioned speech before a joint session of Congress and met President Obama at the Oval Office. Washington can do pomp and ceremony, but Ukraine’s leader still went home empty-handed.

“The White House announced $7 million (no, not billion) in new humanitarian aid for Ukraine’s war-torn east. The truly chronic case of policy malpractice is its continuing refusal to help arm Ukraine’s military, which was the top item on Mr. Poroshenko’s ‘to get’ list....

“Mr. Obama and the Europeans worry that real weapons will provoke Vladimir Putin, as if he needs an excuse for invasion. Ukraine isn’t asking for NATO bombers or soldiers, only basics like communications equipment, surveillance drones, antitank weapons, guns and U.S. satellite imagery....

“Elite Russian troops stand ready to pounce again from the east, south and southwest. As Ukraine’s economy shrinks by 7%-10% this year, Russia has cut off natural gas supplies and controls its coal reserves in the rebel-held east. The Kremlin media continue to beat the war drums, and a stronger Ukrainian military would have a better chance of deterring further Putin aggression....

“Mr. Putin is fighting to kill this fragile European democracy and bring Ukraine into a reconstituted empire. Yet these stakes still escape Mr. Obama. Last week at a Maryland fundraiser he noted that ‘we do very little trade with Ukraine and, geopolitically, it doesn’t – what happens in Ukraine doesn’t pose a direct threat to us.’

“On Thursday Mr. Poroshenko offered an implicit rebuttal: While Ukrainians are dying to save their country, ‘the war these young men are fighting today is not only Ukraine’s war,’ he said. ‘It is Europe’s war, and it is America’s war, too. It is a war of the free world – and for a free world.’”

Separately, Poroshenko stressed he is a man of peace and on Tuesday, Ukraine’s parliament passed a law granting more autonomy to rebel-held areas in Donetsk and Luhansk. The law grants three years of self-governance to parts of these regions and calls for elections in designated areas, as well as guaranteeing the right to use of the Russian language and local control over economic development.

Many in Kiev, though, such as former Prime Minister Yulia Tymoshenko, said they would go to court to challenge the new law and another granting amnesty for some participants in the uprising.

Also on Tuesday, Ukraine ratified a landmark trade deal with the European Union, which offers a free-trade pact between Ukraine and the EU in exchange for Ukraine overhauling its institutions. But implementation won’t take place until 2016 because of Russian threats to restrict trade with Ukraine.

Meanwhile, fighting continues. A rebel attack on Wednesday in one town in the Donetsk region killed more than 10 civilians, the Ukrainian military said.

And Russia said it would set up a full-scale military unit in Crimea in response to a “rising foreign military presence” near Russia’s border, which is outrageous.

Martin Wolf / Financial Times

“Russia is both a tragedy and a menace...Western policy makers seem to believe the Islamic State of Iraq and the Levant is the greater danger. But Russia is the nuclear-armed rump of a former superpower and, ruled by an amoral autocrat, it frightens me even more. For Europe and, I believe, the U.S., there is no greater foreign policy question than how to deal with today’s Russia.”

Russia: One of the wealthiest Russians, Vladimir Yevtushenkov, was placed under house arrest, accused of money-laundering, a charge he says was politically motivated. Yevtushenkov is chairman of the conglomerate Sistema, which controls Russia’s biggest mobile phone operator MTS.

The story is one of Vladimir Putin’s closest allies, Igor Sechin, who runs Russia’s biggest oil company, Rosneft, is interested in buying oil producer Bashneft, which is part of Sistema, with Yevtushenkov saying in the past he was not interested in selling.

So, you can see how this will evolve. It’s another Yukos. Sechin, and the Kremlin, will simply take over Bashneft’s assets.

Separately, Russia and Egypt reached a preliminary arms deal worth $3.5 billion, as Russia takes advantage of souring Egyptian-U.S. ties.

Australia: In a sweeping anti-terrorism operation, police detained 15 people in Sydney and Brisbane after receiving intelligence that a senior Islamic State member was urging supporters to carry out a beheading, a “demonstration killing.” Prime Minister Tony Abbott said:

“We are at serious risk from a terrorist attack. There are networks of people here in this country, who despite living here, despite enjoying the Australian way of life, they would do us harm.”

Authorities intercepted a phone call detailing the plot leader’s plan. Abbott said 20 Australians have returned from fighting with jihadists abroad, with another 100 lending support of one kind or another.

China: According to a Barclay’s survey, “Around half of China’s super-rich aim to move to another country within the next five years to find better education and job opportunities for their children.” [James Griffiths / South China Morning Post]

30 percent said Hong Kong was their top destination, followed by Canada at 23%.

North Korea: The Supreme Court sentenced 24-year-old American Matthew Todd Miller to six years of hard labor, saying he had “committed acts hostile to the DPRK while entering the territory of the DPRK under the guise of a tourist.” Another American, Kenneth Bae, was sentenced last year to 15 years of hard labor.

Germany: Chancellor Angela Merkel said in a speech that Germany will do all it can to fight anti-Semitism. Merkel made her pledge at a landmark rally of thousands who were protesting a rise in anti-Semitism that authorities and Jewish leaders blame mainly on Muslim extremists and young immigrants.

“That people in Germany are threatened and abused because of their Jewish appearance or their support for Israel is an outrageous scandal that we won’t accept,” Merkel said. “It’s our national and civic duty to fight anti-Semitism.”

Most would agree the rally was extraordinary and Merkel deserves a ton of credit. Germany also delivered a fourth state-of-the-art submarine to the Israeli navy, one that is capable of launching nuclear-tipped cruise missiles.

France: The Socialist government survived a confidence vote on Tuesday as it seeks to gain support for coming tough economic changes. Prime Minister Manuel Valls survived a mutiny among the left-wing faction of his party to eke out the win 269-244 in the 577-seat National Assembly.

But Valls warned the far-right National Front is “at the gates of power,” while for his part, President Hollande is likely to face a renewed challenge from former President Nicolas Sarkozy, who announced he will lead the conservative U.M.P. party, signaling he could very well be in the hunt to return to the presidency in 2017, despite his being wrapped up in a corruption scandal. [Dan Bilefsky / New York Times]

Sweden: The center-right government was ousted in elections on Sunday, with an anti-immigration party known as the Sweden Democrats polling a strong third at 13%. The center-left bloc, which received about 44% of the vote, vowed it would not form a government with the far-right party.

Nigeria: In a rare victory for the Nigerian army, witnesses say up to 200 Boko Haram were killed in a battle last weekend, after the Islamists had taken a string of towns alongside Nigeria’s northeast border with Cameroon as it seeks to create a caliphate.

Random Musings

--According to Election Lab, the Washington Post’s statistical model of the 2014 midterm elections, Democrats are now (very slightly) favored to hold their Senate majority on Nov. 4. The model puts the Democrats’ chances at 51%. Just a few months ago the model predicted Republicans had an 80% chance of winning the six seats needed to gain the majority. As the Post’s Chris Cillizza notes, however, the model builders long said the results of their work would be highly volatile.

That said it’s not good for Republicans. For example, Colorado Sen. Mark Udall (D) has a 94% chance of winning.

In Iowa, state Sen. Joni Ernst (R) has seen her chance of victory fall from 72% to 59%.

Under the modeling, North Carolina has a 97% chance of remaining Democratic, while standard polls have it very tight.

Nate Silver’s FiveThirtyEight model now has Republican chances of winning the Senate at just 55%, down from 64% 12 days ago. Silver writes, “The two states with the largest shifts have been Colorado and North Carolina – in both cases, the movement has been in Democrats’ direction,” which “accounts for most of the difference in the forecast.”

--As Karl Rove opined in a Journal op-ed, the Democrats have raised more money for the Senatorial Campaign Committee than their Republican counterparts, and they have more cash on hand heading into the stretch run. 

“With 47 days before the election, Republican candidates must do two things. The first is to make the case for electing someone new who will be a check and balance in the Senate on Mr. Obama and his agenda, rather than returning a Democratic loyalist who toes his line. The second is to offer a positive, optimistic conservative agenda to make independents who disapprove of Mr. Obama comfortable voting Republican. Both must be done while defending themselves.”

--A New York Times/CBS News poll among all likely voters had 45% voting Republican in their local congressional races, while 39% favored Democrats, but Congressional Republicans overall had just a 19% approval rating versus 30% for Democrats.

[President Obama’s job approval rating in this survey was 40%. Only 34% approved of his foreign policy, a record low.]

--According to a piece in Politico by Edward-Isaac Dovere, President Obama can’t stand Democratic National Committee Chairwoman Debbie Wasserman Schultz. Join the crowd.  Supposedly they have rarely spoken since 2011. When they have it’s been a tension convention. Actually, Wasserman Schultz, who supported Hillary Clinton rather than Obama in 2008, then didn’t ingratiate herself with Clinton either when Wasserman Schultz “allegedly reached out to Obama in 2008 and expressed her willingness to back him before Clinton officially ended her campaign.”

