Week in Review

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Week in Review

10/25/2014

For the week 10/20-10/24

Edition 811

Washington and Wall Street

After a four-week drubbing that saw the S&P 500 decline 7.4% on a closing basis, and Nasdaq hitting the 10% correction level intraday the week of Oct. 13, the markets were entitled to a bit of a relief rally, assuming the news environment improved, but this week’s action was on the absurd side; the best week for U.S. equities of the year, and then some.

Yes, to the extent Ebola was a major influence in the market decline, save for the episode in New York City at week’s end, the news in the U.S. was good. No one in contact with Thomas Eric Duncan had contracted the virus, various Americans who were being treated here after picking up Ebola in West Africa, or the two nurses who contracted it in Dallas, were either recovering or released, and at least for today there was a sense of confidence that after the mistakes in Dallas, America could handle isolated cases that will be springing up over the coming weeks and perhaps months.

But as I wrote last week, the issue with Ebola isn’t here, it’s in West Africa and by every metric the situation there continues to spiral out of control.

Oh, there was a bit of good news in that Nigeria and Senegal were ruled Ebola free, for today, until the next sufferer slips over the border from either Guinea, Liberia or Sierra Leone, but then you had the disturbing incident where a two-year-old girl with Ebola from Guinea was discovered in Mali for their first case.

The bottom line is the next four weeks or so are absolutely critical in the affected region but as you’ll see below, the needed infrastructure for beginning to arrest the virus is not close to being in place.

Issue two: ISIS and terrorism. While I don’t want to judge the war against ISIS in Iraq and Syria week to week, for starters because details on this broad theater are often sketchy at best, this was not a good week. By Friday, it appeared ISIS was taking back areas of Kobane it had given up, while in Iraq, the Iraqi army is barely hanging on, if you can call it that, to areas around Baghdad. So this remains a huge negative, let alone the fear being generated by the attacks in Canada, and, for New Yorkers, the vicious ax attack on two New York City policemen on Thursday.

Regarding the terror threat, I have to repeat my warning of a few weeks ago. To my European friends, be on guard at your continent’s Christmas markets, which will be in full swing in about four weeks.

Issue three: Vladimir Putin. As discussed below, not only is the situation in Ukraine not any better, but it seems clear Putin is going to do all he can to destabilize at least one of the three Baltic countries as a way of testing NATO resolve. On Friday, he also gave a 40-minute diatribe against the West that the Financial Times is describing as “one of his most anti-U.S. speeches in 15 years as Russia’s most powerful politician.” This will be a big story this coming week.

Issue four: The health of the eurozone economy. As I’ll discuss in a bit, while a data point or two may have shown improvement, overall, the picture has not changed. In some cases, like France, it got worse. 

Issue five: U.S. corporate earnings. They were decidedly mixed, with some high-profile misses and some stocks soaring for seemingly little reason at all.

Yet with this as background, Wall Street and Europe rallied, with the biggest gains here.

First some economic figures. Existing-home sales for the month of September came in better than expected to a seasonally adjusted annual rate of 5.17 million. The median asking price, $209,700, was up 5.6% from a year earlier and marked 31 consecutive months of rising prices year-on-year. But then new-home sales for the month fell to 466,000 from their August cycle high of 504,000.

The mortgage rate on a 30-year fixed, though, fell to 3.92%, a 16-month low, which is spurring another wave of refinancings, with applications up 23% for the week ended Oct. 17, while oil, and the price at the gas pump, fell again, giving consumers a break on this front as well.

Inflation data, as represented by the consumer price index, also was tame, with the CPI in September up just 0.1%, including ex-food and energy, while the 12-month CPI is only 1.7% on both.

But there was some interesting news on the earnings front. Some old line blue chips like IBM, Coca-Cola and McDonald’s took it on the chin, as did Amazon.com, but others like Caterpillar and 3M rallied big, even if I’m left wondering why.

The thing is revenue growth is still mostly punk. Caterpillar’s stock rose strongly on far better than expected earnings, but sales were up 1% and the company sees no revenue growth in 2015. 3M shares soared but revenues were up just 2.8%. Procter & Gamble Co. reported sales were flat (up 2% if you take out the impact from foreign exchange rates).

Revenues are supposed to be up about 4% to 5% this quarter so we’ll see how it shakes out, but it’s been a broken record. Many companies have been wringing out gains on the bottom line for years with cost-cutting and financial engineering (share buybacks), but the top line, sales, has been putrid. If you’re looking for an economy that will consistently grow 3%+ in the future, the top line must improve.

One thing that does bear noting is that Europe’s stagnation doesn’t impact the U.S. economy as much as you’d think. Data from the World Bank (and the Wall Street Journal) show exports are 14% of U.S. GDP, while exports account for 51% of Germany’s economic output and 26% of China’s.

Further, Europe represents just 15% of U.S. foreign trade, though for the likes of McDonald’s and IBM it is far higher.

Separately, the Federal Reserve meets next week and we’ll learn if, as expected, Janet Yellen and her band of merry pranksters are ending quantitative easing, QE3.

One last item, the Wall Street Journal’s Theo Francis, Mike Esterl and Joann S. Lublin had a great summation of a major trend in the market.

“The approach was time-tested and hard to beat: Put your money in blue chips, decades-old companies that could be counted on to perform through thick and thin.

“But now the market’s stalwarts are showing their age. Steady has become stagnant as companies once considered among the market’s most reliable post poor growth, quarter after woeful quarter.

“The list of stumbling stars is remarkable: AT&T Inc., which on Wednesday lowered its revenue forecast; Coca-Cola Co., which posted flat sales; International Business Machines Corp., which threw out its profit forecast; Wal-Mart Stores Inc., whose same-store sales haven’t increased in the U.S. since 2012; General Electric Co., whose stock price hasn’t topped $30 since the financial crisis.

“A third of the companies in the Dow Jones Industrial Average have posted shrinking or flat revenue over the past 12 months, according to data from S&P Capital IQ. Revenue growth for nearly half the industrials didn’t outpace the U.S. inflation rate of 1.7%.”

Underlying all “is a sense of malaise for companies whose once powerful formulas for success left them too big to switch tack quickly when market conditions changed.”

Europe and Asia

It was another decidedly mixed bag for the eurozone. Stagnation indeed describes virtually all of the economies that make up the euro-18 and this week saw a flash reading on manufacturing and services that further bears this out. The October manufacturing PMI was 50.7 vs. 50.3 in September, which got way too much positive press for ‘beating’ the 49.9 estimate. Like whoopty-damn-do. The service reading, 52.4, was unchanged over the prior month and the composite, 52.2, was up slightly from 52.0.

The flash reading only provides specifics for Germany and France and in the former the manufacturing reading was 51.8 vs. 49.9, services 54.8 vs. 55.7, and a comp of 53.6 vs. 54.1. For France, manufacturing was 47.3 in October vs. 48.8 the prior month, services was 48.1 vs. 48.4, and the comp 48.0 vs. 48.4.

So a mixed picture in Germany and more contraction in France.

Markit chief economist Chris Williamson said while the euro area “has so far avoided a slide back into recession this year,” at the same time, “growth is so anemic that increasing numbers of companies are being forced into laying off staff and slashing prices in an attempt to cut costs and boost sales through discounting.”

Some other country specific items before I get to the Big Picture.

Italy’s government projected GDP would decline 0.3% this year and increase just 0.6% in 2015.

In non-euro U.K., GDP is forecast at 3.1% for 2014, but just 2.4% for next year, though GDP for the third quarter came in up 0.7% compared with 0.9% in the second, as released by the Office for National Statistics on Friday, an annualized basis of 2.8%.

0.7% is just fine, but its deceleration nonetheless and speaks to the threats posed by stagnation on the continent. It’s clearly not likely the Bank of England will be raising interest rates anytime soon.

The euro-area economy is forecast to have expanded just 0.2% in the third quarter.

One more item on the U.K. Britain was told to pay an extra 2.1bn euro to the EU budget within  two weeks on account of its relative prosperity, a surcharge that could not come at a worse time for David Cameron as he seeks to beat back eurosceptics within his own party. At the same time, Nigel Farage’s UK Independence party, having claimed its first seat in parliament this month, is poised for further gains in a November by-election.

[France, by the way, is receiving a 1bn euro refund.]

In Spain, the jobless rate fell to 23.7% for the three months ending in September, down from 24.5% in Q2 and the lowest since 2011. It was 26.1% in 2013.

