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11/08/2014

For the week 11/3-11/7

[Posted 10:30 PM ET, Friday]

Edition 813

Washington and Wall Street

Well that was an interesting election. A victory, first and foremost, for the Republican establishment, who did all they could to put forward a solid slate of candidates (as opposed to some of the buffoons they’ve run in the past that cost them dearly) and then run against President Obama and his policies, such as ObamaCare. The sub-text was also, ‘Don’t screw up.’ It worked, much to the surprise, perhaps, of some far-right-wingers, who wanted Republican candidates to hammer home an agenda. They largely didn’t. But for today, it doesn’t matter. Republicans control the Senate, probably 54-46 after the Dec. 6, Louisiana run-off that Democratic incumbent Senator Mary Landrieu is expected to lose.

In the House, Republicans expanded their advantage to about 247-188, once some close races are officially decided, which would be the largest Republican House majority in more than 80 years.

Republicans now will either show Americans they can govern, or they can do as Rush Limbaugh urges and that is simply block President Obama at every turn. I think Republicans can do both. I do not expect President Obama to compromise on many issues, if any, but so much can change, in a flash, these days. 

It was a strange election cycle from the standpoint that Obama was essentially repudiated not just by majorities in the electorate, mostly Republican, but also his own Senate and House members.

Democratic Senate candidates wanted nothing to do with him. It wasn’t until last weekend that he campaigned with one – at a rally in Michigan.

But how much room for cooperation between the two parties exists? Not much, if, as Obama is already saying he will use his executive powers to push through action on immigration. Both Senate Majority Leader-to-be Mitch McConnell and House Majority Leader John Boehner warned, post-election, that the president shouldn’t go there, that it would poison the waters for good. Or as Boehner said, “When you play with matches, you take the risk of burning yourself.”

For their parts, both McConnell and Boehner will have to deal with fractious caucuses, as well as the presidential cycle with the likes of Ted Cruz and Rand Paul having their eyes on Iowa rather than compromising. 

You also have the issue of a replacement for Attorney General Eric Holder. It makes sense for Obama to choose a nominee immediately that he could attempt to ram through in a lame-duck session where the Democrats still control the process and not wait until next year and the new Republican majority. And so we learn that on Saturday, the president is prepared to nominate the first African-American woman to serve as the nation’s top law enforcement official, Loretta  Lynch, the top federal prosecutor in Brooklyn.

And then you have all manner of foreign policy issues the president and Congress need to deal with. Some require quick action. The speed of others will be dictated by the players on the other end, see Vladimir Putin. [Obama’s trip to Asia and Australia next week will be interesting.]

Meanwhile, Corporate America is hoping the GOP takeover of Congress helps its cause, specifically on tax reform, energy (think Keystone XL pipeline) and immigration, as well as trade policy. On this last issue, it is hoped the president makes progress while attending the Asia-Pacific summit in Beijing (where 50% of attendees are going to die of exposure to deadly smog...but I digress...).

For the archives some important national exit poll data.

Most important issue:

Economy 45%
Healthcare 25%
Illegal immigration 14%
Foreign policy 13%

Next generation...better or worse:

Life will be worse for next generation 48%
Life will be better 22%

House exit polls:

Men: 41% Democrats / 57% Republicans
Women: 51% Dem. / 47% Rep.

Age 18-29, 30-34: 50%-54% Dem. / 43%-48% Rep.
Age 45-64, 65+ : 41%-45% Dem. / 53%-57% Rep.

Whites 75% (of electorate): 38% Dem. / 60% Rep.
Blacks 12%: 89% Dem. / 10% Rep.
Latino 8%: 62% Dem. / 36% Rep.

Country’s direction:

Right direction 31%...82% Dem. / 17% Rep.
Wrong direction 65%...28% Dem. / 69% Rep.

National economy’s condition:

Excellent/good 29%
Not so good/poor 70%

Economy....

Getting better 32%
Getting worse 32%
Staying the same 34%

Worried about major terrorist attack in U.S.?

Yes 71%
No 28%

President Obama’s overall job approval:

Approve 44%
Disapprove 55%

Opinion...

John Boehner and Mitch McConnell / Wall Street Journal

“Americans have entrusted Republicans with control of both the House and Senate. We are humbled by this opportunity to help struggling middle-class Americans who are clearly frustrated by an increasing lack of opportunity, the stagnation of wages, and a government that seems incapable of performing even basic tasks.

“Looking ahead to the next Congress, we will honor the voters’ trust by focusing, first, on jobs and the economy. Among other things, that means a renewed effort to debate and vote on the many bills that passed the Republican-led House in recent years with bipartisan support, but were never even brought to a vote by the Democratic Senate majority It also means renewing our commitment to repeal ObamaCare, which is hurting the job market along with Americans’ health care....

“Our priorities in the 114th Congress will be your priorities. That means addressing head-on many of the most pressing challenges facing the country, including:

“ – The insanely complex tax code that is driving American jobs overseas;

“ – Health costs that continue to rise under a hopelessly flawed law that Americans have never supported;

“ – A savage global terrorist threat that seeks to wage war on every American;

“ – An education system that denies choice to parents and denies a good education to too many children;

“ – Excessive regulations and frivolous lawsuits that are driving up costs for families and preventing the economy from growing;

“ – An antiquated government bureaucracy ill-equipped to serve a citizenry facing 21st-century challenges, from disease control to caring for veterans;

“ – A national debt that has Americans stealing from their children and grandchildren, robbing them of benefits that they will never see and leaving them with burdens that will be nearly impossible to repay.

“January will bring the opportunity to begin anew....

“The skeptics say nothing will be accomplished in the next two years. As elected servants of the people, we will make it our job to prove the skeptics wrong.”

Editorial / Wall Street Journal

Part I: Immediately after the vote....

“The liberals who have cheered on Mr. Obama as he drove his party into (the) ditch are now advising that he should double down on partisanship. Veto everything. Rule by regulation, including a vast immigration diktat that would poison any chance of bipartisanship and thus politically durable reform. Demonize Republicans at every opportunity to elect Hillary Clinton in 2016.

“If we judge by Mr. Obama’s six-year record, that is what he will probably do. But there is a better way that would do more for the country and his own legacy. Start by recognizing that many Republicans want to do more than merely oppose him. They know their own political brand needs burnishing, and that even their most intense partisans want some results from electing Republicans.”

Part II: Later....

“President Obama met the press corps Wednesday, and if he is concerned about his party’s drubbing on Tuesday you couldn’t tell. He offered up his familiar priorities (minimum wage!), vowed to listen to ideas from the new Congress, but showed barely a hint of introspection or need to change direction. Harry Reid, Mitch McConnell, who cares? So it looks like it will be up to Republicans to drive the policies to lift economic growth and reform government....

“(But the) real prize – and the key to repairing the damage of the Obama years – is taking the White House in 2016. While the candidates will set the overall agenda, a GOP Congress can help by educating voters about what would be possible with a Republican President. This means passing bills that showcase Republican reforms even if Mr. Obama may veto them....

“The mistake Republicans shouldn’t make is to become hostage to Mr. Obama’s political methods, which everyone knows by now include disdain (that he sometimes can mask) for his opponents, and an inability to compromise. If he’s willing to change, great. If not, the GOP will have to pursue its own agenda and ask the President to choose.”

Jennifer Rubin / Washington Post

“President Obama is a singularly ungracious and non-self-reflective person. In his press conference he refused yet again to acknowledge reality.

“He tried to downplay the Democrats’ loss of the Senate by talking to the two-thirds of people who did not vote. He tried to insinuate that it was a bipartisan rejection. He reminded us several times that he is still president. (‘I’m the guy elected by everybody.’). He boasted about an economy most voters think is rotten. He has, however, learned nothing. After a historic repudiation, he is staying the course and still threatens unilateral action by year’s end on immigration reform. One would have thought his policies were not on the ballot or that his party saw historic losses in consecutive midterm elections. He defiantly announced that he will veto some bills and that Congress won’t like his executive actions. He insisted it had to be his way: ‘If there are ideas that the Republicans have that I have confidence will make things better for ordinary Americans, the fact that the Republicans [are] suggesting it, as opposed to a Democrat – that’ll be irrelevant to me. I want to just see what works.’ In other words he sees no reason to compromise; Republicans must agree with him.

“On foreign policy he was, to be generous, fuzzy. We have offered Iran a ‘framework’ of unspecified terms, but Iran will have to decide whether to accept, he said. He mouths the platitude that a bad deal is worse than no deal, but virtually no informed observers on the Hill think he knows the difference between a good and bad deal. He insisted Iran has complied with an interim deal, ignoring its refusal to cooperate with inspectors....Insisting he would not solve Syria’s problems, he implicitly renounced his demand for years that Bashar al-Assad must go. If ever there was a display justifying more robust congressional stewardship of national security, this was it.”

Edward Luce / Financial Times

“Make no mistake – the U.S. electorate repudiated President Barack Obama on Tuesday. He will spend his final two years in office grappling with a fully Republican Congress....

“Analysts may quibble over whether 2014 qualifies as a ‘wave election.’ Republicans of all stripes will be in little doubt that it is.

“The fact that turnout dropped to below 40%, or that Republicans will be vulnerable to losing the Senate in 2016, will not dilute that feeling. The emotion of victory brings its own momentum.

“Think of the Obama years from the conservative point of view. Mr. Obama came to office in a landslide in 2008, taking both houses of Congress with him. He said he had rewritten America’s electoral map with a new Democratic majority.

“In 2010, Republicans took back the House of Representatives. Two years later, Mr. Obama retained the presidency but he was helped considerably by the flip-flopping contortions of his opponent, Mitt Romney.

“In 2014, Mr. Obama lost control of Capitol Hill altogether. Next stop the White House in 2016. Why give Mr. Obama the satisfaction of legislative victories in the twilight of a failing presidency?....

“For the time being, Republicans are victorious and Mr. Obama will feel their impact. He may try to outfox Republicans by co-opting some of their agenda – and look for ways of dividing a fractious party. But it will probably miscue.

“Mr. Obama is not Bill Clinton, with the latter’s ability to build bridges. My prognosis might look bleak.  But it would be a real stretch to see Tuesday’s vote as the opening of a new chapter in U.S. bipartisanship.”

Peggy Noonan / Wall Street Journal

“Common sense says a chastened president would acknowledge the obvious – some things aren’t working, he has made some mistakes – and, in Mr. Obama’s case, hit the reset button with Congress. Reach out, be humble. Humility has power. It shows people that you have some give – you get the message, you are capable of self-correcting.

“That is not what he’s doing. The president is instead doubling down on hostility, antagonism and distance.

“What a mistake. What a huge, historic mistake, not only for him but also for his party.”

Charles Krauthammer / Washington Post

“Memo to the GOP. You had a great night on Tuesday. But remember: You didn’t win it. The Democrats lost it....

“The defeat – ‘a massacre,’ the Economist called it – marks the final collapse of Obamaism, a species of left liberalism so intrusive, so incompetently executed and ultimately so unpopular that it will be seen as a parenthesis in American political history. Notwithstanding Obama’s awkward denials at his next-day news conference, he himself defined the election when he insisted just last month that ‘these [i.e. his] policies are on the ballot – every single one of them.’

“They were, and America spoke. But it was a negative judgment, not an endorsement of the GOP. The prize for winning is nothing but the opportunity for Republicans to show that they can govern – the opportunity to seize the national agenda.”

For their part, Democrats will be rushing through as many measures as they can while they still have power, as well as trying to get through the backlog of presidential nominations to the federal bench.

[I have far more on the election below.]

Turning to the U.S. economy and the past week’s news on that front...

Friday saw the employment report for October and for a ninth consecutive month, the nonfarm payroll figure was above 200,000 (214,000), the best such stretch since March 1995. August and September were revised up a total of 31,000. 

The unemployment rate ticked down to 5.8%, its lowest level since July 2008. Even the underemployment rate, U6, which includes those with part-time jobs who want full-time positions, is down to 11.5%, the lowest for this key metric since September 2008.

Democrats obviously didn’t take advantage of the better tone the past year in particular, but some of the exit polling data tells you why. As I wrote last week, even a conservative Republican such as myself recognizes not everyone is participating in the recovery, far from it. The October jobs report, for example, contained the fact average hourly earnings rose only 0.1% last month, or 2.0% the past 12 months, and while I keep saying wages will begin to rise, soon, which will force the Federal Reserve’s hand, that hasn’t happened as yet.

Some of the other data on the week wasn’t particularly good, such as figures on September construction spending (-0.4%) and factory orders (-0.6%), both down when expectations were for increases in each.

The October ISM report on manufacturing came in lighter than expected, 55.9, which is still more than solid (50 being the dividing line between growth and contraction), but it was less than September’s 57.5. The ISM services index (non-mfg.) for last month was 57.1, again, good, but still down from September’s 58.6.

One of the bigger stories, though, was how oil continued to tumble, down a sixth consecutive week to $78.65 on West Texas Intermediate, the price I quote at the end of each review, after hitting an intraday low of $75.84 on Tuesday, the lowest since October 2011. The Saudis announced through the publication of their official selling prices for December that they were reducing the price for Saudi crude to the U.S., while raising prices for Europe and Asia. This is being seen as a direct effort to wrest market share from the United States and to pressure the exploding shale revolution.

So just how resilient is the U.S. oil industry? I’m not sure it’s as resilient as many think. For starters there is massive debt on some of the projects and while advances in technology have significantly lowered production costs, some of the more expensive sites probably can’t survive oil under $70, for example. But it’s on a case-by-case basis. It’s just that we know one thing for sure...banks aren’t about to finance any new ventures for the time being.

That said, yes, the shale revolution has had a major impact on OPEC, which on Thursday released its annual World Oil Outlook and because of the boom in the U.S., demand for crude from the OPEC nations may fall to a 14-year low of 28.2 million barrels a day in 2017, 600,000 less than last year’s report and 800,000 below the amount required this year. [Grant Smith / Bloomberg]

OPEC next meets Nov. 27 in Vienna and while no big changes in policy are expected, price action the next few weeks will certainly enter into the equation.

Finally, Bill Gross, in his second investment outlook from his new perch at Janus Capital Group, warns deflation is a “growing possibility.”

“The real economy needs money printing, yes, but money spending more so, and that must come from the fiscal side – from the dreaded government side – where deficits are anathema and balanced budgets are increasingly in vogue,” he writes.

Europe and Asia

Turning to Europe, the European Commission reduced its growth forecast for the eurozone to just 0.8% in 2014, down from a previous projection of 1.2%, while cutting 2015 to 1.1% from 1.7%. For next year, Germany was cut from 2.0% to 1.1%, France from 1.5% to 0.7%, and Italy from 1.2% to 0.6%.

The EC also reduced its inflation forecast to 0.5% this year, 0.8% in 2015 and 1.5% in 2016, all well below the ECB’s 2% target.

Marco Buti, the director general of the commission’s economics department, said:

“The slowdown in Europe has occurred as the legacy of the global financial and economic crisis lingers....

“We see growth...coming to a stop in Germany...protracted stagnation in France and contraction in Italy.”

Earlier, the final reading on manufacturing in the EA18 (euro-18) was 50.6 vs. 50.3 in September.

Ireland was 56.6, however, which is solid
Netherlands 53.0
Germany 51.4
Italy 49.0, 17-mo. low
Greece 48.8
France 48.5...blehhh
Austria 46.9, 24-mo. low...haven’t been paying attention here
Spain 52.6

[Non-euro U.K. was at 53.2 for October vs. 51.5 the prior month.]

A composite reading for the eurozone that includes services was 52.1 in October vs. 52.0 in September. Germany was 53.9 (vs. 54.3); France 48.2 (vs. 48.0); Italy 50.4, 3-mo. high; Spain 55.5.

Eurozone retail sales fell 1.3%, September over August.

Separately, Germany factory orders, up 0.8% for September, and industrial production, up 1.4% on the month, were less than expected rebounds from awful figures in August, down 4.2% and 3.1%, respectively. It’s about falling exports to Russia, to a great extent.

Chris Williamson, chief economist at Markit, which is responsible for the PMI data, observed:

“The eurozone PMI makes for grim reading, painting a picture of an economy that is limping along and more likely to take a turn for the worse than spring back into life. While output grew at a slightly faster rate than in September, consistent with quarterly GDP growth of 0.2%, a near-stagnation of new orders, with the worst reading for 15 months, suggests that the pace of growth may deteriorate in coming months.