--Vermont Independent Sen. Bernie Sanders says nobody should be nominated for president without facing a challenge and Sanders is thinking of running for either the Democratic presidential nomination or as an independent focusing on liberal causes; issues like income inequality and climate change.

“I mean, these are issues that absolutely have got to be raised,” he told USA TODAY’s Susan Page.

Sanders could really screw things up for the Democratic nominee, i.e., Clinton, but he has vowed he would not play a Ralph Nader role, referring to Nader’s possibly costing Al Gore Florida in 2000.

--Michael Goodwin / New York Post

“(It) may already be too late to save the SS Obama.

“The whole second term has been a string of disasters.... Six years into his tenure, nothing is going as promised.

“Earlier on, he could have trotted out his teleprompters and turned public opinion his way, or at least stopped the damage. But the magic of his rhetoric is long gone, and not just because the public has tuned him out.

“They’ve tuned him out because they’ve made up their minds about him. They no longer trust him and don’t think he’s a good leader.

“Most ominously, they feel less safe now than they did when he took office....

“His worldview, his politics, his prejudices, his habits – they’ve been a mismatch for the country and its needs. He has been a dud even in the one area where he seemed a lock to make things better, racial relations. Only 10% believe race relations have improved under him, while 35% said they are worse, according to a New York Times survey....

“The lasting image will be his yukking it up on the golf course minutes after giving a perfunctory speech on the beheading of James Foley. It revealed him as hollow, both to America and the world, and there is no way to un-see the emptiness.

“That means, I fear, we are on the cusp of tragedy. It is reasonable to assume the worst-case scenarios about national security are growing increasingly likely to occur.

“Obama’s fecklessness is so unique that our adversaries and enemies surely realize they will never face a weaker president. They must assume the next commander in chief will take a more muscular approach to America’s interests and be more determined to forge alliances than the estranged man who occupies the Oval Office now.

“So Vladimir Putin, Iran, China, Islamic State, al Qaeda and any other number of despots and terrorists know they have two years to make their moves and advance their interests, and that resistance will be token, if there is any at all.

“Throw in the fact that Europe largely has scrapped its military might to pay for its welfare states, and the entire West is a diminished, confused opponent, ripe for the taking.”

--Richard McGregor / Financial Times

“In the space of weeks, Washington has been transformed from the capital of a reluctant imperium into a cheerleader for the recommitment of the U.S. military to another potentially intractable conflict in Iraq.

“The astounding turnaround, in Washington and in U.S. public sentiment, has appeared to catch Barack Obama short, and returned ascendancy on foreign policy to the capital’s hawks after years on the defensive following the Iraq and Afghanistan wars....

“The Cook Political Report on Friday [Sept. 12] noted the return of the ‘security Mom,’ voters once focused exclusively on domestic issues but who shifted after the 9/11 attacks to worry about the ‘safety’ of their children in an unstable world.”

It was all about the beheadings, as well as Obama’s “seeming inability to do anything” about multiple upheavals overseas.

--The “King of the Hill,” lobbyist Thomas Hale Boggs Jr., died at the age of 74. His sister, broadcast journalist Cokie Roberts, said he apparently had a heart attack.

After losing a race for Congress in 1970 for a seat in Maryland, not the family’s home base of Louisiana, Boggs set out to make money from the family business, politics. So he started a company with a partner, Jim Patton, and Patton Boggs would become synonymous with Washington lobbying.

While Democrat Boggs operated mostly during the good old days when the two parties were friendly adversaries, and worked and socialized together, it’s been a tougher business during today’s far more toxic times.

Boggs father, Hale Boggs Sr., was House majority leader in 1972 and destined to be speaker, but weeks before the November election, while on a campaign in Alaska for a local congressman, Nick Begich (whose son Mark is now a senator from Alaska), lost his life when their plane disappeared. Hale Boggs’ wife, Lindy Boggs, finished her husband’s term and went on to the leadership ranks of the House herself by the time she retired in 1991. [Jackie Calmes / New York Times]

--Vice President Joe Biden had a terrific 24 hours. Speaking of a meeting with Lee Kuan Yew, the former prime minister of Singapore, Biden said, “On the way back from Mumbai to go meet with President Xi in China, I stopped in Singapore to meet with a guy named Lee Kuan Yew, who most foreign policy experts around the world say is the wisest man in the Orient.”

Earlier, in a speech at the Legal Services Corporation’s conference, Biden explained that his son Beau Biden, who has served in Iraq, would hear from members of the military who got bad loans and mortgages.

“People would come to him and talk about what was happening to them at home in terms of foreclosures, in terms of bad loans that were being – I mean, these Shylocks who took advantage of these women and men while overseas,” Biden said.

Biden had a gaffe hat trick; the third being his statement that the United States could commit ground troops to fight ISIS in Iraq.

--New Jersey Gov. Chris Christie caught a big break when it was reported by WNBC/News 4 New York that a federal probe into Bridgegate had found no smoking guns as yet after nine months and that there is no evidence Christie knew about or directed the blockade last September. But multiple investigations continue.

--I didn’t have time to note the observations of former Israeli president Shimon Peres the other day, after the 91-year-old met on Sept. 4 with Pope Francis, a 45-minute meeting after which Peres gave the Catholic periodical, Famiglia Cristiana, an exclusive interview.

The problem, as Peres sees it, is that “in the past, most wars were motivated by the idea of nationality. Today, however, they are being waged primarily in the name of religion.”

So Peres said, “Perhaps for the first time in history, the Holy Father is a leader not only respected by many people, but also by different religions and their leaders. In fact, he is perhaps the only truly respected leader” in the world today.

“The United Nations has had its day,” Peres opined. “What we need is an organization of United Religions, a United Nations of religions. This will be the best way to fight terrorists who kill in the name of faith.”

Accordingly, continued Peres, “there should be a Charter of United Religions, just as there is a UN Charter.  This is what I have proposed to the pope.”

The deputy managing editor of Famiglia Cristiana asked, “Would you see the pope as the leader of United Religions?” “Yes,” Peres replied. The world needs “an indisputable moral authority that says out loud, ‘No, God does not want this and will not allow it.’ We must fight against exploitation in the name of God.”

As reported by Brian Schrauger of IRN-USA Network News, from whose piece I got the above quotes, while there isn’t a transcript of the dialogue between Pope Francis and Peres, “a significant few who are close to Francis had a lot to say about it. All of them were cautious about an institutionalized United Religions organization.”

Interestingly, Italy’s spokesman for Islam, Yahya Pallavicini, imam of a mosque in Milan, praised Peres as “a man particularly inspired, combining Jewish faith with political experience. Pallavicini then said of Pope Francis, “I, a Muslim, have much to learn from him.”

The above is all just talk, but perhaps a shred of hope. I read Mr. Schrauger’s piece and thought of North Korea and China, two examples of regimes constantly fighting back against suspected proselytizing. 

But in many parts of the world, young people in particular need an alternative. They may never be given an opportunity to seek it out, however. That’s obviously why the likes of ISIS pursue the path they have, to prevent alternative beliefs and, say, strains of Islam from leaking through.

If they don’t get through, however, we’re doomed.

--Toronto Mayor Rob Ford has a rare form of cancer, a malignant “liposarcoma in his abdomen” and is beginning chemotherapy immediately. Ford withdrew from his re-election campaign and the controversial mayor’s brother, Toronto Councillor Doug Ford, has replaced him on the ballot. The election is Oct. 27. Rob Ford then put his name on the ballot for his old district.

--NASA’s inspector general issued a 44-page report blasting the agency’s Near Earth Objects program, which is meant to hunt for asteroids and other large objects that could potentially threaten the planet. Inspector General Paul Martin said it needed to be better organized and managed, with a bigger staff.

As reported by Marcia Dunn of the AP, there is an executive at NASA headquarters and two offices in Massachusetts and California, each with six employees. That’s it.

The goal when the project was founded a decade ago was to be able to catalog 90% of near-Earth objects bigger than 460 feet across by 2020, but it is currently at just 10%.

Yet another reason to sleep with one eye open as we do here at StocksandNews.

---

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

God bless America.
---

Gold closed at $1216...lowest weekly close since Dec. 2013
Oil $92.41

Returns for the week 9/15-9/19

Dow Jones +1.7% [17279...new high]
S&P 500 +1.3% [2010]
S&P MidCap -0.2%
Russell 2000 -1.2%
Nasdaq +0.3% [4579]

Returns for the period 1/1/15-9/19/15

Dow Jones +4.2%
S&P 500 +8.8%
S&P MidCap +5.7%
Russell 2000 -1.4%
Nasdaq +9.7%

Bulls 52.5
Bears 15.2 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore
 



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Week in Review

09/20/2014

For the week 9/15-9/19

[Posted 11:00 PM ET, Friday]

Edition 806

Washington and Wall Street

Stocks resumed their winning ways after a one-week pause, with the Dow Jones and S&P 500 hitting new highs, helped in no small part by the Federal Reserve’s pronouncement that it will continue to leave its key short-term interest rate near zero for a “considerable time,” failing to change the language after their latest Open Market Committee confab in Washington. So while the economy is generally improving following the first-quarter weather-related debacle, inflation remains tame and, in the Fed’s eyes, there is still a lot of slack in the labor market (or “underutilization of labor resources” as they put it) so further stimulus in zero interest rates is not only acceptable, it is necessary to keep the recovery on track, especially given the still dicey global picture.