So this brings us to the two biggest items, the European Central Bank’s bond-buying program and the bank stress tests.

Regarding the latter, recall the ECB is taking over supervision of the largest banks from the national governments next month and as part of this, it has conducted stress tests on 130 banks throughout the eurozone, results of which were to be formally released on Sunday.

But since the banks were given a heads up, results are leaking out and supposedly about 25 failed, although more than half have already taken steps to shore up their balance sheets this year, while 11 or 12 are said to still have additional capital needs, according to reports by Reuters and the Wall Street Journal. No German or French banks are among them, with the failures supposedly in Greece, Slovenia, Portugal and Italy. The European Banking Authority is conducting an overlapping review that includes some non-eurozone banks. More on all this next time...and whether any of it will unlock lending to small- and medium-sized businesses that must come back if the eurozone is to have sustained growth.

As for the bond-buying, the ECB announced it was buying more covered loans (asset-backed) from the largest banks in the likes of Spain, France, Portugal and Italy, and it said it may buy corporate bonds later, perhaps December, but gave no specifics.

The thing is, nothing the ECB has done before, and this is like QE3 for them (July 2009 and November 2011 being the previous two), has worked so I was surprised at the positive reaction from the markets with an announcement that was just more of the same.

This week at an EU summit designed to begin the budget review process, the central issues also remain the same...growth vs. austerity. Italy and France vs. Germany. Hollande and Renzi vs. Merkel.

Germany argues the currency bloc can’t undermine its rules on budgetary restraint or you’ll see another financial crisis like the one that peaked in 2012.

But those favoring growth are concerned the eurozone will slip back into recession.

Hollande says budgets must be flexible, with growth the priority, while Merkel says we’ve already been down that road; excessive spending did not positively impact growth.

France is seeking additional time to bring its budget deficit down under the EU target of 3% of GDP, while Italy wants a respite on its public debt level, now at 130% of GDP, which was mandated to decline beginning in 2016, though it is currently projected to continue rising.

And back to the ECB, there is the issue of buying sovereign debt, which it has yet to do, and which I’ve told you is technically against the rules of the EU, but which the highest court will approve in some fashion, probably next spring.

By buying sovereign paper, the ECB comes close to financing individual governments and, as Germany says, lessens the pressure on the likes of Greece and France to put their budgets in order, plus it exposes eurozone taxpayers to the credit risks of others.

In Germany, for instance, a poll of its citizens published last week (Forsa) found 54% supported a balanced budget despite new signs of weakness in the German economy. Merkel has promised this by 2015 for the first time since 1969.

But the bottom line is the eurozone is suffering from zero domestic demand, and this is where the Russia-Ukraine crisis, and the resulting sanctions, doesn’t help matters.

“It would be wrong to think last week’s Ed. week of 10/13] global market gyrations signal a return of the eurozone debt crisis. Sovereign bond spreads in the eurozone did not move by much, except in Greece.

“What happened last week is something rather different. Financial markets have woken up to the possibility of a eurozone-wide economic depression with very low inflation over the next 10 to 20 years. This is what the fall in various measures of inflation expectations tells us. Investors are not worried about the solvency of a member state. That was clearly different two years ago.

“But the present scenario is no less disturbing. The implications for those who live in such an economic snake pit are already visible: high unemployment; rising poverty; real and nominal wage stagnation; a debt burden that will not come down in real terms; a decline in public sector services, and in public investment. A shocking example is the decrepit state of German military hardware. Of the Luftwaffe’s 254 fighter planes, 150 cannot fly.

“The eurozone’s stagnation will affect the rest of the world to different degrees. The U.K. might manage to escape the same fate, but the eurozone economy is big enough to pull Britain down with it. Hardest hit will be the parts of central and eastern Europe that do not use the euro. They are caught between an imploding Russia and a stagnating Europe. It is hard to see how the oil price can recover in an environment of permanently low growth. And it is even harder to see how Russia can live with a permanently depressed oil price.

“Secular stagnation – the idea that a chronic shortfall of investment might produce a long period of weak demand – also has disturbing implications for financial investors. The recent high levels of equity prices were premised on the best possible of all scenarios: that productivity growth rates would revert to historical averages, and that the level of gross domestic product would eventually catch up with the pre-crisis economic growth trajectory. Investors have now begun to realize that neither is going to happen. GDP is still only close to the levels of 2007; growth is slow....

“Eurozone policy makers face three choices. First, they can transform the eurozone into a political union, and do whatever it takes: a Eurobond, a small fiscal union, transfer mechanisms and a banking union worthy of its name. Second, they can accept secular stagnation. The final choice is a break-up of the eurozone. The second and third choices are not mutually exclusive. As the political union is firmly off the table, this leaves us with a choice between depression and failure – or both in succession.”

In China, GDP came in at 7.3% in the third quarter, the weakest pace since Q1 2009, though the estimate was 7.2%, so this was taken as a positive...while also a negative because it meant the government may opt for further reform rather than stimulus.

But then producer, or factory-gate, prices fell in September for a 32nd straight month, and that bolsters the case for stimulus.

Separately, industrial production was up 8% in September year-over-year; retail sales rose 11.6%; and fixed asset investment was up 16.1% for the first nine months of 2014. All three are OK, but not nearly as strong as during the boom years.

HSBC released its preliminary reading on the October PMI for manufacturing and it was 50.4, same as September’s final number, which is viewed as a positive.

And on the critical housing front, new-home prices fell in 69 of 70 cities monitored by the government in September from August, the most since January 2011. Homes sales fell 11% in the first nine months of the year. Prices fell 0.7% in Beijing, September over August, and 0.9% in Shanghai. [The city of Xiamen in Fujian province was the only one of the 70 to show an increase.]

Prices in Shanghai fell 0.8% from a year earlier, which compares to a 17.5% increase in January.

In Japan, while the government continues to lower forecasts, at least September exports were strong, up 6.9%, the most in 7 months and a break for Prime Minister Shinzo Abe, who needs to decide by year end whether or not to proceed with an October 2015 further sales tax hike from 8% to 10%. The IMF is forecasting GDP will rise in Japan just 0.8% in 2015.

Ebola...in depth

Last weekend, in his radio address, President Obama pleaded for “perspective” in the fight against Ebola.

“This is a serious disease, but we can’t give in to hysteria or fear because that only makes it harder to get people the accurate information they need. We have to be guided by the science. We have to remember the basic facts....

“We’re a nation of more than 300 million people. To date, we’ve seen three cases of Ebola diagnosed here – the man who contracted the disease in Liberia, came here and sadly died; the two courageous nurses who were infected while they were treating him.

“Now, even one infection is too many,” he added. “At the same time, we have to keep this in perspective. As our public health experts point out, every year thousands of Americans die from the flu.”

[Tens of thousands die from infections the patient catches after being admitted to a U.S. hospital as well, Mr. President.]

Finally, “we know how to fight this disease,” said Obama. “We know the protocols. And we know that when they’re followed, they work.”

There certainly was a sense of urgency, finally, at the White House the past ten days or so. The Pentagon last weekend announced it is assembling a 30-person rapid-response team to provide quick medical support to civilian healthcare workers if additional cases appear in the U.S. The team will consist of 20 critical-care nurses, five doctors trained in infectious disease and five trainers in infectious-disease protocols.”

But as I told you before, the story isn’t here, even if it moves our markets intraday; the story remains in West Africa. Liberian President Ellen Johnson-Sirleaf said the Ebola epidemic was unleashing an economic catastrophe that will leave a “lost generation” of young West Africans.

“This fight requires a commitment from every nation that has the capacity to help – whether that is with emergency funds, medical supplies or clinical expertise.” The international community, Johnson-Sirleaf said, can’t “pull up the drawbridge and wish the situation away.”

Guinea officials said Ebola had spread to two new regions, including one with an AngloGold Ashanti Ltd. mine.

Brian H. Hook, former assistant secretary of state / Wall Street Journal:

The U.N.’s World Health Organization’s “record of handling epidemics over 30 years reveals a health system that is getting worse, not better. On at least four occasions the U.N. organization has failed to deal with major outbreaks of communicable disease.

“In the 1980s, the WHO underestimated the scale of the AIDS epidemic and was plagued by infighting and poor coordination....

“In 2009 the World Health Organization was slow to address the H1N1 flu pandemic. It later commissioned an expert panel to investigate its mishandling of the crisis. The report released in 2011 slammed the WHO for making crucial errors, including a lack of transparency, poor external communication, management conflicts, and a ‘needlessly complex’ definition of pandemic and its phases. H1N1 ended in 2010 and we were fortunate the strain had a lower mortality than initially feared. Notably, the panel concluded that the world isn’t ready to handle a major health disaster.