“A fall in employment for the first time since November casts a further cloud over the outlook. Firms are often being forced to cut employment due to squeezed profits margins. Input costs are rising but prices charged for goods and services have fallen almost continually over the past three years, with the rate of decline accelerating to the fastest seen over this period in October as companies increasingly turn to discounting to help boost sales.

“While beneficial to the consumer, the resulting squeeze on profit margins is damaging in the longer term and will result in lower employment and investment.”

The European Union’s statistics office will publish GDP data for the third quarter on Nov. 14.

Separately, last week I said Italy was the critical bond market to follow in Europe and about 48 hours later, the Wall Street Journal’s Simon Nixon wrote some of the following:

“As the Federal Reserve ends its quantitative-easing program, the calls for the European Central Bank to embark on its own full-scale government-bond-buying program to invigorate the eurozone’s economy grow louder.

“Many economists concur with former Fed Chairman Ben Bernanke’s judgment that, in the U.S., QE worked in practice but not in theory. In Japan, the world’s most aggressive QE program seems to have worked in neither theory nor practice, leading the Bank of Japan to decide last week that perhaps it wasn’t aggressive enough. Would a eurozone easing program prove any more successful?

“Italy is the crucial test. The eurozone’s third-largest economy is suffering from a toxic combination of sluggish growth and government debt of 135% of gross domestic product. It grew by less than 1% a year on average in the years prior to the crisis and now looks likely to slide back into a third recession in six years. Credit conditions continue to deteriorate. If QE can’t rescue Italy, then it can’t rescue the eurozone.”

But the recently completed ECB bank stress tests just “confirmed what the market suspected: The Italian banking system is the weakest in the eurozone.”

Italy has multiple other problems as I’ve been spelling out in this space, but bottom line, yes, Greece will get its share of headlines, but it’s about Italy.

This week, though, the Italian 10-year bond was like the other bond markets in the EA18, yields barely moved, in Italy’s case the 10-year edging up to 2.37% from 2.35%, because of ECB President Mario Draghi’s continued reassurances that he will do whatever it takes to help jumpstart economic activity, which means more bond-buying, potentially a lot more come the ECB’s next meeting in December.

Draghi insisted this week at the ECB’s November confab that there is no mutiny among the members of the governing council and that policy makers are unanimous in their readiness to do more to juice economic growth, like print more money to build up the central bank’s balance sheet back to 2012 levels, adding about $1.25 trillion, which promptly sent the euro to a two-year low, brightening prospects for exporters, for one.

Draghi is setting the stage for the launch of a new round of bond buying at the next meeting in December.

The Washington Post’s Robert Samuelson had some thoughts on Draghi and the eurozone.

“Although Americans are rightly upset about the slow recovery from the 2007-2009 ‘Great Recession,’ the U.S. rebound has been speedy compared with the one in Europe: Since 2008, Europe has experienced two recessions and may now be on the verge of a third. The output of the U.S. economy has surpassed its early 2008 level by about 8 percent, according to data Draghi presented at a recent briefing. Meanwhile, the output of the eurozone is still 2 percent below its 2008 level.

“Private investment has collapsed. It’s down about 15 percent form 2008. Public investment (in schools, roads, hospitals) has dropped about 20 percent.   The social consequences are horrendous. In September, the eurozone’s unemployment rate was 11.5%, only a slight decline from a 12 percent peak a year earlier....

“And then there are the political ramifications. Economic stagnation has fed nationalism and populism. Conflict between weak economies (Italy, Spain, Greece, France) and stronger competitors (Germany, the Netherlands) continues. Differences undermine Europe’s capacity to act decisively on other issues, from the Middle East to Ukraine....

“The rap against the ECB is that it hasn’t been as aggressive as the Fed.  Though accurate, the criticism is overdone....

“The trouble is that low interest rates won’t spur economic growth if lenders don’t want to lend and borrowers don’t want to borrow. That has been true in Europe....

“Without faster growth, much of Europe risks deflation... that would make its debt burden heavier. Chronic stagnation could give way to something worse.”

Turning to Asia....

The Chinese government reported the manufacturing PMI for October was 50.8 vs. 51.1 in September, while the services PMI was 53.8 vs. 54.0, a nine-mo. low for this. HSBC’s final October mfg. figure was 50.4 vs. 50.2 the prior month.

In an independent survey of 100 cities in China (not the government’s data), average new-home prices fell 0.4% in October after being down 0.9% in September.

So take the above and it’s just a further sign of a broadening slowdown.

In Japan, there are splits in both the Bank of Japan and among Prime Minister Shinzo Abe’s cabinet as to whether the national sales tax (VAT) should be raised next October for a second time, in this instance from its current 8% to 10%. Abe said he will decide by Dec. 8, after receiving all the third-quarter data. Recall, first quarter GDP was up an annualized 6.0% in anticipation of April’s tax hike from 5% to 8%, but then the negative impact has turned out to be greater than expected, highlighted by second-quarter GDP, down 7.1%.

Two other manufacturing PMIs of note in the region. Taiwan’s October figure was 52.0 vs. 53.3 in September, while South Korea’s was 48.7 vs. 48.8.

Street Bytes

--After a wild two-week rally, the market showed signs of needing a break, even as the Dow Jones and S&P 500 eked out their third straight record finishes on Friday. The Dow now sits at 17573, up 1.1% on the week, while the S&P is at 2031, up 0.7%. Nasdaq gained just two points, 0.04%.

But now we’re at the beginning of some favorable seasonal trends, with November and December being two of the historically strongest months, while the November through April period is the best six months for the market, outpacing May through October by 7% since 1950, according to the Stock Trader’s Almanac. 

And equity returns following the midterm elections tend to be superb, with a 7% median return in the 90 days following the vote, according to Barclays.

So hit the malls, go out to dinner, have some fun. Just remember to call the police if you see any unaccompanied packages.

--U.S. Treasury Yields

6-mo. 0.05% 2-yr. 0.50% 10-yr. 2.30% 30-yr. 3.03%

Just as in Europe, the Treasury market largely took a breather this week.

--On the Ebola front, there are signs Liberia and other affected countries are beginning to get a handle on the virus. Lenny Bernstein of the Washington Post reported that “The reduction in tension is palpable” in the Liberian capital of Monrovia. Some beds in the treatment centers are now empty.

But as Bernstein also writes, “no one believes Ebola is yet gone. The virus has shown in the past that it can recede, then flare up even more virulently than before.”

And indeed, the Washington Post editorialized that while the situation looks better in Liberia, “in Conakry, Guinea, where the virus appeared to be receding in July, Doctors Without Borders reported a massive spike in cases, with treatment facilities ‘stretched to the limit.’ Another spike has been reported in a remote district of Sierra Leone that had been largely free of the virus.”

[Separately, in a Wall Street Journal/NBC News poll, nearly 3/4s of Americans said they agreed with a policy 21-day quarantines for returning health workers even if they haven’t yet developed symptoms of the virus.]

--Related to the Ebola crisis, BBC News’ Camila Ruz reported that with Ebola getting all the publicity, people are forgetting we are entering the peak season for Lassa fever in West Africa, which has symptoms identical to Ebola and kills up to 20,000 a year. Lassa can spread from person-to-person and is caused by rats, who carry the disease into homes and food stores.

--The Supreme Court agreed Friday to hear a new challenge to the Affordable Care Act, specifically whether the law authorizes subsidies for low- and middle-income people to help pay their health insurance premiums. Opponents argue most of the subsidies are illegal.

The justices upheld the heart of ObamaCare in a 5-4 decision in 2012, but this is yet another case that could gut the ACA. The Court isn’t likely to rule on this one until late spring.

--A federal judge on Friday approved a plan for Detroit to emerge from bankruptcy, just 16 months after it became the largest city in the U.S. to file for it.

Judge Steven W. Rhodes found the city’s plan to shed $7 billion in debt and to invest $1.7 billion into long-neglected services was fair, feasible and in the best interest of Detroit’s creditors. The city has a long way to go, but most marvel how quickly this critical step came about.

--JPMorgan Chase & Co. announced it was slashing 3,000 more jobs this year than previously forecast in its mortgage and credit-card divisions, bringing the total between the two to 11,000.

JPM is also cutting hundreds of tech support jobs in its corporate and investment bank as revenue declines.

--Disney reported better than expected revenue due to the success of its movies, including “Frozen” and the Marvel movie “Guardians of the Galaxy.” Revenue from media and cable networks (see ESPN) increased 5%. Revenue from parks and resorts, always a good economic indicator, rose 7%. Overall revenue was also up 7%.

--Home Depot said the credit-card breach it suffered going back to last April was even more widespread than first announced. In addition to the 56 million credit-card accounts that were compromised, the company now says 53 million customer email addresses were exposed. As reported by the Wall Street Journal, both Home Depot and, earlier, Target Corp., “fell victim to the same type of infiltration tactics...where hackers gained access via a Pennsylvania-based refrigeration contractor’s electronic billing account.”

HD former CEO Frank Blake, who retired last month, conceded, “If we rewind the tape, our security systems could have been better. Data security just wasn’t high enough in our mission statement.”

Hackers exploited a vulnerability in Microsoft’s Windows operating system and ended up targeting 7,500 of Home Depot’s self-checkout lanes.

--Automakers reported continued sales gains for the month of October, with only Ford’s falling among the majors. SUV and truck sales were strong as gasoline prices fell. Hybrid sales, on the other hand, generally fell, with Ford’s C-Max hybrid seeing its sales plummet 22% in the month, while Toyota Prius sales were down 13.5%.

GM’s overall U.S. sales rose just 0.2%, Chrysler’s surged 22%, led by the Jeep brand’s 52% increase over a year ago. Toyota’s sales were up 7% overall; Nissan’s 13%; Honda’s 6%, and Subaru’s 25%.

Ford’s sales were down 2% and Hyundai’s dropped 6.5%.

Overall sales for 2014 are now expected to be about 16.5 million vehicles, up 6% from 2013.

--Honda is expanding the number of vehicles that face recalls due to faulty Takata air bags. As one who has owned or leased a new Honda Accord every three years for the past 20+, it’s kind of disturbing seeing that I was probably driving one with these weapons aimed at the face. The recall includes certain 2001-2006 models of Accords, Civics, Odysseys, Acuras and other models. The National Highway Traffic Safety Administration is demanding Honda turn over documents that NHTSA suspects may show the automaker knew of the deadly issue and did nothing about it for years.

As for Takata, it is facing a federal criminal investigation.

--Tesla Motors Inc. reported a loss of $74.6 million for the third quarter as it lowered its forecast for full-year deliveries of its Model S sedans to about 33,000. Vehicle sales in the quarter were 7,785, slightly less than the 7,800 forecast by the company, though revenue of $852 million is nearly double that of $431 million from a year earlier.

CEO Elon Musk said the delivery shortfall was due to production issues and “being too perfectionist about future products.” He reiterated the company’s goal of producing 100,000 vehicles by the end of next year, which reassured investors who then bid the shares up 7% following the announcement.

The company's Model X is now slated for shipment third quarter of 2015, one-quarter later than previously announced.

--Hyundai and Kia reached a $100 million settlement with the U.S. government for overstating the fuel economy of their cars, the largest penalty ever levied under the Clean Air Act. Back in November 2012, the South Korean carmakers admitted to having overstated the fuel economy by up to six miles per gallon.

--Alibaba Group Holdings Ltd. issued its first earnings report as a public company and it showed revenue for the quarter rose 54% to $2.74 billion, with more users than ever, and an increasing number shopping over their smartphones. Executive Joseph Tsai said during an analyst call that Alibaba added 29 million mobile users

--Gold and silver prices sank to 4 1/2-year lows this week, thanks to a soaring dollar and economic stimulus from the likes of the Bank of Japan. Commodities are priced in dollars and become more expensive to foreign buyers as the dollar soars against the yen and other currencies.

Silver has been hit by slowing demand in Asia and Europe.

Meanwhile, a Swiss referendum on Nov. 30 would require the Swiss National Bank to build its bullion position up to at least 20% of total assets from 8% today. According to Bank of America, that would mean the SNB would have to buy at least 1,500 tons of gold, or about 7% of annual global demand, that would in turn trigger a 17% rally.    But polls show voters are split on the move. [Bloomberg]

--Qualcomm warned an ongoing antitrust probe in China presented “significant challenges” in the year ahead, this as the Federal Trade Commission here in the U.S. has launched a new investigation into the company’s patent licensing business. Shares in the wireless chip developer fell hard, after also reporting revenues and earnings that fell short of Wall Street’s expectations.

In China, if Qualcomm is found guilty on intellectual-property licensing issues, it could be fined up to 10% of its prior year’s revenues. Half of Qualcomm’s revenues in 2013 came from customers and licenses based in China, where most of the world’s smartphones are manufactured. Chinese sales rose only 7.4% last year, way down from 2012’s 54.2% rise.

--Time Warner raised its full-year profit forecast and third-quarter revenues rose 3% to $6.24 billion. The company has cut about 10% of its staff as part of a major restructuring to enhance profitability.

--CBS said revenue rose 2% last quarter, with ad sales boosted by several Thursday primetime football games, which were aired for the first time on broadcast television, as well as spending on the mid-term elections.

--The unemployment rate in Ireland is down to 11%, from a crisis peak of 15% in 2011, according to the Central Statistics Office. Clearly there is still a long ways to go, but virtually all experts say the country is moving in the right direction (which is my own personal experience there these past few years).

Separately, Ireland will register the highest growth of any European Union economy this year at 4.6%, according to the European Commission.

--Canada’s unemployment rate unexpectedly fell to a six-year low last month, 6.5%, down from 6.8%. A Bloomberg news survey was actually calling for a tick up to 6.9%. As Ronald Reagan would have told his old friend Brian Mulroney, ‘Not bad...not bad at all.’

--Warren Buffett’s Berkshire Hathaway reported net earnings of $4.6 billion, down from $5.1 billion a year ago, owing to a $678 million hit on his Tesco investment, the UK supermarket chain whose shares cratered amid plunging profits and an accounting scandal. Berkshire’s insurance business is kicking butt, along with investments in railways, power utilities and industrials, offsetting poor performers like Coca-Cola, IBM, and Tesco; the latter being jettisoned rapidly.

--New malware seems to target mostly Chinese users of Apple products, with “WireLurker” having originated in China.

WireLurker has the ability to transfer from Apple’s Mac computer to mobile devices through a USB cable. Apple said, “This malware is under active development and its creator’s ultimate goal is not yet clear.”

A Chinese web monitoring group, Greatfire.org, said they believed the Beijing government was behind the move, which the government denies. [BBC News]

--Macau’s casinos recorded their worst monthly revenue performance on record in October, down 23.2% from a year earlier (official data going back to 2005). I’ve always said this is my favorite economic barometer for the health of the overall Chinese economy (number one because you can trust the data), so this is not a good sign, sports fans.

--German industrial equipment maker Siemens warned global tensions would affect its business as it predicted flat revenue for the coming year. Revenue was also flat in the third quarter.

--Despite slowing growth and the Occupy Central protest movement, real estate prices in Hong Kong continue to rocket higher. According to research from Demographia, average home prices are now 14.9 times median household income, compared with 7.3 in pricey London. [Financial Times]

--An initial investigation into last week’s explosion of an unmanned rocket bound for the International Space Station is targeting the decades-old Russian engines used to launch it, according to Orbital Sciences Corp. executives. Orbital announced it would no longer use the rocket engines, which were built in the 1960s and 70s and later purchased by Aerojet Rocketdyne, which refurbished them and supplied to Orbital for NASA’s cargo missions. [Melody Petersen / Los Angeles Times]

--Regarding the Virgin Galactic rocket plane crash that claimed the life of one of the test pilots, Melody Petersen and Ralph Vartabedian of the L.A. Times had this bit.

“The Virgin Galactic rocket plane had just broken the sound barrier and was shooting toward the heavens when it began disintegrating, battered by powerful aerodynamic forces.

“The pilots were strapped into their seats as entire pieces were torn from SpaceShipTwo. At more than 10 miles high, with fingers no doubt numb from the cold, Peter Siebold somehow escaped from the hurtling wreckage.