U.S. interest rates would likely remain low anyway, at least in the interim, because U.S. Treasuries provide a solid alternative to European bonds and their ultra-low rates, ditto Japan, as well as those ever-present geopolitical risks that from time to time cause a flight to safety.

I just continue to believe that while this week’s latest inflation data for the month of August was below 2.0% for both producer and consumer prices (details below), wage pressures will pick up the balance of the year and on into 2015, which will cause the Fed to act sooner than now anticipated.

But here’s the thing. Two policy members who dissented on the Open Market Committee (Charles Plosser and Richard Fisher), drop off in December so looking ahead, Chair Janet Yellen may face zero opposition if she wants to keep rates at zero well into the second half of 2015.

[The Fed did issue new projections for the funds rate, projecting it will be between 1.25% and 1.50% in late 2015 and up to 3.00% in late 2016 from its current near zero level.]

On another issue, “quantitative easing” (QE) comes to an end in October as the Fed has been winding down the program. Remember, this was QE3.

I liked a simple explanation from Kim Gittleson of the BBC and I wanted to get this down for the archives and this long-running history of our times.

“First enacted by the Fed in the wake of the 2008-09 financial crisis, QE was basically what a central bank does when it runs out of its traditional arsenal of cutting interest rates and starts digging around in the bag for a new trick....

“At its most basic, QE is essentially when a central bank buys bonds to lower interest rates.

“There were three rounds of quantitative easing. From late 2008 until 2010, the Fed bought nearly $2.1 trillion of Treasury bonds and mortgage-backed securities. The program was halted when the Fed signaled that it believed economic conditions had improved.

“However, once the U.S. economic recovery faltered later in the year, in November 2010 the Fed announced another round of QE. QE2 ended in the middle of 2011 after the Fed bought $600bn of bonds, primarily mortgage-backed securities.

“Once more, however, the Fed was too optimistic. In late 2012, the Fed announced another round of open-ended bond buying, which eventually resulted in it buying $85bn per month. The Fed began ‘tapering’ those purchases at the start of this year, and the program is set to end in October.”

Did it work? QE1 was necessary, the next two rounds, no, in the humble opinion of your editor. In fact a paper by the San Francisco Federal Reserve Bank found that QE2 added just 0.13 percentage points to the annual rate of economic growth in 2010. As Ms. Gittleson notes: “The authors of that paper argued that it was the Fed setting expectations about when rates would rise that gave people the confidence to invest, not printing money.” I agree.

Meanwhile, the Organization for Economic Cooperation and Development (OECD) issued its latest economic outlook and it lowered expectations virtually everywhere. 

The United States is expected to grow 2.1% this year and 3.1% next (2.6% was the last forecast for 2014), while the eurozone is expected to grow just 0.8% this year and 1.1% next.

Other projections (2014/2015):

U.K. (3.1% / 2.8%); Germany (1.5% / 1.5%); France (0.4% / 1.0%); Italy (-0.4% / 0.1%); Canada (2.3% / 2.7%); Japan (0.9% / 1.1%); China (7.4% / 7.3%); India (5.7% / 5.9%) and Brazil (0.3% / 1.4%).

Save for Britain, which had its own special issue this week, growth is hardly robust anywhere, with China’s outlook increasingly dicey.

Separately, the International Monetary Fund warned the global recovery is shaky and that it is likely to reduce its growth estimates when it issues its October update, though it would seem the IMF is more concerned about the Fed reversing policy on interest rates a lot sooner than the Fed itself is signaling. 

A few other notes on the U.S. economy, August housing starts fell 14.4% on a seasonally adjusted basis, well below expectations, but July was revised upward to the best annualized pace since November 2007. And the latest weekly jobless claims figure of 280,000 is near a 14-year low, with the number receiving unemployment benefits at the lowest level in over seven years.

In a hopeful sign for the holiday shopping season, FedEx Corp. announced it would hire more than 50,000 workers, compared with 40,000 last year, while UPS said it expects to need 90,000 to 95,000 workers, compared with an initial plan for 55,000 a year ago. Kohl’s also announced it would hire thousands more seasonal workers vs. 2013. 

Finally, as part of a bill to approve the training and arming of Syrian rebels, Congress voted to fund the government beyond the Sept. 30 deadline, so no shutdown. [I believe the short-term continuing resolution is through Dec. 11.]

Europe and Asia

After some earlier scary polls concerning the Scottish referendum for independence, with the ‘Yes’ camp pulling into the lead, by the time the Scots turned out on Thursday, the polls were turning in the direction of the ‘No’ option and in the end, Scots voted by a 55.3 to 44.7 margin to remain part of the United Kingdom. Turnout was 85%, the highest ever for an election in Britain.

British Prime Minister David Cameron said the question of Scottish independence had been settled “for a generation,” after a campaign that fired up separatist movements around the world.

Cameron, who no doubt would have lost his job had the Scots voted in favor of breaking away, said “there can be no disputes, no re-runs, we have heard the settled will of the Scottish people.

“Just as Scotland will vote separately in the Scottish parliament on their issues of tax, spending and welfare, so too England, as well as Wales and Northern Ireland should be able to vote on these issues.

“And all this must take place, in tandem with and at the same pace as the settlement for Scotland.”

Yes, British government leaders, including from all three major parties, had to promise the Scots a lot to keep them in the fold, including powers over taxes and spending, and there will be many more interesting days ahead, including the major issue of whether the U.K. stays in the European Union.

For his part, pro-independence First Minister Alex Salmond said in Edinburgh, “Scotland has by majority decided not, at this stage, to become an independent country.” He then resigned as leader of the Scottish National Party (SNP) after his ambitions of a political lifetime were squelched, though some say the strong ‘Yes’ percentage leaves open the possibility of another vote in the future. Salmond said: “For me as leader my time is nearly over, but for Scotland the campaign continues and the dream shall never die.”

Salmond added: “We now have the opportunity to hold Westminster’s feet to the fire on the ‘vow’ that they have made to devolve further meaningful power to Scotland.”

But with all the proposed devolution, details of which are still to be hashed out, picture you have a situation where as former minister John Redwood described in the Financial Times, “Scotland fixes its own income tax and also sends MPs to Westminster to help set an income tax rate for England, too.”

Gideon Rachman / Financial Times

“The U.K. has just been through a near-death experience. The final result of the referendum on Scottish independence represented a clear rejection of separation. But there was no mistaking the near panic of the British government in the last two weeks before the vote – after a poll had shown the Yes campaign in front. In his last campaign appearance in Scotland, David Cameron, the British prime minister, had been near tears as he pleaded with Scottish voters not to break up the U.K.....

“But even though Scottish voters have rejected separation from the rest of the U.K., the Scottish referendum will still have consequences both for Britain – and for other nations, where separatist movements are on the rise.

“Mr. Cameron is likely to emerge from this campaign as a weaker political figure. Many in his own party believe he gambled recklessly with the future of the country – by agreeing to a referendum on terms that, in retrospect, look very favorable to the independence movement. The prime minister also stands accused of panicking in the last weeks... In any case, it is now clear that Britain is in for a long period of constitutional uncertainty – which will only get worse, if Mr. Cameron fulfills his promise to stage yet another referendum, this time on the U.K.’s membership in the EU.” [Oh yeah, this last bit is huge.]

So how did the vote resonate around the world? Catalans (see Barcelona) in Spain were most interested and no doubt the most disappointed in the outcome. The Catalan government plans a similar vote on independence Nov. 9, though in this case Madrid has been vehement in calling the referendum “illegal.” Spain’s foreign minister vowed he will use the “full force of the law” to block the non-binding independence vote.

Residents in Quebec no doubt looked on Thursday with interest, too, there having been two independence referendums there in 1980 and 1995, the latter narrowly defeated. But the separatist leader admitted the next referendum in Quebec could be a long way off, with support for breaking away at just 40% these days.

And leaders in China had to be pleased by the ‘No’ vote in Scotland, especially as it relates to Tibet and restive Xinjiang, let alone Hong Kong and Taiwan.

Back to the continent, European stocks rallied to their highest level since January 2008 after Thursday’s vote.

On the economic front, a preliminary reading on inflation for August came in at the same 0.4% annualized rate as July, not good, with prices in Spain falling 0.5% and 0.2% in Greece and Italy, again on an annualized basis. [The U.K. saw prices increase 1.5%, Germany +0.8% and France +0.5%.]