“In 2010 the World Health Organization found itself in Haiti contending with a deadly cholera outbreak inadvertently introduced by U.N. peacekeepers from Nepal after the earthquake. The WHO worked to halt its spread from rural areas to Port-au-Prince, the capital. The disease proved much faster than the WHO’s bureaucracy and spread beyond Haiti to the Dominican Republic, Cuba and Mexico, killing thousands.

“Which brings us to Ebola, which is now in seven countries. On Oct. 1, the Belgian microbiologist and physician who co-discovered the virus in 1976, Peter Piot, wrote for TIME magazine that this was an ‘avoidable catastrophe.’...and assigned special blame to the WHO’s regional office in Africa, calling it ‘not competent’ in an Oct. 17 interview with the Associated Press.”

So Mr. Hook concludes there is the need for a new international health organization, still within the U.N. but independent from the WHO. “It would be a lean institution with expertise and capabilities to identify emerging epidemics and act quickly to prevent the spread of a deadly virus before it hits major population areas....

“Such an enterprise would need a strong director with clear chain-of-command authority, something the WHO has always lacked....

“(Bottom line we need to rethink) our preparedness and create something new and innovative before we face a more easily communicable, potentially civilization-altering pathogen.”

So last week I wrote of how business will be pulling back from West Africa, and this week the Wall Street Journal reported on how China is evacuating scores of workers from companies in the Ebola-affected countries, “curtailing trade, stalling crucial projects and compounding the region’s economic troubles.”

China’s trade with the three hardest-hit – Liberia, Sierra Leone and Guinea – stood at $5.1 billion, ten times that of U.S. trade with the three.

One serious problem for the Chinese companies is skilled workers from China now don’t want to go to the region, while those already there want to go home. Said one top executive for a manufacturer of seafood-processing equipment, “I don’t see Sierra Leone recovering from Ebola soon.”

Plus now the wealthy of each country have fled, and obviously tourism is virtually non-existent.

Neighboring Gambia, without any Ebola, reports tourism is down 65%.

“Nineteen thousand doctors and nurses will soon be needed to make a dent in West Africa’s Ebola outbreak, but the world has yet to send more than a small fraction of them, the United Nations says. Of the 1,000 vehicles needed to help the effort, only 69 have arrived. Of the 500 burial teams needed to ensure that infected corpses do not spread the disease, only 50 are now on the ground – and there is no clarity on who will pay them.

“In the breach, Ebola is fast washing away the small gains made over the last decade in war-scarred parts of West Africa, as schools shut down, immunization campaigns are suspended and a food crisis looms as farmers abandon their fields....

“Tensions are simmering between neighbors in the region, who have long fueled wars in one another’s countries. The International Fund for Agricultural Development, another United Nations agency, warned last week that the Ebola epidemic could ‘lead to a hunger crisis of epic proportions.’”

“Ebola infects everything. People keep away from fields and markets – so the price of cassava has more than doubled and there is a risk of hunger. Children are orphaned, businesses close, political and tribal resentments flare up. All that will only make Ebola harder to beat. It is a test for the people of West Africa. But it is also a test for a globalizing world. The slums of Freetown are closer to the streets of London than they have ever been. Some, like Cuba and Medecins Sans Frontieres (Doctors Without Border), have risen to the occasion. Too many still have not.”

Street Bytes

--So how good was the rally this week? The Dow Jones gained 2.6% to 16805, its best week since last December. The S&P 500 soared 4.1%, its best performance since January 2013. And Nasdaq had a stupendous 5.3% gain, the best for it since 2011! Good lord. Absolutely idiotic.

--U.S. Treasury Yields

6-mo. 0.05% 2-yr. 0.39% 10-yr. 2.27% 30-yr. 3.04%

The bond market calmed down in a big way, though the yield on the 10-year rose 8 basis points and is now a whopping 41 above the 1.86% intraday low of 10 days ago. European bond markets also chilled out. The German 10-year saw its yield rise from 0.86% to 0.89%, while Italy’s 10-year crappola finished the week at 2.51%, up two basis points, while Greece’s garbage saw its yield fall from 7.80% to 7.13%.

France’s 10-year was unchanged at 1.30% on the week. Oui oui!!

--Apple reported quarterly profit rose 13%, exceeding expectations, and predicted record holiday sales in the current quarter as sales of the iPhone 6 and iPhone 6 Plus helped the line surge to 39.27 million units, a 16% increase from 33.8 million iPhones in the year ago period. Analysts were expecting 37.8m.

Sales of the Macintosh line of personal computers rose 21% by units and 18% by revenue.

The disappointment was in sluggish iPad sales, 12.3 million vs. 13.1 million a year ago; the third consecutive quarter in which sales declined vs. the prior year.

Fourth-quarter net income totaled $8.47 billion, with revenue rising 12% to $42.12 billion from $37.47bn in the same period a year earlier.

For the current quarter, Apple is forecasting revenue of $63.5 billion to $66.5 billion.

Apple’s share rose $7.50 from $97.70 to $105.20 for the week.

--Conversely, shares in IBM cratered as the company once again disappointed on the earnings and revenue fronts, while announcing it was abandoning a long-held 2015 earnings forecast that it would by then be earning $20 a share, up from $11.67 in 2010, when then CEO Sam Palmisano announced his five-year plan, that initially was sustained by his successor, Ginni Rometty.

Revenue fell 4% to $22.4 billion, the 10th straight quarterly drop, weighed down by a continuing decline in its hardware division.

IBM is scrambling to catch up on the cloud-computing side (as is everyone else these days, see SAP) in a futile attempt to grab market share from chief competitors Workday Inc. and Salesforce.com.

The majority of IBM’s business comes from its services division, about 55%. The backlog for services – an indicator of future business – fell 7% from a year earlier.

--Shares in Amazon cratered more than 11% in after-hours trading following Thursday’s earnings announcement that the company had one of the biggest losses in its history, $437 million. After each of the past four quarters’ earnings reports, Amazon stock has fallen at least 10% as investors continue to wonder when the profits will come.

Bulls have long acted as if Amazon can flip a switch any time it wants to to capitalize on its huge customer base, but the company was forced to admit Thursday that some of its investments haven’t worked out as planned. Said CFO Tom Szkutak, when asked about its investments in hardware and overseas markets, “With anything new that we do...there’s certainly a wide range of outcomes.”

Amazon has been making big investments in new Kindle devices, cloud computing and warehouses across the world.

The company had a net loss that worked out to $0.95 cents per share, worse than the 74 cents Wall Street expected; though revenues rose 20% to $20.6 billion.

Oh, and Amazon warned the holiday season might not be as robust as analysts were estimating; growth of 7% to 18% vs. the 20% of last year.

--Microsoft reported earnings that solidly beat expectations, as did revenue, and the shares rose to their highest level since 2000. The world’s biggest software company said revenue from its traditional business of selling PC and server software to corporate customers had grown 10% in the quarter, with an indicator of future business climbing 12%, even as biz gravitates to the cloud. The company’s own cloud services jumped 128%.

CEO Satya Nadella said of the prospects for old line software business vs. cloud computing, “In the short term we do not see more cannibalization.”

Encouragingly, revenues in the consumer hardware division, which includes Xbox and the Surface tablet, jumped to $2.45 billion, far more than the Street expected.

Overall, Microsoft reported revenues of $23.3 billion, up 25% from the year before. While profits beat expectations, they were down from last year because of a restructuring charge related to the overhaul of the Nokia mobile phone operation. [Nokia did contribute substantially on the revenue side.]

--Including $6.3 billion it netted on the sale of part of its stake in Alibaba, Yahoo reported profits of $6.8 billion for the third quarter, beating the Street, with revenues also exceeding expectations, though up only 1% from the same period a year ago.

CEO Marissa Mayer said the company has “invested deeply in mobile and we are seeing those investments pay off.” Revenue from mobile products was over $200 million for the quarter.

Mayer has been under the gun in defending how the company was spending its cash hoard and she noted that Yahoo has bought back $7.7 billion of its stock, or almost five times the total it’s spent on acquisitions over the same period: $1.6 billion, including $1.1 billion on Tumblr, which is expected to begin generating sizable revenues next year.

But when it comes to the online ad market, Yahoo’s share continues to drop, just 4.9% of the $50.7 billion market, as Google and Facebook scarf it all up.