“Siebold, who had been flying Virgin Galactic’s spaceships for a decade, had to rely on his experience and his instincts. He had a parachute but no spacesuit to protect him from the lethal environment as he plunged toward Earth at close to the speed of a bullet.

“At almost twice the height of Mt. Everest, the air is dangerously thin and the temperature is about 70 degrees below zero. It was a real world case of survival in the face of disaster, like the movie ‘Gravity.’

“Siebold managed to deploy his parachute and land in the Mojave Desert. His shoulder was smashed and a fellow pilot described him as ‘pretty banged up.’ He was discharged from the hospital Monday.

“ ‘The fact that he survived a descent of 50,000 feet is pretty amazing,’ said Paul Tackabury, a veteran test pilot.... ‘You don’t just jump out of aircraft at Mach 1 at over 50,000 feet without a spacesuit.’

“Siebold’s partner, 39-year-old copilot Michael Alsbury, was found dead, strapped into his seat in the wreckage.”

It’s easy to forget hundreds of test pilots have died over the years. And I never knew Edwards Air Force Base is named for pilot Capt. Glen Edwards, who died in an experimental craft in 1948.

As for the NTSB’s accident investigation, while it could take 6-12 months for a formal report, it seems clear Michael Alsbury flipped a switch to unlock a lever that may have caused the spacecraft’s tail to rise, creating drag, or “feathering.” This occurred moments before SpaceShipTwo “disintegrated,” according to the NTSB.

But this maneuver alone shouldn’t have been enough to change the craft’s configuration.

As I go to post, I do not believe Siebold has been interviewed.

Founder Richard Branson has been accused by some of missing a series of warnings that the rocket was unsafe for flight, with a number of senior aerospace engineers voicing fears over the design and safety protocols concerning testing. Three senior Virgin Galactic executives had also all quit the company in recent months.

And while Branson vows to push on, the Financial Times reported his venture faces severe financial difficulties – with $400 million in funding from Abu Dhabi having dried up.

--Sprint is cutting 2,000 jobs, or about 5% of its staff, as part of an effort to reduce spending by $1.5 billion.

--PIMCO saw investors pull a net $48 billion from its mutual funds in October, including $27.5 billion from the flagship Total Return Fund, once managed by Bill Gross. Outflows over September and October were $73.8 billion, which doesn’t include separate accounts managed for institutional investors. Gross departed for Janus Funds on Sept. 26.

--Shares in Herbalife Ltd. were crushed as the company said profit plunged 90% in the third quarter, much of this from Venezuela and the disastrous picture (and currency) there.

--Fox News’ election coverage not only beat its cable competition, but also the broadcast networks’ limited coverage, though every network was down substantially in viewership over four years ago, including Fox.

In the 10 p.m. hour, the only one where the news division of the broadcast networks covered the results, Fox led with 6.6 million viewers, while CBS was next at 5.4 million. [Bill Carter / New York Times]

--Kantar Media research firm projected that total spending on advertising for this year in politics is expected to hit $2.4 billion, up $100 million from four years ago.

--An 1881 portrait by Manet sold at auction for $65.1 million, vs. the painting’s high estimate of $35 million. It’s a portrait of the actress Jeanne Demarsy and one of the last of his salon works still in private hands. It was purchased on behalf of the J. Paul Getty Museum in Los Angeles.

I’m not a Manet fan, preferring Monet, but this particular work isn’t bad.

Foreign Affairs

Iraq / Syria / ISIS: Three days after the mid-term elections, President Obama authorized up to another 1,500 troops to Iraq, roughly doubling the size of the existing force there that the United States has been building up since June to fight ISIS. The White House is requesting Congress authorize $5.6 billion for the campaign against IS, including $1.6 billion to train and equip Iraqi troops. [I told you last summer the costs would begin to soar...and while the impact on the budget deficit is small, for now, the longer-term impact is unknowable.]

Once again we are being told these are not combat forces, but the “advisers” will be in major hot zones, including Anbar province. [Much more on this next week.]

The U.S. military launched a series of attacks against al-Qaeda-linked Khorasan in Syria and believes it killed a key bombmaker, a 24-year-old French jihadist.

But many of the airstrikes in the current campaign have come against the al-Qaeda-linked Nusra Front, which is a rival to ISIS, and as noted for weeks now, Syrians opposed to Bashar Assad don’t understand why Assad isn’t targeted rather than Nusra Front, which is popular among many of the people for countering ISIS. It’s just a mess. Members of U.S.-backed rebel militias were, according to the Daily Star of Lebanon, defecting to the Nusra Front or an allied fighting group called Jund al-Aqsa.

Meanwhile, ISIS killed 322 members of an Iraqi Sunni tribe last weekend, according to Iraq’s government, with IS holding 65 hostages as prisoners of war. The victims, including 10 women and children, were lined up and publicly shot as punishment for what ISIS sees as the tribe’s resistance to IS rule.

Since the formation of the new Iraqi Shia-dominated government, Baghdad has been trying to win over Sunni tribes in the battle against IS, but hasn’t succeeded. The Associated Press reports that just 5,000 of an estimated 30-40,000-strong tribal population are backing Baghdad.

In Syria, in the battle of Kobane, which many are beginning to compare to a mini-Stalingrad, the insertion of Iraqi Peshmerga fighters has helped the Kurdish cause, especially since they have heavy weapons, but without western reporters on the ground there, it’s impossible to know what is truly happening day to day.  As The Economist opined: “Kobane may not be Stalingrad, but if it holds out, the psychological damage to IS will be real.”

ISIS scored a big victory in capturing a critical Syrian gas plant, Sha’ar, while attacking a major air force base near the central city of Homs – which would be a potentially devastating blow to Bashar Assad. The military base, Tayfur, is home to numerous Syrian fighter aircraft, as well as surface-to-air missile systems.

So, if the U.S. were to strike ISIS around Homs, it would be providing air support to the Syrian government.

Iran: The Wall Street Journal reported that President Obama “secretly wrote to Iran’s Supreme Leader Ayatollah Ali Khamenei in the middle of last month and described a shared interest in fighting Islamic State militants in Iraq and Syria, according to people briefed on the correspondence.

“The letter appeared aimed both at buttressing the campaign against Islamic State and nudging Iran’s religious leader closer to a nuclear deal.”

The nuclear deadline is just two weeks away, Nov. 24. Administration officials place the odds of a deal at just 50-50, with Secretary of State John Kerry and his Iranian counterpart, Javad Zarif, meeting on Sunday in Oman for what is being billed as intensive direct negotiations.

As for the letter, which is far from unusual, House Speaker John Boehner said on Thursday, “I don’t trust the Iranians, I don’t think we need to bring them into this,” adding that with regards to the nuclear talks, he “would hope that the negotiations that are under way are serious negotiations, but I have my doubts.”

The White House didn’t tell its Middle East allies – including Israel, Saudi Arabia and the UAE – of Obama’s letter to Khamenei. The Saudis and Israelis, in particular, are extremely concerned the administration is softening its demands of Iran.

Iran is demanding it be allowed to retain all of its current capability – including 9,000+ centrifuges used to enrich uranium, while being permitted to sharply increase this number. The P5+1 want to reduce Iran’s nuclear capacity.

Lee Smith / The Weekly Standard

“Last week, the Obama White House finally clarified its Middle East policy. It’s détente with Iran and a cold war with Israel.

“To the administration, Israel isn’t worth the trouble its prime minister causes....

“It’s hardly surprising that the Obama White House is crudely badmouthing Netanyahu; it has tried to undercut him from the beginning. But this isn’t just about the administration’s petulance and pettiness. There seems to be a strategic purpose to heckling Israel’s prime minister. With a possible deal over Iran’s nuclear weapons program in sight, the White House wants to weaken Netanyahu’s ability to challenge an Iran agreement....

“From the White House’s perspective, then, Israel is the source of regional instability. Iran, on the other hand, is a force for stability. It is a rational actor, Obama has explained, pursuing its own interests. The White House, moreover, shares some of those interests – like rolling back the Islamic State.

“The fact that Quds Force commander Qassem Suleimani now calls the shots in four Arab capitals – Beirut, Damascus, Baghdad, and Sanaa – makes him the Middle East’s indispensable man. Compared with the one-stop shopping Obama can do in Tehran to solve his Middle East problems, what can Israel offer?

“The Obama administration’s Middle East policy...is premised on a fundamental misunderstand of the Islamic Republic. The question is whether the White House has also misunderstood the character of a man, the prime minister of Israel, whose courage they mock.”

[The Associate Press this week had an extensive story on Gen. Suleimani who was seen on Iraqi news websites the other day after the Iraqi military had beaten back an ISIS attack. Yes, the Iranian general on the scene directly in Iraq. What successes the Iraqi army has had in recent months would appear to be the direct result of Suleimani’s command and strategy.]

So with all the above in mind, understand one thing. The Iranian government continues to stonewall the UN’s International Atomic Energy Agency, which has been seeking access to some of Iran’s military bases and nuclear facilities, as well as the right to talk to Iran’s scientists. The place I’ve been bringing up for years now, Parchin, remains off limits despite numerous demands by the IAEA that it be allowed to inspect the facility, which is suspected of being the site of nuclear trigger testing. Of course Iran has had years to pave over the evidence, which they have literally done...pave it over.

Again, this is all you need to know to understand Iran’s intentions. The administration should be demanding, alongside UN inspectors, access before any agreement is signed, or extended.

Finally, Iranian President Hassan Rohani said in remarks to parliament recently that the slide in global oil prices has resulted in a 30% decline in Iran’s revenue from crude sales. A slowing China, Iran’s biggest buyer, isn’t helping.

Iran dropped in 2012 to fifth from second in production among the 12 members of OPEC.

Israel: There has been a disturbing rise in Palestinian terror attacks on Israelis using automobiles. On Wednesday, a man described as a terrorist by Israeli officials killed one person and injured 13 others when he rammed his car into pedestrians in Jerusalem. He was later shot and killed by police at the scene.

Israeli officials say the man was known as a Hamas operative, and Hamas praised the attack. “We congratulate the activity carried out by Jerusalem’s blessed heroes that targeted soldiers and security men,” Hamas said in a statement, referring also to a separate incident later when a car rammed a military checkpoint. “We call on the people of Jerusalem and the West Bank and all of the Palestinians to carry out more of these activities with full force in order to defend al-Aksa [al-Aqsa],” the statement read. [Jerusalem Post]

Al-Aqsa refers to the Temple Mount, where violent riots have been taking place, and it wasn’t a good sign when Jordan came out and accused Israel of attacking and desecrating what Muslims call Haram al-Sharif. Jordan’s minister of Islamic affairs called Israeli actions “tantamount to state terrorism. It is also a violation of Jordan’s peace treaty” with Israel.

For his part, Jordan’s King Abdullah promised Jordan would safeguard holy Muslim and Christian sites in Jerusalem. “The Palestinian cause remains our principal cause and is a higher national interest,” Abdullah said in a speech.

What would be awful is if Abdullah, facing immense pressure inside Jordan to be tough on Israel, with millions of Palestinian refugees within his borders (let alone Syrians and Iraqis), renounced the 1994 treaty with Israel.

Naftali Bennett (Israel’s minister of the economy) / New York Times

“Recent events in the Middle East are a reminder of how the old models of peace between Israel and the Palestinians are no longer relevant. The time has come to rethink the two-state solution.

“This past summer, Hamas and its allies fired over 4,500 rockets and mortars at Israel, demonstrating once again what happens when we evacuate territory to the so-called 1967 lines and hand it over to our adversaries. Peace is not obtained. Rather, we are met by war and bloodshed.

“The rise of the Islamic State, also known as ISIS, and other extreme elements in Iraq, Syria and Lebanon, make the risks just as clear. Israel cannot afford to gamble with its security. There are no second chances in the volatile Middle East.

“That is why, for its security, Israel cannot withdraw from more territory and cannot allow for the establishment of a Palestinian state in the West Bank. If we were to pull out of the West Bank, the entire country would become a target for terrorists who would be able to set up rocket launchers adjacent to the Old City of Jerusalem and on the hills above the runways of Ben-Gurion International Airport and the Tel Aviv Stock Exchange.

“Take the Jordan Valley. The Palestinians demand that Israel withdraw from this narrow piece of land, which borders Jordan. But if we do so in today’s climate, we potentially open the door for the Islamic State and other extremists to flood into the new Palestinian state. We cannot take that risk.

“How do I know? Because it happened. Not once, not twice, but three times.

“In the mid-1990s, we pulled out of Palestinian cities as part of the Oslo agreement. In 2000, the second intifada erupted and over 1,000 Israelis were killed in attacks carried out by terrorists, many of whom came from the very cities we had evacuated.

“When we pulled out of Lebanon in 2000, we saw a significant strengthening of Hizbullah, the Iranian-backed militia. During the second Lebanon war six years later, Hizbullah fired more than 4,300 rockets at our cities.

“And in 2005, we withdrew from the Gaza Strip and handed it over to the Palestinian Authority. We were told that Gaza would turn into the Singapore of the Middle East and that peace would grow out of the greenhouses the Jewish residents had left behind.

“Instead, those greenhouses were used to cover up terrorists’ tunnels dug across the border into Israeli towns and villages. Gaza quickly turned into a fortress of terror.”

Bennett does later talk about establishing economic development zones and such, but in the end, “We must work toward realistic goals that are capable of providing real security and economic prosperity.”

Russia / Ukraine: According to the Department of Homeland Security, there is strong evidence a destructive malware program has penetrated the software that runs much of our nation’s critical infrastructure and is poised to cause an economic catastrophe, as first reported by ABC News on Thursday. The malware was inserted by hackers believed to be sponsored by the Russian government and the hacked software is “used to control complex industrial operations like oil and gas pipelines, power transmission grids, water distribution and filtration systems, wind turbines and even some nuclear plants. Shutting down or damaging any of these vital public utilities could severely impact hundreds of thousands of Americans.” [Pierre Thomas and Jack Cloherty / ABC News]

A DHS bulletin said the hacking has been ongoing since 2011, but there has been no attempt to activate the malware. The hacked software is also very advanced.

Separately, once a week, it seems these days, President Vladimir Putin says something totally outrageous and on Thursday, Putin said there was nothing bad about the Nazi-Soviet Pact, the non-aggression treaty that led to the carve-up of Poland at the outset of World War II. Putin added Britain and France destroyed any chance for an anti-fascist front with the Munich Agreement.

Putin made the comments to a group of young historians and needless to say, some in Eastern Europe will find cause for concern.

The Nazi-Soviet Pact of 1939, or Molotov-Ribbentrop, agreed to divide up Finland, Estonia, Lithuania, Latvia and Romania, aside from Poland, into spheres of influence. 20,000 Poles were captured and executed by the Soviet secret police in the Katyn massacre in 1940, while the Nazis were beginning their extermination campaign that led to the deaths of three million Jews in Poland alone. [Tom Parfitt / Daily Telegraph]

So with the above in mind, there were reports Friday of scores of Russian tanks crossing into Ukraine, while Ukraine’s military claimed to have killed 200 rebels... 200...in an attack in Donetsk. Following their sham election of last Sunday, pro-Russian separatists have declared they will press forward with creating a state in the east comprised of Donetsk and Luhansk, where new leaders for both were sworn in days later.

The elections were denounced by all, including the U.S., U.N., the European Union and NATO. What it does is create a “frozen conflict.” [A long-term stalemate that the West believes is Putin’s aim] Russia not only has Crimea in full, the Kremlin has a large swath of territory in the eastern part of the country. On Wednesday, Putin said Ukraine’s “civil war” isn’t subsiding, which was borne out by the fighting days later.

Ukrainian President Petro Poroshenko announced Kiev is withholding financial aid to the two regions and that he would ask parliament to annul a law granting more autonomy to Donetsk and Luhansk, calling the Nov. 2 votes “pseudo-elections’ that were a “farce at gunpoint” which will never be recognized as legitimate. They were also a gross violation of the Sept. 5 Minsk agreement, that set up the pseudo-ceasefire.

And this comes about as winter rapidly approaches and while the two sides were said to have completed a deal to ensure Ukraine receives natural gas from gas exporter Gazprom, obviously there is no guarantee this will come to fruition, or that the spigots won’t be shut off in, say, January.

Finally, the Wall Street Journal reported that a member of Putin’s inner circle, billionaire Gennady Timchenko, is being investigated for massive money-laundering in the U.S., transferring funds illegally gained in Russia through the U.S. financial system. The transactions predate the sanctions leveled by the U.S. on Timchenko and other Putin allies last March.

Opposition figures in Russia have long accused Timchenko of parlaying his relationship with Putin to purchase Russian oil and gas from energy giant Rosneft at bargain-prices and then selling it to third parties.

The big issue could be if prosecutors can prove some of the funds being laundered are directly tied to Putin in any way.

China: In a potentially significant move, China reached agreement with Japan to resume high-level contacts, meaning there is still the possibility of a face-to-face meeting between Chinese President Xi and Japanese Prime Minister Abe at this week’s Asia-Pacific Economic Cooperation summit. The main portion of the summit is Monday and Tuesday, but the Chinese Foreign Ministry acknowledged both nations have “different positions” on the contentious East China Sea islands that have been at the heart of tensions the past two years.

These two need each other in a big way economically, with Japanese investment in China plunging 50% in the first six months of 2014.

On the issue of Hong Kong, the South China Morning Post is reporting that Beijing will respect the “two systems” element of the post-handover formula for Hong Kong, while at the same time stressing its “one country.”

A source told the SCMP that “Beijing wanted to improve Hong Kong youngsters’ understanding of the nation’s history and development.”

Back to the APEC summit, for weeks now, Beijing has been battling heavy smog and we’ll see what the pictures look like when President Obama gets there. A study in China said smog caused by coal consumption killed an estimated 670,000 people in China in 2012, with untold financial damage.

The study also found that in 2012, more than 70% of the Chinese population was exposed to annual tiny particulate levels higher than the country’s benchmark for healthy air quality. 

In 2012, some 157 million people in China lived in areas where the tiny particulate (PM2.5) concentration was 10 times the WHO’s recommendation. [Li Jing / South China Morning Post]

Separately, the BBC reported that during a 2013 trip to Tanzania, Chinese officials traveling with President Xi Jinping went on a buying spree for illegal ivory. “Investigators alleged that the Chinese could take advantage of a lack of security checks for those in the country on a diplomatic visit.”

I must say in all my trips to China, security has been a breeze.

North Korea: Early in the week, photos of Kim Jong-un were released showing him walking without a cane for the first time since he re-emerged, but late Thursday, state television aired its first footage of the leader in two months, showing him walking without a stick but with a pronounced limp. Kim was seen limping as he walked past a crowd of soldiers for a photo op. South Korean intelligence maintains Kim had surgery to his left ankle to remove a cyst.

Afghanistan: Ben Watson had a report in Defense One that paints a dismal picture when looking at the future of the Afghan Army and security forces and their ability to accept full responsibility for security in 2015. Lt. Gen. Joseph Anderson, chief of ISAF’s Joint Command, said in a briefing from Kabul, “The [Afghan National Security Forces, or ANSF] have sustained about a 6 ½ percent increase in casualties this year – 4,634 this year versus 4.350 killed in action last year.

“The do need to decrease their casualty rate...Those numbers are not sustainable in the long term,” said Anderson. 

By the end of the year, 9,800 Americans will remain, with another 2,700 from various other countries.

India / Pakistan: Years ago there was a famous “60 minutes” segment on the border crossing at Wagah between India and Pakistan and the daily military ritual between the two sides at the gate. But last Sunday there was a horrific terror attack on the Pakistani side of the checkpoint, killing at least 55 and injuring scores more. The Pakistani Taliban claimed responsibility, though other militant groups chimed in for credit. It was the deadliest attack to hit Pakistan in months, and needless to say the border ceremony has been shelved for the time being, with large crowds normally gathering to watch the entertaining spectacle.

Mexico: I admit to not writing about the disappearance of 43 college students, rounded up by local police in Iguala on Sept. 26, allegedly on the orders of the mayor, and not seen since, but it’s because this is nothing unusual here. In fact, as noted by Tracy Wilkinson of the Los Angeles Times, “an estimated 26,000 people have been reported missing since 2006, when the Mexican government launched its frontal assault against drug cartels and their cohorts....Hiding the dead – those killed in gun battles between rival gangs, or innocents killed after being kidnapped, or women killed after their use as sexual slaves ends – all of that is par for the course.”

But it’s true the case of the 43 has resonated more than other such instances, though President Enrique Nieto had little to report when he met with families this week. Then Friday, Mexican investigators apparently recovered plastic garbage bags containing dozens of burned human bones at a location described to them in great detail by three detained suspects. The students were loaded into the back of a truck, killed, burned and then chopped up and tossed in bags that were thrown into a river.

By the way, “Dozens of Americans, most with family in Mexico, have been killed or gone missing,” Ms. Wilkinson reported in a separate story this week for the L.A. Times.

Random Musings

--More election tidbits:

Reading a lengthy review of the battle for the Senate by the Washington Post, it was interesting to see not only how Mitch McConnell got all over Kansas Sen. Pat Roberts for his early lackluster campaign, but how down the stretch, 91-year-old Bob Dole was intimately involved in planning and barking orders to Roberts’ staff (made up largely of folks McConnell and the RNC parachuted in to save Roberts). Well, it all worked in a big way, Roberts beating independent Greg Orman 53-42 with surprising ease.

Other key Senate results...

Kentucky...McConnell (R) 56 / Grimes 41

Iowa...Ernst 52 (R) / Braley 44

New Hampshire...Shaheen 52 (D) / Brown 48

North Carolina...Tillis (R) 49 / Kagen 47

Colorado...Gardner (R) 49 / Udall 45

Alaska...Sullivan (R) 49 / Begich 45

Georgia...Perdue (R) 53 / Nunn 45

Arkansas...Cotton (R) 57 / Pryor 40

In South Carolina, Republican Tim Scott garnered 61% in his special election for a Senate seat; the first black to win such a race in the South since Reconstruction.

In all eight marquee Senate races, Republican candidates beat the polling averages compiled by Real Clear Politics. Results were similar for governor races – including Republican wins in three states – Florida, Illinois and Maryland – where polls generally showed Democrats in the lead. [Jim Norman / USA TODAY]

Republican Ed Gillespie ran a superb campaign and almost pulled off a startling upset in Virginia, losing to incumbent Democratic Sen. Mark Warner 49.2% to 48.4%, this after Gillespie was legitimately 20 points down in some polls just weeks ago. 

When new state legislators are sworn in next year, “Republicans will control 68 of 98 partisan legislative chambers around the country, six more than their previous high-water mark, which came after 2011 elections in Mississippi.

“Republicans have total control – meaning the legislature and the governor’s mansion – in 24 states, compared with just six states in which Democrats control all levers of the legislative process. The other 20 states are operating under divided control.” [Reid Wilson/ Washington Post]

Great story for Republicans out of Utah with the election of Mia Love, the first black Republican woman – and first Haitian American – elected to Congress. Understand Utah is less than 1% black, and she’s a convert to the Church of Latter-day Saints, which itself is just 3% black. 

New York Democratic Gov. Andrew Cuomo defeated his Republican challenger Rob Astorino 54-41, far less than what Cuomo would have expected a few months ago. [A Green Party candidate picked up 5%.] Cuomo took 62% of the vote four years ago.

In Texas, Gov.-elect Greg Abbott won 44% of the state’s Hispanic vote, according to exit polls, while in Georgia, 4 in 10 of that state’s small Hispanic electorate voted for the Republican Senate candidate, two examples of encouraging news for the GOP in regaining Hispanic support; critical to a pathway to victory in 2016.

Nationally, the exit polls showed that Hispanic voters favored Democrats 62-36, a smaller margin than the 38-point difference in 2016.

--My favorite Democratic Senator, West Virginia’s Joe Manchin III, called the losses suffered by his party “a real ass-whuppin.” In an interview with the Washington Post, he said he was deeply frustrated with Majority Leader Harry Reid and President Obama.

“Harry, let us vote, let’s do something. It’s easier for me to go home and explain what I voted for and against than to explain why I don’t vote at all,” Manchin said. [It’s not hard to see that Manchin is one of the ‘2 or 3’ Democrats who Mitch McConnell referred to in his presser as calling election night to congratulate him and asking for a new atmosphere in the Senate.]

Manchin, when asked whether Sen. Reid wants to do something, or is an obstructionist, or a fool, said: “I have no idea.”

The senator did rule out leaving the Democratic Party and many believe he will return to state politics and run for governor of West Virginia again in 2016.

I think he’d make for a perfect third-party presidential candidate.

--Voters in Staten Island re-elected Republican Cong. Michael Grimm by a 55-42 margin, despite the fact he is under federal indictment for tax fraud and all manner of other bad stuff. How does this happen? His opponent, Domenic Recchia, ran one of the worst campaigns in memory.

--Bizarre situation in New York City, where the No.2 in the NYPD, Philip Banks, unexpectedly resigned, three days after accepting the post of first deputy commissioner. Banks, the force’s highest-ranking African-American, still hasn’t given an explanation (though it was supposedly over Commissioner William Bratton’s not wanting to give him certain powers). Bratton acted quickly in elevating another black, Benjamin Tucker, for the second-in-command slot.

But it would seem First Lady Chirlane McCray (wife of Mayor Bill de Blasio), had wanted Philip Banks to be police commissioner, not Bratton, with a source telling the New York Post that upon learning of the power play between Bratton and Banks, she said to her husband, “I told you we can’t trust him!” 

De Blasio then supposedly blasted Bratton for not catering to Banks, who also had the support of Rev. Al Sharpton. Apparently, prior commissioner Ray Kelly had given what Banks wanted.

So now Bratton has his boss, the mayor, the mayor’s wife, and Rev. Al all mad at him. As the New York Post put it, how long does he put with all this?

--Ex-Navy SEAL Robert O’Neill, a member of SEAL Team Six, revealed he is the man who killed Osama bin Laden and now SEAL leaders are torqued off, noting his revealing of classified information is against the law, while O’Neill’s father, Tom, told the Daily Mail that his son decided to reveal his exploits to help earn a living.

The father also said he was not worried about terrorists taking revenge on him or his son.

“I say I’ll paint a big target on my front door and say come and get us,” he said.

Well that was stupid. As for the son, it’s not for me to say whether the revelation was harmful or illegal. Over time other members of SEAL Team Six will express their own feelings.

And other SEALs have already taken issue with O’Neill’s account.

--New York’s Timothy Cardinal Dolan has the tough task of merging 112 parishes into 55 new ones as part of a massive restructuring effort amid falling weekly attendance at Mass. As noted in a story for the New York Daily News: “Just 12%, or 346,000, of the 2.8 million Catholics in Cardinal Dolan’s New York Archdiocese still attend Sunday Mass. In the 1980s, there were 1,200 priests; today, 365.”

--In what was apparently a contentious parlay between government officials and scientists, a new report from the UN-backed Intergovernmental Panel on Climate Change says fossil fuels, without carbon capture and storage, should be phased out “almost entirely” by 2100, with the report concluding the world faces “severe, pervasive and irreversible” impacts without effective action on carbon.

As noted by the BBC, however: “In (the panel’s) discussions on fossil fuels, there was a fierce battle over a chart that showed how much the electricity sector needed to curb its carbon. According to one observer, ‘the Saudis went ballistic’ over its inclusion.”

Basically, you had a standoff between those who want to focus on cutting emissions and those who believe economic growth comes first.

--The Nov. 10 issue of TIME had one of those stories that really tick you off, the story of how the Brinkerhoff Lodge in Grand Teton National Park, run by the National Park Service, is used by “clouted members of government” for personal use when it was to be reserved for “official purposes.”

“In recent years, the park service has allowed top Obama officials to use the Brinkerhoff for extended stays with friends and family, raising new questions about this perk.”

For example, Vice President Biden, his wife and 11 family members used it for four days in August. At least four Cabinet-level officials have brought groups to the lodge since 2011.

Visitors are supposed to get a tour (like picture for a time-share property) and that makes it official.

But the payoff is, when family members accompany government employees who travel on ‘official business,’ the additional costs incurred “must be paid with persona funds. But several officials who stayed at the Brinkerhoff said there was initial confusion over their need to pay.” Some cabinet members had not paid up as of TIME’s investigation.

--Tony E. brought to my attention a piece by Richard Waters on artificial intelligence in the Financial Times. As in there are just five “computer scientists in the world currently working on how to program the super-smart machines of the not-too-distant future to make sure AI remains ‘friendly,’” in the words of one.

“Their effort,” writes Waters, “is prompted by a fear of what will happen when computers match humans in intelligence,” a fear Elon Musk expressed a few weeks ago. “At that point, humans would cede leadership in technological developments, since the machines would be capable of improving their own designs by themselves.”

Oh, it gets wild, but some bright people worry the worst fears of sci-fi could come true way down the road. Noted Silicon Valley investor Peter Thiel posits:

“The first question we would ask if aliens landed on this planet is not, what does this mean for the economy or jobs. It would be: are they friendly or unfriendly?”

The same question would be asked of computers that become more intelligent than we are.

Nick Bostrom, the author of Superintelligence, the work Elon Musk has been urging followers to read, says the kind of machine-based intelligence that is heading humanity’s way wouldn’t wish its makers harm. But as Waters writes, “it would be so intent on its own goals that it could end up crushing mankind without a thought, like a human stepping carelessly on an ant. This is where the nightmare scenarios come into play. Once they soar past the intellects of their creators, machines are likely to reach their own conclusions about how best to achieve the goals programmed into them. And if humans can’t even prevent accidents in the moderately complex technological systems of today, what chance is there of controlling the systems to come?”

Now...who wants a beer?

--George Ball is chairman of the W. Atlee Burpee & Co. (and thus not the other George Ball of Wall Street fame), and over the weekend he had an op-ed in the Wall Street Journal on how technology has taken over our lives:

“We live in a quandary of fight-or-flight hyper-arousal, stressing our bodies and minds, narrowing our vision and producing ‘auditory exclusion,’ so our hearing is reduced to our inner screams. What you will rarely encounter in our media’s iCloud of Unknowing is the past or a sense of tradition.

“Albert Einstein called this the ‘modernist’s snobbery,’ observing, ‘Somebody who reads only newspapers and at best the books of contemporary authors looks to me like an extremely nearsighted person who scorns eyeglasses. He is completely dependent on the prejudices and fashions of his times, since he never gets to see or hear anything else.’

“Since now is the moment when we are most fully alive, do you really want to spend it in the company of pixels?

“We discover something surprising once we step away from the carny fairway of mass media, and meander through the great works of the past. Whether we are listening to Mozart, gazing at a Georgia O’Keeffe painting, pondering Confucious, or reading the ‘Odyssey,’ we are struck by the newness and newness of the experience.

“As G.K. Chesterton wrote: ‘Tradition means giving votes to the most obscure of all classes, our ancestors. It is the democracy of the dead.

“Tradition refuses to submit to that arrogant oligarchy who merely happen to be walking around.”

--Finally, Nov. 9 marks the 25th anniversary of the fall of the Berlin Wall, a spectacular event for humanity. But when I was in Berlin in December 2007, I was disappointed how little of the actual wall remained standing in the city itself. I understand why the people wanted it all down, but historians will rue that a little more wasn’t left up as an ongoing lesson.

Actually, there was a practical reason little remains. It’s prime Berlin real estate.

---

Pray for the men and women of our armed forces...and all the fallen, especially this Veterans Day.

God bless America.
---

Gold $1169
Oil $78.65

Returns for the week 11/3-11/7

Dow Jones +1.1% [17573]
S&P 500 +0.7% [2031]
S&P MidCap +0.8%
Russell 2000 -0.02%
Nasdaq +0.04% [4632]

Returns for the period 1/1/14-11/7/14

Dow Jones +6.0%
S&P 500 +9.9%
S&P MidCap +6.5%
Russell 2000 +0.8%
Nasdaq +10.9%

Bulls 54.6
Bears 15.1 [Source: Investors Intelligence]

Dr. Bortrum posted a new column after I initially posted mine last time, in case you missed it.

Have a great week. I appreciate your support.

Catch me on Twitter, @stocksandnews...and for new readers, I do have an iPad app.

Brian Trumbore



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Week in Review

11/08/2014

For the week 11/3-11/7

[Posted 10:30 PM ET, Friday]

Edition 813

Washington and Wall Street

Well that was an interesting election. A victory, first and foremost, for the Republican establishment, who did all they could to put forward a solid slate of candidates (as opposed to some of the buffoons they’ve run in the past that cost them dearly) and then run against President Obama and his policies, such as ObamaCare. The sub-text was also, ‘Don’t screw up.’ It worked, much to the surprise, perhaps, of some far-right-wingers, who wanted Republican candidates to hammer home an agenda. They largely didn’t. But for today, it doesn’t matter. Republicans control the Senate, probably 54-46 after the Dec. 6, Louisiana run-off that Democratic incumbent Senator Mary Landrieu is expected to lose.

In the House, Republicans expanded their advantage to about 247-188, once some close races are officially decided, which would be the largest Republican House majority in more than 80 years.

Republicans now will either show Americans they can govern, or they can do as Rush Limbaugh urges and that is simply block President Obama at every turn. I think Republicans can do both. I do not expect President Obama to compromise on many issues, if any, but so much can change, in a flash, these days. 

It was a strange election cycle from the standpoint that Obama was essentially repudiated not just by majorities in the electorate, mostly Republican, but also his own Senate and House members.

Democratic Senate candidates wanted nothing to do with him. It wasn’t until last weekend that he campaigned with one – at a rally in Michigan.

But how much room for cooperation between the two parties exists? Not much, if, as Obama is already saying he will use his executive powers to push through action on immigration. Both Senate Majority Leader-to-be Mitch McConnell and House Majority Leader John Boehner warned, post-election, that the president shouldn’t go there, that it would poison the waters for good. Or as Boehner said, “When you play with matches, you take the risk of burning yourself.”

For their parts, both McConnell and Boehner will have to deal with fractious caucuses, as well as the presidential cycle with the likes of Ted Cruz and Rand Paul having their eyes on Iowa rather than compromising. 

You also have the issue of a replacement for Attorney General Eric Holder. It makes sense for Obama to choose a nominee immediately that he could attempt to ram through in a lame-duck session where the Democrats still control the process and not wait until next year and the new Republican majority. And so we learn that on Saturday, the president is prepared to nominate the first African-American woman to serve as the nation’s top law enforcement official, Loretta  Lynch, the top federal prosecutor in Brooklyn.

And then you have all manner of foreign policy issues the president and Congress need to deal with. Some require quick action. The speed of others will be dictated by the players on the other end, see Vladimir Putin. [Obama’s trip to Asia and Australia next week will be interesting.]

Meanwhile, Corporate America is hoping the GOP takeover of Congress helps its cause, specifically on tax reform, energy (think Keystone XL pipeline) and immigration, as well as trade policy. On this last issue, it is hoped the president makes progress while attending the Asia-Pacific summit in Beijing (where 50% of attendees are going to die of exposure to deadly smog...but I digress...).

For the archives some important national exit poll data.

Most important issue:

Economy 45%
Healthcare 25%
Illegal immigration 14%
Foreign policy 13%

Next generation...better or worse:

Life will be worse for next generation 48%
Life will be better 22%

House exit polls:

Men: 41% Democrats / 57% Republicans
Women: 51% Dem. / 47% Rep.

Age 18-29, 30-34: 50%-54% Dem. / 43%-48% Rep.
Age 45-64, 65+ : 41%-45% Dem. / 53%-57% Rep.

Whites 75% (of electorate): 38% Dem. / 60% Rep.
Blacks 12%: 89% Dem. / 10% Rep.
Latino 8%: 62% Dem. / 36% Rep.

Country’s direction:

Right direction 31%...82% Dem. / 17% Rep.
Wrong direction 65%...28% Dem. / 69% Rep.

National economy’s condition:

Excellent/good 29%
Not so good/poor 70%

Economy....

Getting better 32%
Getting worse 32%
Staying the same 34%

Worried about major terrorist attack in U.S.?

Yes 71%
No 28%

President Obama’s overall job approval:

Approve 44%
Disapprove 55%

Opinion...

John Boehner and Mitch McConnell / Wall Street Journal

“Americans have entrusted Republicans with control of both the House and Senate. We are humbled by this opportunity to help struggling middle-class Americans who are clearly frustrated by an increasing lack of opportunity, the stagnation of wages, and a government that seems incapable of performing even basic tasks.

“Looking ahead to the next Congress, we will honor the voters’ trust by focusing, first, on jobs and the economy. Among other things, that means a renewed effort to debate and vote on the many bills that passed the Republican-led House in recent years with bipartisan support, but were never even brought to a vote by the Democratic Senate majority It also means renewing our commitment to repeal ObamaCare, which is hurting the job market along with Americans’ health care....

“Our priorities in the 114th Congress will be your priorities. That means addressing head-on many of the most pressing challenges facing the country, including:

“ – The insanely complex tax code that is driving American jobs overseas;

“ – Health costs that continue to rise under a hopelessly flawed law that Americans have never supported;

“ – A savage global terrorist threat that seeks to wage war on every American;

“ – An education system that denies choice to parents and denies a good education to too many children;

“ – Excessive regulations and frivolous lawsuits that are driving up costs for families and preventing the economy from growing;

“ – An antiquated government bureaucracy ill-equipped to serve a citizenry facing 21st-century challenges, from disease control to caring for veterans;

“ – A national debt that has Americans stealing from their children and grandchildren, robbing them of benefits that they will never see and leaving them with burdens that will be nearly impossible to repay.

“January will bring the opportunity to begin anew....

“The skeptics say nothing will be accomplished in the next two years. As elected servants of the people, we will make it our job to prove the skeptics wrong.”

Editorial / Wall Street Journal

Part I: Immediately after the vote....

“The liberals who have cheered on Mr. Obama as he drove his party into (the) ditch are now advising that he should double down on partisanship. Veto everything. Rule by regulation, including a vast immigration diktat that would poison any chance of bipartisanship and thus politically durable reform. Demonize Republicans at every opportunity to elect Hillary Clinton in 2016.

“If we judge by Mr. Obama’s six-year record, that is what he will probably do. But there is a better way that would do more for the country and his own legacy. Start by recognizing that many Republicans want to do more than merely oppose him. They know their own political brand needs burnishing, and that even their most intense partisans want some results from electing Republicans.”

Part II: Later....

“President Obama met the press corps Wednesday, and if he is concerned about his party’s drubbing on Tuesday you couldn’t tell. He offered up his familiar priorities (minimum wage!), vowed to listen to ideas from the new Congress, but showed barely a hint of introspection or need to change direction. Harry Reid, Mitch McConnell, who cares? So it looks like it will be up to Republicans to drive the policies to lift economic growth and reform government....

“(But the) real prize – and the key to repairing the damage of the Obama years – is taking the White House in 2016. While the candidates will set the overall agenda, a GOP Congress can help by educating voters about what would be possible with a Republican President. This means passing bills that showcase Republican reforms even if Mr. Obama may veto them....

“The mistake Republicans shouldn’t make is to become hostage to Mr. Obama’s political methods, which everyone knows by now include disdain (that he sometimes can mask) for his opponents, and an inability to compromise. If he’s willing to change, great. If not, the GOP will have to pursue its own agenda and ask the President to choose.”

Jennifer Rubin / Washington Post

“President Obama is a singularly ungracious and non-self-reflective person. In his press conference he refused yet again to acknowledge reality.

“He tried to downplay the Democrats’ loss of the Senate by talking to the two-thirds of people who did not vote. He tried to insinuate that it was a bipartisan rejection. He reminded us several times that he is still president. (‘I’m the guy elected by everybody.’). He boasted about an economy most voters think is rotten. He has, however, learned nothing. After a historic repudiation, he is staying the course and still threatens unilateral action by year’s end on immigration reform. One would have thought his policies were not on the ballot or that his party saw historic losses in consecutive midterm elections. He defiantly announced that he will veto some bills and that Congress won’t like his executive actions. He insisted it had to be his way: ‘If there are ideas that the Republicans have that I have confidence will make things better for ordinary Americans, the fact that the Republicans [are] suggesting it, as opposed to a Democrat – that’ll be irrelevant to me. I want to just see what works.’ In other words he sees no reason to compromise; Republicans must agree with him.

“On foreign policy he was, to be generous, fuzzy. We have offered Iran a ‘framework’ of unspecified terms, but Iran will have to decide whether to accept, he said. He mouths the platitude that a bad deal is worse than no deal, but virtually no informed observers on the Hill think he knows the difference between a good and bad deal. He insisted Iran has complied with an interim deal, ignoring its refusal to cooperate with inspectors....Insisting he would not solve Syria’s problems, he implicitly renounced his demand for years that Bashar al-Assad must go. If ever there was a display justifying more robust congressional stewardship of national security, this was it.”

Edward Luce / Financial Times

“Make no mistake – the U.S. electorate repudiated President Barack Obama on Tuesday. He will spend his final two years in office grappling with a fully Republican Congress....

“Analysts may quibble over whether 2014 qualifies as a ‘wave election.’ Republicans of all stripes will be in little doubt that it is.

“The fact that turnout dropped to below 40%, or that Republicans will be vulnerable to losing the Senate in 2016, will not dilute that feeling. The emotion of victory brings its own momentum.

“Think of the Obama years from the conservative point of view. Mr. Obama came to office in a landslide in 2008, taking both houses of Congress with him. He said he had rewritten America’s electoral map with a new Democratic majority.

“In 2010, Republicans took back the House of Representatives. Two years later, Mr. Obama retained the presidency but he was helped considerably by the flip-flopping contortions of his opponent, Mitt Romney.

“In 2014, Mr. Obama lost control of Capitol Hill altogether. Next stop the White House in 2016. Why give Mr. Obama the satisfaction of legislative victories in the twilight of a failing presidency?....

“For the time being, Republicans are victorious and Mr. Obama will feel their impact. He may try to outfox Republicans by co-opting some of their agenda – and look for ways of dividing a fractious party. But it will probably miscue.

“Mr. Obama is not Bill Clinton, with the latter’s ability to build bridges. My prognosis might look bleak.  But it would be a real stretch to see Tuesday’s vote as the opening of a new chapter in U.S. bipartisanship.”

Peggy Noonan / Wall Street Journal

“Common sense says a chastened president would acknowledge the obvious – some things aren’t working, he has made some mistakes – and, in Mr. Obama’s case, hit the reset button with Congress. Reach out, be humble. Humility has power. It shows people that you have some give – you get the message, you are capable of self-correcting.

“That is not what he’s doing. The president is instead doubling down on hostility, antagonism and distance.

“What a mistake. What a huge, historic mistake, not only for him but also for his party.”

Charles Krauthammer / Washington Post

“Memo to the GOP. You had a great night on Tuesday. But remember: You didn’t win it. The Democrats lost it....

“The defeat – ‘a massacre,’ the Economist called it – marks the final collapse of Obamaism, a species of left liberalism so intrusive, so incompetently executed and ultimately so unpopular that it will be seen as a parenthesis in American political history. Notwithstanding Obama’s awkward denials at his next-day news conference, he himself defined the election when he insisted just last month that ‘these [i.e. his] policies are on the ballot – every single one of them.’

“They were, and America spoke. But it was a negative judgment, not an endorsement of the GOP. The prize for winning is nothing but the opportunity for Republicans to show that they can govern – the opportunity to seize the national agenda.”

For their part, Democrats will be rushing through as many measures as they can while they still have power, as well as trying to get through the backlog of presidential nominations to the federal bench.

[I have far more on the election below.]

Turning to the U.S. economy and the past week’s news on that front...

Friday saw the employment report for October and for a ninth consecutive month, the nonfarm payroll figure was above 200,000 (214,000), the best such stretch since March 1995. August and September were revised up a total of 31,000. 

The unemployment rate ticked down to 5.8%, its lowest level since July 2008. Even the underemployment rate, U6, which includes those with part-time jobs who want full-time positions, is down to 11.5%, the lowest for this key metric since September 2008.

Democrats obviously didn’t take advantage of the better tone the past year in particular, but some of the exit polling data tells you why. As I wrote last week, even a conservative Republican such as myself recognizes not everyone is participating in the recovery, far from it. The October jobs report, for example, contained the fact average hourly earnings rose only 0.1% last month, or 2.0% the past 12 months, and while I keep saying wages will begin to rise, soon, which will force the Federal Reserve’s hand, that hasn’t happened as yet.

Some of the other data on the week wasn’t particularly good, such as figures on September construction spending (-0.4%) and factory orders (-0.6%), both down when expectations were for increases in each.

The October ISM report on manufacturing came in lighter than expected, 55.9, which is still more than solid (50 being the dividing line between growth and contraction), but it was less than September’s 57.5. The ISM services index (non-mfg.) for last month was 57.1, again, good, but still down from September’s 58.6.

One of the bigger stories, though, was how oil continued to tumble, down a sixth consecutive week to $78.65 on West Texas Intermediate, the price I quote at the end of each review, after hitting an intraday low of $75.84 on Tuesday, the lowest since October 2011. The Saudis announced through the publication of their official selling prices for December that they were reducing the price for Saudi crude to the U.S., while raising prices for Europe and Asia. This is being seen as a direct effort to wrest market share from the United States and to pressure the exploding shale revolution.

So just how resilient is the U.S. oil industry? I’m not sure it’s as resilient as many think. For starters there is massive debt on some of the projects and while advances in technology have significantly lowered production costs, some of the more expensive sites probably can’t survive oil under $70, for example. But it’s on a case-by-case basis. It’s just that we know one thing for sure...banks aren’t about to finance any new ventures for the time being.

That said, yes, the shale revolution has had a major impact on OPEC, which on Thursday released its annual World Oil Outlook and because of the boom in the U.S., demand for crude from the OPEC nations may fall to a 14-year low of 28.2 million barrels a day in 2017, 600,000 less than last year’s report and 800,000 below the amount required this year. [Grant Smith / Bloomberg]

OPEC next meets Nov. 27 in Vienna and while no big changes in policy are expected, price action the next few weeks will certainly enter into the equation.

Finally, Bill Gross, in his second investment outlook from his new perch at Janus Capital Group, warns deflation is a “growing possibility.”

“The real economy needs money printing, yes, but money spending more so, and that must come from the fiscal side – from the dreaded government side – where deficits are anathema and balanced budgets are increasingly in vogue,” he writes.

Europe and Asia

Turning to Europe, the European Commission reduced its growth forecast for the eurozone to just 0.8% in 2014, down from a previous projection of 1.2%, while cutting 2015 to 1.1% from 1.7%. For next year, Germany was cut from 2.0% to 1.1%, France from 1.5% to 0.7%, and Italy from 1.2% to 0.6%.

The EC also reduced its inflation forecast to 0.5% this year, 0.8% in 2015 and 1.5% in 2016, all well below the ECB’s 2% target.

Marco Buti, the director general of the commission’s economics department, said:

“The slowdown in Europe has occurred as the legacy of the global financial and economic crisis lingers....

“We see growth...coming to a stop in Germany...protracted stagnation in France and contraction in Italy.”

Earlier, the final reading on manufacturing in the EA18 (euro-18) was 50.6 vs. 50.3 in September.

Ireland was 56.6, however, which is solid
Netherlands 53.0
Germany 51.4
Italy 49.0, 17-mo. low
Greece 48.8
France 48.5...blehhh
Austria 46.9, 24-mo. low...haven’t been paying attention here
Spain 52.6

[Non-euro U.K. was at 53.2 for October vs. 51.5 the prior month.]

A composite reading for the eurozone that includes services was 52.1 in October vs. 52.0 in September. Germany was 53.9 (vs. 54.3); France 48.2 (vs. 48.0); Italy 50.4, 3-mo. high; Spain 55.5.

Eurozone retail sales fell 1.3%, September over August.

Separately, Germany factory orders, up 0.8% for September, and industrial production, up 1.4% on the month, were less than expected rebounds from awful figures in August, down 4.2% and 3.1%, respectively. It’s about falling exports to Russia, to a great extent.

Chris Williamson, chief economist at Markit, which is responsible for the PMI data, observed:

“The eurozone PMI makes for grim reading, painting a picture of an economy that is limping along and more likely to take a turn for the worse than spring back into life. While output grew at a slightly faster rate than in September, consistent with quarterly GDP growth of 0.2%, a near-stagnation of new orders, with the worst reading for 15 months, suggests that the pace of growth may deteriorate in coming months.

“A fall in employment for the first time since November casts a further cloud over the outlook. Firms are often being forced to cut employment due to squeezed profits margins. Input costs are rising but prices charged for goods and services have fallen almost continually over the past three years, with the rate of decline accelerating to the fastest seen over this period in October as companies increasingly turn to discounting to help boost sales.

“While beneficial to the consumer, the resulting squeeze on profit margins is damaging in the longer term and will result in lower employment and investment.”

The European Union’s statistics office will publish GDP data for the third quarter on Nov. 14.

Separately, last week I said Italy was the critical bond market to follow in Europe and about 48 hours later, the Wall Street Journal’s Simon Nixon wrote some of the following:

“As the Federal Reserve ends its quantitative-easing program, the calls for the European Central Bank to embark on its own full-scale government-bond-buying program to invigorate the eurozone’s economy grow louder.

“Many economists concur with former Fed Chairman Ben Bernanke’s judgment that, in the U.S., QE worked in practice but not in theory. In Japan, the world’s most aggressive QE program seems to have worked in neither theory nor practice, leading the Bank of Japan to decide last week that perhaps it wasn’t aggressive enough. Would a eurozone easing program prove any more successful?

“Italy is the crucial test. The eurozone’s third-largest economy is suffering from a toxic combination of sluggish growth and government debt of 135% of gross domestic product. It grew by less than 1% a year on average in the years prior to the crisis and now looks likely to slide back into a third recession in six years. Credit conditions continue to deteriorate. If QE can’t rescue Italy, then it can’t rescue the eurozone.”

But the recently completed ECB bank stress tests just “confirmed what the market suspected: The Italian banking system is the weakest in the eurozone.”

Italy has multiple other problems as I’ve been spelling out in this space, but bottom line, yes, Greece will get its share of headlines, but it’s about Italy.

This week, though, the Italian 10-year bond was like the other bond markets in the EA18, yields barely moved, in Italy’s case the 10-year edging up to 2.37% from 2.35%, because of ECB President Mario Draghi’s continued reassurances that he will do whatever it takes to help jumpstart economic activity, which means more bond-buying, potentially a lot more come the ECB’s next meeting in December.

Draghi insisted this week at the ECB’s November confab that there is no mutiny among the members of the governing council and that policy makers are unanimous in their readiness to do more to juice economic growth, like print more money to build up the central bank’s balance sheet back to 2012 levels, adding about $1.25 trillion, which promptly sent the euro to a two-year low, brightening prospects for exporters, for one.

Draghi is setting the stage for the launch of a new round of bond buying at the next meeting in December.

The Washington Post’s Robert Samuelson had some thoughts on Draghi and the eurozone.

“Although Americans are rightly upset about the slow recovery from the 2007-2009 ‘Great Recession,’ the U.S. rebound has been speedy compared with the one in Europe: Since 2008, Europe has experienced two recessions and may now be on the verge of a third. The output of the U.S. economy has surpassed its early 2008 level by about 8 percent, according to data Draghi presented at a recent briefing. Meanwhile, the output of the eurozone is still 2 percent below its 2008 level.

“Private investment has collapsed. It’s down about 15 percent form 2008. Public investment (in schools, roads, hospitals) has dropped about 20 percent.   The social consequences are horrendous. In September, the eurozone’s unemployment rate was 11.5%, only a slight decline from a 12 percent peak a year earlier....

“And then there are the political ramifications. Economic stagnation has fed nationalism and populism. Conflict between weak economies (Italy, Spain, Greece, France) and stronger competitors (Germany, the Netherlands) continues. Differences undermine Europe’s capacity to act decisively on other issues, from the Middle East to Ukraine....

“The rap against the ECB is that it hasn’t been as aggressive as the Fed.  Though accurate, the criticism is overdone....

“The trouble is that low interest rates won’t spur economic growth if lenders don’t want to lend and borrowers don’t want to borrow. That has been true in Europe....

“Without faster growth, much of Europe risks deflation... that would make its debt burden heavier. Chronic stagnation could give way to something worse.”

Turning to Asia....

The Chinese government reported the manufacturing PMI for October was 50.8 vs. 51.1 in September, while the services PMI was 53.8 vs. 54.0, a nine-mo. low for this. HSBC’s final October mfg. figure was 50.4 vs. 50.2 the prior month.

In an independent survey of 100 cities in China (not the government’s data), average new-home prices fell 0.4% in October after being down 0.9% in September.

So take the above and it’s just a further sign of a broadening slowdown.

In Japan, there are splits in both the Bank of Japan and among Prime Minister Shinzo Abe’s cabinet as to whether the national sales tax (VAT) should be raised next October for a second time, in this instance from its current 8% to 10%. Abe said he will decide by Dec. 8, after receiving all the third-quarter data. Recall, first quarter GDP was up an annualized 6.0% in anticipation of April’s tax hike from 5% to 8%, but then the negative impact has turned out to be greater than expected, highlighted by second-quarter GDP, down 7.1%.

Two other manufacturing PMIs of note in the region. Taiwan’s October figure was 52.0 vs. 53.3 in September, while South Korea’s was 48.7 vs. 48.8.

Street Bytes

--After a wild two-week rally, the market showed signs of needing a break, even as the Dow Jones and S&P 500 eked out their third straight record finishes on Friday. The Dow now sits at 17573, up 1.1% on the week, while the S&P is at 2031, up 0.7%. Nasdaq gained just two points, 0.04%.

But now we’re at the beginning of some favorable seasonal trends, with November and December being two of the historically strongest months, while the November through April period is the best six months for the market, outpacing May through October by 7% since 1950, according to the Stock Trader’s Almanac. 

And equity returns following the midterm elections tend to be superb, with a 7% median return in the 90 days following the vote, according to Barclays.

So hit the malls, go out to dinner, have some fun. Just remember to call the police if you see any unaccompanied packages.

--U.S. Treasury Yields

6-mo. 0.05% 2-yr. 0.50% 10-yr. 2.30% 30-yr. 3.03%

Just as in Europe, the Treasury market largely took a breather this week.

--On the Ebola front, there are signs Liberia and other affected countries are beginning to get a handle on the virus. Lenny Bernstein of the Washington Post reported that “The reduction in tension is palpable” in the Liberian capital of Monrovia. Some beds in the treatment centers are now empty.

But as Bernstein also writes, “no one believes Ebola is yet gone. The virus has shown in the past that it can recede, then flare up even more virulently than before.”

And indeed, the Washington Post editorialized that while the situation looks better in Liberia, “in Conakry, Guinea, where the virus appeared to be receding in July, Doctors Without Borders reported a massive spike in cases, with treatment facilities ‘stretched to the limit.’ Another spike has been reported in a remote district of Sierra Leone that had been largely free of the virus.”

[Separately, in a Wall Street Journal/NBC News poll, nearly 3/4s of Americans said they agreed with a policy 21-day quarantines for returning health workers even if they haven’t yet developed symptoms of the virus.]

--Related to the Ebola crisis, BBC News’ Camila Ruz reported that with Ebola getting all the publicity, people are forgetting we are entering the peak season for Lassa fever in West Africa, which has symptoms identical to Ebola and kills up to 20,000 a year. Lassa can spread from person-to-person and is caused by rats, who carry the disease into homes and food stores.

--The Supreme Court agreed Friday to hear a new challenge to the Affordable Care Act, specifically whether the law authorizes subsidies for low- and middle-income people to help pay their health insurance premiums. Opponents argue most of the subsidies are illegal.

The justices upheld the heart of ObamaCare in a 5-4 decision in 2012, but this is yet another case that could gut the ACA. The Court isn’t likely to rule on this one until late spring.

--A federal judge on Friday approved a plan for Detroit to emerge from bankruptcy, just 16 months after it became the largest city in the U.S. to file for it.

Judge Steven W. Rhodes found the city’s plan to shed $7 billion in debt and to invest $1.7 billion into long-neglected services was fair, feasible and in the best interest of Detroit’s creditors. The city has a long way to go, but most marvel how quickly this critical step came about.

--JPMorgan Chase & Co. announced it was slashing 3,000 more jobs this year than previously forecast in its mortgage and credit-card divisions, bringing the total between the two to 11,000.

JPM is also cutting hundreds of tech support jobs in its corporate and investment bank as revenue declines.

--Disney reported better than expected revenue due to the success of its movies, including “Frozen” and the Marvel movie “Guardians of the Galaxy.” Revenue from media and cable networks (see ESPN) increased 5%. Revenue from parks and resorts, always a good economic indicator, rose 7%. Overall revenue was also up 7%.

--Home Depot said the credit-card breach it suffered going back to last April was even more widespread than first announced. In addition to the 56 million credit-card accounts that were compromised, the company now says 53 million customer email addresses were exposed. As reported by the Wall Street Journal, both Home Depot and, earlier, Target Corp., “fell victim to the same type of infiltration tactics...where hackers gained access via a Pennsylvania-based refrigeration contractor’s electronic billing account.”

HD former CEO Frank Blake, who retired last month, conceded, “If we rewind the tape, our security systems could have been better. Data security just wasn’t high enough in our mission statement.”

Hackers exploited a vulnerability in Microsoft’s Windows operating system and ended up targeting 7,500 of Home Depot’s self-checkout lanes.

--Automakers reported continued sales gains for the month of October, with only Ford’s falling among the majors. SUV and truck sales were strong as gasoline prices fell. Hybrid sales, on the other hand, generally fell, with Ford’s C-Max hybrid seeing its sales plummet 22% in the month, while Toyota Prius sales were down 13.5%.

GM’s overall U.S. sales rose just 0.2%, Chrysler’s surged 22%, led by the Jeep brand’s 52% increase over a year ago. Toyota’s sales were up 7% overall; Nissan’s 13%; Honda’s 6%, and Subaru’s 25%.

Ford’s sales were down 2% and Hyundai’s dropped 6.5%.

Overall sales for 2014 are now expected to be about 16.5 million vehicles, up 6% from 2013.

--Honda is expanding the number of vehicles that face recalls due to faulty Takata air bags. As one who has owned or leased a new Honda Accord every three years for the past 20+, it’s kind of disturbing seeing that I was probably driving one with these weapons aimed at the face. The recall includes certain 2001-2006 models of Accords, Civics, Odysseys, Acuras and other models. The National Highway Traffic Safety Administration is demanding Honda turn over documents that NHTSA suspects may show the automaker knew of the deadly issue and did nothing about it for years.

As for Takata, it is facing a federal criminal investigation.

--Tesla Motors Inc. reported a loss of $74.6 million for the third quarter as it lowered its forecast for full-year deliveries of its Model S sedans to about 33,000. Vehicle sales in the quarter were 7,785, slightly less than the 7,800 forecast by the company, though revenue of $852 million is nearly double that of $431 million from a year earlier.

CEO Elon Musk said the delivery shortfall was due to production issues and “being too perfectionist about future products.” He reiterated the company’s goal of producing 100,000 vehicles by the end of next year, which reassured investors who then bid the shares up 7% following the announcement.

The company's Model X is now slated for shipment third quarter of 2015, one-quarter later than previously announced.

--Hyundai and Kia reached a $100 million settlement with the U.S. government for overstating the fuel economy of their cars, the largest penalty ever levied under the Clean Air Act. Back in November 2012, the South Korean carmakers admitted to having overstated the fuel economy by up to six miles per gallon.

--Alibaba Group Holdings Ltd. issued its first earnings report as a public company and it showed revenue for the quarter rose 54% to $2.74 billion, with more users than ever, and an increasing number shopping over their smartphones. Executive Joseph Tsai said during an analyst call that Alibaba added 29 million mobile users

--Gold and silver prices sank to 4 1/2-year lows this week, thanks to a soaring dollar and economic stimulus from the likes of the Bank of Japan. Commodities are priced in dollars and become more expensive to foreign buyers as the dollar soars against the yen and other currencies.

Silver has been hit by slowing demand in Asia and Europe.

Meanwhile, a Swiss referendum on Nov. 30 would require the Swiss National Bank to build its bullion position up to at least 20% of total assets from 8% today. According to Bank of America, that would mean the SNB would have to buy at least 1,500 tons of gold, or about 7% of annual global demand, that would in turn trigger a 17% rally.    But polls show voters are split on the move. [Bloomberg]

--Qualcomm warned an ongoing antitrust probe in China presented “significant challenges” in the year ahead, this as the Federal Trade Commission here in the U.S. has launched a new investigation into the company’s patent licensing business. Shares in the wireless chip developer fell hard, after also reporting revenues and earnings that fell short of Wall Street’s expectations.

In China, if Qualcomm is found guilty on intellectual-property licensing issues, it could be fined up to 10% of its prior year’s revenues. Half of Qualcomm’s revenues in 2013 came from customers and licenses based in China, where most of the world’s smartphones are manufactured. Chinese sales rose only 7.4% last year, way down from 2012’s 54.2% rise.

--Time Warner raised its full-year profit forecast and third-quarter revenues rose 3% to $6.24 billion. The company has cut about 10% of its staff as part of a major restructuring to enhance profitability.

--CBS said revenue rose 2% last quarter, with ad sales boosted by several Thursday primetime football games, which were aired for the first time on broadcast television, as well as spending on the mid-term elections.

--The unemployment rate in Ireland is down to 11%, from a crisis peak of 15% in 2011, according to the Central Statistics Office. Clearly there is still a long ways to go, but virtually all experts say the country is moving in the right direction (which is my own personal experience there these past few years).

Separately, Ireland will register the highest growth of any European Union economy this year at 4.6%, according to the European Commission.

--Canada’s unemployment rate unexpectedly fell to a six-year low last month, 6.5%, down from 6.8%. A Bloomberg news survey was actually calling for a tick up to 6.9%. As Ronald Reagan would have told his old friend Brian Mulroney, ‘Not bad...not bad at all.’

--Warren Buffett’s Berkshire Hathaway reported net earnings of $4.6 billion, down from $5.1 billion a year ago, owing to a $678 million hit on his Tesco investment, the UK supermarket chain whose shares cratered amid plunging profits and an accounting scandal. Berkshire’s insurance business is kicking butt, along with investments in railways, power utilities and industrials, offsetting poor performers like Coca-Cola, IBM, and Tesco; the latter being jettisoned rapidly.

--New malware seems to target mostly Chinese users of Apple products, with “WireLurker” having originated in China.

WireLurker has the ability to transfer from Apple’s Mac computer to mobile devices through a USB cable. Apple said, “This malware is under active development and its creator’s ultimate goal is not yet clear.”

A Chinese web monitoring group, Greatfire.org, said they believed the Beijing government was behind the move, which the government denies. [BBC News]

--Macau’s casinos recorded their worst monthly revenue performance on record in October, down 23.2% from a year earlier (official data going back to 2005). I’ve always said this is my favorite economic barometer for the health of the overall Chinese economy (number one because you can trust the data), so this is not a good sign, sports fans.

--German industrial equipment maker Siemens warned global tensions would affect its business as it predicted flat revenue for the coming year. Revenue was also flat in the third quarter.

--Despite slowing growth and the Occupy Central protest movement, real estate prices in Hong Kong continue to rocket higher. According to research from Demographia, average home prices are now 14.9 times median household income, compared with 7.3 in pricey London. [Financial Times]

--An initial investigation into last week’s explosion of an unmanned rocket bound for the International Space Station is targeting the decades-old Russian engines used to launch it, according to Orbital Sciences Corp. executives. Orbital announced it would no longer use the rocket engines, which were built in the 1960s and 70s and later purchased by Aerojet Rocketdyne, which refurbished them and supplied to Orbital for NASA’s cargo missions. [Melody Petersen / Los Angeles Times]

--Regarding the Virgin Galactic rocket plane crash that claimed the life of one of the test pilots, Melody Petersen and Ralph Vartabedian of the L.A. Times had this bit.

“The Virgin Galactic rocket plane had just broken the sound barrier and was shooting toward the heavens when it began disintegrating, battered by powerful aerodynamic forces.

“The pilots were strapped into their seats as entire pieces were torn from SpaceShipTwo. At more than 10 miles high, with fingers no doubt numb from the cold, Peter Siebold somehow escaped from the hurtling wreckage.

“Siebold, who had been flying Virgin Galactic’s spaceships for a decade, had to rely on his experience and his instincts. He had a parachute but no spacesuit to protect him from the lethal environment as he plunged toward Earth at close to the speed of a bullet.

“At almost twice the height of Mt. Everest, the air is dangerously thin and the temperature is about 70 degrees below zero. It was a real world case of survival in the face of disaster, like the movie ‘Gravity.’

“Siebold managed to deploy his parachute and land in the Mojave Desert. His shoulder was smashed and a fellow pilot described him as ‘pretty banged up.’ He was discharged from the hospital Monday.

“ ‘The fact that he survived a descent of 50,000 feet is pretty amazing,’ said Paul Tackabury, a veteran test pilot.... ‘You don’t just jump out of aircraft at Mach 1 at over 50,000 feet without a spacesuit.’

“Siebold’s partner, 39-year-old copilot Michael Alsbury, was found dead, strapped into his seat in the wreckage.”

It’s easy to forget hundreds of test pilots have died over the years. And I never knew Edwards Air Force Base is named for pilot Capt. Glen Edwards, who died in an experimental craft in 1948.

As for the NTSB’s accident investigation, while it could take 6-12 months for a formal report, it seems clear Michael Alsbury flipped a switch to unlock a lever that may have caused the spacecraft’s tail to rise, creating drag, or “feathering.” This occurred moments before SpaceShipTwo “disintegrated,” according to the NTSB.

But this maneuver alone shouldn’t have been enough to change the craft’s configuration.

As I go to post, I do not believe Siebold has been interviewed.

Founder Richard Branson has been accused by some of missing a series of warnings that the rocket was unsafe for flight, with a number of senior aerospace engineers voicing fears over the design and safety protocols concerning testing. Three senior Virgin Galactic executives had also all quit the company in recent months.

And while Branson vows to push on, the Financial Times reported his venture faces severe financial difficulties – with $400 million in funding from Abu Dhabi having dried up.

--Sprint is cutting 2,000 jobs, or about 5% of its staff, as part of an effort to reduce spending by $1.5 billion.

--PIMCO saw investors pull a net $48 billion from its mutual funds in October, including $27.5 billion from the flagship Total Return Fund, once managed by Bill Gross. Outflows over September and October were $73.8 billion, which doesn’t include separate accounts managed for institutional investors. Gross departed for Janus Funds on Sept. 26.

--Shares in Herbalife Ltd. were crushed as the company said profit plunged 90% in the third quarter, much of this from Venezuela and the disastrous picture (and currency) there.

--Fox News’ election coverage not only beat its cable competition, but also the broadcast networks’ limited coverage, though every network was down substantially in viewership over four years ago, including Fox.

In the 10 p.m. hour, the only one where the news division of the broadcast networks covered the results, Fox led with 6.6 million viewers, while CBS was next at 5.4 million. [Bill Carter / New York Times]

--Kantar Media research firm projected that total spending on advertising for this year in politics is expected to hit $2.4 billion, up $100 million from four years ago.

--An 1881 portrait by Manet sold at auction for $65.1 million, vs. the painting’s high estimate of $35 million. It’s a portrait of the actress Jeanne Demarsy and one of the last of his salon works still in private hands. It was purchased on behalf of the J. Paul Getty Museum in Los Angeles.

I’m not a Manet fan, preferring Monet, but this particular work isn’t bad.

Foreign Affairs

Iraq / Syria / ISIS: Three days after the mid-term elections, President Obama authorized up to another 1,500 troops to Iraq, roughly doubling the size of the existing force there that the United States has been building up since June to fight ISIS. The White House is requesting Congress authorize $5.6 billion for the campaign against IS, including $1.6 billion to train and equip Iraqi troops. [I told you last summer the costs would begin to soar...and while the impact on the budget deficit is small, for now, the longer-term impact is unknowable.]

Once again we are being told these are not combat forces, but the “advisers” will be in major hot zones, including Anbar province. [Much more on this next week.]

The U.S. military launched a series of attacks against al-Qaeda-linked Khorasan in Syria and believes it killed a key bombmaker, a 24-year-old French jihadist.

But many of the airstrikes in the current campaign have come against the al-Qaeda-linked Nusra Front, which is a rival to ISIS, and as noted for weeks now, Syrians opposed to Bashar Assad don’t understand why Assad isn’t targeted rather than Nusra Front, which is popular among many of the people for countering ISIS. It’s just a mess. Members of U.S.-backed rebel militias were, according to the Daily Star of Lebanon, defecting to the Nusra Front or an allied fighting group called Jund al-Aqsa.

Meanwhile, ISIS killed 322 members of an Iraqi Sunni tribe last weekend, according to Iraq’s government, with IS holding 65 hostages as prisoners of war. The victims, including 10 women and children, were lined up and publicly shot as punishment for what ISIS sees as the tribe’s resistance to IS rule.

Since the formation of the new Iraqi Shia-dominated government, Baghdad has been trying to win over Sunni tribes in the battle against IS, but hasn’t succeeded. The Associated Press reports that just 5,000 of an estimated 30-40,000-strong tribal population are backing Baghdad.

In Syria, in the battle of Kobane, which many are beginning to compare to a mini-Stalingrad, the insertion of Iraqi Peshmerga fighters has helped the Kurdish cause, especially since they have heavy weapons, but without western reporters on the ground there, it’s impossible to know what is truly happening day to day.  As The Economist opined: “Kobane may not be Stalingrad, but if it holds out, the psychological damage to IS will be real.”

ISIS scored a big victory in capturing a critical Syrian gas plant, Sha’ar, while attacking a major air force base near the central city of Homs – which would be a potentially devastating blow to Bashar Assad. The military base, Tayfur, is home to numerous Syrian fighter aircraft, as well as surface-to-air missile systems.

So, if the U.S. were to strike ISIS around Homs, it would be providing air support to the Syrian government.

Iran: The Wall Street Journal reported that President Obama “secretly wrote to Iran’s Supreme Leader Ayatollah Ali Khamenei in the middle of last month and described a shared interest in fighting Islamic State militants in Iraq and Syria, according to people briefed on the correspondence.

“The letter appeared aimed both at buttressing the campaign against Islamic State and nudging Iran’s religious leader closer to a nuclear deal.”

The nuclear deadline is just two weeks away, Nov. 24. Administration officials place the odds of a deal at just 50-50, with Secretary of State John Kerry and his Iranian counterpart, Javad Zarif, meeting on Sunday in Oman for what is being billed as intensive direct negotiations.

As for the letter, which is far from unusual, House Speaker John Boehner said on Thursday, “I don’t trust the Iranians, I don’t think we need to bring them into this,” adding that with regards to the nuclear talks, he “would hope that the negotiations that are under way are serious negotiations, but I have my doubts.”

The White House didn’t tell its Middle East allies – including Israel, Saudi Arabia and the UAE – of Obama’s letter to Khamenei. The Saudis and Israelis, in particular, are extremely concerned the administration is softening its demands of Iran.

Iran is demanding it be allowed to retain all of its current capability – including 9,000+ centrifuges used to enrich uranium, while being permitted to sharply increase this number. The P5+1 want to reduce Iran’s nuclear capacity.

Lee Smith / The Weekly Standard

“Last week, the Obama White House finally clarified its Middle East policy. It’s détente with Iran and a cold war with Israel.

“To the administration, Israel isn’t worth the trouble its prime minister causes....

“It’s hardly surprising that the Obama White House is crudely badmouthing Netanyahu; it has tried to undercut him from the beginning. But this isn’t just about the administration’s petulance and pettiness. There seems to be a strategic purpose to heckling Israel’s prime minister. With a possible deal over Iran’s nuclear weapons program in sight, the White House wants to weaken Netanyahu’s ability to challenge an Iran agreement....

“From the White House’s perspective, then, Israel is the source of regional instability. Iran, on the other hand, is a force for stability. It is a rational actor, Obama has explained, pursuing its own interests. The White House, moreover, shares some of those interests – like rolling back the Islamic State.

“The fact that Quds Force commander Qassem Suleimani now calls the shots in four Arab capitals – Beirut, Damascus, Baghdad, and Sanaa – makes him the Middle East’s indispensable man. Compared with the one-stop shopping Obama can do in Tehran to solve his Middle East problems, what can Israel offer?

“The Obama administration’s Middle East policy...is premised on a fundamental misunderstand of the Islamic Republic. The question is whether the White House has also misunderstood the character of a man, the prime minister of Israel, whose courage they mock.”

[The Associate Press this week had an extensive story on Gen. Suleimani who was seen on Iraqi news websites the other day after the Iraqi military had beaten back an ISIS attack. Yes, the Iranian general on the scene directly in Iraq. What successes the Iraqi army has had in recent months would appear to be the direct result of Suleimani’s command and strategy.]

So with all the above in mind, understand one thing. The Iranian government continues to stonewall the UN’s International Atomic Energy Agency, which has been seeking access to some of Iran’s military bases and nuclear facilities, as well as the right to talk to Iran’s scientists. The place I’ve been bringing up for years now, Parchin, remains off limits despite numerous demands by the IAEA that it be allowed to inspect the facility, which is suspected of being the site of nuclear trigger testing. Of course Iran has had years to pave over the evidence, which they have literally done...pave it over.

Again, this is all you need to know to understand Iran’s intentions. The administration should be demanding, alongside UN inspectors, access before any agreement is signed, or extended.

Finally, Iranian President Hassan Rohani said in remarks to parliament recently that the slide in global oil prices has resulted in a 30% decline in Iran’s revenue from crude sales. A slowing China, Iran’s biggest buyer, isn’t helping.

Iran dropped in 2012 to fifth from second in production among the 12 members of OPEC.

Israel: There has been a disturbing rise in Palestinian terror attacks on Israelis using automobiles. On Wednesday, a man described as a terrorist by Israeli officials killed one person and injured 13 others when he rammed his car into pedestrians in Jerusalem. He was later shot and killed by police at the scene.

Israeli officials say the man was known as a Hamas operative, and Hamas praised the attack. “We congratulate the activity carried out by Jerusalem’s blessed heroes that targeted soldiers and security men,” Hamas said in a statement, referring also to a separate incident later when a car rammed a military checkpoint. “We call on the people of Jerusalem and the West Bank and all of the Palestinians to carry out more of these activities with full force in order to defend al-Aksa [al-Aqsa],” the statement read. [Jerusalem Post]

Al-Aqsa refers to the Temple Mount, where violent riots have been taking place, and it wasn’t a good sign when Jordan came out and accused Israel of attacking and desecrating what Muslims call Haram al-Sharif. Jordan’s minister of Islamic affairs called Israeli actions “tantamount to state terrorism. It is also a violation of Jordan’s peace treaty” with Israel.

For his part, Jordan’s King Abdullah promised Jordan would safeguard holy Muslim and Christian sites in Jerusalem. “The Palestinian cause remains our principal cause and is a higher national interest,” Abdullah said in a speech.

What would be awful is if Abdullah, facing immense pressure inside Jordan to be tough on Israel, with millions of Palestinian refugees within his borders (let alone Syrians and Iraqis), renounced the 1994 treaty with Israel.

Naftali Bennett (Israel’s minister of the economy) / New York Times

“Recent events in the Middle East are a reminder of how the old models of peace between Israel and the Palestinians are no longer relevant. The time has come to rethink the two-state solution.

“This past summer, Hamas and its allies fired over 4,500 rockets and mortars at Israel, demonstrating once again what happens when we evacuate territory to the so-called 1967 lines and hand it over to our adversaries. Peace is not obtained. Rather, we are met by war and bloodshed.

“The rise of the Islamic State, also known as ISIS, and other extreme elements in Iraq, Syria and Lebanon, make the risks just as clear. Israel cannot afford to gamble with its security. There are no second chances in the volatile Middle East.

“That is why, for its security, Israel cannot withdraw from more territory and cannot allow for the establishment of a Palestinian state in the West Bank. If we were to pull out of the West Bank, the entire country would become a target for terrorists who would be able to set up rocket launchers adjacent to the Old City of Jerusalem and on the hills above the runways of Ben-Gurion International Airport and the Tel Aviv Stock Exchange.

“Take the Jordan Valley. The Palestinians demand that Israel withdraw from this narrow piece of land, which borders Jordan. But if we do so in today’s climate, we potentially open the door for the Islamic State and other extremists to flood into the new Palestinian state. We cannot take that risk.

“How do I know? Because it happened. Not once, not twice, but three times.

“In the mid-1990s, we pulled out of Palestinian cities as part of the Oslo agreement. In 2000, the second intifada erupted and over 1,000 Israelis were killed in attacks carried out by terrorists, many of whom came from the very cities we had evacuated.

“When we pulled out of Lebanon in 2000, we saw a significant strengthening of Hizbullah, the Iranian-backed militia. During the second Lebanon war six years later, Hizbullah fired more than 4,300 rockets at our cities.

“And in 2005, we withdrew from the Gaza Strip and handed it over to the Palestinian Authority. We were told that Gaza would turn into the Singapore of the Middle East and that peace would grow out of the greenhouses the Jewish residents had left behind.

“Instead, those greenhouses were used to cover up terrorists’ tunnels dug across the border into Israeli towns and villages. Gaza quickly turned into a fortress of terror.”

Bennett does later talk about establishing economic development zones and such, but in the end, “We must work toward realistic goals that are capable of providing real security and economic prosperity.”

Russia / Ukraine: According to the Department of Homeland Security, there is strong evidence a destructive malware program has penetrated the software that runs much of our nation’s critical infrastructure and is poised to cause an economic catastrophe, as first reported by ABC News on Thursday. The malware was inserted by hackers believed to be sponsored by the Russian government and the hacked software is “used to control complex industrial operations like oil and gas pipelines, power transmission grids, water distribution and filtration systems, wind turbines and even some nuclear plants. Shutting down or damaging any of these vital public utilities could severely impact hundreds of thousands of Americans.” [Pierre Thomas and Jack Cloherty / ABC News]

A DHS bulletin said the hacking has been ongoing since 2011, but there has been no attempt to activate the malware. The hacked software is also very advanced.

Separately, once a week, it seems these days, President Vladimir Putin says something totally outrageous and on Thursday, Putin said there was nothing bad about the Nazi-Soviet Pact, the non-aggression treaty that led to the carve-up of Poland at the outset of World War II. Putin added Britain and France destroyed any chance for an anti-fascist front with the Munich Agreement.

Putin made the comments to a group of young historians and needless to say, some in Eastern Europe will find cause for concern.

The Nazi-Soviet Pact of 1939, or Molotov-Ribbentrop, agreed to divide up Finland, Estonia, Lithuania, Latvia and Romania, aside from Poland, into spheres of influence. 20,000 Poles were captured and executed by the Soviet secret police in the Katyn massacre in 1940, while the Nazis were beginning their extermination campaign that led to the deaths of three million Jews in Poland alone. [Tom Parfitt / Daily Telegraph]

So with the above in mind, there were reports Friday of scores of Russian tanks crossing into Ukraine, while Ukraine’s military claimed to have killed 200 rebels... 200...in an attack in Donetsk. Following their sham election of last Sunday, pro-Russian separatists have declared they will press forward with creating a state in the east comprised of Donetsk and Luhansk, where new leaders for both were sworn in days later.

The elections were denounced by all, including the U.S., U.N., the European Union and NATO. What it does is create a “frozen conflict.” [A long-term stalemate that the West believes is Putin’s aim] Russia not only has Crimea in full, the Kremlin has a large swath of territory in the eastern part of the country. On Wednesday, Putin said Ukraine’s “civil war” isn’t subsiding, which was borne out by the fighting days later.

Ukrainian President Petro Poroshenko announced Kiev is withholding financial aid to the two regions and that he would ask parliament to annul a law granting more autonomy to Donetsk and Luhansk, calling the Nov. 2 votes “pseudo-elections’ that were a “farce at gunpoint” which will never be recognized as legitimate. They were also a gross violation of the Sept. 5 Minsk agreement, that set up the pseudo-ceasefire.

And this comes about as winter rapidly approaches and while the two sides were said to have completed a deal to ensure Ukraine receives natural gas from gas exporter Gazprom, obviously there is no guarantee this will come to fruition, or that the spigots won’t be shut off in, say, January.