One encouraging note, European car sales rose a 12th consecutive month, up 1.8% in August from a year earlier, though this was the slowest growth of the year according to the Brussels-based European Automobile Manufacturers’ Association.

---

Turning to Asia, in China, factory output was disappointing, with industrial production rising just 6.9% in August from a year earlier after a 9% rise in July, further confirmation of a worrisome slowdown, with fixed asset investment up 16.5% for the period January through August, also a far less robust figure than we are used to seeing for this benchmark.

But what really rocked the markets, at least briefly, was a figure for foreign direct investment last month, down 14% from 12 months ago to a four-year low; this after it declined at a 17% pace in July. Clearly, the government’s antitrust probes into multinational companies is having a deleterious effect.

On the housing front, new-home prices fell a fourth straight month in August, and at a faster clip, 1.1% from July. Certainly potential homeowners are not rushing to buy these days, and that hits developers. Of 70 major cities surveyed, prices fell in 68 of them last month, compared with 64 in July.

So in light of much of the above, China’s central bank is reportedly injecting $81 billion into the five biggest state-owned banks, giving each about $16 billion in low-interest loans for the purpose of lifting investment. Also, China’s Golden Week holiday starts October 1 and that usually leads to a liquidity shortfall ahead of this.

Sentiment also isn’t helped by the government’s pronouncements that the Hong Kong independence movement needs to chill out, while democracy advocates say China is cheating on the agreement that turned Hong Kong over to China in not allowing a free election to choose its leaders.

Back to China’s antimonopoly investigations, U.S. Treasury Secretary Jacob Lew warned his Chinese counterpart in a letter that the inquiries into foreign companies could have serious implications for relations between the two countries, as reported by the Wall Street Journal. Not just in the U.S., but as pointed out here last week, international business lobbies have all raised concerns at probes “unfairly aimed at protecting Chinese companies rather than building a free-market economy.” [Laurie Burkitt and Bob Davis / WSJ]

In Japan, the government’s monthly economic report noted that private consumption continues to suffer from the lingering effects of April’s sales tax increase from 5% to 8%, this after the economy slumped to the tune of 7.1% annualized in the second quarter.

Prime Minister Shinzo Abe has to decide by December whether to raise the tax again October 2015 to 10%.

Separately, exports in August fell 1.3% from a year earlier, though this was better than expected. As you can see from the OECD growth forecast for Japan above, however, 0.9% for 2014 hardly makes Abenomics a major success.

Street Bytes

--The Dow Jones closed at a record high of 17279, up 1.7% on the week, while the S&P 500 gained 1.3%, having hit its all-time high of 2011 on Thursday before shedding a point Friday. Nasdaq closed up 0.3%. 

--U.S. Treasury Yields

6-mo. 0.03% 2-yr. 0.56% 10-yr. 2.57% 30-yr. 3.28%

Producer prices for August were unchanged, up 0.1% ex-food and energy, with the 12-month change 1.7%, 1.6% on core. Consumer prices fell 0.2% in the month, unchanged ex-food and energy, with the year over year gain at 1.7% for both, down from 2.0% the month before. As you’ve noticed energy prices have been a help recently.

--The long-anticipated Alibaba Group offering came out at $68, the first trade was $92.70, and it closed its first day of trading at $93.90, up 38%, for a market value of $230 billion, or larger than Procter & Gamble. It turned out to be the largest U.S. IPO ever at $21.8 billion.

Alibaba is a combination of Amazon, eBay, PayPal, business-to-business services...you name it, Alibaba has it. The company accounts for 80% of Chinese e-commerce, vs. less than 20% for Amazon.com in the U.S., while consumer spending in China, at about 35% of GDP, is still just half that of the U.S. Yahoo (22%) and Softbank (37%) are major holders.

But Mark Mobius, the world’s leading expert on emerging markets, period, told CNN Money that when it comes to BABA (its stock symbol), the corporate structure is “dangerous.” That was Thursday. Last week I wrote in this space, “I just hope shareholders understand they have zero...zero...say in how the company is run. Simply put, it’s a dictatorship.”

Mobius said two days ago, “You have a dual share class, where the minority, the founders, have control of the key assets of the company, and if something goes wrong and they decide to take all the pay away, there’s nothing you can do about it.”

Unfortunately I know firsthand how the Chinese can screw American investors. That said I was impressed by CEO Jack Ma on Friday. But we’ll be talking about this company for years and years to come. Good and bad. 

--On a related issue, from Richard Waters / Financial Times:

“The U.S. tech industry has failed to appreciate the mounting global concern over its record on online privacy and security and must act fast to prevent deeper damage to its image, Silicon Valley’s top executives and investors have conceded....

“Peter Thiel, a prominent start-up investor and Facebook director, said: ‘Silicon Valley is quite oblivious to the degree to which this crescendo of concern is building up in Europe. It’s an extremely important thing and Silicon Valley is underestimating it badly.’....

“Jim Breyer, an early investor and former board member of Facebook, said: ‘The U.S. government and [tech] companies will have to step up significantly if they want to regain the world’s trust’”....

“U.S. commercial cloud companies will lose $22bn-$45bn over the next three years as a result of the Snowden backlash, according to the Information Technology and Innovation Foundation.

“ ‘Some in our industry have underestimated the degree to which people care about privacy,’ said Brad Smith, general counsel of Microsoft, which is trying to refocus its business on commercial cloud services. ‘I’m not sure across Silicon Valley people have completely woken up to this.’”

--The net worth of U.S. households – the value of homes, stocks and other assets minus debts and other liabilities – rose $1.4 trillion between April and June to $81.5 trillion, the highest level on record, according to the Federal Reserve. But obviously rising wealth hasn’t benefited the economy that much.

Meanwhile, the Census Bureau’s latest snapshot of U.S. living standards states the median annual household income rose 0.3% in 2013, or an insignificant $180, to an inflation-adjusted $51,939, nonetheless the first time its ticked up in six years, but leaving it still 8% below the level of 2007.

--The death toll in the Ebola crisis is well over 2,600, according to the World Health Organization, as the World Bank said the outbreak could have a catastrophic impact on the economies of Guinea, Sierra Leone and Liberia.* President Obama announced the U.S. was sending 3,000 troops to the region to build scores of healthcare facilities at a projected cost of $750 million over the next six months.

*For the record, on 7/26/14 I wrote this: “Needless to say the economic impact could be severe if Ebola spreads much further.”

A regional command will be based in Liberia to oversee U.S. and international relief efforts, with engineers setting up 17, 100-bed capacity treatment centers in the country, with medical personnel training up to 500 health-care workers a week for the region. It will also send basic Ebola response kits to supply 400,000 households in Liberia.

Republican Senator Lamar Alexander (Tenn.) said, “This is an instance where we should be running toward the burning flames with our fireproof suits on.”

And as the Washington Post opined, “No one knows if the package outlined by Mr. Obama...will be sufficient, but at least the United States has started to act like the world’s indispensable nation....

“What we are witnessing underscores an essential truth often overlooked: National security threats come not only from malevolent countries or groups but also lie in zoonosis, the process of disease transmission from animals to humans. The examples of SARS, the swine flu pandemic, the MERS coronavirus and now Ebola should leave little doubt that prevention, surveillance, detection and rapid response to infectious disease must be taken more seriously than in the past. The tardy response to Ebola ought to prompt deep soul-searching about how not to let it happen again.”

The U.S. effort is a recognition, finally, of how the crisis is spiraling out of control. But we’ll see how quickly personnel and supplies get there.

Meanwhile, Sierra Leone began a three-day curfew or lockdown to keep people confined to their homes while health workers attempt to isolate new cases and prevent Ebola from spreading further. The people rushed to supermarkets ahead of the move.

The medical charity Medecins Sans Frontiers says the lockdown will “end up driving people underground and jeopardizing the trust between people and health providers.”

Along these lines, in Guinea, eight officials and journalists who went to a remote village to dispel rumors about the outbreak were killed by a rock-hurling mob that claimed the eight were there to spread the virus. 

Finally, the U.S. Centers for Disease Control and Prevention may release a report this week that puts one worst-case scenario for Ebola at 550,000 or more infections. You’re reading that right. The WHO said last month there could be 20,000 cases before its brought under control, which it now admits is already outdated. [Bloomberg]

--Home Depot finally gave some details on its security breach going back to last April and the company announced about 56 million credit and debit cards were potentially compromised, though HD insists PIN numbers were not accessed. It also said it had completed a major security upgrade.

--EBay said some of its buyers were automatically diverted to a spoof site designed to steal their credentials. It was alerted to the hack Wednesday night but took 12 hours to remove the listings, according to the BBC, which forced the issue. A security expert in London said “EBay is a large company and it should have a 24/7 response team to deal with this – and this case is unambiguously bad.” This particular researcher was able to analyze the listing before the company removed it.