--In announcing profits rose a mighty 1 percent in the third quarter, General Motors said it may need to pay out as much as $600 million for death and injury claims and spent $2.5 billion on recalls in the first six months of the year. The company lost $400 million in Europe.

--Ford Motor said third-quarter profit fell 34% from a year ago to $835 million as lower volume and higher warranty and recall costs hit North American operations, while Ford joined GM in losing another $400 million+ in Europe.

--Procter & Gamble announced plans on Friday to exit its Duracell business, as total battery sales fell 4.3% to $2.2 billion for the year ending September, “the worst showing among the Top 25 categories in the household products and personal care market, according to Nielsen data analyzed by the investment bank Jefferies & Co.”  [Wall Street Journal]

But this was an easy move for P&G to make as it has been aggressively shedding brands, 25 in all, over the past five quarters, and could eventually dump 100.

--In an annual survey by The Boston Consulting Group, an increasing number of U.S.-based manufacturers have said they are reshoring production back to the United States from China, up 20% from a year ago.

The survey asked, “Given the fact that China’s wage costs are expected to grow, do you expect your company will move manufacturing to the United States?”

The executives who said “Yes, we are already actively doing this” rose to roughly 16% from 13% a year earlier and 7% in the first survey in the series, February 2012. [Veronica Smith / AFP]

--South Korea’s economy grew 0.9% in the third quarter over the second; up 3.2% from a year earlier, which is solid. Private consumption picked up after falling in Q2, another good sign. 

--Late Monday there was a tragic accident at a Moscow airport. The CEO of Total, France’s largest oil company, Christophe de Margerie, was killed when his small plane hit a snowplow on the runway as it was taking off. Initial reports said the snowplow operator was drunk. [A video of him appeared to show otherwise.]

A spokesman who reports to Vladimir Putin said, “It is already obvious that the cause of the event was not at all a horrific tragic confluence of circumstances, which is how representatives of the airport are trying to present it, but criminal negligence by officials who could not ensure the coordinated actions of airport employees.” [BBC News]

De Margerie was sympathetic to Russia and a defender of Total’s interests in the region. Total is France’s second-biggest listed company and the West’s fourth biggest oil and gas group.

Total’s board on Wednesday named the head of refining and chemicals, Patrick Pouyanne, to replace de Margerie.

--AT&T Inc. lowered its revenue outlook for the year to 3% to 4% from a previous 5% estimate. The company’s attempt to push the sale of smartphones at full price in return for a reduced monthly service fee hasn’t been working as well as hoped. [AT&T is losing out, to a certain extent, in the price war for iPhone users as Sprint and T-Mobile, the two smallest carriers, try to steal market share from the Big Two.]

AT&T did add 466,000 net smartphone connections in the third quarter vs. 457,000 for Verizon, the other biggie.

Overall, AT&T’s revenue increased 2.5% to $32.96 billion.

--Coca-Cola Co. said it would seek $3 billion in annual savings from a broad cost-cutting program, while warning it wouldn’t meet its previous financial targets, lowering its long-term revenue outlook to mid-single-digit growth.

Last quarter in North America, soda volumes fell 1%, which isn’t good. Shares fell 6% after the company missed on the top and bottom line.

--Then you have McDonald’s, which reported yet another dismal quarter, while promising significant changes. Said CEO Don Thompson: “By all measures, our performance fell short of our expectations,” citing unusual events in Asia and Europe and continued underperformance in the U.S.

McDonald’s is still suffering from its supplier scandal in China, while the Russian government has been closing stores on alleged sanitary violations, though this is the Kremlin responding to Western sanctions against it.

Russia announced this week it had broadened its crackdown to 200 separate investigations. McDonald’s has 450 restaurants there, including 100 in the greater Moscow area. At least nine have been closed.

Sales at restaurants open more than a year (same-store sales) fell 3.3% globally in the third quarter. They fell a like amount in the U.S.  In Europe they were down 1.4%, and in the Asia/Pacific, Middle East and Africa down 9.9%.

For September, specifically, global same-store sales declined 3.8%, with sales in the U.S. down 4.1%. These are big numbers. I don’t know what they do to turn it around.

--With McDonald’s, Coca-Cola and IBM all disappointing, a piece by Justin Lahart in the Journal pointed out that the three companies share the fact they do most of their business away from home. “Coke drew 58% of its sales from outside the U.S. last year; McDonald’s generated 69% of its revenue abroad; and foreign sales accounted for 65% of IBM’s total.”

--Toyota was among those to announce it was re-notifying owners of about 218,000 previously recalled vehicles with front air bags supplied by Japan’s Takata that it must get them fixed. The Takata bags can malfunction and blow shrapnel into front passengers’ chests and faces. 

Takata’s defective air bags have resulted in global recalls of some 16 million vehicles since 2008.

If you have no idea if your car is impacted, go to nhtsa.gov.

--The unemployment rate in Nevada has fallen from 9.6% to 7.3% in one year. Georgia now has the highest rate in the U.S., 7.9%, while North Dakota is still reaping the benefits of the oil boom, with a jobless figure of just 2.8%.

--Boeing’s third-quarter net earnings rose by 18% to $1.36 billion, on revenues up 7% to $23.8bn.

--Domestic airfares around the Thanksgiving holiday are up 17% over last year, to an average of $467, according to a study by Expedia.com. Christmas airfares are up 2% to $493. 

The airlines continue to register surging revenues and falling jet fuel prices, down 16% in the last year, are a big help to the bottom line. [Hugo Martin / Los Angeles Times]

--American Airlines was the first air carrier to announce it had seen an impact in bookings from the Ebola scare, though they quickly returned to normal. The airline reported record third-quarter profits of $942 million.

--Conventional wisdom has Tuesday as being the best day to buy airline tickets, but a new analysis by the Wall Street Journal says it’s Sunday. Saturday is also lower than Tuesday.

But as opposed to a 2012 study that showed the lowest prices for a domestic ticket were 42 days before departure, now its 57 days.

--Sears is in the process of closing at least 116 Sears and Kmart stores, many during the holiday season. Some 6,000 jobs are said to be at risk, though Sears disputes the report that first appeared on Seeking Alpha.

--The Taj Mahal casino in Atlantic City will remain open through November, at last word, but could still close by the end of the year if Trump Entertainment Resorts cannot complete a rescue plan.to transfer ownership to Carl Icahn. Icahn would pump $100 million into it, but his deal requires state assistance in the amount of $175 million that the state Senate president has ruled out.

If the Taj Mahal closed, it would be the fifth of the city’s 12 casinos to shut its doors this year and the unemployment total would rise to 11,000 from the current 8,000 jobs lost thus far. 

Meanwhile, New Jersey is moving ahead with legalized sports betting, launching it on a small scale at Monmouth Park race track this weekend (barring a last-minute injunction), and it’s hoped longer term this helps save A.C.

--Separately, according to a new Rutgers-Eagleton Poll, most people in New Jersey say they have been to Atlantic City, but 52% say they have no intention of going there in the next 12 months.

Totally understandable. I have zero desire to go, but I would if they have sports betting!

--Social Security recipients will get a 1.7% cost-of-living increase in January. Looks like domestic beer for many of you, not premium.

--We note the passing of fashion designer Oscar de la Renta, 82, who as an obituary in the Wall Street Journal noted, “managed to stay relevant for more than six decades. Even in his final days, he was the go-to designer for celebrity brides and socialites who flocked to his rich, ever-feminine designs, which radiated wealth and power. He dressed Amal Alamuddin in September for her wedding to George Clooney.”

An immigrant from the Dominican Republic, as the Journal editorialized, “In 1963 he came to the United States, never looking back... In an industry that too often these days seems dominated by crass exhibitionists, de la Renta exuded restraint and good taste.”

“ ‘You don’t need an introduction’ to succeed in life, he once advised an audience. ‘You need to have good work. Work hard. Believe in yourself.’ It’s the great formula of American success, all the more powerful for coming from the lips of another immigrant from Latin America.”

--Contrast the death of the classy Oscar de la Renta with that of Nelson Bunker Hunt, who died Tuesday at the age of 88. The less said about this man the better. I wrote one of the widest read pieces online on the 1980 silver bubble that he had a major hand in and you can see his story in my “Wall Street History” archives.

Foreign Affairs

ISIS / Iraq / Syria: It is difficult getting a true picture of events on the ground, what with few western journalists actually in the field, be it in Syria or Iraq. What we do know is that while President Obama’s strategy has shifted to try to support the Kurds in the strategic battle over Kobane, Syrian government forces have dramatically stepped up their attacks on the moderate forces we are said to be supporting as well.