Finally, the Wall Street Journal reported that a member of Putin’s inner circle, billionaire Gennady Timchenko, is being investigated for massive money-laundering in the U.S., transferring funds illegally gained in Russia through the U.S. financial system. The transactions predate the sanctions leveled by the U.S. on Timchenko and other Putin allies last March.

Opposition figures in Russia have long accused Timchenko of parlaying his relationship with Putin to purchase Russian oil and gas from energy giant Rosneft at bargain-prices and then selling it to third parties.

The big issue could be if prosecutors can prove some of the funds being laundered are directly tied to Putin in any way.

China: In a potentially significant move, China reached agreement with Japan to resume high-level contacts, meaning there is still the possibility of a face-to-face meeting between Chinese President Xi and Japanese Prime Minister Abe at this week’s Asia-Pacific Economic Cooperation summit. The main portion of the summit is Monday and Tuesday, but the Chinese Foreign Ministry acknowledged both nations have “different positions” on the contentious East China Sea islands that have been at the heart of tensions the past two years.

These two need each other in a big way economically, with Japanese investment in China plunging 50% in the first six months of 2014.

On the issue of Hong Kong, the South China Morning Post is reporting that Beijing will respect the “two systems” element of the post-handover formula for Hong Kong, while at the same time stressing its “one country.”

A source told the SCMP that “Beijing wanted to improve Hong Kong youngsters’ understanding of the nation’s history and development.”

Back to the APEC summit, for weeks now, Beijing has been battling heavy smog and we’ll see what the pictures look like when President Obama gets there. A study in China said smog caused by coal consumption killed an estimated 670,000 people in China in 2012, with untold financial damage.

The study also found that in 2012, more than 70% of the Chinese population was exposed to annual tiny particulate levels higher than the country’s benchmark for healthy air quality. 

In 2012, some 157 million people in China lived in areas where the tiny particulate (PM2.5) concentration was 10 times the WHO’s recommendation. [Li Jing / South China Morning Post]

Separately, the BBC reported that during a 2013 trip to Tanzania, Chinese officials traveling with President Xi Jinping went on a buying spree for illegal ivory. “Investigators alleged that the Chinese could take advantage of a lack of security checks for those in the country on a diplomatic visit.”

I must say in all my trips to China, security has been a breeze.

North Korea: Early in the week, photos of Kim Jong-un were released showing him walking without a cane for the first time since he re-emerged, but late Thursday, state television aired its first footage of the leader in two months, showing him walking without a stick but with a pronounced limp. Kim was seen limping as he walked past a crowd of soldiers for a photo op. South Korean intelligence maintains Kim had surgery to his left ankle to remove a cyst.

Afghanistan: Ben Watson had a report in Defense One that paints a dismal picture when looking at the future of the Afghan Army and security forces and their ability to accept full responsibility for security in 2015. Lt. Gen. Joseph Anderson, chief of ISAF’s Joint Command, said in a briefing from Kabul, “The [Afghan National Security Forces, or ANSF] have sustained about a 6 ½ percent increase in casualties this year – 4,634 this year versus 4.350 killed in action last year.

“The do need to decrease their casualty rate...Those numbers are not sustainable in the long term,” said Anderson. 

By the end of the year, 9,800 Americans will remain, with another 2,700 from various other countries.

India / Pakistan: Years ago there was a famous “60 minutes” segment on the border crossing at Wagah between India and Pakistan and the daily military ritual between the two sides at the gate. But last Sunday there was a horrific terror attack on the Pakistani side of the checkpoint, killing at least 55 and injuring scores more. The Pakistani Taliban claimed responsibility, though other militant groups chimed in for credit. It was the deadliest attack to hit Pakistan in months, and needless to say the border ceremony has been shelved for the time being, with large crowds normally gathering to watch the entertaining spectacle.

Mexico: I admit to not writing about the disappearance of 43 college students, rounded up by local police in Iguala on Sept. 26, allegedly on the orders of the mayor, and not seen since, but it’s because this is nothing unusual here. In fact, as noted by Tracy Wilkinson of the Los Angeles Times, “an estimated 26,000 people have been reported missing since 2006, when the Mexican government launched its frontal assault against drug cartels and their cohorts....Hiding the dead – those killed in gun battles between rival gangs, or innocents killed after being kidnapped, or women killed after their use as sexual slaves ends – all of that is par for the course.”

But it’s true the case of the 43 has resonated more than other such instances, though President Enrique Nieto had little to report when he met with families this week. Then Friday, Mexican investigators apparently recovered plastic garbage bags containing dozens of burned human bones at a location described to them in great detail by three detained suspects. The students were loaded into the back of a truck, killed, burned and then chopped up and tossed in bags that were thrown into a river.

By the way, “Dozens of Americans, most with family in Mexico, have been killed or gone missing,” Ms. Wilkinson reported in a separate story this week for the L.A. Times.

Random Musings

--More election tidbits:

Reading a lengthy review of the battle for the Senate by the Washington Post, it was interesting to see not only how Mitch McConnell got all over Kansas Sen. Pat Roberts for his early lackluster campaign, but how down the stretch, 91-year-old Bob Dole was intimately involved in planning and barking orders to Roberts’ staff (made up largely of folks McConnell and the RNC parachuted in to save Roberts). Well, it all worked in a big way, Roberts beating independent Greg Orman 53-42 with surprising ease.

Other key Senate results...

Kentucky...McConnell (R) 56 / Grimes 41

Iowa...Ernst 52 (R) / Braley 44

New Hampshire...Shaheen 52 (D) / Brown 48

North Carolina...Tillis (R) 49 / Kagen 47

Colorado...Gardner (R) 49 / Udall 45

Alaska...Sullivan (R) 49 / Begich 45

Georgia...Perdue (R) 53 / Nunn 45

Arkansas...Cotton (R) 57 / Pryor 40

In South Carolina, Republican Tim Scott garnered 61% in his special election for a Senate seat; the first black to win such a race in the South since Reconstruction.

In all eight marquee Senate races, Republican candidates beat the polling averages compiled by Real Clear Politics. Results were similar for governor races – including Republican wins in three states – Florida, Illinois and Maryland – where polls generally showed Democrats in the lead. [Jim Norman / USA TODAY]

Republican Ed Gillespie ran a superb campaign and almost pulled off a startling upset in Virginia, losing to incumbent Democratic Sen. Mark Warner 49.2% to 48.4%, this after Gillespie was legitimately 20 points down in some polls just weeks ago. 

When new state legislators are sworn in next year, “Republicans will control 68 of 98 partisan legislative chambers around the country, six more than their previous high-water mark, which came after 2011 elections in Mississippi.

“Republicans have total control – meaning the legislature and the governor’s mansion – in 24 states, compared with just six states in which Democrats control all levers of the legislative process. The other 20 states are operating under divided control.” [Reid Wilson/ Washington Post]

Great story for Republicans out of Utah with the election of Mia Love, the first black Republican woman – and first Haitian American – elected to Congress. Understand Utah is less than 1% black, and she’s a convert to the Church of Latter-day Saints, which itself is just 3% black. 

New York Democratic Gov. Andrew Cuomo defeated his Republican challenger Rob Astorino 54-41, far less than what Cuomo would have expected a few months ago. [A Green Party candidate picked up 5%.] Cuomo took 62% of the vote four years ago.

In Texas, Gov.-elect Greg Abbott won 44% of the state’s Hispanic vote, according to exit polls, while in Georgia, 4 in 10 of that state’s small Hispanic electorate voted for the Republican Senate candidate, two examples of encouraging news for the GOP in regaining Hispanic support; critical to a pathway to victory in 2016.

Nationally, the exit polls showed that Hispanic voters favored Democrats 62-36, a smaller margin than the 38-point difference in 2016.

--My favorite Democratic Senator, West Virginia’s Joe Manchin III, called the losses suffered by his party “a real ass-whuppin.” In an interview with the Washington Post, he said he was deeply frustrated with Majority Leader Harry Reid and President Obama.

“Harry, let us vote, let’s do something. It’s easier for me to go home and explain what I voted for and against than to explain why I don’t vote at all,” Manchin said. [It’s not hard to see that Manchin is one of the ‘2 or 3’ Democrats who Mitch McConnell referred to in his presser as calling election night to congratulate him and asking for a new atmosphere in the Senate.]

Manchin, when asked whether Sen. Reid wants to do something, or is an obstructionist, or a fool, said: “I have no idea.”

The senator did rule out leaving the Democratic Party and many believe he will return to state politics and run for governor of West Virginia again in 2016.

I think he’d make for a perfect third-party presidential candidate.

--Voters in Staten Island re-elected Republican Cong. Michael Grimm by a 55-42 margin, despite the fact he is under federal indictment for tax fraud and all manner of other bad stuff. How does this happen? His opponent, Domenic Recchia, ran one of the worst campaigns in memory.

--Bizarre situation in New York City, where the No.2 in the NYPD, Philip Banks, unexpectedly resigned, three days after accepting the post of first deputy commissioner. Banks, the force’s highest-ranking African-American, still hasn’t given an explanation (though it was supposedly over Commissioner William Bratton’s not wanting to give him certain powers). Bratton acted quickly in elevating another black, Benjamin Tucker, for the second-in-command slot.

But it would seem First Lady Chirlane McCray (wife of Mayor Bill de Blasio), had wanted Philip Banks to be police commissioner, not Bratton, with a source telling the New York Post that upon learning of the power play between Bratton and Banks, she said to her husband, “I told you we can’t trust him!” 

De Blasio then supposedly blasted Bratton for not catering to Banks, who also had the support of Rev. Al Sharpton. Apparently, prior commissioner Ray Kelly had given what Banks wanted.

So now Bratton has his boss, the mayor, the mayor’s wife, and Rev. Al all mad at him. As the New York Post put it, how long does he put with all this?

--Ex-Navy SEAL Robert O’Neill, a member of SEAL Team Six, revealed he is the man who killed Osama bin Laden and now SEAL leaders are torqued off, noting his revealing of classified information is against the law, while O’Neill’s father, Tom, told the Daily Mail that his son decided to reveal his exploits to help earn a living.

The father also said he was not worried about terrorists taking revenge on him or his son.

“I say I’ll paint a big target on my front door and say come and get us,” he said.

Well that was stupid. As for the son, it’s not for me to say whether the revelation was harmful or illegal. Over time other members of SEAL Team Six will express their own feelings.

And other SEALs have already taken issue with O’Neill’s account.

--New York’s Timothy Cardinal Dolan has the tough task of merging 112 parishes into 55 new ones as part of a massive restructuring effort amid falling weekly attendance at Mass. As noted in a story for the New York Daily News: “Just 12%, or 346,000, of the 2.8 million Catholics in Cardinal Dolan’s New York Archdiocese still attend Sunday Mass. In the 1980s, there were 1,200 priests; today, 365.”

--In what was apparently a contentious parlay between government officials and scientists, a new report from the UN-backed Intergovernmental Panel on Climate Change says fossil fuels, without carbon capture and storage, should be phased out “almost entirely” by 2100, with the report concluding the world faces “severe, pervasive and irreversible” impacts without effective action on carbon.

As noted by the BBC, however: “In (the panel’s) discussions on fossil fuels, there was a fierce battle over a chart that showed how much the electricity sector needed to curb its carbon. According to one observer, ‘the Saudis went ballistic’ over its inclusion.”

Basically, you had a standoff between those who want to focus on cutting emissions and those who believe economic growth comes first.

--The Nov. 10 issue of TIME had one of those stories that really tick you off, the story of how the Brinkerhoff Lodge in Grand Teton National Park, run by the National Park Service, is used by “clouted members of government” for personal use when it was to be reserved for “official purposes.”

“In recent years, the park service has allowed top Obama officials to use the Brinkerhoff for extended stays with friends and family, raising new questions about this perk.”

For example, Vice President Biden, his wife and 11 family members used it for four days in August. At least four Cabinet-level officials have brought groups to the lodge since 2011.

Visitors are supposed to get a tour (like picture for a time-share property) and that makes it official.

But the payoff is, when family members accompany government employees who travel on ‘official business,’ the additional costs incurred “must be paid with persona funds. But several officials who stayed at the Brinkerhoff said there was initial confusion over their need to pay.” Some cabinet members had not paid up as of TIME’s investigation.

--Tony E. brought to my attention a piece by Richard Waters on artificial intelligence in the Financial Times. As in there are just five “computer scientists in the world currently working on how to program the super-smart machines of the not-too-distant future to make sure AI remains ‘friendly,’” in the words of one.

“Their effort,” writes Waters, “is prompted by a fear of what will happen when computers match humans in intelligence,” a fear Elon Musk expressed a few weeks ago. “At that point, humans would cede leadership in technological developments, since the machines would be capable of improving their own designs by themselves.”

Oh, it gets wild, but some bright people worry the worst fears of sci-fi could come true way down the road. Noted Silicon Valley investor Peter Thiel posits:

“The first question we would ask if aliens landed on this planet is not, what does this mean for the economy or jobs. It would be: are they friendly or unfriendly?”

The same question would be asked of computers that become more intelligent than we are.

Nick Bostrom, the author of Superintelligence, the work Elon Musk has been urging followers to read, says the kind of machine-based intelligence that is heading humanity’s way wouldn’t wish its makers harm. But as Waters writes, “it would be so intent on its own goals that it could end up crushing mankind without a thought, like a human stepping carelessly on an ant. This is where the nightmare scenarios come into play. Once they soar past the intellects of their creators, machines are likely to reach their own conclusions about how best to achieve the goals programmed into them. And if humans can’t even prevent accidents in the moderately complex technological systems of today, what chance is there of controlling the systems to come?”

Now...who wants a beer?

--George Ball is chairman of the W. Atlee Burpee & Co. (and thus not the other George Ball of Wall Street fame), and over the weekend he had an op-ed in the Wall Street Journal on how technology has taken over our lives:

“We live in a quandary of fight-or-flight hyper-arousal, stressing our bodies and minds, narrowing our vision and producing ‘auditory exclusion,’ so our hearing is reduced to our inner screams. What you will rarely encounter in our media’s iCloud of Unknowing is the past or a sense of tradition.

“Albert Einstein called this the ‘modernist’s snobbery,’ observing, ‘Somebody who reads only newspapers and at best the books of contemporary authors looks to me like an extremely nearsighted person who scorns eyeglasses. He is completely dependent on the prejudices and fashions of his times, since he never gets to see or hear anything else.’

“Since now is the moment when we are most fully alive, do you really want to spend it in the company of pixels?

“We discover something surprising once we step away from the carny fairway of mass media, and meander through the great works of the past. Whether we are listening to Mozart, gazing at a Georgia O’Keeffe painting, pondering Confucious, or reading the ‘Odyssey,’ we are struck by the newness and newness of the experience.

“As G.K. Chesterton wrote: ‘Tradition means giving votes to the most obscure of all classes, our ancestors. It is the democracy of the dead.

“Tradition refuses to submit to that arrogant oligarchy who merely happen to be walking around.”

--Finally, Nov. 9 marks the 25th anniversary of the fall of the Berlin Wall, a spectacular event for humanity. But when I was in Berlin in December 2007, I was disappointed how little of the actual wall remained standing in the city itself. I understand why the people wanted it all down, but historians will rue that a little more wasn’t left up as an ongoing lesson.

Actually, there was a practical reason little remains. It’s prime Berlin real estate.

---

Pray for the men and women of our armed forces...and all the fallen, especially this Veterans Day.

God bless America.
---

Gold $1169
Oil $78.65

Returns for the week 11/3-11/7

Dow Jones +1.1% [17573]
S&P 500 +0.7% [2031]
S&P MidCap +0.8%
Russell 2000 -0.02%
Nasdaq +0.04% [4632]

Returns for the period 1/1/14-11/7/14

Dow Jones +6.0%
S&P 500 +9.9%
S&P MidCap +6.5%
Russell 2000 +0.8%
Nasdaq +10.9%

Bulls 54.6
Bears 15.1 [Source: Investors Intelligence]

Dr. Bortrum posted a new column after I initially posted mine last time, in case you missed it.

Have a great week. I appreciate your support.

Catch me on Twitter, @stocksandnews...and for new readers, I do have an iPad app.

Brian Trumbore