--According to the chief executive of internet security firm FireEye, ISIS poses the next great cyber threat, following in the footsteps of the Syrian Electronic Army to target western countries and companies.

David DeWalt told the Financial Times, “ISIS has already had success in utilizing technology, using the web for recruiting, distribution of terrorist information and scare tactics.”

--Larry Ellison, the co-founder of Oracle and one of the world’s richest men, announced he was stepping down as CEO to take on a dual role of chairman and chief technology officer. Oracle will be run by co-chief executives – Mark Hurd, former CEO of Hewlett-Packard, and Safra Catz, a longtime Ellison confidant. The two have worked as co-presidents for four years.

Oracle reported earnings that fell shy of expectations as it attempts to keep up with seismic changes in its industry and the shift to cloud computing. Also on Thursday, rival SAP announced it was acquiring Concur, an expenses management company, for $8.3 billion.

The 70-year-old Ellison will no doubt still be in charge and he continues to hold a quarter of the company’s stock. His fortune is estimated at $51 billion according to Forbes. Your editor, like many others, has been critical of his yearly pay, in the neighborhood of $70 million, almost all of it as a result of an annual stock option award, which is finally being reduced.

--Microsoft confirmed 2,100 layoffs as part of a plan to eventually cut 18,000 jobs, or 14% of its workforce. About 750 are in the Seattle area. The company has already cut 13,000, most of these at the Nokia phone division. In July, CEO Satya Nadella said the company will move away from software to online services, apps and devices.

--With the NFL in turmoil over its domestic violence issue, sponsors lined up to issue warnings, such as this from Anheuser-Busch:

“We are disappointed and increasingly concerned by the recent incidents that have overshadowed this NFL season. We are not yet satisfied with the league’s handling of behaviors that so clearly go against our own company culture and moral code.”

Bud is one of the league’s largest sponsors, spending $149 million just on Super Bowl commercials from 2009-13, according to Adweek. It is also a local sponsor of more than three-quarters of the 32 teams. [USA TODAY Sports]

Overall, advertisers spent $3.9 billion on NFL games last season, up from $2.5 billion during the 2008-09 seasons, according to Kantar Media. [Wall Street Journal]

[I watched NFL Commissioner Roger Goodell’s press conference on Friday and to say the least was underwhelmed. Yes, the league is kicking the can down the road and it’s pathetic Goodell said they wouldn’t come up with any new personal conduct policies until perhaps the Super Bowl.]

--FedEx beat the Street’s expectations on earnings and sales for the quarter ended August, with widening profit margins, as the company had growing ecommerce volumes and continues to see success in its cost-cutting objectives. The company also said it will increase shipping rates by an average of 4.9% for U.S. services, which speaks well of the economy.

--General Motors is slashing production at its Opel subsidiary plant in St. Petersburg, Russia amid declining sales. Until the Ukraine crisis, Russia was on track to surpass Germany as Europe’s biggest car market, as reported by the Wall Street Journal.

Meanwhile, the death toll in GM’s faulty ignition-switch episode is now 19, according to compensation expert Ken Feinberg, who is overseeing the automaker’s claims process. Feinberg said this week he is evaluating another 125 death claims. GM has set aside $400 million for the program, though it could add another $200 million. There is no cap to the payouts.

--Sony warned it expects an annual net loss exceeding $2 billion for the year ending March 2015, or a staggering five times what was initially predicted. So much for its turnaround efforts, as the company cut its sales target for its Xperia smartphones, the biggest single business segment for Sony, generating about a fifth of its total revenues.

--China is banning use of low-grade coal as part of the country’s anti-pollution efforts. China’s coal imports for the first eight months of the year are 5% lower than the same period last year. 

Australia, a major exporter to China, has seen its coal prices drop more than 20% this year, with the new measures threatening further damage to the industry.

--The jobless rate in New York City fell to 7.3% in August, down from 7.8% in July, the biggest month-over-month decline ever recorded in the city.

--Trump Plaza Hotel & Casino officially closed its doors early Tuesday, the fourth Atlantic City casino to go down this year. It opened its doors in 1984. Donald Trump has had essentially zero to do with the operation for years. The parent company is threatening to shutter the Trump Taj Mahal Casino in November.

[Casino revenues in A.C. for the month of August were down 1.2% vs. year ago levels. Trump Plaza’s were down 45%.]

--I saw piece in BloombergBusinessweek on Venezuela’s collapsing economy, a prime example of which is the line to get into state-run supermarkets that sell food at subsidized prices is often four hours long.

--As anticipated, NASA awarded up to $6.2 billion to Boeing and SpaceX to finish development of a new crew capsule, with the seven-person crafts ready to take over the role of shuttling astronauts to the International Space Station by late 2017. Currently, Russia is charging NASA $70 million per U.S. astronaut seat.

Foreign Affairs

Iraq/Syria/ISIS: The House and Senate gave overwhelming approval to a measure on training and arming up to 5,000 Syrian rebels, though Congress adjourned for the fall campaign without debating the extent of U.S. military action. [The Senate approved 78-22; the House 273-156 (159 Republicans, 114 Democrats).]

In a New York Times/CBS News poll, 57% say President Obama is not tough enough on ISIS, but 55% oppose ground troops to fight the terrorist army.

Geoff Dyer / Financial Times

“Just one week after Mr. Obama went on national television to announce what is effectively a new American war against Islamist militants of ISIS, the president is already facing this political reality – with disquiet among his senior generals on one front and, on another, tepid support from fellow Democrats.

“It has not taken long for tensions to flare between the White House and the Pentagon. General Martin Dempsey, Chair of the Joint Chiefs of Staff, told Congress on Tuesday that he could imagine circumstances when American soldiers in Iraq went along with Iraqi forces on missions – a statement that appeared to contradict Mr. Obama’s oft-repeated claim that there would be ‘no boots on the ground.’

“For the time being, the rift is more semantic than strategic....

“(But) military people tend to bristle when politicians say that troops acting as ‘advisers’ are somehow immune from the conflict around them.”

As for the mighty coalition...Australia has committed aircraft and military advisers to the effort, and France became the first to participate in airstrikes on Friday in Iraq. But otherwise it’s totally up in the air just what level of support the United States can expect from its Arab allies. Glaringly, Turkey said it would provide some humanitarian assistance but little more. President Erdogan’s government has supported groups such as the Nusra Front, al-Qaeda’s Syrian branch, in the fight against Assad.

Michael Rubin, a scholar at the American Enterprise Institute and a former Pentagon official, told the Jerusalem Post that Turkey’s “explanation about Islamic State holding Turkish hostages is nonsense” since the country has not hesitated to fight against the Kurdish PKK, even when it held Turks hostage.

“And the fact that Turkey refuses to label Islamic State a terrorist group speaks volumes about its true position....

“The simple fact is that Erdogan ideologically leans more toward the Islamic State than NATO,” said Rubin.

Russia weighed in, saying: “In the absence of an appropriate decision of the UN Security Council, such a step would become an act of aggression, a crude violation of the norms of international law,” according to a foreign ministry spokesman.

To which Sec. of State Kerry replied he was “really rather surprised that Russia would dare to assert any notion of international law after what has happened in Crimea and eastern Ukraine.”

Officials are saying President Obama will be exerting a high degree of personal control when it comes to air strikes in Syria, which he has not given the green light to as yet. According to a report in the Daily Star (Lebanon), ISIS is already repositioning its forces and abandoning some bases in preparation for U.S. strikes.

Separately, Syrian Kurdish militias pleaded for help from Turkish Kurds at week’s end as ISIS seized 21 Kurdish villages in northwestern Syria, within sight of the Turkish border. Activists said ISIS is surrounding the area, part of Aleppo province which is otherwise largely in ISIS’ hands.

The situation is critical for the government in Ankara. It can’t afford to have the Kurds in Syria slaughtered without Turkey’s Kurds reacting.

The Kurds have, however, been beating back ISIS near the Iraqi border with Syria.

On a different topic, Jennifer Rubin of the Washington Post cited a report from the Jerusalem Post concerning Syria’s WMD.

“Israel believes Syria has retained caches of combat-ready chemical weapons after giving up raw materials used to produce such munitions under pressure from foreign powers, a senior Israeli official said on Thursday.

“Summarizing Israeli intelligence estimates that were previously not disclosed to avoid undermining the Syrians’ surrender of their declared chemical arsenal, the official said they had kept some missile warheads, air-dropped bombs and rocket-propelled grenades primed with toxins like sarin.

“ ‘There is, to my mind, still in the hands of Syria a significant residual capability...that could be used in certain circumstances and could be potentially very serious,’ the official told Reuters on condition of anonymity.”