As the Washington Post reported, “Since Monday, Syrian aircraft have targeted Aleppo in the north, the eastern suburbs of Damascus and southern areas near the Jordanian border, launching more than 210 airstrikes...

“Rebels in Aleppo say President Bashar al-Assad’s military has escalated attacks in northern areas of the city, trying to cut the supply lines of opposition fighters inside Aleppo.

“ ‘During the last three days, we have been hit by over 120 barrel bombs,’ said Ahmed Abu Talal, a rebel belonging to the Islamic Front group...

“Syria’s military has virtually encircled the city with the help of Shiite militias from Lebanon [Ed. Hizbullah] and Iran.” [Hugh Naylor / Washington Post]

It was reported an Iranian general was killed in fighting near Aleppo recently.

This is all nuts. We should have taken out Syria’s air capacity two years ago! Remember when our president kept saying Assad was going to fall shortly?

According to the Syrian Observatory for Human Rights, the British-based, anti-regime monitoring group that is the best source for these things, U.S.-led airstrikes in Syria were reported to have killed 553 people since their launch as of mid-week, including 464 ISIS fighters and 57 militants from the Nusra Front. 32 civilians have also been killed, with the Observatory adding the “vast majority” of jihadists killed were foreigners.

But regarding Kobane, (also known as Ain al-Arab), ISIS had made fresh advances and had taken control of a string of villages west of the town, after a week earlier they were reportedly retreating.

Turkish President Erdogan is allowing 200 Iraqi Kurd peshmerga fighters to travel through his country to join the battle, where ISIS has an estimated 1,000 fighters.

Turning to Iraq, the United States is trying to coordinate an offensive with the Iraqi military to gradually reclaim towns taken by ISIS, a plan described as time consuming and methodical, which also won’t begin for several months. It is supposed to ensure Iraqi forces do not over-extend themselves.

It is also to include American advisers in the field with the Iraqis, who, U.S. officials hasten to add, would not participate in combat. [Irish Independent]

The Washington Post has reported that Iraq’s military thus far is focused solely on defense and not giving up any more ground, with ISIS controlling about one-third of Iraq, stretching from Baghdad to the northwest, and across western Anbar province to the Syrian border.

--In a much publicized move, the U.S. finally airdropped arms and medical supplies to the besieged Kurds in Kobane, but from the looks of the containers captured by ISIS, it didn’t seem like the munitions were of much value. It’s also pathetic the U.S. couldn’t drive them in from Turkey, which Erdogan had something to do with.

No wonder. Erdogan can’t understand why the U.S. isn’t going after Assad, nor why it won’t set up a no-fly zone with him to protect the rebels. It’s absurd. And it didn’t have to be this way.

--France announced Friday that two French fighter jets dropped a total of 70 bombs, destroying a key suspected ISIS arms depot in Iraq.

--Iraq’s parliament did finally approve two nominees to fill the key interior and defense ministry posts that have remained vacant for years. A Shia and Sunni were selected as Prime Minister Abadi attempts to build an inclusive government.

But the Shia is a member of the Badr Organization, a Shiite political group that controls a large militia.

--The FBI is warning news organizations that it has received “credible information” indicating that members of ISIS have been “tasked with kidnapping journalists” and taking them to Syria.

--In an attack on Iraqi police officers, ISIS fighters appear to have used chemical weapons for the first time on the battlefield, specifically chlorine gas, and possibly as many as three times. IS seized a large former Iraqi chemical weapons production plant but the rockets filled with nerve agents are said to be degraded and unlikely fit for use. The chlorine attacks were also not that effective.

“Jala al-Gaood, one of the tribal leaders the United States has been cultivating in hopes of rolling back extremists in Iraq, grimly describes how his home town in Anbar province was forced this week to surrender to fighters from the Islamic State.

“The extremists were moving Wednesday toward Gaood’s town of Al-Zwaiha, the stronghold of his Albu Nimr clan just east of the Euphrates River. The attacking force had roughly 200 fighters and about 30 armed trucks. Al-Zwaiha’s defenders were running out of ammunition and food and wondered whether they should make a deal with the marauding jihadists.

“Gaood, a 53-year-old businessman in Amman, talked through the night with tribal elders back home. He says he tried repeatedly to reach Gen. John Allen, the U.S. special envoy for Iraq and Syria, to plead for emergency help. By the time Allen got the message, it was too late.”

Iran: The White House is floating the idea that while significant disagreements remain between the P5+1 and Tehran regarding a nuclear agreement ahead of the November 24 deadline, significant progress has been made.

Undersecretary of State Wendy Sherman, the U.S. chief nuclear negotiator with Iran, told a gathering at the Center for Strategic and International Studies, a Washington think tank:

“We have made impressive progress on issues that originally seemed intractable. We have cleared up misunderstandings and held exhaustive discussions on every element of a possible text. However, like any complicated and technically complex diplomatic initiative, this is a puzzle with many interlocking pieces.” [Wall Street Journal]

What’s clear is that while the Obama administration, and Israel, originally said Iran had to get rid of all its centrifuges, under any deal Iran will be left with thousands, giving it a ‘breakout’ capacity at a time of its choosing. The White House will argue it is pushing out the deadline for such a move, while others, especially Israel, will say it could be as little as three months...and that’s assuming there is a rigorous inspections regime on the ground.

Bottom line, this is heating up to be a major issue, especially after Nov. 4.

“President Obama plainly wants it so much he can almost taste it, so sooner or later he’ll sign a deal with Iran.

“The reason for Iran to sign any deal is to get an end to U.S. sanctions – but Congress, if it feels the deal doesn’t do enough to end Tehran’s rush to become a nuclear-weapons power, might refuse to repeal the sanctions.

“But this week, in a White House leak to a favorite news outlet, The New York Times, we learned that the Treasury Department now claims Obama can make the sanctions disappear without Congress.

“Consider the timetable set by the world’s six top powers to conclude a deal on Iran’s nuclear program by Nov. 24.

“Neatly nestled after Nov. 4 and before January (when the new, almost certainly more Republican, Congress is sworn in), it couldn’t be more perfectly timed to sneak a fast one by unruly Capitol Hill....

“But now, with Democrats almost as resistant as Republicans to any Iran deal that seems likely, it’s hey, let’s just bypass Congress altogether.

“Meanwhile, the intellectual push is on to justify even a bad deal as somehow smart.

“Vali Nasr of John Hopkins, a former Obama adviser on Iran, recently argued in the Times that it’s ‘now or never’ for a deal with Iran.

“Why’s that? Because, Nasr notes, next year Iran will vote on a board of mullahs that’ll one day select a new Supreme Leader. If we want that body to be dominated by ‘moderates,’ we must remove sanctions now, so Iranians feel some economic improvement.

“Thus Nasr argues, any deal is better than none because it would change the ‘dynamics’ in U.S.-Iran relations.

“In short, we’re headed for a deal that will, at best, leave Tehran just one turn of a screwdriver away from a bomb – ‘nuclear-capable,’ but not actually a nuclear power until it chooses to be one.

“Obama may believe that a grateful Tehran won’t be so crass as to turn that fatal screw on his watch....

“Except that allowing him to become even a threshold nuclear state is bad for the Mideast (others will race to get the bomb), bad for our allies (the Israelis, Saudis, et al, consider it fatal), bad for his successor and, above all else, bad for America.”

Yuval Steinitz (Israel’s minister of intelligence) / New York Times

“Israel is deeply concerned about the trajectory of the ongoing negotiations concerning Iran’s nuclear program. The talks are moving in the wrong direction, especially on the core issue of uranium enrichment.

“Although Iran has modified its tone recently, there have hardly been any changes of substance since the soft-spoken president, Hassan Rouhani, took over the reins from his aggressive predecessor, Mahmoud Ahmadinejad.

“Neither administration has budged from the insistence that Iran should retain most of the 9,400 operational centrifuges it deploys to enrich uranium, as well as its nearly completed nuclear reactor in Arak, which could produce plutonium in the future....

“Israel also worries that the ongoing campaign against the Islamic State will come at the expense of the critical struggle against Iran’s nuclear program.

“Fighting the Islamic State is vital and Israel unequivocally supports the global effort to prevent the formation of a new Islamic caliphate in the Middle East. But even more important is the imperative to preclude the already existing Islamic Republic of Iran – with its infamous track record of sponsoring terrorist groups, abusing human rights, calling for Israel’s destruction, and lying unabashedly for almost 20 years about its nuclear program – from acquiring a nuclear weapons capability....

“Not reaching a nuclear deal at this stage must not be considered a failure. It can even be regarded a qualified success, since it would represent the integrity of an international community adhering to its principles rather than sacrificing the future of global security because it is distracted by the worthy fight against Islamic State terrorists....

“The international community must not repeat this mistake in 2014. The Islamic Republic of Iran remains the world foremost threat. We must guarantee that it never obtains nuclear weapons.”

Israel: In case you required another example of how nothing has changed here, for decades, you had the terror attack in east Jerusalem this week where a terrorist rammed his car into a crowd of commuters at a light rail station, killing a three-month old infant and injuring seven others. The attacker was shot but not killed. The video of the incident is horrific. The baby was thrown about 60-feet into the air and landed on its head.

A senior Hamas spokesperson said: “The attack in Jerusalem is an act of heroism and a natural response to the crimes of the occupation against our people and our holy places.”

Hamas warned recent developments may augur the next “Palestinian intifada in Jerusalem.” [Jerusalem Post]

For his part, Israeli Prime Minister Netanyahu accused the Palestinian unity government, backed by Mahmoud Abbas’ Fatah party and Hamas, of fuelling such attacks, alluding to comments Abbas made in which he said Jewish “settlers” should be barred “by any means” from entering the Temple Mount (or Haram al-Sharif), describing Jews visiting the site as “herds of cattle.” [BBC News]

China / Hong Kong: A number of Hong Kong experts, including the city’s first chief executive, Tung Chee-hwa, have said China will not use force on the Occupy Central protesters, but Tung is calling on the protesters to end the occupation as it has had a major negative impact on the local economy. [20-30 percent by some metrics like hotel bookings.]

Tung, who works for the Chinese government, added: “The rule of law is the cornerstone of Hong Kong’s success. We can’t violate the rule of law while pursuing democracy.”

Others, however, believe Beijing could still crack down hard on the protesters. In televised talks between Occupy Central representatives and the Hong Kong government on Monday, Chief Secretary Carrie Lam Cheng Yuet-ngor told students she would consider making a report to the State Council’s Hong Kong and Macau Affairs Office to reflect the public sentiments during the pro-democracy protests.

But she rejected the students demand that Hong Kong ask the national legislature to withdraw its framework for the 2017 poll, under which the public could vote on two or three candidates for chief executive essentially hand-picked by Beijing.

So this issue is just going to keep popping up from time to time for the next few years.

Lastly, believe it or not, Kenny G., the musician, is very popular in China, but he appeared at one of the Occupy Central protest sites and now Beijing is reiterating its warning against foreign interference. Yes, the foreign ministry was none too pleased. [South China Morning Post]

China, part deux: In a positive sign, China and Vietnam agreed to resume military ties and resolve their maritime disputes, a potentially major signal that tensions over their territorial claims in the South China Sea might be easing.

But at the same time, China has installed 17 sets of submerged buoys in ‘key marine areas’ of the western Pacific ocean, state media said, a move that could exacerbate tensions in the region.

A scholar at the Chinese Academy of Sciences told the official Xinhua news agency: “The buoys will provide important scientific statistics about ocean circulation and climate.

Experts believe the move is far more than this, of course, and that it is yet another sign of China asserting its legal claim and hold over contested territory.

Russia: On Tuesday, NATO and Swedish fighter jets were scrambled to intercept a Russian spy plane that had briefly entered Estonian airspace. Russia claimed it was on a training mission and did not violate the airspace.

Separately, in a survey put out by the state-run All-Russia Public Opinion Research Center, nearly a quarter of Russians believe the United States presents a bigger terrorist threat to their country than radical Islamists. This compares with just 4% last year.

Russia / Ukraine: The natural gas deal between the two countries is once again in jeopardy as Russia continues to make additional demands, in the latest instance a guarantee by international lenders that Kiev is good for its money, Ukraine owing Russia’s Gazprom over $3 billion (Russia says the total debt is $4.5bn); which Ukraine had agreed to pay back in two installments by the end of October and the remainder by year end.

This is a potential disaster for the Ukrainian people (and to a lesser extent some Europeans who would get their gas via Ukraine) with winter just around the corner.

As to the ceasefire, Dmitri Trenin, head of the Carnegie Moscow Center, said in a report, “Even if Ukraine will not freeze this winter, the conflict in Donbas [eastern Ukraine] probably will. The battle lines are solidifying and turning into de facto borders.” [Bloomberg]

Sweden: The military called off its week-long search for a suspected submarine in the sea south of Stockholm. Naval vessels and planes have been searching for a Russian sub that it was thought was in trouble there, but Russia’s defense ministry denied any of its ships were involved. According to reports, it was Sweden’s biggest mobilization since the Cold War.

There are very real concerns over Sweden’s ability to defend itself for more than a few days and of chief import is the island of Gotland in the Baltic, which the three Baltic countries worry could be used as a launching point for attacks on them should Russia decide to take it.

North Korea: Pyongyang released an American tourist, Jeffrey Fowle, who had been arrested in May after purposefully leaving a Bible at his hotel. Two other Americans, Kenneth Bae and Matthew Miller, remain in detention, with Bae being held for two years, sentenced to 15 years of hard labor for religious activities allegedly aimed at undermining the North Korean government.

Canada: Monday, two Canadian soldiers were run down by a car driven by a suspected Islamic militant, one dying, the first such incident since Canada joined the fight against the Islamic State.

The 25-year-old driver was shot and killed following a chase about 25 miles south of Montreal. Martin Couture-Rouleau became radicalized about a year ago after getting involved with Muslim extremists.

Then Wednesday, we all watched as another Canadian soldier, Nathan Cirillo, was killed at the nation’s war memorial in Ottawa, after which the gunman, another radicalized individual, Michael Zehaf-Bibeau, made his way into the Canadian Parliament, where he was taken down by the sergeant-at-arms, Kevin Vickers.

“(It’s ) a reminder that what was once called the Global War on Terror remains very much global. The war now being half-heartedly waged against ISIS and other jihadist groups is not some faraway struggle, but part of a war also being waged on Western streets.

“That’s an argument for a more concerted effort to obliterate the Islamic State quickly and decisively, lest it become a rallying point for, and an incubator of, jihadists the world over. Muslims living in Western nations in particular have an interest in advocating a muscular military policy; their civil liberties would be most at risk from any populist political backlash in the event of major terror attacks in Europe and North America.”

Afghanistan: David Zucchino / Los Angeles Times:

“For the last decade, the United States has spent $7.6 billion in a massive effort to combat Afghanistan’s lucrative opium trade. But after a record harvest last year, the U.S. inspector general for Afghanistan has concluded that the counter-narcotics strategy is failing badly.

“An inspector general report being released Tuesday says the amount of land used to grow poppies in 2013 eclipsed the previous record set in 2007, producing nearly $3 billion in profits, up from $2 billion in 2012.”

Nigeria: So much for the ceasefire that was to have resulted in the return of more than 200 girls abducted back in April. Instead, dozens more women and girls from two villages in the northeastern part of the country have been abducted by militants, assumed to be Boko Haram.

The thing is, the government announced a ceasefire a week ago but Boko Haram never confirmed the truce. Now the government is saying further talks were supposed to take place in neighboring Chad but it’s unclear if they have taken place.

Brazil: Ahead of Sunday’s presidential election, President Dilma Rousseff has surged ahead of challenger Aecio Neves in two polls; Rousseff leading in the Ibope survey, 49-41, while Datafolha has it 48-42 for the incumbent. Rousseff has seemingly convinced enough working-class voters that the gains they have made in recent years would be at risk if Neves’ free-market policies were enacted.

Indonesia: Congratulations to Joko Widodo, the commoner born in a Javan slum, who on Monday was sworn in as president of the world’s fourth most-populous nation. Joko, 53, is the first Indonesian president not to have emerged from the country’s political elite, or to have been an army general. Indonesia is also the world’s largest Muslim-majority nation.

Random Musings

“The next time you hear a four-star whine to Congress about how military pay and benefits are wreaking havoc on the defense budget and must be rolled back, think about this item buried deep in the news mix last week:

“According to the Washington Post, a few years ago the Defense Department spent nearly half a billion dollars of U.S. taxpayer money to buy 20 Italian cargo planes for the Afghan Air Force.

“The planes turned out to be highly defective, with problems related to performance, maintenance and spare parts. Sixteen were sold for scrap – at a return of 6 cents a pound. The others are parked at a U.S. air base in Germany and likely will never see service.

“DoD spent $486 million on the planes, junked most of them, and recouped just a paltry $32,000. But it’s you, Pfc. Jones, and your costly benefits, that are destroying the defense budget.

“In truth, the military-industrial complex about which President Eisenhower warned the nation decades ago is in full flower. DoD wastes this kind of money on hardware all the time; it’s now a collective $400 billion over initial cost estimates on its current weapons acquisition portfolio.

“And according to Watchdog.org, the major defense contractors that profit so handsomely from such overruns shower lawmakers with about $65 million a year in lobbying cash. So forget about Congress providing any fixes.

“Unfortunately, the only thing likely to alter this rigged game is troops voting with their feet – as they did in the ‘90s, the last era in which defense leaders habitually squeezed pay and benefits, to the point of sending recruiting and retention off the cliff. It took many years, great effort and a lot of money to fix that damage.

“At a time when security threats are multiplying around the globe at a frightening rate, what a disservice the brass would do to service members – and the nation – if they shortsightedly repeated that glaring mistake.”

“President Obama told MSNBC host Al Sharpton in a radio interview Monday that it made little difference to him whether Senate Democrats in tough races didn’t want him to campaign for them, because ‘these are all folks who vote with me; they have supported my agenda in Congress.’

“Republicans immediately seized on the comment as the latest evidence that no matter how hard people like Mark Pryor, Mary Landrieu and Alison Lundergan Grimes try to run away from the president, Obama himself is making very clear that a vote for any one of them is a vote for his legislative agenda. (This is the second time in recent weeks that Obama has made similar comments; at an economic speech at Northwestern University this month, he insisted that ‘every single one’ of his policies were on the ballot Nov. 4). Democrats said this was much ado about not very much, and then transitioned into arguing that Obama’s statement was part of a broader strategic gambit on his behalf.

“So why exactly did he say it? Below are four theories, ranked from most to least likely.

“ 1. He believes it – and doesn’t think it changes much to say it....

“ 2. It was an attempt to energize the Democratic base – especially African Americans.....

“ 3. It’s a sign that, in the end, this is all about him....

“ 4. It was an accident. If Obama’s comments to Sharpton came in a vacuum, I might be able to buy that he simply slipped up in his word choice. But coming so quickly after his speech at Northwestern – and the slew of Republican ads his words that day launched – it’s virtually impossible to think Obama just picked the wrong words – twice – to describe what he believes the 2014 election is really about.”

“The president is upset. Very upset. Frustrated and angry. Seething about the government’s handling of Ebola, said the front-page headline in the New York Times last Saturday.

“There’s only one problem with this pose, so obligingly transcribed for him by the Times. It’s his government. He’s president. Has been for six years. Yet Barack Obama reflexively insists on playing the shocked outsider when something goes wrong within his own administration.

“The IRS? ‘It’s inexcusable, and Americans are right to be angry about it, and I am angry about it,’ he thundered in May 2013 when the story broke of the agency targeting conservative groups. ‘I will not tolerate this kind of behavior in any agency, but especially in the IRS.’

“Except that within nine months, Obama had grown far more tolerant, retroactively declaring this to be a phony scandal without a ‘smidgen of corruption.’

“Obamacare rollout? ‘Nobody is more frustrated by that than I am,’ said an aggrieved Obama about the botching of the central element of his signature legislative achievement. ‘Nobody is madder than me.’

“Veterans Affairs scandal? Presidential chief of staff Denis McDonough explained: ‘Secretary [Eric] Shinseki said yesterday...that he’s mad as hell and the president is madder than hell.’...

“The president himself declared: ‘I will not stand for it.’ But since the administration itself said the problem was long-standing, indeed predating Obama, this means he had stood for it for 5 ½ years.”

Oh there’s a lot more, like the Secret Service scandals.

“A poll conducted two weeks ago showed that 64% of likely voters (in competitive races) think that ‘things in the U.S. feel like they are out of control.’ This is one degree of anxiety beyond thinking the country is on the wrong track. That’s been negative for years, and it’s a reflection of failed policies that in principle can be changed....

“With events in the saddle and a sense of disorder growing – the summer border crisis, Ferguson, the rise of the Islamic State, Ebola – the nation expects from the White House not miracles but competence. At a minimum, mere presence. An observer presidency with its bewildered-bystander pose only adds to the unease.”

“As the election nears, ObamaCare is re-emerging as a major liability for the Democratic Senate that passed it. According to an Oct. 2 Gallup survey, 54% of Americans said the Affordable Care Act had hurt them and their families compared to 27% who said it had helped them.

“The White House understands this, so it is not trumpeting the upcoming open-enrollment period when people can sign up for health coverage. Nor are White House officials crowing about last year’s eight million sign-ups, probably because insurance industry officials suggest that 10% or more never fully enrolled by paying their premiums.

“Worse for the administration and Democratic candidates, Americans are receiving a steady stream of bad ObamaCare news as the election approaches. The millions enrolled in ObamaCare are being told their premiums will increase next year. According to a recent Manhattan Institute report, premiums for a 40-year-old man are rising in 10 of the 12 states with Democratic-held Senate seats at risk. For a 40-year-old woman, premiums will increase in nine of the 12. Most premium increases will be in double digits.”

And then there are the cancellations. For example, “340,000 Coloradans have lost or will lose their plan, even if they liked it,” writes Rove.

Well last spring I was writing that the issue would die down over the summer and pick up again in the fall as we all received our renewals. I have been silent regarding my own coverage because, as I wrote a time or two, I was extremely happy with my plan.

So the other day I received my renewal notice and, no surprise, my plan is no longer compliant with the ACA. The result? My premium, should I want to keep my excellent doctor, is rising a cool 60%. 6-0. Thank you, Mr. President.

--A new Wall Street Journal/NBC News/Annenberg survey finds that of voters likely to cast ballots in the midterm elections, by a 49/44 margin they favor a Republican-led Congress over a Democratic one, a first since the poll began asking the question five weeks ago.

What this speaks to is Democrats must get their base to turn out, rather than tune out.

--A recent Bloomberg/Des Moines Register poll of likely GOP presidential caucusgoers in the state shows Gov. Chris Christie as the only contender whose disapproval rating is higher than his approval rating. 45% disapprove / 39% approve. [U.S. News Weekly]

--I was startled to see on local television Monday a protest outside Lincoln Center for the Metropolitan Opera’s opening of John Adams’ “The Death of Klinghoffer,” an opera on the savage murder of Leon Klinghoffer, a passenger on the cruise ship Achille Lauro in 1985, thrown overboard in his wheelchair by Palestinian terrorists as part of a hijacking. Aside from thinking “What the h---,” I saw a clip that appeared to show the opera shedding the terrorists in an almost favorable light.

“In expressing their anger and disbelief that the Met would choose to stage a work that even its admirers say draws a moral equivalence between an elderly American murdered for being a Jew and the Palestinian terrorists who murdered him, they were assuming the Met was an important institution whose decisions matter when it comes to setting the cultural and political tone of the country....

“In point of fact, the choice of ‘The Death of Klinghoffer’ as one of the Met’s few new productions this season is yet another example of how this nation’s once-colossal arts institutions are desperately trying to demonstrate their ‘relevance’ in an age when they’re becoming increasingly marginal players on the American cultural stage....

“Adams [Ed. who is apparently famous...so I guess I should feel like an idiot for not knowing his work] wants his operas to play a part not just in the world of aesthetics but in a larger political conversation – though in the world in which he travels, he probably doesn’t expect his ideas to be disagreed with, since he shares every conventional view of the larger ‘arts community.’

“This community lives within a set of orthodoxies so calcified it makes Fox News look like an anarchists’ convention.

“Among them is the view that the injustice done the Palestinians is a mirror and echo of the injustice done the Jews in the 20th century.

“That is the central conceit of ‘The Death of Klinghoffer,’ which does not even call the slaughter of a 69-year-old wheelchair-bound man a ‘murder.’...

“The point is not that ‘The Death of Klinghoffer’ shouldn’t be performed. Fine, let it be performed. When it comes to anti-Semitism, ‘The Merchant of Venice’ is far worse. But then let it be protested as well without whining.

“No one gainsays the question when people protest the staging of ‘The Merchant of Venice,’ because every honest person acknowledges what is profoundly offensive about it even as they admit it is an undeniably great work.

“Perhaps there are people who can honestly argue ‘The Death of Klinghoffer’ is a work so aesthetically vital every culturally literate person must see it or be deemed a Babbitty boob.

“But...the Met didn’t choose to mount a major production of ‘The Death of Klinghoffer’ for that reason.

“They wanted it because they thought it was not only worthy but attention-grabbing....

“(What) they wanted was a nice, comforting, fake controversy, one of those controversies that makes something seem larger and more relevant. This is a violation of the true aesthetic purpose of an arts institution.

“It takes real chutzpah to do something designed to provoke, and then to complain when the provocation succeeds.”

--We note the passing of former managing/executive editor of the Washington Post, Ben Bradlee, 93.

“Mr. Bradlee called reporters ‘the best lie detectors,’ and nothing mattered more to him than exposing the truth, even if it took a long time. In his own account, the Vietnam War and then Watergate marked a crisis of confidence in American society, brought on by leaders who did not level with the people. In the Pentagon Papers, excerpts of which he published despite government threats, Mr. Bradlee saw proof that the American people had not been told the truth about decisions made to escalate the war. Then came Watergate and his determination to find out what really happened. He was outraged at President Nixon’s behavior. Nixon ‘lied over and over again with intent to deceive the American public and thereby save his ass from the consequences of his crimes,’ Mr. Bradlee wrote in his memoir. The newspaper won global recognition for coverage that led to the president’s resignation, but the lesson for journalists was in Mr. Bradlee’s fusion of doggedness, fearlessness and professionalism....

“Katharine Graham named Mr. Bradlee managing editor in 1965, and their partnership and shared vision spanned a generation of growth in the newspaper’s stature and profitability. Donald E. Graham, who did so much to lead the newspaper in the next generation, never forgot Mr. Bradlee’s contribution. As he said at his retirement in 1991, ‘It’s Bradlee’s paper.’”

--New York Congresswoman Carolyn Maloney is introducing legislation to close an egregious legal loophole. For years the government has paid dozens of suspected Nazi war criminals $millions in social security after forcing them to leave the United States, an Associated Press investigation first discovered. Most appear to have been troops that guarded Nazi labor camps.

Four WWII suspects are said to be still collecting benefits, with one having moved from Arizona to Berlin in 2007, another leaving Ohio for Germany (now Croatia) in 1989.

This was supposedly done because the Justice Department’s Office of Special Investigations wanted to avoid drawn-out deportation hearings.

In a statement, a Justice Department spokesman said that in 1979, Congress ordered the removal of Nazi criminals “as expeditiously as possible” to countries where they would face the possibility of criminal prosecution.

“Under existing U.S. law, all retirement benefits – Social Security and Medicare – are terminated if someone is ordered by the court to be removed from the U.S. However, if an individual renounces their U.S. citizenship and voluntarily leaves the U.S., they might continue to receive Social Security benefits,” read the statement. [BBC News]

--I was reading a piece in the November issue of The Atlantic where correspondents and historians were asked to pick “the most underrated politician in history,” and CNN’s Candy Crowley  had this to say:

“In terms of loving the game, Pat Buchanan was as good as any I’ve ever seen. People tend not to see him as a serious politician. But like Hubert Humphrey, Buchanan was a ‘happy warrior’: he seemed to genuinely care for the voters he met on the campaign trail.”

I can vouch for this, having met Mr. Buchanan in some small campaign settings during his first presidential run. [My old boss, Jack L., who passed down his ’24-hour’ rule to me, grew up with Pat and that’s how I got to meet Mr. Buchanan.]

Back to The Atlantic, I also liked what H.W. Brands, professor, University of Texas at Austin, had to say.

“For decades, Southerners wrote the dominant histories of Reconstruction, and they didn’t like Ulysses S. Grant, the only president between Lincoln and Lyndon Johnson to put the muscle of the federal government behind rights for African Americans. Southern sabotage and Northern apathy defeated his efforts, but he set down a moral marker that the nation finally had to redeem.”

--As reported by Kimberly Kindy and Sari Horwitz of the Washington Post, evidence in the Ferguson, Mo. / Michael Brown case supports Officer Darren Wilson’s account of the shooting.

“(More) than a half-dozen unnamed black witnesses have provided testimony to a St. Louis County grand jury that largely supports Wilson’s account of events of Aug. 9, according to several people familiar with the investigation who spoke with the Washington Post.

“Some of the physical evidence – including blood spatter analysis, shell casings and ballistics tests – also supports Wilson’s account of the shooting, The Post’s sources said, which cast Brown as an aggressor who threatened the officer’s life....

“The grand jury is expected to complete its deliberations next month over whether Wilson broke the law in confronting Brown....

“The St. Louis Post-Dispatch late Tuesday night published Brown’s official county autopsy report, an analysis of which also suggests the 18-year-old may not have had his hands raised when he was fatally shot, as has been the contention of protesters who have demanded Wilson’s arrest.”

I have been careful not to give an opinion in this case, but, yet again, this may end up being another perfect example of – all together now – ‘wait 24 hours.’

--Four former Blackwater Worldwide security contractors, on trial for the death of 17 Iraqis who died in a 2007 incident in Baghdad, were convicted Wednesday; one found guilty of murder and three others of manslaughter and weapons charges.

The contractors maintained they were ambushed by insurgents and that civilian deaths were unintended consequences of urban warfare.

--Here’s one event I can cross off my bucket list...the annual pumpkin festival in Keene, N.H. As reported by Jess Bidgood of the New York Times:

“Video and photos posted to social media on Saturday and Sunday showed revelers [Ed. many from Keene State College] knocking over street signs, setting boxes on fire, standing triumphantly atop an overturned car and chanting obscenities at the police, who moved in formation to disperse them....

“Officials at the college were threatening expulsion for some students found to have been involved.”

Looking back on my college days at Wake Forest, the most destructive thing we did was after a big sports victory, we’d ‘paper’ our campus by throwing rolls of toilet paper into our trees, which I assume is still done there.

Which really is incredibly stupid, as more than one would be panicking within a few hours, “Hey, where’s the toilet paper?!”

--This is classic. Governor John Hickenlooper, a Democrat, is now warning those states that are considering the legalization of recreational pot that it would be “reckless” to follow in his state’s footsteps in a grab for new tax revenues.

“The counsel I offer is that you don’t lose anything by waiting a couple of years. And to try and do this in pursuit of tax revenues, now that is reckless,” he said in an interview with the Financial Times.

--Comet Siding Spring is pretty amazing. “A cosmic leftover of the planet-building process,” as Traci Watson wrote in USA TODAY. This week the comet passed Mars by just 84,000 miles, or roughly one-third the distance from Earth to the moon. This is closer than any comet has ever come to Earth. Or rather the “closest non-impacting planetary approach by a comet in our recorded history,” according to Karl Battams of the Naval Research Laboratory.

On average, the Earth is 238,900 miles from the moon, sports fans.

Now make sure your kids pick their heads up from their iPhones when you tell them this. Better yet, pick your own heads out of your iPhones and attempt to get the attention of your children.

--Finally, kudos to Hurricane and Jordan, the two Secret Service dogs that took down the latest fence jumper at the White House. The two suffered minor bruising during the incident after the dirtball kicked and punched them, but they were cleared for duty the next day.

By the way, thanks to the chief executive of The Humane Society of the United States, Wayne Pacelle, a law was passed in 2000 making it a crime to wound a law-enforcement animal in the line of duty, so the fence jumper faces two felony charges related to his actions on Hurricane and Jordan.

In case you missed it, the dogs are Belgian Malinois, selected by the Secret Service because of their unique characteristics; “they are smart, strong, agile and obedient. An adult male weighs more than 60 pounds and can run in bursts twice as fast as the swiftest human... Malinois are more compact, agile and higher-energy than German shepherds,” who tend to want NATO to do all the fighting, but I digress. [Juliet Eilperin and David Nakamura / Washington Post]

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

We pray for the men and women serving in Canada’s military...and the families of their two fallen heroes.

Gold closed at $1231
Oil $81.01...another multi-year low on a weekly basis

Returns for the week 10/20-10/24

Dow Jones +2.6% [16805]
S&P 500 +4.1% [1964]
S&P MidCap +4.2%
Russell 2000 +3.4%
Nasdaq +5.3% [4483]

Returns for the period 1/1/14-10/24/14

Dow Jones +1.4%
S&P 500 +6.3%
S&P MidCap +2.6%
Russell 2000 -3.9%
Nasdaq +7.4%

Bulls 35.3
Bears 18.2 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

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