Back in Iraq, Prime Minister Haider al-Abadi promised to end strikes on cities in order to reduce civilian casualties, which was seen as an effort to win over some in the Sunni Muslim community that for good reason have been deeply suspicious of Baghdad. Abadi also said his government does not want U.S. troops involved in any anti-ISIS ground offensive.

Opinion....

David Ignatius / Washington Post

“The United States has made the same mistake in evaluating fighters from the Islamic State that it did in Vietnam – underestimating the enemy’s will, according to James Clapper, the director of national intelligence....

“Asked whether the intelligence community had succeeded in its goal of providing ‘anticipatory intelligence’ about the extremist movement in Syria and Iraq that has declared itself the Islamic State, Clapper said his analysts had reported the group’s emergence and its ‘prowess and capability,’ as well as the ‘deficiencies’ of the Iraqi military. Then he offered a self-critique:

“ ‘What we didn’t do was predict the will to fight. That’s always a problem. We didn’t do it in Vietnam. We underestimated the Viet Cong and the North Vietnamese and overestimated the will of the South Vietnamese. In this case, we underestimated ISIL and overestimated the fighting capability of the Iraqi army....I didn’t see the collapse of the Iraqi security force in the north coming. I didn’t see that. It boils down to predicting the will to fight, which is an imponderable.’”

Charles Krauthammer / Washington Post

“(ISIS knows) we always win the battles but they are convinced that, as war drags on, we lose heart and go home.

“They count on Barack Obama quitting the Iraq/Syria campaign just as he quit Iraq and Libya in 2011 and is in the process of leaving Afghanistan now. And this goes beyond Obama. They see a post-9/11 pattern: America experiences shock and outrage and demands action. Then, seeing no quick resolution, it tires and seeks out leaders who will order the retreat. In Obama, they found the quintessential such leader.

“As for the short run, the Islamic State knows it will be pounded from the air. But it deems that price worth paying, given its gains in propaganda and prestige – translated into renown and recruiting – from (its) public executions.

“Understanding this requires an adjustment to our thinking. A common mantra is that American cruelty – Abu Ghraib, Guantanamo, ‘torture,’ the Iraq war itself – is the great jihadist recruiting tool. But leaving Iraq, closing Abu Ghraib and prohibiting ‘enhanced interrogation’ had zero effect on recruiting. In fact, jihadi cadres from Mali to Mosul have only swelled during Obama’s outstretched-hand presidency.

“Turns out the Islamic State’s best recruiting tool is indeed savagery – its own. Deliberate, defiant, triumphant. The beheadings are not just a magnet for psychopaths around the world. They are choreographed demonstrations of its unbounded determination and of American helplessness. In Osama bin Laden’s famous formulation, who is the ‘strong horse’ now?”

Editorial / Wall Street Journal

“A President at war can survive a military setback, but lost credibility is fatal. So President Obama ought to be worried that his promise never to put ground troops into Iraq or Syria is already undermining the campaign before serious fighting begins against the Islamic State. Few believe him, and they shouldn’t if Mr. Obama wants to defeat the jihadists.

“Martin Dempsey...started this week’s air war about ground troops, when he told the Senate on Tuesday that he wouldn’t rule out advising the President to use ground forces if necessary. This prompted a White House dance that the President and General are in perfect agreement, though there would still be no ground troops, followed by a predictable liberal panic about slippery slopes and Tonkin Gulf resolutions.

“The uproar prompted Mr. Obama to double down on his promise. ‘The American forces that have been deployed to Iraq do not and will not have a combat mission, he told troops at MacDill Air Force Base on Wednesday. ‘As your Commander in Chief, I will not commit you and the rest of our Armed Forces to fighting another ground war in Iraq.’

“This is bad military strategy and worse politics. As strategy, it is never smart to tell your enemy in advance what you won’t do. All the more so when some U.S. troops or CIA spies on the ground may be needed for success. This needn’t be an invasion a la 2003. But it certainly could require several thousand Americans in various roles supporting Kurdish, Iraqi or Syrian troops on the ground....

“Mr. Obama would be smarter to rule nothing out and be honest about the sacrifices that might be required to ‘degrade and destroy’ Islamic State. He should explain the stakes without limiting the options for his generals.”

Editorial / The Economist

“The strength of IS reflects the political implosion in much of the Middle East, from the destruction of Saddam Hussein’s Baathist dictatorship by the Americans to the cracking of Bashar al-Assad’s Syrian one in the succession of Arab uprisings known as the Arab Spring, ISIS both the product and the chief instigator of the ever deepening Sunni-Shia enmity that runs from Bahrain to Lebanon.

“Misrule and cynicism play a part, too. IS could not have established itself in Raqqa, in Syria’s northeast, had Mr. Assad not held off from bombing it, though he had no qualms about killing civilians elsewhere in his attempt to crush less extreme opponents; Mr. Assad’s aim was to present himself as the only alternative to the most terrifying of jihadists. And IS could not have taken control of swathes of Iraq this summer, including Mosul, the second-largest city, had it not been for the systematic marginalization of Sunnis by the Shia-led government of Nouri al-Maliki.”

Some final notes:

New York City Police Commissioner Bill Bratton said ISIS has mastered social media as a recruiting tool.

“This is the evolving world of terrorism,” he said. “We are staying ahead of it. We are focusing on it, and I believe that we are as prepared as any entity could be to deal with the threats. But the reality is that we are living in a new era of potential terrorism.”

The Department of Homeland Security insisted “There is no credible intelligence to suggest that there is an active plot by ISIL to attempt to cross the southern border,” but at a congressional hearing last week, Republican Rep. Jeff Duncan (S.C.) said officials were ignoring a gathering threat.

“Wake up, America. With a porous southern border, we have no idea who’s in our country.” [New York Times]

Israeli officials are warning that ISIS could launch terror attacks on Jews abroad, as well as Israeli targets.

And Iraq’s ambassador to the Vatican warned ISIS is targeting Pope Francis. I am very concerned about the pontiff’s one-day visit to Albania on Sunday.

Iran: Supreme Leader Ayatollah Ali Khamenei said Iran rejected the U.S. offer to tackle the Islamic State due to the Americans’ “dirty hands.” The U.S. has said the door remains open for  cooperating with Iran, and there have been discussions on the sideline of the ongoing nuclear talks. But it does need to be noted that any cooperation with Shia Iran would doom an alliance between Iraq and Sunni states in the region. Saudi King Abdullah warned Sec. of State Kerry that if Iran attended a meeting in Paris on the ISIS issue, the Saudis would boycott.

As for the nuclear talks, as diplomats gather at the United Nations this coming week for the General Assembly, it’s been one year since Iranian President Hassan Rouhani introduced himself to the world as his nation’s new president and there was some optimism that relations with the West would improve.

But when it comes to Iran’s nuclear program, the paramount issue, by all accounts talks are going nowhere after an interim accord was signed back in November.

Now a Nov. 24 deadline looms and one Middle Eastern diplomat told the Los Angeles Times’ Paul Richter, “we’ve actually gotten further away from a deal.”

A year ago, with Ayatollah Khamenei’s blessing, Rouhani was given the right to negotiate a deal, but in recent months, it seems Khamenei is taking over, determined to “sharply increase the country’s uranium enrichment capability in seven years, and not roll it back, as the West demands.” [Paul Richter]

Cliff Kupchan of the Eurasia Group said, “Khamenei is preparing his country for a no-deal outcome.”

U.S. Under Sec. of State Wendy Sherman said the two governments remain “far apart” in the talks.

According to a poll carried out by the University of Tehran and the Center for International and Security Studies at Maryland, 94% of Iranians said their country needed a nuclear energy program, while 79% said they would back a deal that included Iranian assurances never to produce an atomic bomb, but that demands such as dismantling half of Iran’s centrifuges and limiting nuclear research would be unacceptable. [Daily Star]

Separately, a blogger was sentenced to death for being found guilty of insulting the Prophet Mohammad on Facebook, though a loophole in the Islamic Penal Code could result in the death sentence being reduced to 74 lashes, as reported in the Irish Independent.

Ukraine: President Petro Poroshenko received a rousing ovation in an address to both houses of Congress on Thursday, but he didn’t receive what he wanted from President Obama, weapons.

“Blankets, night-vision goggles are important, but one cannot win the war with blankets,” he said. In his criticism of Russia, Poroshenko declared:

“With just one move, the world has been thrown back in time – to a reality of territorial claims, zones of influence, criminal aggression and annexations. The postwar international system of checks and balances was effectively ruined.”

Poroshenko said Russia’s annexation of Crimea in March was one of the “most cynical acts of treachery in modern history,” warning Moscow’s next move might be to cross “a European border.”

According to EU officials, Russian President Vladimir Putin told Poroshenko that Russian troops could be in six central and eastern European capitals within two days – including five that are capitals of NATO members. Poroshenko advised European Commission President Jose Manuel Barroso of Putin’s threats last week in a meeting in Kiev. Putin had issued similar pronouncements to Barroso in August, specifically talking about taking Kiev in less than a week. [Financial Times]

Editorial / Wall Street Journal

“Petro Poroshenko on Thursday gave an impassioned speech before a joint session of Congress and met President Obama at the Oval Office. Washington can do pomp and ceremony, but Ukraine’s leader still went home empty-handed.

“The White House announced $7 million (no, not billion) in new humanitarian aid for Ukraine’s war-torn east. The truly chronic case of policy malpractice is its continuing refusal to help arm Ukraine’s military, which was the top item on Mr. Poroshenko’s ‘to get’ list....

“Mr. Obama and the Europeans worry that real weapons will provoke Vladimir Putin, as if he needs an excuse for invasion. Ukraine isn’t asking for NATO bombers or soldiers, only basics like communications equipment, surveillance drones, antitank weapons, guns and U.S. satellite imagery....

“Elite Russian troops stand ready to pounce again from the east, south and southwest. As Ukraine’s economy shrinks by 7%-10% this year, Russia has cut off natural gas supplies and controls its coal reserves in the rebel-held east. The Kremlin media continue to beat the war drums, and a stronger Ukrainian military would have a better chance of deterring further Putin aggression....

“Mr. Putin is fighting to kill this fragile European democracy and bring Ukraine into a reconstituted empire. Yet these stakes still escape Mr. Obama. Last week at a Maryland fundraiser he noted that ‘we do very little trade with Ukraine and, geopolitically, it doesn’t – what happens in Ukraine doesn’t pose a direct threat to us.’

“On Thursday Mr. Poroshenko offered an implicit rebuttal: While Ukrainians are dying to save their country, ‘the war these young men are fighting today is not only Ukraine’s war,’ he said. ‘It is Europe’s war, and it is America’s war, too. It is a war of the free world – and for a free world.’”

Separately, Poroshenko stressed he is a man of peace and on Tuesday, Ukraine’s parliament passed a law granting more autonomy to rebel-held areas in Donetsk and Luhansk. The law grants three years of self-governance to parts of these regions and calls for elections in designated areas, as well as guaranteeing the right to use of the Russian language and local control over economic development.

Many in Kiev, though, such as former Prime Minister Yulia Tymoshenko, said they would go to court to challenge the new law and another granting amnesty for some participants in the uprising.

Also on Tuesday, Ukraine ratified a landmark trade deal with the European Union, which offers a free-trade pact between Ukraine and the EU in exchange for Ukraine overhauling its institutions. But implementation won’t take place until 2016 because of Russian threats to restrict trade with Ukraine.

Meanwhile, fighting continues. A rebel attack on Wednesday in one town in the Donetsk region killed more than 10 civilians, the Ukrainian military said.

And Russia said it would set up a full-scale military unit in Crimea in response to a “rising foreign military presence” near Russia’s border, which is outrageous.

Martin Wolf / Financial Times

“Russia is both a tragedy and a menace...Western policy makers seem to believe the Islamic State of Iraq and the Levant is the greater danger. But Russia is the nuclear-armed rump of a former superpower and, ruled by an amoral autocrat, it frightens me even more. For Europe and, I believe, the U.S., there is no greater foreign policy question than how to deal with today’s Russia.”

Russia: One of the wealthiest Russians, Vladimir Yevtushenkov, was placed under house arrest, accused of money-laundering, a charge he says was politically motivated. Yevtushenkov is chairman of the conglomerate Sistema, which controls Russia’s biggest mobile phone operator MTS.

The story is one of Vladimir Putin’s closest allies, Igor Sechin, who runs Russia’s biggest oil company, Rosneft, is interested in buying oil producer Bashneft, which is part of Sistema, with Yevtushenkov saying in the past he was not interested in selling.

So, you can see how this will evolve. It’s another Yukos. Sechin, and the Kremlin, will simply take over Bashneft’s assets.

Separately, Russia and Egypt reached a preliminary arms deal worth $3.5 billion, as Russia takes advantage of souring Egyptian-U.S. ties.

Australia: In a sweeping anti-terrorism operation, police detained 15 people in Sydney and Brisbane after receiving intelligence that a senior Islamic State member was urging supporters to carry out a beheading, a “demonstration killing.” Prime Minister Tony Abbott said:

“We are at serious risk from a terrorist attack. There are networks of people here in this country, who despite living here, despite enjoying the Australian way of life, they would do us harm.”

Authorities intercepted a phone call detailing the plot leader’s plan. Abbott said 20 Australians have returned from fighting with jihadists abroad, with another 100 lending support of one kind or another.

China: According to a Barclay’s survey, “Around half of China’s super-rich aim to move to another country within the next five years to find better education and job opportunities for their children.” [James Griffiths / South China Morning Post]

30 percent said Hong Kong was their top destination, followed by Canada at 23%.

North Korea: The Supreme Court sentenced 24-year-old American Matthew Todd Miller to six years of hard labor, saying he had “committed acts hostile to the DPRK while entering the territory of the DPRK under the guise of a tourist.” Another American, Kenneth Bae, was sentenced last year to 15 years of hard labor.

Germany: Chancellor Angela Merkel said in a speech that Germany will do all it can to fight anti-Semitism. Merkel made her pledge at a landmark rally of thousands who were protesting a rise in anti-Semitism that authorities and Jewish leaders blame mainly on Muslim extremists and young immigrants.

“That people in Germany are threatened and abused because of their Jewish appearance or their support for Israel is an outrageous scandal that we won’t accept,” Merkel said. “It’s our national and civic duty to fight anti-Semitism.”

Most would agree the rally was extraordinary and Merkel deserves a ton of credit. Germany also delivered a fourth state-of-the-art submarine to the Israeli navy, one that is capable of launching nuclear-tipped cruise missiles.

France: The Socialist government survived a confidence vote on Tuesday as it seeks to gain support for coming tough economic changes. Prime Minister Manuel Valls survived a mutiny among the left-wing faction of his party to eke out the win 269-244 in the 577-seat National Assembly.

But Valls warned the far-right National Front is “at the gates of power,” while for his part, President Hollande is likely to face a renewed challenge from former President Nicolas Sarkozy, who announced he will lead the conservative U.M.P. party, signaling he could very well be in the hunt to return to the presidency in 2017, despite his being wrapped up in a corruption scandal. [Dan Bilefsky / New York Times]

Sweden: The center-right government was ousted in elections on Sunday, with an anti-immigration party known as the Sweden Democrats polling a strong third at 13%. The center-left bloc, which received about 44% of the vote, vowed it would not form a government with the far-right party.

Nigeria: In a rare victory for the Nigerian army, witnesses say up to 200 Boko Haram were killed in a battle last weekend, after the Islamists had taken a string of towns alongside Nigeria’s northeast border with Cameroon as it seeks to create a caliphate.

Random Musings

--According to Election Lab, the Washington Post’s statistical model of the 2014 midterm elections, Democrats are now (very slightly) favored to hold their Senate majority on Nov. 4. The model puts the Democrats’ chances at 51%. Just a few months ago the model predicted Republicans had an 80% chance of winning the six seats needed to gain the majority. As the Post’s Chris Cillizza notes, however, the model builders long said the results of their work would be highly volatile.

That said it’s not good for Republicans. For example, Colorado Sen. Mark Udall (D) has a 94% chance of winning.

In Iowa, state Sen. Joni Ernst (R) has seen her chance of victory fall from 72% to 59%.

Under the modeling, North Carolina has a 97% chance of remaining Democratic, while standard polls have it very tight.

Nate Silver’s FiveThirtyEight model now has Republican chances of winning the Senate at just 55%, down from 64% 12 days ago. Silver writes, “The two states with the largest shifts have been Colorado and North Carolina – in both cases, the movement has been in Democrats’ direction,” which “accounts for most of the difference in the forecast.”

--As Karl Rove opined in a Journal op-ed, the Democrats have raised more money for the Senatorial Campaign Committee than their Republican counterparts, and they have more cash on hand heading into the stretch run. 

“With 47 days before the election, Republican candidates must do two things. The first is to make the case for electing someone new who will be a check and balance in the Senate on Mr. Obama and his agenda, rather than returning a Democratic loyalist who toes his line. The second is to offer a positive, optimistic conservative agenda to make independents who disapprove of Mr. Obama comfortable voting Republican. Both must be done while defending themselves.”

--A New York Times/CBS News poll among all likely voters had 45% voting Republican in their local congressional races, while 39% favored Democrats, but Congressional Republicans overall had just a 19% approval rating versus 30% for Democrats.

[President Obama’s job approval rating in this survey was 40%. Only 34% approved of his foreign policy, a record low.]

--According to a piece in Politico by Edward-Isaac Dovere, President Obama can’t stand Democratic National Committee Chairwoman Debbie Wasserman Schultz. Join the crowd.  Supposedly they have rarely spoken since 2011. When they have it’s been a tension convention. Actually, Wasserman Schultz, who supported Hillary Clinton rather than Obama in 2008, then didn’t ingratiate herself with Clinton either when Wasserman Schultz “allegedly reached out to Obama in 2008 and expressed her willingness to back him before Clinton officially ended her campaign.”

--Vermont Independent Sen. Bernie Sanders says nobody should be nominated for president without facing a challenge and Sanders is thinking of running for either the Democratic presidential nomination or as an independent focusing on liberal causes; issues like income inequality and climate change.

“I mean, these are issues that absolutely have got to be raised,” he told USA TODAY’s Susan Page.

Sanders could really screw things up for the Democratic nominee, i.e., Clinton, but he has vowed he would not play a Ralph Nader role, referring to Nader’s possibly costing Al Gore Florida in 2000.

--Michael Goodwin / New York Post

“(It) may already be too late to save the SS Obama.

“The whole second term has been a string of disasters.... Six years into his tenure, nothing is going as promised.

“Earlier on, he could have trotted out his teleprompters and turned public opinion his way, or at least stopped the damage. But the magic of his rhetoric is long gone, and not just because the public has tuned him out.

“They’ve tuned him out because they’ve made up their minds about him. They no longer trust him and don’t think he’s a good leader.

“Most ominously, they feel less safe now than they did when he took office....

“His worldview, his politics, his prejudices, his habits – they’ve been a mismatch for the country and its needs. He has been a dud even in the one area where he seemed a lock to make things better, racial relations. Only 10% believe race relations have improved under him, while 35% said they are worse, according to a New York Times survey....

“The lasting image will be his yukking it up on the golf course minutes after giving a perfunctory speech on the beheading of James Foley. It revealed him as hollow, both to America and the world, and there is no way to un-see the emptiness.

“That means, I fear, we are on the cusp of tragedy. It is reasonable to assume the worst-case scenarios about national security are growing increasingly likely to occur.

“Obama’s fecklessness is so unique that our adversaries and enemies surely realize they will never face a weaker president. They must assume the next commander in chief will take a more muscular approach to America’s interests and be more determined to forge alliances than the estranged man who occupies the Oval Office now.

“So Vladimir Putin, Iran, China, Islamic State, al Qaeda and any other number of despots and terrorists know they have two years to make their moves and advance their interests, and that resistance will be token, if there is any at all.

“Throw in the fact that Europe largely has scrapped its military might to pay for its welfare states, and the entire West is a diminished, confused opponent, ripe for the taking.”

--Richard McGregor / Financial Times

“In the space of weeks, Washington has been transformed from the capital of a reluctant imperium into a cheerleader for the recommitment of the U.S. military to another potentially intractable conflict in Iraq.

“The astounding turnaround, in Washington and in U.S. public sentiment, has appeared to catch Barack Obama short, and returned ascendancy on foreign policy to the capital’s hawks after years on the defensive following the Iraq and Afghanistan wars....

“The Cook Political Report on Friday [Sept. 12] noted the return of the ‘security Mom,’ voters once focused exclusively on domestic issues but who shifted after the 9/11 attacks to worry about the ‘safety’ of their children in an unstable world.”

It was all about the beheadings, as well as Obama’s “seeming inability to do anything” about multiple upheavals overseas.

--The “King of the Hill,” lobbyist Thomas Hale Boggs Jr., died at the age of 74. His sister, broadcast journalist Cokie Roberts, said he apparently had a heart attack.

After losing a race for Congress in 1970 for a seat in Maryland, not the family’s home base of Louisiana, Boggs set out to make money from the family business, politics. So he started a company with a partner, Jim Patton, and Patton Boggs would become synonymous with Washington lobbying.

While Democrat Boggs operated mostly during the good old days when the two parties were friendly adversaries, and worked and socialized together, it’s been a tougher business during today’s far more toxic times.

Boggs father, Hale Boggs Sr., was House majority leader in 1972 and destined to be speaker, but weeks before the November election, while on a campaign in Alaska for a local congressman, Nick Begich (whose son Mark is now a senator from Alaska), lost his life when their plane disappeared. Hale Boggs’ wife, Lindy Boggs, finished her husband’s term and went on to the leadership ranks of the House herself by the time she retired in 1991. [Jackie Calmes / New York Times]

--Vice President Joe Biden had a terrific 24 hours. Speaking of a meeting with Lee Kuan Yew, the former prime minister of Singapore, Biden said, “On the way back from Mumbai to go meet with President Xi in China, I stopped in Singapore to meet with a guy named Lee Kuan Yew, who most foreign policy experts around the world say is the wisest man in the Orient.”

Earlier, in a speech at the Legal Services Corporation’s conference, Biden explained that his son Beau Biden, who has served in Iraq, would hear from members of the military who got bad loans and mortgages.

“People would come to him and talk about what was happening to them at home in terms of foreclosures, in terms of bad loans that were being – I mean, these Shylocks who took advantage of these women and men while overseas,” Biden said.

Biden had a gaffe hat trick; the third being his statement that the United States could commit ground troops to fight ISIS in Iraq.

--New Jersey Gov. Chris Christie caught a big break when it was reported by WNBC/News 4 New York that a federal probe into Bridgegate had found no smoking guns as yet after nine months and that there is no evidence Christie knew about or directed the blockade last September. But multiple investigations continue.

--I didn’t have time to note the observations of former Israeli president Shimon Peres the other day, after the 91-year-old met on Sept. 4 with Pope Francis, a 45-minute meeting after which Peres gave the Catholic periodical, Famiglia Cristiana, an exclusive interview.

The problem, as Peres sees it, is that “in the past, most wars were motivated by the idea of nationality. Today, however, they are being waged primarily in the name of religion.”

So Peres said, “Perhaps for the first time in history, the Holy Father is a leader not only respected by many people, but also by different religions and their leaders. In fact, he is perhaps the only truly respected leader” in the world today.

“The United Nations has had its day,” Peres opined. “What we need is an organization of United Religions, a United Nations of religions. This will be the best way to fight terrorists who kill in the name of faith.”

Accordingly, continued Peres, “there should be a Charter of United Religions, just as there is a UN Charter.  This is what I have proposed to the pope.”

The deputy managing editor of Famiglia Cristiana asked, “Would you see the pope as the leader of United Religions?” “Yes,” Peres replied. The world needs “an indisputable moral authority that says out loud, ‘No, God does not want this and will not allow it.’ We must fight against exploitation in the name of God.”

As reported by Brian Schrauger of IRN-USA Network News, from whose piece I got the above quotes, while there isn’t a transcript of the dialogue between Pope Francis and Peres, “a significant few who are close to Francis had a lot to say about it. All of them were cautious about an institutionalized United Religions organization.”

Interestingly, Italy’s spokesman for Islam, Yahya Pallavicini, imam of a mosque in Milan, praised Peres as “a man particularly inspired, combining Jewish faith with political experience. Pallavicini then said of Pope Francis, “I, a Muslim, have much to learn from him.”

The above is all just talk, but perhaps a shred of hope. I read Mr. Schrauger’s piece and thought of North Korea and China, two examples of regimes constantly fighting back against suspected proselytizing. 

But in many parts of the world, young people in particular need an alternative. They may never be given an opportunity to seek it out, however. That’s obviously why the likes of ISIS pursue the path they have, to prevent alternative beliefs and, say, strains of Islam from leaking through.

If they don’t get through, however, we’re doomed.

--Toronto Mayor Rob Ford has a rare form of cancer, a malignant “liposarcoma in his abdomen” and is beginning chemotherapy immediately. Ford withdrew from his re-election campaign and the controversial mayor’s brother, Toronto Councillor Doug Ford, has replaced him on the ballot. The election is Oct. 27. Rob Ford then put his name on the ballot for his old district.

--NASA’s inspector general issued a 44-page report blasting the agency’s Near Earth Objects program, which is meant to hunt for asteroids and other large objects that could potentially threaten the planet. Inspector General Paul Martin said it needed to be better organized and managed, with a bigger staff.

As reported by Marcia Dunn of the AP, there is an executive at NASA headquarters and two offices in Massachusetts and California, each with six employees. That’s it.

The goal when the project was founded a decade ago was to be able to catalog 90% of near-Earth objects bigger than 460 feet across by 2020, but it is currently at just 10%.

Yet another reason to sleep with one eye open as we do here at StocksandNews.

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

God bless America.
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Gold closed at $1216...lowest weekly close since Dec. 2013
Oil $92.41

Returns for the week 9/15-9/19

Dow Jones +1.7% [17279...new high]
S&P 500 +1.3% [2010]
S&P MidCap -0.2%
Russell 2000 -1.2%
Nasdaq +0.3% [4579]

Returns for the period 1/1/15-9/19/15

Dow Jones +4.2%
S&P 500 +8.8%
S&P MidCap +5.7%
Russell 2000 -1.4%
Nasdaq +9.7%

Bulls 52.5
Bears 15.2 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore