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12/13/2014

For the week 12/8-12/12

[Posted 10:00 PM ET, Friday...Kiawah, S.C.]

Edition 818

Washington and Wall Street

I’m here on beautiful Kiawah Island for my annual half-marathon. With its lateness in the year it keeps me motivated from March or April on to stay in some kind of shape, especially for my advanced age (56), and as long as the knees hold up I’ll keep doing this one, even though it’s depressing watching my times get worse and worse.

So let’s see…how do I tie this opening into a market commentary?

Well the oil market isn’t in good shape these days!!! 

Crude was down for a 10th week in eleven as oil, as measured by West Texas Intermediate, crashed below the $60 level, closing the week at $57.81. Sept. 26 it was $93.50. Back in June, well over $100. 

While oil being down over 45% in six months is a great thing for consumers, and a strong retail sales figure for November, up a better than expected 0.7%, certainly points to a solid Christmas shopping season with extra cash in everyone’s pocket; the price of gas at the pump is down well over $1.00 since April. At 15 gallons that’s $15…real money. Why that’s enough to go see Sony Pictures’ “The Interview,” where you can smirk at James Franco, knowing he was paid $2 million less than Seth Rogen for the flick…but I digress.

The thing about crumbling oil that led to the worst week for stocks in years, however, is the fear that while the U.S. economy is doing the best of any big player in the world these days, every other country, from the eurozone to Japan and China is either stagnating or in recession. So will these folks drag us under?

Certainly the figures from the likes of OPEC and the International Energy Agency on global demand for oil aren’t good. OPEC said it will pump 28.9 million barrels a day in 2015, which is 1.4 million less than the 12 members of the cartel did in November, while the IEA cut its consumption forecast for a fifth month in six, another 230,000 barrels a day less than estimated in November (though in this instance it is almost solely due to sliding Russian demand because of the double-whammy that economy is facing…plunging oil, revenues from which account for 50% of the federal budget, and Ukraine-related sanctions that have hit the nation particularly hard).

Bloomberg said its analysis shows that 10 of the 12 OPEC nations can’t balance their budgets at current prices, to which you can say ‘so what?’ but as the IEA averred, this could lead to major unrest, given who OPEC is comprised of, plus throw in Vlad the Impaler and non-OPEC Russia and, heck, no one knows what is going to happen next year if oil were to stick around current levels, let alone go even lower.

The IEA does, however, still expect world consumption of oil to rise next year, but only 1% to 93.3 million barrels. Hardly boom times. I would also offer that the IEA is too optimistic on the U.S., saying production will continue to rise in 2015 to the tune of an extra 685,000 barrels a day.

But here’s another issue. Where do you store all the extra crude that is being pumped, globally, at a pace greater than demand?

China is a huge part of this story and I’ll get into it below, as well as further energy tidbits.

For now, though, there are two other stories of note concerning the U.S. What will the Federal Reserve do when it meets next week for its yearend confab? As the Wall Street Journal’s Jon Hilsenrath wrote the other day, and as I noted last WIR, the latest thinking is the Fed would finally change the language in its accompanying statement, specifically dropping the assurance that short-term interest rates will stay near zero for a “considerable time,” which has been in the statements since March, while the Fed has held interest rates at zero since December 2008. The feeling being the Fed wants more flexibility in signaling the market it’s going to begin normalizing rates sometime next year, depending on the data and the global environment.

But as Bill Gross noted on Friday in an interview with Bloomberg, why would the Fed do that? The crash in oil prices is adding tremendous uncertainty to the global picture and the last thing the Fed should want to do is act like they are closer to finally raising rates than the fundamentals warrant.

The other thing that happened this week was Congress is on the verge of passing a sweeping $1 trillion appropriations bill that has both the far left and right screaming. House Majority Leader John Boehner, about to be demoted Senate Majority Leader Harry Reid, and President Obama agreed on the framework for the massive package that will fund the government through September, goodies for everyone around the tree, with the slight sop to conservatives being that the Dept. of Homeland Security, which is responsible for immigration policy, is only funded through Feb. 27, giving the new Republican Senate in January a chance to defund various aspects and force Obama’s hand in terms of using his veto.

The House barely passed the legislation, 219-206, with 162 Republicans and 57 Democrats voting for it, and 67 Republicans and 139 Democrats in opposition.  *As I go to post, the Senate has yet to formally approve it but is expected to shortly.

Liberals are most upset at a provision that rolls back some of the post-financial crisis regulations to allow for banks to trade derivatives again in some heretofore restricted areas, knowing they will be backstopped by the federal government, i.e., the American taxpayer. There has also been a ten-fold increase in the amount individuals can donate to national political parties each year, mainly for the purpose of financing national conventions.

And there is new funding for Ebola and the war against ISIS that only adds to the deficit.

Two views….

Editorial / Washington Post

“Let’s begin by thanking Congress for small favors: Top lawmakers from both parties have agreed on a $1.01 trillion spending bill that will fund all but one federal department through September, thereby averting a shutdown like the one that entangled Washington for 16 days last year….In addition to agency appropriations, the bill would provide billions in funding for such emergencies as the Ebola outbreak in West Africa and the war against the Islamic State.

“That Congress has averted major chaos, however, does not imply that chaos of a more minor kind no longer reigns on Capitol Hill. The gargantuan bill includes a host of provisions, both budgetary and policymaking, that could only have made it through amid last-minute horse-trading on sweeping, must-pass legislation….

“Reflecting the GOP’s rising power, the Environmental Protection Agency and the Internal Revenue Service both will sustain significant cuts – of $60 million and $346 million, respectively. The latter is especially unjustifiable since the IRS’ budget in the current fiscal year, $11.3 billion, already represented a $525 million fall-off since fiscal 2012. Republicans love to take shots at the hated tax collectors but never explain how the agency is supposed to rein in fraud and mistaken payments… without the funds to do the job.”

Editorial / Wall Street Journal

“The 113th Congress is sprinting to a finish, and few besides Harry Reid will lament its passing. In its final budget splurge, however, Congress is at least showing hints of better governance and how a Republican majority might effectively use the power of the purse next year….

“This Gargantua is giving Republicans a chance to press some of their priorities. The bill funds 11 of 12 parts of the government through September and generally stays within the spending caps laid out in last year’s budget agreement – providing $521 billion to defense and $429 billion for domestic discretionary programs. It funds the Department of Homeland Security only through February, when Republicans will tee up a debate over President Obama’s immigration decree.

“Some on the right are calling the caps a sham, and that’s partly true, since the bill adds $64 billion to fight Islamic State and $5.4 billion for Ebola that are outside the caps. Then again, the war has to be funded and defeating Ebola should be a priority.

“More encouraging is that Republicans are showing how they can use Congress’ spending power to steer policy….

“The bill cuts nearly $350 million from an Internal Revenue Service that targeted conservative nonprofits and is acting as tax collector for ObamaCare. It slices $60 million from the imperial Environmental Protection Agency, whose budget is 21% below 2010 levels and will soon have as many employees as it did in 1989….

“Republicans were forced to concede on some of their highest priorities, such as the Keystone XL pipeline and substantive changes to ObamaCare… But Democrats still control the Senate, and Mr. Obama has the veto pen….

“The omnibus bill has plenty of barnacles, and its rush-to-a-vote is a disgrace, but Republicans are using it to make more policy progress than they have in four years. Next year they can make even more, if they understand that their spending power is formidable but not unlimited.”

Europe and Asia

It was a week dominated by more lousy fundamental news for the eurozone as well as a political development that led to the Greek stock market losing about 20% of its value, including 12.8% on Tuesday, the worst day for the Athens benchmark since 1987.

First, eurozone industrial production for the month of October was released, up just 0.1% month over month (up 0.7% year over year), less than expected, which isn’t the kind of start to the fourth quarter many want to see.

German industrial production for October was also up a less than expected 0.2% from September.

In non-euro U.K., October manufacturing fell for the first time in five months.

French President Hollande’s government is pushing again for labor market reforms and loosening regulations such as relaxing rules on Sunday retail hours, but it’s a less than exciting grab bag of items that aren’t being met with enthusiasm. A poll published by the French business daily Les Echos showed nine out of 10 French people disapprove of the government’s economic policy. [New York Times]

In Italy, S&P downgraded its credit to one notch above junk, and there have been widespread strikes over Prime Minister Renzi’s own attempt at labor reforms, so that’s not a good sign for this sclerotic nation.

Then you have Greece. Parliament passed a balanced budget for 2015, while the government is projecting growth of 2.9% for next year after six years of recession/depression.

But the budget is filled with tax cuts that haven’t been approved by the troika – the European Commission, European Central Bank and IMF, which needs to do so as part of the ongoing bailout process.

The Euro part of the bailout is to end Dec. 31, with the IMF involved until March 2016, so the former has a critical say in coming weeks and the latter is involved all of 2015 and then some.

Which leads me to Prime Minister Samaras, who needs 180 votes out of 300 in parliament to avoid having to call a snap election but he only has 155 in his coalition…so what does he do?

He calls a snap election for the largely ceremonial post of president, with three rounds of voting to be held Dec. 17, 23 and 29.

The significance here is that if Samaras can’t get some currently in the opposition to side with his choice, which would be a vote of confidence on his economic policies, and gain 180 by the Dec. 29 final ballot, then new parliamentary elections are mandated by law, this vote to take place in late January or early February.

The issue here is that the likely winner of that election would be Alexis Tsipras and his far-left, Socialist, Syriza party, which is anti-EU and anti-austerity. The markets tanked on word of the snap presidential vote because should Tsipras win, all hell would break loose. He wants to renegotiate Greece’s debt (which would be a second time), for starters, and the troika and international investors wouldn’t be doing cartwheels over this, plus he wants to hike public spending.

So that would be bad enough, except there is zero guarantee Tsipras could cobble together a workable coalition even if he does win the parliamentary vote…and that would lead to even more chaos.

But wait…there’s more! Greece’s debt is heading towards 174% of GDP, Europe’s largest, and it needs a new credit line to replace the euro portion of its bailout. To be continued next week…for starters…

Turning to Asia….

China’s national statistics folks released a slew of data this week and none of it was good.

November exports rose 4.7% year over year, far less than expected, while imports fell 6.7% (lower oil prices had an impact, but the drop wasn’t all related to crude).

Exports to the U.S. rose 2.6% year over year, but this was far less than October’s 10.9% pace. Exports to the EU rose 4.1%, same as the month before.

November factory production was up 7.2% vs. year ago levels, but this too was less than expected. Retail sales, up 11.7%, were so-so, while fixed asset investment (railroads, airports, roads and such) rose 15.8% for the period January thru November, hardly the 20% pace of past years.

Another key barometer, electricity output, rose only 0.6% in November vs. last year.

Then you had the inflation indicators. Consumer prices rose just 1.4% in November year over year, with food up only 2.3%, both figures well below the government’s 3.5% target.

And factory gate / producer prices fell a 33rd consecutive month, down 2.7%. This is terrible, outright deflation, owing to severe overcapacity, as well as lower commodity prices, and no pricing power.

The People’s Bank of China, the central bank, injected $65 billion into the banks in another attempt to encourage them to loan, while at the same time China’s leaders are stressing a “new normal,” which in terms of a target growth rate won’t be formally announced until next March but it’s expected to be 7.0%, down from this year’s projected 7.5%.

Meanwhile, China’s stock market, as represented by the Shanghai Composite benchmark, rose 41% from June through Monday, before taking a 5.4% header on Tuesday, the biggest loss in five years, as securities regulators took steps to prick the bubble. [Year to date, however, the Shanghai is up 39%.]

As for Japan, Prime Minister Shinzo Abe is expected to receive the vote of confidence he’s looking for in parliamentary elections on Sunday. But if he wins the mandate, and thus another four years, he must enact real structural reforms, including overhauling the labor market. It’s basically the same issue facing the likes of France and Italy. How do you change an entrenched system where it is virtually impossible to fire a worker? At the same time, wages are not keeping up with inflation and the weak yen, great for exporters, makes the price of imported goods more expensive.

One economic item from the past week. Third-quarter GDP was revised to -1.9% on an annualized basis from the initial estimate of -1.6%. [Quarter-to-quarter, -0.5% vs. -0.4%.] Recall, second-quarter GDP was down 7.3% annualized.

Street Bytes

--The Dow Jones suffered its worst loss since November 2011, 3.8% to 17280, including 315 points on Friday, while the S&P 500 lost 3.5% on the week, its worst performance since May 2012; both indices snapping seven-week winning streaks after each hit a new high the prior Friday. Nasdaq fell a second consecutive week, losing 2.7%.

--U.S. Treasury Yields

6-mo. 0.09% 2-yr. 0.54% 10-yr. 2.08% 30-yr. 2.74%

Owing to the turmoil in the equity market, the 10-year Treasury crashed through its Oct. 15 closing low of 2.14%, a key level as that was the day it actually hit 1.86% briefly.

Meanwhile, November producer prices fell a larger than expected 0.2%, unchanged ex-food and energy. For the12 months the PPI is up 1.4%, up 1.7% on core.

The IMF, by the way, raised the U.S. GDP forecast for 2015 to 3.5% from an earlier projection of 3.1%, citing the benefits of lower oil prices.

--The rapid fall in the price of crude is beginning to have an impact on the labor force.

“U.S. energy companies are starting to cut drilling, lay off workers and slash spending in the face of an accelerating decline in oil prices, which fell to a fresh five-year low Wednesday.

“The number of rigs drilling for oil in North Dakota and parts of Texas has started to edge down, new drilling permits have dropped sharply since October, and many companies say they are going to focus on their most profitable wells.

“EOG Resources Inc. this week said it would shed many of its Canadian oil and gas fields, close its Calgary office and lay off employees there as it refocuses in the U.S.” [Lynn Cook and Erin Ailworth / Wall Street Journal]

“As oil prices continued to fall, the British oil giant BP said on Wednesday that it would cut jobs and take $1 billion in restructuring charges over the next five quarters.

“The company said that it did not yet know how many people would be let go, but that most of the money would go to severance packages. With the amount of money earmarked, that could mean thousands of job cuts.” [Stanley Reed / New York Times]

Other bits and pieces, per a Bloomberg piece by Christine Idzelis and Craig Torres:

“The danger of stimulus-induced bubbles is starting to play out in the market for energy-company debt.

“Since early 2010, energy producers have raised $550 billion of new bonds and loans as the Federal Reserve held borrowing costs near zero, according to Deutsche Bank AG. With oil prices plunging, investors are questioning the ability of some issuers to meet their debt obligations….

“Yields on junk-rated energy bonds climbed to a more-than-five-year high of 9.5 percent this week from 5.7% in June, according to Bank of America Merrill Lynch index data.”

Energy XXI Ltd., an oil and gas explorer, issued $750 million of 9.25 percent notes in December 2010. Today (as of mid-week), they yielded 27.7 percent.

“Employment in support services for oil and gas operations has surged 70 percent since the U.S. expansion began in June 2009, while oil and gas extraction payrolls have climbed 34 percent.” [Christine Idzelis and Craig Torres]

I’m sorry I keep repeating myself, but I started saying weeks ago that the serious slide in the price of crude would have a major impact on the main growth engine for the U.S. economy. That doesn’t mean the overall economy craps out. It just means, as I’ve been pointing out, that I know the boom in North Dakota, for example, will end badly. That’s a fact. The last thing you want to have done is buy a condo in Williston three or four months ago. You will lose your shirt.

But let’s see where it all settles out in the first and second quarter. In the meantime just remember this market axiom when it comes to all kinds of markets…speed kills; the speed at which declines in asset prices take place.

--Ebola czar Ron Klain announced he is leaving in March. Why we hardly got to know him.

So I read the following from a BBC News piece on Thursday.

“Health officials in Sierra Leone have discovered scores of bodies in a remote diamond-mining area, raising fears that the scale of the Ebola outbreak may have been underreported.

“The World Health Organization said they uncovered a ‘grim scene’ in the eastern district of Kono.”

Understand the WHO had to bury the Kono bodies. 

But there’s more…they discovered “25 people who had died in the past five days piled up in a cordoned section of the local hospital.”

The latest ‘official’ count is 6,346 people in West Africa, with more than 17,800 infected. Sierra Leone has the most cases at 7,897.

A member of the WHO’s Ebola response team said:

“Our team met heroic doctors and nurses at their wits’ end, exhausted burial teams and lab techs, all doing the best they could but they simply ran out of resources and were overrun with gravely ill people.”

Virtually all of these Kono deaths initially went underreported and who knows how many hundreds of people that the victims came in contact with are now spreading it in their own right.

Authorities finally decided to put Kono district on “lockdown” from Dec. 10 to 23 to try and contain the outbreak. Merry Christmas.

--A federal appeals court dealt a huge blow to the government’s success in prosecuting insider trading cases, reversing two high-profile convictions with a decision jeopardizing at least a third, when the 2nd U.S. Circuit Court of Appeals overturned the convictions of Anthony Chiasson and Todd Newman.

Manhattan U.S. Attorney Preet Bharara had garnered some 80 convictions or guilty pleas on insider-trading cases, but now a three-judge panel said prosecutors must prove traders knew that the person providing information gained some kind of tangible reward for doing so. The judges also said insider trading isn’t illegal as long as the tipper didn’t commit a breach of their duty.

Judge Barrington D. Parker rejected the notion all insider-trading constitutes fraud.

Attorney Marc Powers told the Wall Street Journal that Bharara and the SEC “have been pushing the boundaries of the law and the facts in insider-trading cases, beyond fairness and reason.”

Bharara said: “Today’s decision by the Court of Appeals interprets the securities laws in a way that will limit the ability to prosecute people who trade on leaked inside information.”

The Circuit Court’s decision could help overturn the conviction of a former SAC Capital portfolio manager, Michael Steinberg, the confident of SAC founder Steven A. Cohen, the big fish the feds have long been after.

Many of Bharara’s other high-profile convictions, such as that of Raj Rajaratnam and Rajat Gupta, are not expected to be jeopardized by the decision.

--North Korea has denied it was responsible for hacking the computers of Sony Pictures, though a spokesman for the National Defense Commission said the attack “might be a righteous deed of the supporters and sympathizers with” North Korea in its struggle to “put an end to U.S. imperialism.” Cybersecurity analysts remain divided over whether the hack was Pyongyang’s doing or another group, including the self-proclaimed Guardians of Peace.

Michael Lynton, Sony CEO, told employees in an email that the attack on the studio’s technology was “unprecedented.”

“The scope of this attack differs from any we have responded to in the past, as its purpose was to both destroy property and release confidential information to the public.”

By Thursday, we began to receive details of some of the hacked emails, including producer Scott Rudin’s description of Angelina Jolie as “a minimally talented spoiled brat.”

More importantly, as the hackers release new information by drips and drabs daily, on Friday we learned that some incredibly personal medical details on at least 34 Sony employees and their families was thrown out there for public consumption. Just when you think it couldn’t get worse, it did.

--Verizon and AT&T warned of a price war in the mobile phone biz and the struggle to keep their subscriber counts growing. No. 4 carrier in the U.S., T-Mobile, continues to keep the heat on with new deals. Verizon said more of its customers were opting for other carriers this quarter than in the past year.

--Costco Wholesale Corp. reported profits rose 17% in the November quarter, with both revenues and same-store sales rising a solid 7%.

--Citigroup Inc. announced it would bolster its legal reserves by $2.7 billion, wiping out its expected fourth-quarter profit as the nation’s third-largest bank continues to feel the heat from regulators conducting probes into potential money-laundering, as well as trading activities. CEO Michael Corbat said the latest charges should allow Citi to “largely put those [issues] behind us.” [Wall Street Journal]

--Yum Brands, parent of KFC and Pizza Hut, slashed its profit forecast again due to slower sales in China. Early in the year, Yum talked of profit growth of 20%, but now it estimates a “mid-single-digit percentage.”

The KFC chain continues to suffer after a food safety scandal in July and while sales are beginning to recover in China, it has been at a slower pace than the company expected.

--McDonald’s continues to suffer as the company reported global November same-store sales were down 2.2% over year ago levels, while U.S. comps for the month fell 4.6%, far worse than the expected 2.1% decline and the biggest monthly drop in U.S. same-store sales in more than 14 years.

McDonald’s blamed the decline on “strong competitive activity” and said it is “diligently working to enhance its marketing, simplify the menu, and implement a more locally driven organizational structure to increase relevance with consumers.” It will remove eight items next month but has yet to specify which ones.

No doubt McDonald’s is bloated in many ways, which I’ve noted in this space from my own experience has led to slower service that is driving customers away (though not necessarily in my case).

--The Irish economy grew only 0.1% in the third quarter over the second, but year over year is up 3.5%. However, the annualized rate of growth was 7.3% in Q2. That said, Irish officials are confident that for 2014, the country will have seen very solid 4.7% growth in GDP.

--Investors poured $770 million into Bill Gross’ new Janus Fund in November, on top of $364 million in October. Recently George Soros also gave Gross $500 million in a separate account that will mirror the strategy of his Janus Global Unconstrained Bond fund.

When the fund was handed over to Gross in September, it had about $12 million in assets.

--According to a New York Times poll, 64% of respondents said they still believed in the American dream, the lowest result in roughly two decades. Even at the depth of the financial crisis, early 2009, the figure was 72%.

--I’ve noted I live across the street from Merck’s North American headquarters. Well, no longer. The 88-acre campus is now officially empty as the drugmaker has scattered its operations to other locations around the country. There have been all kinds of rumors as to who might move in but nothing yet. The hit to local restaurants that employees could walk to is substantial.

Anyway, Merck agreed to acquire Cubist Pharmaceuticals this week for $8.4 billion. Cubist, based in Lexington, Mass., is the largest maker of antibiotics so one of Merck’s goals is to deepen its ties with hospitals. Sales in Merck’s hospital acute care division were 10% higher in the first three quarters of the year over the same period in 2013. [David Gelles / New York Times]

--Taxi-booking service Uber was banned in India after a driver allegedly raped a female passenger. A transport official said the company had been “blacklisted” for “misleading customers.” The driver was arrested.

--A Korean Air Lines executive was forced to resign after it was discovered she ordered a flight from New York to Incheon, South Korea to return to the gate to kick the senior flight attendant off the plane, after the executive was served macadamia nuts in an unopened package instead of on a plate.

Actually, she hadn’t asked for the nuts in the first place, but you can imagine how social media went wild when the episode became known.

So the airline announced she resigned as the head of in-flight services, though not as a vice president. “I am sorry for causing trouble to the passengers and the people,” she said in a statement on Tuesday. “I seek forgiveness from those who were hurt by what I did.”

--As California gets slammed by a monster, badly needed, storm, a major NOAA report said the driver of California’s historic drought has been “Natural oceanic and atmospheric patterns,” specifically a persistent area of high pressure off the West Coast that has blocked rain-bearing storms from coming ashore. Ergo, the drought has not been caused by the build-up of greenhouse gases.

--Facebook founder Mark Zuckerberg angered activists in China when a Chinese government news portal released a photo of Zuckerberg with a copy of President Xi Jinping’s book on governance on his desk, while hosting a top Internet regulator from China. One prominent dissident, Hu Jia, said, “Mr. Zuckerberg is either ignorant of China’s politics or shameless.”

Zuckerberg is kissing up to China in order to gain access, Facebook having been blocked there. Zuckerberg was quoted as telling the regulator, Lu Wei, that “I bought this book for my colleagues as well. I want them to understand socialism with Chinese characteristics.” [Sydney Morning Herald / AP]

--Instagram, the photo-sharing app, has overtaken Twitter in terms of number of users, passing the 300 million monthly active figure. Facebook bought the app for $1 billion in 2012 and it reported Instagram’s userbase had grown by a third in the last nine months.

Mark Zuckerberg has said none of the company’s collection of apps is under any pressure to generate revenue before they hit 1bn users. Facebook has 1.35bn.

Twitter recently said it had 284 million monthly active users. Shares in Twitter have been collapsing and are down over 40% for the year, while Facebook shares are up 40%.

[70% of Instagram’s users, by the way, are based outside the U.S., as reported by the Financial Times.]

--I can’t say I’ve ever donated to a dance organization, but it’s interesting that in New York, as reported by Theresa Agovino of Crain’s New York Business, corporate support for them has fallen 62% in the five years ending 2012, the last year for which data is available. Well that sucks.

--David Letterman is ending his 32-year run on May 20, CBS announced. No word on when the replacement, Stephen Colbert, is starting, though “The Colbert Report” is ending next week. Colbert might not start on CBS until September, so CBS is scrambling to fill the time until then. I’m available.

Foreign Affairs

Iraq / Syria / ISIS: Iraqi Prime Minister Haider al-Abadi pleaded with visiting Secretary of Defense Hagel for more heavy weapons and air power to fight ISIS, claiming Iraqi forces “are advancing on the ground,” but they need more to press the fight. Hagel agreed the U.S. and Iraq were making steady progress, though he added, “As Iraqi leaders and the people of Iraq know, only they can bring lasting peace to their country if they are resolved to do that.”

While Hagel was in Baghdad, Iraq’s foreign minister was in Iran, urging Tehran to step up its own support.  [Wall Street Journal]

Startlingly, the visit by Hagel was the first by a U.S. defense minister since December 2011 (Leon Panetta). How can that be?

U.S. officials said this week the Iraqi army was still months away from being able to retake the ISIS stronghold of Mosul, which IS took in June, thus shocking the region.

Apparently Iraqi forces are pretty good in advancing, but have trouble holding what they retake.

In Syria…Liz Sly / Washington Post:

“The main al-Qaeda affiliate in Syria is extending its control over a swath of territory that was until recently held by the collapsing moderate opposition, jeopardizing U.S. plans to form a new rebel force to fight extremists.

“Since routing two of the biggest Western-backed rebel movements last month from the province of Idlib, Jabhat al-Nusra has been steadily consolidating its position as the single most powerful military force in northwestern Syria.

“The group has overrun towns and villages throughout the province, secured supply routes into neighboring Turkey and potentially paved the way for the establishment of an Islamic ‘emirate’ – a competing entity to the ‘caliphate’ declared last summer by the Islamic State in northeastern Syria and western Iraq….

“If the fighting in Syria continues on its current trajectory, the country soon will be partitioned almost entirely between jihadist forces and those of the Assad regime, leaving the moderate rebels without territory and the United States without allies in the strategically important country, rebel commanders and analysts say.”

Score one for the bad guys. Like I said, it was over in 2012. Any talk of the U.S. forming up a moderate rebel army is beyond being a joke at this point.

Meanwhile, Israel bombed a few targets near Damascus International Airport, as well as a town on the border with Lebanon, and reports say the Israelis may have been going after Iranian intelligence locations, including arms/missiles meant for Hizbullah.

Separately, an investigation by the BBC World Service and King’s College London found that jihadist attacks killed more than 5,000 in November in 14 countries, with 2,000+ being civilians.

About 80% of the deaths came in just four countries – Iraq, Nigeria, Syria and Afghanistan.

Iraq was the most dangerous with 1,770 deaths in 233 attacks. 786 people, almost all civilians, died in Boko Haram incidents in Nigeria.

Afghanistan saw 782 deaths, Syria 693 and Yemen 410.
Al-Shabab took 266 lives in Somalia and Kenya.

Islamic State was responsible for the most among the 5,000 (5,046) deaths with 2,206 across Iraq and Syria.

935 jihadists died either in clashes or by blowing themselves up.

Iran: Nuclear talks between Tehran and the P5+1 are slated to resume this week in Geneva, which will be the first face to face negotiations since the deadline was extended on Nov. 24 to June 30.

The State Department said Iran had kept to its commitments under the Joint Plan of Action, the interim deal designed to freeze Iranian activity, which flies in the face of reports of U.S. complaints to the U.N.

According to a report in Foreign Policy magazine, Iranian procurement agents “have been increasing their efforts to illicitly obtain equipment for the IR-40 research reactor at the Arak nuclear complex [Ed. a heavy-water plutonium plant].”

For his part, Iranian President Rohani has often boasted of circumventing the sanctions imposed by the U.S. and the international community, calling them “illegal.” [Michael Wilner / Jerusalem Post]

Of course the International Atomic Energy Agency has been spelling out for months Iran’s total lack of cooperation.

Jennifer Rubin / Washington Post

“We have already seen allegations that Iran was cheating on its existing commitments, although the administration continued to insist it was fully complying with the interim agreement. We knew Iran was still refusing to allow IAEA inspectors full access to its facilities. And we knew Iran had categorically refused to disclose the contours of its previous alleged nuclear weapons program, making it impossible for us even to know where to send inspectors. Now, the Iranians may have been caught red-handed trying to buy parts for their reactor at Arak.

“The administration has been keeping the cheating allegation under its hat – no doubt concerned that Congress would demand answers, vote for more sanctions and perhaps put an end to talks….

“Iran experts note that since the actual text of the interim agreement has never been released publicly (!), we do not know what technical requirements may be implicated. But we certainly know that if these allegations [Ed. from the Foreign Policy piece] are true, Iran continues to violate multiple United Nations resolutions.

“Time and again the administration has vowed to come back for more sanctions if Iran was found cheating. It therefore will be interesting to see how the administration explains away the latest revelations. Or will the administration simply admit the Iranians are cheating and say, um, they’d be cheating worse if not for the agreement? It sounds like a joke, but the argument may not be that far off.”

Russia: Poland’s defense minister said the level of Russian naval and air force activity in the Baltic Sea region has been “unprecedented” this week, though most of it was in international airspace and waters. Tomasz Siemoniak said it did not appear Russia was preparing to attack, but rather testing NATO defenses.

Among the near misses, a Norwegian warplane had one with a Russian fighter which had ventured too close to Norway, while the Finnish air force said there had been “unusually intense” Russian activity over the Baltic Sea and the Gulf of Finland.

But even as the Russian currency collapses amid the plunge in oil prices, Moscow has vowed to increase defense spending by 30% next year to a record post-Soviet high of $62 billion, with much of the increase focused on the navy (specifically, submarines) and missiles for the armed forces.

According to the consultancy IHS Jane’s, however, U.S. defense spending next year will be $584 billion (I’m assuming including the war on ISIS) and China’s $159.6 billion. [Moscow Times]

Back to the currency and budget situation, Bloomberg Businessweek reports that a year ago, Russia’s central bank had foreign reserves of $515 billion, but now that total is less than $419 billion and falling fast.

That’s still an awful lot, but, recall, a few weeks ago I told you of how Putin’s crony, Igor Sechin, was asking for $44 billion to shore up his oil giant, Rosneft, that would come out of a fund designed to support the pension system.

And regarding the South Stream pipeline project, originally intended to go through Bulgaria but due to political pressure now having to be rerouted through Turkey, the Ankara government is playing hardball on many fronts, including over its right to re-export gas bought at its border as its own. Turkey is also demanding even lower prices for its gas supplies if it is to approve of the project.

So will Moscow even be able to afford South Stream?

Ukraine: The government is broke, on the verge of bankruptcy, but is still vowing to double the defense budget to combat the separatists in the east, adding some 40,000 conscripts in the process (though many of these will replace those whose service obligations expire). A two-day-old truce expired when pro-Russian rebels killed three Ukrainian soldiers on Thursday.

Regarding the finances, Prime Minister Yatsenyuk said his nation needs an expanded bailout program or it will default, calling for a new international donor conference. The Financial Times reported on Tuesday that Ukraine needed $15 billion to avoid default within weeks, though the government denies it is that imminent.

One of the many major issues is that the fighting in the east has wiped out Ukraine’s industrial sector, always the strength, with Yatsenyuk saying essentially 20% of the country’s GDP has gone up in smoke. [The Wall Street Journal says Donetsk and Luhansk account for 16% of Ukraine’s GDP and roughly a quarter of industrial output. Output overall in Ukraine declined 16.3% in October from a year earlier.] It’s just an immense tragedy on so many levels.

Afghanistan: Editorial / Washington Post

“Not much attention was paid in Washington to the formal end Monday of U.S. combat operations in Afghanistan. The 13-year-old war is something most Americans, led by their president, are eager to put behind them. That’s unfortunate, because far from fading away, the fighting in Afghanistan is intensifying – and so is the threat it poses to everything that the U.S.-led coalition accomplished.

“Over several months, attacks by the Taliban have steadily escalated, including in a once-relatively secure capital. International aid groups are pulling their staffs out of Kabul after a wave of bombings and assaults on foreigners’ compounds, while many educated and affluent Afghans who returned from exile to invest in the country are leaving again….

“The Afghan army built by the United States and its allies at huge expense is under enormous stress. More than 5,000 soldiers and police have been killed this year – more than the total number of U.S. and allied deaths since 2001….

“The deteriorating situation can only be exacerbated by the rigid timetable imposed by President Obama for ending combat missions and withdrawing the remaining U.S. troops…It’s a political timetable that suits the president’s legacy aspirations but bears no relation to the military situation.”

This week, a Taliban suicide bomber targeted a bus carrying Afghan soldiers in Kabul, killing at least five. Again, this kind of attack never happened in Kabul.

China / Hong Kong: Without much violence, the last protest camps in Hong Kong were dismantled this week, with some of the student leaders quietly allowing to be arrested on Thursday. One of the leaders, Alan Leong, said, “The occupation is certainly going to end soon. But it is certainly not the end of the movement.”

Nope, far from it. The protests will come and go over the next few years.

Separately, according to an annual report to Congress submitted by the U.S.-China Economic and Security Review Commission, by yearend, China will be conducting initial patrols with its stealthiest submarines that will for the first time be armed with nuclear missiles; the virtually impossible-to-detect JIN class of subs.

What this means is that for the first time, China’s nuclear force will be invulnerable to a first strike.

Doesn’t that give you a warm and fuzzy feeling? 

Lastly, China ramped up the rhetoric over the South China Sea all over again, blasting both the Philippines and Vietnam for staking claims to parts of it, which China basically says is all theirs.

China continues to have a separate dispute with Japan over islands in the East China Sea.

An international tribunal that the Philippines appealed to has given China until Dec. 15 to reply in a case brought by the former, but China has long said it would not participate in the arbitration proceedings.

Pakistan: In her Nobel Peace Prize acceptance speech, 17-year-old Malala Yousafzai said in part:

“It is for those forgotten children who want education. It is for those frightened children who want peace.

“It is for those voiceless children who want change. I am here to stand up for their rights, to raise their voice. It is not time to pity them.”

Malala told the BBC before she gave her speech that she wants to become prime minister of Pakistan one day. 

This is the single most important figure of the next 50 years…mark my words…if only we can keep her alive.

Should she gain power, say in 15-20 years, she’ll have some dictatorial traits, no doubt, to which if I’m still alive at the time, I’ll be cheering her on nonetheless.

In other news on Pakistan, a senior al-Qaeda militant, accused of planning to bomb trains in New York and London, was killed by the Pakistani military. The FBI describes the man, Adnan el Shukrijumah, as al-Qaeda’s global operations chief, a position once held by Khalid Sheikh Mohammed.

Shukrijumah was born in Saudi Arabia and lived for 15 years in the U.S., which is a most discomforting thought. [As in just how many sleeper cells are in the U.S. today?]

Zimbabwe: It’s been awhile since I mentioned President Robert Mugabe, multi-winner of the “Dirtball of the Year” award here at StocksandNews and a man I claimed back in my first days of writing this column should have been “taken out.” His country certainly would have been better off…and I long conjectured the world as well. [This was pre-9/11, remember. I’ll leave it at that.]

So Mugabe is now 90 years old and this week he named a successor, Emmerson Mnangagwa, known as the “Crocodile” for his viciousness and for having been the mastermind of the massacre of thousands of civilians.

Mnangagwa once threatened to “shorten the stay on Earth” of any “cockroaches” who dared to oppose Mugabe. Well now he is vice president after 40 years of loyal service to his leader.

In 1980, when Zimbabwe achieved independence, Mnangagwa was appointed security minister and head of intelligence and proceeded to wipe out the rival Zapu party, killing 8,000 in a campaign that was so brutal, even Mugabe later described it as a “moment of madness.”

Before this Mnangagwa was part of the “Crocodile Gang,” who specialized in attacking white-owned farms. Rhodesian security forces once arrested him and got him to confess to the capital crime of blowing up a train, but he avoided being hanged because he claimed to be under 21 and only received 10 years. [David Blair / The Telegraph]

It’s not known how old the guy is but the best guess is 68 to 72.

Good luck to all the good people in the country. They’ll need it.

Venezuela: Congress voted to restrict travel and freeze assets of some top Venezuelan officials due to the human rights crackdown on those protesting the government of President Nicolas Maduro. 40 have died recently as the country is literally falling apart.

Maduro took to national television to blast the sanctions, saying, “President Obama, I think you’re going to come out looking very bad.”

Democratic Sen. Robert Menendez (N.J.) has been leading the charge against the Maduro regime, saying “the absence of justice and the denial of human rights in Venezuela must end.” [Financial Times]

Maduro, at the same time, recognizes that oil exports to the U.S. are still the government’s largest cash-generator.

Random Musings

--The Senate Intelligence Committee released the results of its five-year investigation of the CIA’s interrogation program in the form of a 528-page summary, part of a longer, 6,000-page classified study, and the findings are bleak. As reported by the Washington Post’s Greg Miller, Adam Goldman and Julie Tate, the investigation describes “levels of brutality, dishonesty and seemingly arbitrary violence that at times brought even agency employees to moments of anguish.

“The report...delivers new allegations of cruelty in a program whose severe tactics have been abundantly documented, revealing that agency medical personnel voiced alarm that waterboarding methods had deteriorated to ‘a series of near drownings’ and that agency employees subjected detainees to ‘rectal rehydration’ and other painful procedures that were never approved.

“The 528-page document catalogues dozens of cases in which CIA officials allegedly deceived their superiors at the White House, members of Congress and even sometimes their peers about how the interrogation program was being run and what it had achieved. In one case, an internal CIA memo relays instructions from the White House to keep the program secret from then-Secretary of State Colin L. Powell out of concern that he would ‘blow his stack if he were to be briefed on what’s been going on.’

“A declassified summary of the committee’s work discloses for the first time a complete roster of the 119 prisoners held in CIA custody and indicates that at least 26 were held because of mistaken identities or bad intelligence.”

President Obama, in a statement, said the Senate report “documents a troubling program” and “reinforces my long-held view that these harsh methods were not only inconsistent with our values as [a] nation, they did not serve our broader counterterrorism efforts or our national security interests.”

While Obama praised the CIA’s work to degrade al-Qaeda, he added the program “did significant damage to America’s standing in the world and made it harder to pursue our interests with allies and partners.”

In a response to the Senate report, the CIA denied it intentionally misled the public or policymakers.

CIA Director John Brennan: “The intelligence gained from the program was critical to our understanding of al-Qaeda and continues to inform our counterterrorism efforts to this day.” The program “did produce intelligence that helped thwart attack plans, capture terrorists, and save lives.”

Then, in a rare news conference at CIA headquarters on Thursday, Brennan defended the agency, again, but criticized “enhanced interrogation techniques.” He did say, however, that detainees subjected to the methods provided useful intelligence, though he can’t be sure it was a result of the methods and techniques employed. He declined to say whether he regarded any of the techniques as “torture.”

The report was formally released on the Senate floor by California Democratic Sen. Dianne Feinstein, the chairman of the Senate committee. Beforehand, Sec. of State John Kerry pleaded with her not to release it because of fears the report could ignite violence against American interests.

The investigation was conducted exclusively by the Democratic staff of the Intelligence Committee. Republicans on it were furious, citing alleged inaccuracies and the failure to interview any of the operatives directly. Democrats claim they did so to avoid interfering with a separate Justice Department inquiry.

John McLaughlin, CIA acting director in 2004 and deputy director from 2000 to 2004 / Washington Post:

“The most incredible and false claim in the Senate intelligence committee’s report on the CIA interrogation program is that the program was neither necessary nor effective in the agency’s post-9/11 pursuit of al-Qaeda. The report, written by the committee’s Democratic majority and disputed by the Republican minority and the CIA, uses information selectively and distorts facts to ‘prove’ its point....

“The Democratic staffers who drafted the report assert the program contributed nothing important, apparently to bolster a bogus claim that the CIA lied. But let’s look at a few cases:

“Finding Osama bin Laden. The committee says the most critical information was acquired outside the interrogation program.

“Not true. The man who led the United States to bin Laden, a courier known as Abu Ahmed al-Kuwaiti, was mentioned by earlier sources but only as one of many associates bin Laden had years before. Detainees in the CIA interrogation program pushed Kuwaiti to the top of the list and caused the agency to focus tightly on him. The most specific information about the courier came from a detainee, Hassan Ghul, who, after interrogation, strengthened the case by telling of a specific message the courier had delivered for bin Laden to operations chief Abu Faraj al-Libi. Finally, interrogated senior operatives such as Khalid Sheik Mohammed, who by that time was enormously cooperative, lied when confronted with what we had learned about the courier. That was a dramatic tip-off that he was trying to protect bin Laden.

“The staffers who prepared the Senate draft do not appear to understand the role in analysis of accumulating detail, corroboration and levels of confidence in making momentous decisions like the May 2011 Abbottabad operation that killed bin Laden....

“To drive home their points, the committee frequently cherry-picks documents. It describes officers expressing concern via e-mail that they will be ‘ostracized’ for saying that certain detainees ‘did not tell us everything.’ But the staff leaves out the critical context: The CIA officers were actually discussing their dismay over the agency’s decision to cease the interrogation program, causing the loss of important intelligence information.

“Many administration and congressional officials ritualistically say we will never know whether we could have gotten important information another way. This is a dodge wrapped in political correctness. We could say that about all intelligence successes. We’ll never know, for example, what intelligence is missed when capture is declared too difficult and terrorists are killed from the air.

“The point is we did succeed in getting vital information – during a national emergency when time was limited by the great urgency of a clock ticking on the next plot.

“Terrorists had just killed thousands of Americans, and we felt a deep responsibility for ensuring they could not do it again.

“We succeeded.”

Editorial / Washington Post

“The report details painful and humiliating interrogation techniques, some authorized in advance, some not. A chief interrogator described an early detention site as a ‘dungeon,’ in which prisoners were shackled in total darkness and then sometimes stripped, hooded and dragged up and down a hallway while guards slapped and punched them. Agents blindfolded a prisoner and began operating a power drill to elicit extreme fear. They subjected detainees to excessive sleep deprivation – up to 180 hours – sometimes to the point that prisoners experienced ‘disturbing hallucinations.’ Prisoners were shackled for days with their arms above their heads, forced into prolonged nudity and soaked in cold water. Some endured ‘rectal rehydration’ and ‘rectal feeding.’ Interrogators demanded that detainees maintain stress positions indefinitely – even treating one for swelling so he could continue standing. Wounds were allowed to worsen. Early on, one prisoner died in CIA custody, probably due to prolonged exposure to cold. And there was waterboarding – leading in one instance to detainee Abu Zubaida becoming ‘completely unresponsive, with bubbles rising through his full, open mouth.’

“This is not how Americans should behave. Ever....

“Torture is wrong, whether or not it has ever ‘worked.’ As an Obama administration official said Tuesday, ‘The reason we prohibited these techniques is because they are contrary to our values.’

“We don’t discount warnings that releasing the report might rouse anti-American sentiment in the near term. But in the long term, the United States will benefit by demonstrating a commitment to transparency and self-criticism – and, most of all, by pledging never to repeat its post-9/11 mistakes.”

Former CIA Directors George J. Tenet, Porter J. Goss and Michael V. Hayden (and others) / Wall Street Journal

“Examining how the CIA handled these matters is an important subject of continuing relevance to a nation still at war. In no way would we claim that we did everything perfectly, especially in the emergency and often-chaotic circumstances we confronted in the immediate aftermath of 9.11. As in all wars, there were undoubtedly things in our program that should not have happened. When we learned of them, we reported such instances to the CIA inspector general or the Justice Department and sought to take corrective action.

“The country and the CIA would have benefited from a more balanced study of these programs and a corresponding set of recommendations. The committee’s report is not that study. It offers not a single recommendation.....

“What is wrong with the committee’s report?

“First, its claim that the CIA’s interrogation program was ineffective in producing intelligence that helped us disrupt, capture, or kill terrorists is just not accurate. The program was invaluable in three critical ways.

“It led to the capture of senior al Qaeda operatives, thereby removing them from the battlefield.

“It led to the disruption of terrorist plots and prevented mass casualty attacks, saving American and Allied lives.

“It added enormously to what we knew about al-Qaeda as an organization and therefore informed our approaches on how best to attack, thwart and degrade it....

“(The) majority left out something critical to understanding the program: context.

“The detention and interrogation program was formulated in the aftermath of the murders of close to 3,000 people on 9/11. This was a time when:

“We had evidence that al-Qaeda was planning a second wave of attacks on the U.S.

“We had certain knowledge that bin Laden had met with Pakistani nuclear scientists and wanted nuclear weapons.

“We had reports that nuclear weapons were being smuggled into New York City.

“We had hard evidence that al-Qaeda was trying to manufacture anthrax.

“It felt like the classic ‘ticking time bomb’ scenario – every single day.

“In this atmosphere, time was of the essence and the CIA felt a deep responsibility to ensure that an attack like 9/11 would never happen again. We designed the detention and interrogation programs at a time when ‘relationship building’ was not working with brutal killers who did not hesitate to behead innocents. These detainees had received highly effective counter-interrogation training while in al-Qaeda training camps. And yet it was clear they possessed information that could disrupt plots and save American lives....

“The committee also failed to make clear that the CIA was not acting alone in carrying out the interrogation program. Throughout the process, there was extensive consultation with the national security adviser, deputy national security adviser, White House counsel, and the Justice Department.

“The president approved the program. The attorney general deemed it legal....

“We can only conclude that the committee members or staff did not want to risk having to deal with data that did not fit their construct.  Which is another reason why the study is so flawed. What went on in preparing the report is clear: The staff picked up the signal at the outset that this study was to have a certain outcome, especially with respect to the question of whether the interrogation program produced intelligence that helped stop terrorists. The staff members then ‘cherry picked’ their way through six million pages of documents, ignoring some data and highlighting others, to construct their argument against the program’s effectiveness.

“In the intelligence profession, that is called politicization.

“As lamentable as the inaccuracies of the majority document are...some consequences are alarming:

“Many CIA officers will be concerned that being involved in legally approved sensitive actions can open them to politically driven scrutiny and censure from a future administration.

“Foreign intelligence partners will have even less confidence that Washington, already hemorrhaging with leaks, will be able to protect their cooperation from public scrutiny. They will cooperate less with the United States.

“Terrorists, having acquired now the largest haven (in the Middle East and North Africa) and string of successes they have had in a decade, will have yet another valuable recruitment tool.

“All of this means more danger for the American people and for our allies....

“Between 1998 and 2001, the al-Qaeda leadership in South Asia attacked two U.S. embassies in East Africa, a U.S. warship in the port of Aden, Yemen, and the American homeland – the most deadly single foreign attack on the U.S. in the country’s history. The al-Qaeda leadership has not managed another attack on the homeland in the 13 years since, despite a strong desire to do so. The CIA’s aggressive counterterrorism policies and programs are responsible for that success.”

Editorial / Wall Street Journal

“Debatable cases aside, the Senate’s choir boys are pretending that the business of intelligence is like a TV court drama with an ‘aha’ moment of admission. If only life were so easy. Intelligence work is about combining information from multiple sources, human and technical, to build a mosaic from which terrorist habits can be discerned and perhaps plots discovered. That the interrogations yielded such crucial information is beyond dispute.

“The report’s greatest offense is its dishonest treatment of political accountability. The authors portray a rogue CIA operating without legal authority and hiding information from Congress, the public and even President Bush. This charge is rebutted even by current CIA director John Brennan, who otherwise dries his predecessors out to hang.

“As for legal authority, no less than Attorney General Eric Holder hired a special prosecutor, who investigated interrogations and filed no charges. That suggests the practices were legally vetted, as the former CIA officials claim. As for Congress, its top officials – the Gang of Eight – were briefed from the very beginning. That included Nancy Pelosi.

“If they didn’t know as much as this report discloses, then they are at fault for not digging deeply enough. They may not have asked about what they didn’t want to hear. But more likely they liked what they heard and wanted it to continue as long as the public mood demanded it....

“So once again our politicians whipsaw the CIA, asking it to protect us from relentless killers only later to object when the political mood shifts. Frank Church and the left did this in the 1970s, and CIA needed years to recover. Now it’s the Obama Democrats. The CIA isn’t above accountability, but it deserves better than the partisan hindsight of this Senate report.”

Speaking to Fox News, Dick Cheney said President Bush was “fully informed” about CIA interrogation techniques condemned in the Senate report, and that the report was “full of crap.”

Cheney: “The notion that the committee is trying to peddle that somehow the agency was operating on a rogue basis and that we weren’t being told – that the president wasn’t being told – is a flat-out lie.”

Cheney said the interrogation program saved lives, and that the agency deserved “credit not condemnation.”

Charles Krauthammer / Washington Post

Back in the days after 9/11, including by Democrats such as Sen. Jay Rockefeller in 2003, “There was no uproar about this open countenancing of torture-by-proxy. Which demonstrates not just the shamelessness of Democrats today denouncing practices to which, at the time and at the very least, they made no objection. It demonstrates also how near-consensual was the idea that our national emergency might require extraordinary measures.

“This is not to say that in carrying out the program there weren’t abuses, excesses, mismanagement and appalling mistakes… It is to say that the root-and-branch denunciation of the program as, in principle, unconscionable is not just hypocritical but ahistorical.

“To make that case, to produce a prosecutorial brief so entirely and relentlessly one-sided, the committee report (written solely by Democrats) excluded any testimony from the people involved and variously accused. None. No interviews, no hearings, no statements.”

Overseas reaction....

“This will have a very negative impact on the image of the United States,” said Teng Jianqun, director of the Center for Arms Control at the China Institute of International Studies, as told to state-run CCTV. He said U.S. officials seek to present themselves as “the big boys on human rights affairs in the international community, publishing evaluations of other countries’ behavior while clandestinely engaging in ‘notorious’ actions of their own.”

The BBC and Al Jazeera were among those carrying Sen. Feinstein’s speech live.

A columnist for the Sydney Morning Herald, Andrew P. Street, wrote: “Winning the crown for Most Appalling Human Rights Record in the Western World could be a tough tournament” following the release of the report.

Britain’s Independent newspaper began its report on the details on interrogation practices, “Now we know how bad things were, and how out of control the CIA was, as it leapt into action in the aftermath of the 9/11 attacks.” [Carol J. Williams / Los Angeles Times]

--As expected, last Saturday, Sen. Mary Landrieu (D) lost her Louisiana runoff to Rep. Bill Cassidy (R) by 12 points.   So aside from the fact this formalizes the 54-46 Republican advantage in the Senate, it also means there are no Democratic senators from the Deep South come January. Landrieu’s seat will be held by a Republican for the first time in 132 years, as reported by the Washington Post.

--A new Bloomberg Politics poll revealed that 53% of Americans say relations between whites and blacks in America have deteriorated since Barack Obama took office. But when it comes to the Ferguson and Eric Garner decisions, 52% agreed on Ferguson compared with 25% who agreed with the grand jury decision on Garner, which is how I come down too; with the majority on both.

By the way, on Ferguson, 64% of whites agreed with the decision, while 89% of blacks disagreed.

Separately, in a USA TODAY/Pew Research Center poll, by 57%-22%, those surveyed say the grand jury made the wrong decision in not bringing charges against New York City police officer Daniel Pantaleo.

But by 50%-37% they say the Ferguson grand jury made the right decision.

--MIT economist Jonathan Gruber, whose remarks on ObamaCare sparked an uproar, apologized to Congress Tuesday for “offending” comments that he said were insulting and mean.

Gruber testified before the House Committee on Oversight and Government Reform and was skewered by both parties.

“I sincerely apologize both for conjecturing with a tone of expertise and for doing so in such a disparaging fashion,” Gruber said. “It is never appropriate to try to make oneself seem more important or smarter by demeaning others. I know better. I knew better. I am embarrassed, and I am sorry.”

Rep. Darrel Issa (R-Calif.), chairman of the committee, said the remarks reveal “a pattern of intentional misleading” of the public about the Affordable Care Act.

Rep. Elijah Cummings of Maryland, the top Democrat on the panel, said Gruber’s statements “gave Republicans a public-relations gift in their relentless political campaign to tear down the ACA and eliminate health care for millions of Americans.”

Gruber claimed, “I was not the architect of President Obama’s health-care plan.”

Republicans pressed him on how much money he made as an adviser on the topic. Gruber said, talk to his lawyer, which wasn’t helpful in terms of his relationship with many members of the committee.

According to a Wall Street Journal review, Gruber and associates received over $6 million in federal and state grants and contracts since 2000, including $400,000 from the Department of Health and Human Services.

Editorial / Wall Street Journal

“Maybe it’s easier to get tenure at MIT than we thought. At least that’s our reaction to the Forrest Gump routine put on Tuesday before Congress by MIT economist Jonathan Gruber, who sounded for all the world as if he knew nothing more about politics and health care than the lovable bumpkin who always showed up when history was being made.

“That wasn’t the way Mr. Gruber sounded in his now famous videos – including in a University of Pennsylvania appearance last year – when he credited the enactment of ObamaCare to a ‘lack of transparency,’ the gaming of Congressional rules intended to measure the law’s fiscal impact, the ‘stupidity of the American voter,’ and a lack of Democratic candor about the redistribution of wealth embedded in the new insurance scheme.

“But on Tuesday...Mr. Gruber distanced himself from his remarks while refusing to say if they were true. He apologized for the tone, arrogance, glibness and the inappropriate nature of his remarks. But his response to substantive questions suggested that he is mainly sorry for getting caught on tape.

“He even insisted on Tuesday that ObamaCare had been debated and passed in a transparent manner. But this position is 180 degrees from the one he expressed on tape. So he simply dismissed his taped remarks as ‘conjectures’ about a political process he now claims not to understand.”

--Nikki Schwab / U.S. News & World Report Weekly:

“Senate Democrats said ‘yea’ to Colleen Bell – a former producer of the soap opera ‘The Bold and the Beautiful,’ who has also been a fundraiser for President Barack Obama – as the next U.S. ambassador to Hungary, but not everyone in Washington quite understood how one job led to the other.

“At Tuesday’s (Ed. 12/2) White House press briefing, ABC News’ Jonathan Karl was curious as to why Bell was picked. ‘If you can remind me, what are Colleen Bell’s qualifications for ambassador?’ he began, pressing press secretary Josh Earnest at the podium. ‘Is it that she was a soap opera producer? Is it that she gave hundreds of thousands of dollars or helped to raise hundreds of thousands of dollars for the Obama re-election campaign?’....

“The Senate vote on Bell was basically along party lines, 52-42. Independent Sen. Angus King of Maine this time voted with Senate Republicans.

“On the right, criticism has been harsh. Before the Tuesday vote, Republican Sen. John McCain railed against the nomination on the Senate floor. ‘We’re about to vote on a totally unqualified individual to be ambassador to a nation, which is very important to our national security interest,’ McCain said. He added that besides producing ‘The Bold and the Beautiful,’ Bell contributed $800,000 to Obama’s 2012 re-election campaign and bundled more than $2.1 million for that effort.”

--The Washington Post has ripped Rolling Stones’ story titled “A Rape on Campus” by Sabrina Rubin Erdely. I told you last week this was a classic case of “wait 24 hours” and that has proven to be the case. Erik Wemple of the Post has done yeoman’s work in a series of reports, including the following from Dec. 9.

“Did Rolling Stone magazine agree not to contact the alleged assailants of a gang rape at the center of its Nov. 19 story on the University of Virginia? Or did it simply fail to reach them?

“Those questions hover over...the piece by (Ms. Erdely) alleging that the freshman named Jackie was raped in September 2012 by seven men at the Phi Kappa Psi fraternity house. The story fell under scrutiny last week, in large part because there was no indication that the magazine had reached out to the alleged assailants before publication....

“In an interview last month, Sean Woods, who edited ‘A Rape on Campus,’ told The Post’s Paul Farhi of the effort to seek the assailants: ‘We did not talk to them. We could not reach them.’

“That statement suggests at least an effort to contact these potential sources. Yet on Friday, Rolling Stone published a ‘note to readers’ with conflicting information: ‘Because of the sensitive nature of Jackie’s story, we decided to honor her request not to contact the man who she claimed orchestrated the attack on her nor any of the men who she claimed participated in the attack for fear of retaliation against her.’

“Asked about that discrepancy, Rolling Stone spokeswoman Melissa Bruno e-mailed the Erik Wemple Blog: ‘I believe [Woods] misspoke on that specific point.’ As with many fine points in this sequence of events, this answer uncorks yet another question: How is it that the story’s editor misspoke on such a central point?”

Meanwhile, Erdely, in an email reply to Paul Farhi wrote in part:

“As I’ve already told you, the gang rape scene that leads the story is the alarming account that Jackie – a person whom I found to be credible – told to me, told her friends, and importantly, what she told the UVA administration, which chose not to act on her allegations in any way – i.e., the overarching point of the article. THAT is the story: the culture that greeted her and so many other UVA women I interviewed, who came forward with allegations, only to be met with indifference. (That I’ve received so many emails from other women saying similar things just further makes the point.) The point holds true whether or not you personally believe Jackie’s account, which it sounds like you don’t. You’re entitled to your opinion.”

Erik Wemple: “Bold text [Ed. I italicized] denotes comment suggesting that the truth in this case is nothing more than a ‘rounding error,’ as a colleague put it.”

Editorial / New York Post

“(What) about Teresa Sullivan? When confronted with the Rolling Stone story, the UVA president suspended ‘all fraternal organizations and associated social activities’ until January 9.

“We’ll leave aside whether, at the time, this move was justified or mere pandering. But now that the story has fallen apart, and despite her own warnings about ‘indicting the whole Greek system,’ she’s keeping the fraternity suspension in place.

“Her note this week to UVA parents even throws in a reference to the ‘deaths of young black men in Staten Island and Ferguson.’

“Yes, violence against women on campus should never be tolerated or ignored. But neither should violence to the truth.”

Thursday, the Washington Post ran another story, this one by T. Rees Shapiro, wherein the three students who came to Jackie’s aide the night in question, per her request, “Randall,” “Andy” and “Cindy,” noted one inconsistency after another between what she said and what Rolling Stone reported, plus none of the three had been interviewed by Sabrina Erdely.

[Talk about the failure to ‘wait 24 hours,’ TIME magazine’s 12/15 issue had a big story on the UVA case prior to the discovery it was fake, labeling it a “harrowing" story of gang-rape. Idiots.]

--Yolande Korkie is the wife of the late Pierre Korkie, who was the South African hostage killed in the failed rescue attempt in Yemen that also resulted in the death of American photojournalist Luke Somers. Her husband was said to be hours from being released before he was killed by his captors, and the U.S. says that while it suspected there was a second hostage, they had no details on both the identity nor the specifics of the potential release.

So you would think Yolande Korkie would be deeply bitter towards the U.S., but days later she said:

“What will it help to accuse? What will it help to find out what happened? Will it bring Pierre back? Never.”

Yolande, speaking to reporters in Johannesburg after the remains of her husband arrived in the country, added:

“We can’t bring someone back by hating, therefore we want to say today that we forgive unconditionally.”

What a heroic woman, though if later she severely questions the U.S. and her own government for the lack of communication between the two, I will support her to the hilt. Frankly, I’m ticked at my government over this one. Not for the second rescue attempt in weeks for Somers, but for not knowing the backstory.

--Jim Lovell, veteran NASA astronaut and retired Navy captain, in an interview with Army Times.

Q: You have spent about a month of your life in space. That’s a long time. But the one-way trip to Mars is likely to take at least 300 days. Can humans physically handle that?

A: Submarine sailors stay in the water for up to six months, so we know it’s possible. The problem is you have to stay in shape, so there would have to be equipment to do that on the spacecraft. One problem would be the radiation. We don’t know the effects of being outside [our atmosphere] for so long. As for me, to tell you the truth, I haven’t [had any lingering effects]. According to Einstein, I think it added about seven-hundredths of a second to my life.”

--From the Moscow Times:

“A Russian astrophysicist has discovered a large asteroid that could potentially be on course to collide with Earth, Russian space agency Roscosmos announced on its website Sunday....

“With a diameter of about 370 meters, the space rock is slightly larger than the Apophis asteroid, which scientists previously feared would crash into Earth in 2029 or 2036. Last year NASA ruled out the possibility of an impact by Apophis.”

This new discovery, “UR116,” “could cause an explosion 8,000 times more powerful than that caused by the meteorite that exploded over Russia’s Chelyabinsk region in February 2013.”

The Russian professor who discovered it, Vladimir Lipunov, said the asteroid is expected to cross into Earth’s orbit within three years’ time.

So that’s three years for my Mets to capture a World Series title. I imagine some of you will have other priorities.  Like Cubs fans.

---

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

God bless America.
---

Gold closed at $1222
Oil $57.81

Returns for the week 12/8-12/12

Dow Jones -3.8% [17280]
S&P 500 -3.5% [2002]
S&P MidCap -2.9%
Russell 2000 -2.5%
Nasdaq -2.7% [4653]

Returns for the period 1/1/14-12/12/14

Dow Jones +4.3%
S&P 500 +8.3%
S&P MidCap +4.5%
Russell 2000 -1.0%
Nasdaq +11.4%

Bulls 51.1
Bears 14.8 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

 



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Week in Review

12/13/2014

For the week 12/8-12/12

[Posted 10:00 PM ET, Friday...Kiawah, S.C.]

Edition 818

Washington and Wall Street

I’m here on beautiful Kiawah Island for my annual half-marathon. With its lateness in the year it keeps me motivated from March or April on to stay in some kind of shape, especially for my advanced age (56), and as long as the knees hold up I’ll keep doing this one, even though it’s depressing watching my times get worse and worse.

So let’s see…how do I tie this opening into a market commentary?

Well the oil market isn’t in good shape these days!!! 

Crude was down for a 10th week in eleven as oil, as measured by West Texas Intermediate, crashed below the $60 level, closing the week at $57.81. Sept. 26 it was $93.50. Back in June, well over $100. 

While oil being down over 45% in six months is a great thing for consumers, and a strong retail sales figure for November, up a better than expected 0.7%, certainly points to a solid Christmas shopping season with extra cash in everyone’s pocket; the price of gas at the pump is down well over $1.00 since April. At 15 gallons that’s $15…real money. Why that’s enough to go see Sony Pictures’ “The Interview,” where you can smirk at James Franco, knowing he was paid $2 million less than Seth Rogen for the flick…but I digress.

The thing about crumbling oil that led to the worst week for stocks in years, however, is the fear that while the U.S. economy is doing the best of any big player in the world these days, every other country, from the eurozone to Japan and China is either stagnating or in recession. So will these folks drag us under?

Certainly the figures from the likes of OPEC and the International Energy Agency on global demand for oil aren’t good. OPEC said it will pump 28.9 million barrels a day in 2015, which is 1.4 million less than the 12 members of the cartel did in November, while the IEA cut its consumption forecast for a fifth month in six, another 230,000 barrels a day less than estimated in November (though in this instance it is almost solely due to sliding Russian demand because of the double-whammy that economy is facing…plunging oil, revenues from which account for 50% of the federal budget, and Ukraine-related sanctions that have hit the nation particularly hard).

Bloomberg said its analysis shows that 10 of the 12 OPEC nations can’t balance their budgets at current prices, to which you can say ‘so what?’ but as the IEA averred, this could lead to major unrest, given who OPEC is comprised of, plus throw in Vlad the Impaler and non-OPEC Russia and, heck, no one knows what is going to happen next year if oil were to stick around current levels, let alone go even lower.

The IEA does, however, still expect world consumption of oil to rise next year, but only 1% to 93.3 million barrels. Hardly boom times. I would also offer that the IEA is too optimistic on the U.S., saying production will continue to rise in 2015 to the tune of an extra 685,000 barrels a day.

But here’s another issue. Where do you store all the extra crude that is being pumped, globally, at a pace greater than demand?

China is a huge part of this story and I’ll get into it below, as well as further energy tidbits.

For now, though, there are two other stories of note concerning the U.S. What will the Federal Reserve do when it meets next week for its yearend confab? As the Wall Street Journal’s Jon Hilsenrath wrote the other day, and as I noted last WIR, the latest thinking is the Fed would finally change the language in its accompanying statement, specifically dropping the assurance that short-term interest rates will stay near zero for a “considerable time,” which has been in the statements since March, while the Fed has held interest rates at zero since December 2008. The feeling being the Fed wants more flexibility in signaling the market it’s going to begin normalizing rates sometime next year, depending on the data and the global environment.

But as Bill Gross noted on Friday in an interview with Bloomberg, why would the Fed do that? The crash in oil prices is adding tremendous uncertainty to the global picture and the last thing the Fed should want to do is act like they are closer to finally raising rates than the fundamentals warrant.

The other thing that happened this week was Congress is on the verge of passing a sweeping $1 trillion appropriations bill that has both the far left and right screaming. House Majority Leader John Boehner, about to be demoted Senate Majority Leader Harry Reid, and President Obama agreed on the framework for the massive package that will fund the government through September, goodies for everyone around the tree, with the slight sop to conservatives being that the Dept. of Homeland Security, which is responsible for immigration policy, is only funded through Feb. 27, giving the new Republican Senate in January a chance to defund various aspects and force Obama’s hand in terms of using his veto.

The House barely passed the legislation, 219-206, with 162 Republicans and 57 Democrats voting for it, and 67 Republicans and 139 Democrats in opposition.  *As I go to post, the Senate has yet to formally approve it but is expected to shortly.

Liberals are most upset at a provision that rolls back some of the post-financial crisis regulations to allow for banks to trade derivatives again in some heretofore restricted areas, knowing they will be backstopped by the federal government, i.e., the American taxpayer. There has also been a ten-fold increase in the amount individuals can donate to national political parties each year, mainly for the purpose of financing national conventions.

And there is new funding for Ebola and the war against ISIS that only adds to the deficit.

Two views….

Editorial / Washington Post

“Let’s begin by thanking Congress for small favors: Top lawmakers from both parties have agreed on a $1.01 trillion spending bill that will fund all but one federal department through September, thereby averting a shutdown like the one that entangled Washington for 16 days last year….In addition to agency appropriations, the bill would provide billions in funding for such emergencies as the Ebola outbreak in West Africa and the war against the Islamic State.

“That Congress has averted major chaos, however, does not imply that chaos of a more minor kind no longer reigns on Capitol Hill. The gargantuan bill includes a host of provisions, both budgetary and policymaking, that could only have made it through amid last-minute horse-trading on sweeping, must-pass legislation….

“Reflecting the GOP’s rising power, the Environmental Protection Agency and the Internal Revenue Service both will sustain significant cuts – of $60 million and $346 million, respectively. The latter is especially unjustifiable since the IRS’ budget in the current fiscal year, $11.3 billion, already represented a $525 million fall-off since fiscal 2012. Republicans love to take shots at the hated tax collectors but never explain how the agency is supposed to rein in fraud and mistaken payments… without the funds to do the job.”

Editorial / Wall Street Journal

“The 113th Congress is sprinting to a finish, and few besides Harry Reid will lament its passing. In its final budget splurge, however, Congress is at least showing hints of better governance and how a Republican majority might effectively use the power of the purse next year….

“This Gargantua is giving Republicans a chance to press some of their priorities. The bill funds 11 of 12 parts of the government through September and generally stays within the spending caps laid out in last year’s budget agreement – providing $521 billion to defense and $429 billion for domestic discretionary programs. It funds the Department of Homeland Security only through February, when Republicans will tee up a debate over President Obama’s immigration decree.

“Some on the right are calling the caps a sham, and that’s partly true, since the bill adds $64 billion to fight Islamic State and $5.4 billion for Ebola that are outside the caps. Then again, the war has to be funded and defeating Ebola should be a priority.

“More encouraging is that Republicans are showing how they can use Congress’ spending power to steer policy….

“The bill cuts nearly $350 million from an Internal Revenue Service that targeted conservative nonprofits and is acting as tax collector for ObamaCare. It slices $60 million from the imperial Environmental Protection Agency, whose budget is 21% below 2010 levels and will soon have as many employees as it did in 1989….

“Republicans were forced to concede on some of their highest priorities, such as the Keystone XL pipeline and substantive changes to ObamaCare… But Democrats still control the Senate, and Mr. Obama has the veto pen….

“The omnibus bill has plenty of barnacles, and its rush-to-a-vote is a disgrace, but Republicans are using it to make more policy progress than they have in four years. Next year they can make even more, if they understand that their spending power is formidable but not unlimited.”

Europe and Asia

It was a week dominated by more lousy fundamental news for the eurozone as well as a political development that led to the Greek stock market losing about 20% of its value, including 12.8% on Tuesday, the worst day for the Athens benchmark since 1987.

First, eurozone industrial production for the month of October was released, up just 0.1% month over month (up 0.7% year over year), less than expected, which isn’t the kind of start to the fourth quarter many want to see.

German industrial production for October was also up a less than expected 0.2% from September.

In non-euro U.K., October manufacturing fell for the first time in five months.

French President Hollande’s government is pushing again for labor market reforms and loosening regulations such as relaxing rules on Sunday retail hours, but it’s a less than exciting grab bag of items that aren’t being met with enthusiasm. A poll published by the French business daily Les Echos showed nine out of 10 French people disapprove of the government’s economic policy. [New York Times]

In Italy, S&P downgraded its credit to one notch above junk, and there have been widespread strikes over Prime Minister Renzi’s own attempt at labor reforms, so that’s not a good sign for this sclerotic nation.

Then you have Greece. Parliament passed a balanced budget for 2015, while the government is projecting growth of 2.9% for next year after six years of recession/depression.

But the budget is filled with tax cuts that haven’t been approved by the troika – the European Commission, European Central Bank and IMF, which needs to do so as part of the ongoing bailout process.

The Euro part of the bailout is to end Dec. 31, with the IMF involved until March 2016, so the former has a critical say in coming weeks and the latter is involved all of 2015 and then some.

Which leads me to Prime Minister Samaras, who needs 180 votes out of 300 in parliament to avoid having to call a snap election but he only has 155 in his coalition…so what does he do?

He calls a snap election for the largely ceremonial post of president, with three rounds of voting to be held Dec. 17, 23 and 29.

The significance here is that if Samaras can’t get some currently in the opposition to side with his choice, which would be a vote of confidence on his economic policies, and gain 180 by the Dec. 29 final ballot, then new parliamentary elections are mandated by law, this vote to take place in late January or early February.

The issue here is that the likely winner of that election would be Alexis Tsipras and his far-left, Socialist, Syriza party, which is anti-EU and anti-austerity. The markets tanked on word of the snap presidential vote because should Tsipras win, all hell would break loose. He wants to renegotiate Greece’s debt (which would be a second time), for starters, and the troika and international investors wouldn’t be doing cartwheels over this, plus he wants to hike public spending.

So that would be bad enough, except there is zero guarantee Tsipras could cobble together a workable coalition even if he does win the parliamentary vote…and that would lead to even more chaos.

But wait…there’s more! Greece’s debt is heading towards 174% of GDP, Europe’s largest, and it needs a new credit line to replace the euro portion of its bailout. To be continued next week…for starters…

Turning to Asia….

China’s national statistics folks released a slew of data this week and none of it was good.

November exports rose 4.7% year over year, far less than expected, while imports fell 6.7% (lower oil prices had an impact, but the drop wasn’t all related to crude).

Exports to the U.S. rose 2.6% year over year, but this was far less than October’s 10.9% pace. Exports to the EU rose 4.1%, same as the month before.

November factory production was up 7.2% vs. year ago levels, but this too was less than expected. Retail sales, up 11.7%, were so-so, while fixed asset investment (railroads, airports, roads and such) rose 15.8% for the period January thru November, hardly the 20% pace of past years.

Another key barometer, electricity output, rose only 0.6% in November vs. last year.

Then you had the inflation indicators. Consumer prices rose just 1.4% in November year over year, with food up only 2.3%, both figures well below the government’s 3.5% target.

And factory gate / producer prices fell a 33rd consecutive month, down 2.7%. This is terrible, outright deflation, owing to severe overcapacity, as well as lower commodity prices, and no pricing power.

The People’s Bank of China, the central bank, injected $65 billion into the banks in another attempt to encourage them to loan, while at the same time China’s leaders are stressing a “new normal,” which in terms of a target growth rate won’t be formally announced until next March but it’s expected to be 7.0%, down from this year’s projected 7.5%.

Meanwhile, China’s stock market, as represented by the Shanghai Composite benchmark, rose 41% from June through Monday, before taking a 5.4% header on Tuesday, the biggest loss in five years, as securities regulators took steps to prick the bubble. [Year to date, however, the Shanghai is up 39%.]

As for Japan, Prime Minister Shinzo Abe is expected to receive the vote of confidence he’s looking for in parliamentary elections on Sunday. But if he wins the mandate, and thus another four years, he must enact real structural reforms, including overhauling the labor market. It’s basically the same issue facing the likes of France and Italy. How do you change an entrenched system where it is virtually impossible to fire a worker? At the same time, wages are not keeping up with inflation and the weak yen, great for exporters, makes the price of imported goods more expensive.

One economic item from the past week. Third-quarter GDP was revised to -1.9% on an annualized basis from the initial estimate of -1.6%. [Quarter-to-quarter, -0.5% vs. -0.4%.] Recall, second-quarter GDP was down 7.3% annualized.

Street Bytes

--The Dow Jones suffered its worst loss since November 2011, 3.8% to 17280, including 315 points on Friday, while the S&P 500 lost 3.5% on the week, its worst performance since May 2012; both indices snapping seven-week winning streaks after each hit a new high the prior Friday. Nasdaq fell a second consecutive week, losing 2.7%.

--U.S. Treasury Yields

6-mo. 0.09% 2-yr. 0.54% 10-yr. 2.08% 30-yr. 2.74%

Owing to the turmoil in the equity market, the 10-year Treasury crashed through its Oct. 15 closing low of 2.14%, a key level as that was the day it actually hit 1.86% briefly.

Meanwhile, November producer prices fell a larger than expected 0.2%, unchanged ex-food and energy. For the12 months the PPI is up 1.4%, up 1.7% on core.

The IMF, by the way, raised the U.S. GDP forecast for 2015 to 3.5% from an earlier projection of 3.1%, citing the benefits of lower oil prices.

--The rapid fall in the price of crude is beginning to have an impact on the labor force.

“U.S. energy companies are starting to cut drilling, lay off workers and slash spending in the face of an accelerating decline in oil prices, which fell to a fresh five-year low Wednesday.

“The number of rigs drilling for oil in North Dakota and parts of Texas has started to edge down, new drilling permits have dropped sharply since October, and many companies say they are going to focus on their most profitable wells.

“EOG Resources Inc. this week said it would shed many of its Canadian oil and gas fields, close its Calgary office and lay off employees there as it refocuses in the U.S.” [Lynn Cook and Erin Ailworth / Wall Street Journal]

“As oil prices continued to fall, the British oil giant BP said on Wednesday that it would cut jobs and take $1 billion in restructuring charges over the next five quarters.

“The company said that it did not yet know how many people would be let go, but that most of the money would go to severance packages. With the amount of money earmarked, that could mean thousands of job cuts.” [Stanley Reed / New York Times]

Other bits and pieces, per a Bloomberg piece by Christine Idzelis and Craig Torres:

“The danger of stimulus-induced bubbles is starting to play out in the market for energy-company debt.

“Since early 2010, energy producers have raised $550 billion of new bonds and loans as the Federal Reserve held borrowing costs near zero, according to Deutsche Bank AG. With oil prices plunging, investors are questioning the ability of some issuers to meet their debt obligations….

“Yields on junk-rated energy bonds climbed to a more-than-five-year high of 9.5 percent this week from 5.7% in June, according to Bank of America Merrill Lynch index data.”

Energy XXI Ltd., an oil and gas explorer, issued $750 million of 9.25 percent notes in December 2010. Today (as of mid-week), they yielded 27.7 percent.

“Employment in support services for oil and gas operations has surged 70 percent since the U.S. expansion began in June 2009, while oil and gas extraction payrolls have climbed 34 percent.” [Christine Idzelis and Craig Torres]

I’m sorry I keep repeating myself, but I started saying weeks ago that the serious slide in the price of crude would have a major impact on the main growth engine for the U.S. economy. That doesn’t mean the overall economy craps out. It just means, as I’ve been pointing out, that I know the boom in North Dakota, for example, will end badly. That’s a fact. The last thing you want to have done is buy a condo in Williston three or four months ago. You will lose your shirt.

But let’s see where it all settles out in the first and second quarter. In the meantime just remember this market axiom when it comes to all kinds of markets…speed kills; the speed at which declines in asset prices take place.

--Ebola czar Ron Klain announced he is leaving in March. Why we hardly got to know him.

So I read the following from a BBC News piece on Thursday.

“Health officials in Sierra Leone have discovered scores of bodies in a remote diamond-mining area, raising fears that the scale of the Ebola outbreak may have been underreported.

“The World Health Organization said they uncovered a ‘grim scene’ in the eastern district of Kono.”

Understand the WHO had to bury the Kono bodies. 

But there’s more…they discovered “25 people who had died in the past five days piled up in a cordoned section of the local hospital.”

The latest ‘official’ count is 6,346 people in West Africa, with more than 17,800 infected. Sierra Leone has the most cases at 7,897.

A member of the WHO’s Ebola response team said:

“Our team met heroic doctors and nurses at their wits’ end, exhausted burial teams and lab techs, all doing the best they could but they simply ran out of resources and were overrun with gravely ill people.”

Virtually all of these Kono deaths initially went underreported and who knows how many hundreds of people that the victims came in contact with are now spreading it in their own right.

Authorities finally decided to put Kono district on “lockdown” from Dec. 10 to 23 to try and contain the outbreak. Merry Christmas.

--A federal appeals court dealt a huge blow to the government’s success in prosecuting insider trading cases, reversing two high-profile convictions with a decision jeopardizing at least a third, when the 2nd U.S. Circuit Court of Appeals overturned the convictions of Anthony Chiasson and Todd Newman.

Manhattan U.S. Attorney Preet Bharara had garnered some 80 convictions or guilty pleas on insider-trading cases, but now a three-judge panel said prosecutors must prove traders knew that the person providing information gained some kind of tangible reward for doing so. The judges also said insider trading isn’t illegal as long as the tipper didn’t commit a breach of their duty.

Judge Barrington D. Parker rejected the notion all insider-trading constitutes fraud.

Attorney Marc Powers told the Wall Street Journal that Bharara and the SEC “have been pushing the boundaries of the law and the facts in insider-trading cases, beyond fairness and reason.”

Bharara said: “Today’s decision by the Court of Appeals interprets the securities laws in a way that will limit the ability to prosecute people who trade on leaked inside information.”

The Circuit Court’s decision could help overturn the conviction of a former SAC Capital portfolio manager, Michael Steinberg, the confident of SAC founder Steven A. Cohen, the big fish the feds have long been after.

Many of Bharara’s other high-profile convictions, such as that of Raj Rajaratnam and Rajat Gupta, are not expected to be jeopardized by the decision.

--North Korea has denied it was responsible for hacking the computers of Sony Pictures, though a spokesman for the National Defense Commission said the attack “might be a righteous deed of the supporters and sympathizers with” North Korea in its struggle to “put an end to U.S. imperialism.” Cybersecurity analysts remain divided over whether the hack was Pyongyang’s doing or another group, including the self-proclaimed Guardians of Peace.

Michael Lynton, Sony CEO, told employees in an email that the attack on the studio’s technology was “unprecedented.”

“The scope of this attack differs from any we have responded to in the past, as its purpose was to both destroy property and release confidential information to the public.”

By Thursday, we began to receive details of some of the hacked emails, including producer Scott Rudin’s description of Angelina Jolie as “a minimally talented spoiled brat.”

More importantly, as the hackers release new information by drips and drabs daily, on Friday we learned that some incredibly personal medical details on at least 34 Sony employees and their families was thrown out there for public consumption. Just when you think it couldn’t get worse, it did.

--Verizon and AT&T warned of a price war in the mobile phone biz and the struggle to keep their subscriber counts growing. No. 4 carrier in the U.S., T-Mobile, continues to keep the heat on with new deals. Verizon said more of its customers were opting for other carriers this quarter than in the past year.

--Costco Wholesale Corp. reported profits rose 17% in the November quarter, with both revenues and same-store sales rising a solid 7%.

--Citigroup Inc. announced it would bolster its legal reserves by $2.7 billion, wiping out its expected fourth-quarter profit as the nation’s third-largest bank continues to feel the heat from regulators conducting probes into potential money-laundering, as well as trading activities. CEO Michael Corbat said the latest charges should allow Citi to “largely put those [issues] behind us.” [Wall Street Journal]

--Yum Brands, parent of KFC and Pizza Hut, slashed its profit forecast again due to slower sales in China. Early in the year, Yum talked of profit growth of 20%, but now it estimates a “mid-single-digit percentage.”

The KFC chain continues to suffer after a food safety scandal in July and while sales are beginning to recover in China, it has been at a slower pace than the company expected.

--McDonald’s continues to suffer as the company reported global November same-store sales were down 2.2% over year ago levels, while U.S. comps for the month fell 4.6%, far worse than the expected 2.1% decline and the biggest monthly drop in U.S. same-store sales in more than 14 years.

McDonald’s blamed the decline on “strong competitive activity” and said it is “diligently working to enhance its marketing, simplify the menu, and implement a more locally driven organizational structure to increase relevance with consumers.” It will remove eight items next month but has yet to specify which ones.

No doubt McDonald’s is bloated in many ways, which I’ve noted in this space from my own experience has led to slower service that is driving customers away (though not necessarily in my case).

--The Irish economy grew only 0.1% in the third quarter over the second, but year over year is up 3.5%. However, the annualized rate of growth was 7.3% in Q2. That said, Irish officials are confident that for 2014, the country will have seen very solid 4.7% growth in GDP.

--Investors poured $770 million into Bill Gross’ new Janus Fund in November, on top of $364 million in October. Recently George Soros also gave Gross $500 million in a separate account that will mirror the strategy of his Janus Global Unconstrained Bond fund.

When the fund was handed over to Gross in September, it had about $12 million in assets.

--According to a New York Times poll, 64% of respondents said they still believed in the American dream, the lowest result in roughly two decades. Even at the depth of the financial crisis, early 2009, the figure was 72%.

--I’ve noted I live across the street from Merck’s North American headquarters. Well, no longer. The 88-acre campus is now officially empty as the drugmaker has scattered its operations to other locations around the country. There have been all kinds of rumors as to who might move in but nothing yet. The hit to local restaurants that employees could walk to is substantial.

Anyway, Merck agreed to acquire Cubist Pharmaceuticals this week for $8.4 billion. Cubist, based in Lexington, Mass., is the largest maker of antibiotics so one of Merck’s goals is to deepen its ties with hospitals. Sales in Merck’s hospital acute care division were 10% higher in the first three quarters of the year over the same period in 2013. [David Gelles / New York Times]

--Taxi-booking service Uber was banned in India after a driver allegedly raped a female passenger. A transport official said the company had been “blacklisted” for “misleading customers.” The driver was arrested.

--A Korean Air Lines executive was forced to resign after it was discovered she ordered a flight from New York to Incheon, South Korea to return to the gate to kick the senior flight attendant off the plane, after the executive was served macadamia nuts in an unopened package instead of on a plate.

Actually, she hadn’t asked for the nuts in the first place, but you can imagine how social media went wild when the episode became known.

So the airline announced she resigned as the head of in-flight services, though not as a vice president. “I am sorry for causing trouble to the passengers and the people,” she said in a statement on Tuesday. “I seek forgiveness from those who were hurt by what I did.”

--As California gets slammed by a monster, badly needed, storm, a major NOAA report said the driver of California’s historic drought has been “Natural oceanic and atmospheric patterns,” specifically a persistent area of high pressure off the West Coast that has blocked rain-bearing storms from coming ashore. Ergo, the drought has not been caused by the build-up of greenhouse gases.

--Facebook founder Mark Zuckerberg angered activists in China when a Chinese government news portal released a photo of Zuckerberg with a copy of President Xi Jinping’s book on governance on his desk, while hosting a top Internet regulator from China. One prominent dissident, Hu Jia, said, “Mr. Zuckerberg is either ignorant of China’s politics or shameless.”

Zuckerberg is kissing up to China in order to gain access, Facebook having been blocked there. Zuckerberg was quoted as telling the regulator, Lu Wei, that “I bought this book for my colleagues as well. I want them to understand socialism with Chinese characteristics.” [Sydney Morning Herald / AP]

--Instagram, the photo-sharing app, has overtaken Twitter in terms of number of users, passing the 300 million monthly active figure. Facebook bought the app for $1 billion in 2012 and it reported Instagram’s userbase had grown by a third in the last nine months.

Mark Zuckerberg has said none of the company’s collection of apps is under any pressure to generate revenue before they hit 1bn users. Facebook has 1.35bn.

Twitter recently said it had 284 million monthly active users. Shares in Twitter have been collapsing and are down over 40% for the year, while Facebook shares are up 40%.

[70% of Instagram’s users, by the way, are based outside the U.S., as reported by the Financial Times.]

--I can’t say I’ve ever donated to a dance organization, but it’s interesting that in New York, as reported by Theresa Agovino of Crain’s New York Business, corporate support for them has fallen 62% in the five years ending 2012, the last year for which data is available. Well that sucks.

--David Letterman is ending his 32-year run on May 20, CBS announced. No word on when the replacement, Stephen Colbert, is starting, though “The Colbert Report” is ending next week. Colbert might not start on CBS until September, so CBS is scrambling to fill the time until then. I’m available.

Foreign Affairs

Iraq / Syria / ISIS: Iraqi Prime Minister Haider al-Abadi pleaded with visiting Secretary of Defense Hagel for more heavy weapons and air power to fight ISIS, claiming Iraqi forces “are advancing on the ground,” but they need more to press the fight. Hagel agreed the U.S. and Iraq were making steady progress, though he added, “As Iraqi leaders and the people of Iraq know, only they can bring lasting peace to their country if they are resolved to do that.”

While Hagel was in Baghdad, Iraq’s foreign minister was in Iran, urging Tehran to step up its own support.  [Wall Street Journal]

Startlingly, the visit by Hagel was the first by a U.S. defense minister since December 2011 (Leon Panetta). How can that be?

U.S. officials said this week the Iraqi army was still months away from being able to retake the ISIS stronghold of Mosul, which IS took in June, thus shocking the region.

Apparently Iraqi forces are pretty good in advancing, but have trouble holding what they retake.

In Syria…Liz Sly / Washington Post:

“The main al-Qaeda affiliate in Syria is extending its control over a swath of territory that was until recently held by the collapsing moderate opposition, jeopardizing U.S. plans to form a new rebel force to fight extremists.

“Since routing two of the biggest Western-backed rebel movements last month from the province of Idlib, Jabhat al-Nusra has been steadily consolidating its position as the single most powerful military force in northwestern Syria.

“The group has overrun towns and villages throughout the province, secured supply routes into neighboring Turkey and potentially paved the way for the establishment of an Islamic ‘emirate’ – a competing entity to the ‘caliphate’ declared last summer by the Islamic State in northeastern Syria and western Iraq….

“If the fighting in Syria continues on its current trajectory, the country soon will be partitioned almost entirely between jihadist forces and those of the Assad regime, leaving the moderate rebels without territory and the United States without allies in the strategically important country, rebel commanders and analysts say.”

Score one for the bad guys. Like I said, it was over in 2012. Any talk of the U.S. forming up a moderate rebel army is beyond being a joke at this point.

Meanwhile, Israel bombed a few targets near Damascus International Airport, as well as a town on the border with Lebanon, and reports say the Israelis may have been going after Iranian intelligence locations, including arms/missiles meant for Hizbullah.

Separately, an investigation by the BBC World Service and King’s College London found that jihadist attacks killed more than 5,000 in November in 14 countries, with 2,000+ being civilians.

About 80% of the deaths came in just four countries – Iraq, Nigeria, Syria and Afghanistan.

Iraq was the most dangerous with 1,770 deaths in 233 attacks. 786 people, almost all civilians, died in Boko Haram incidents in Nigeria.

Afghanistan saw 782 deaths, Syria 693 and Yemen 410.
Al-Shabab took 266 lives in Somalia and Kenya.

Islamic State was responsible for the most among the 5,000 (5,046) deaths with 2,206 across Iraq and Syria.

935 jihadists died either in clashes or by blowing themselves up.

Iran: Nuclear talks between Tehran and the P5+1 are slated to resume this week in Geneva, which will be the first face to face negotiations since the deadline was extended on Nov. 24 to June 30.

The State Department said Iran had kept to its commitments under the Joint Plan of Action, the interim deal designed to freeze Iranian activity, which flies in the face of reports of U.S. complaints to the U.N.

According to a report in Foreign Policy magazine, Iranian procurement agents “have been increasing their efforts to illicitly obtain equipment for the IR-40 research reactor at the Arak nuclear complex [Ed. a heavy-water plutonium plant].”

For his part, Iranian President Rohani has often boasted of circumventing the sanctions imposed by the U.S. and the international community, calling them “illegal.” [Michael Wilner / Jerusalem Post]

Of course the International Atomic Energy Agency has been spelling out for months Iran’s total lack of cooperation.

Jennifer Rubin / Washington Post

“We have already seen allegations that Iran was cheating on its existing commitments, although the administration continued to insist it was fully complying with the interim agreement. We knew Iran was still refusing to allow IAEA inspectors full access to its facilities. And we knew Iran had categorically refused to disclose the contours of its previous alleged nuclear weapons program, making it impossible for us even to know where to send inspectors. Now, the Iranians may have been caught red-handed trying to buy parts for their reactor at Arak.

“The administration has been keeping the cheating allegation under its hat – no doubt concerned that Congress would demand answers, vote for more sanctions and perhaps put an end to talks….

“Iran experts note that since the actual text of the interim agreement has never been released publicly (!), we do not know what technical requirements may be implicated. But we certainly know that if these allegations [Ed. from the Foreign Policy piece] are true, Iran continues to violate multiple United Nations resolutions.

“Time and again the administration has vowed to come back for more sanctions if Iran was found cheating. It therefore will be interesting to see how the administration explains away the latest revelations. Or will the administration simply admit the Iranians are cheating and say, um, they’d be cheating worse if not for the agreement? It sounds like a joke, but the argument may not be that far off.”

Russia: Poland’s defense minister said the level of Russian naval and air force activity in the Baltic Sea region has been “unprecedented” this week, though most of it was in international airspace and waters. Tomasz Siemoniak said it did not appear Russia was preparing to attack, but rather testing NATO defenses.

Among the near misses, a Norwegian warplane had one with a Russian fighter which had ventured too close to Norway, while the Finnish air force said there had been “unusually intense” Russian activity over the Baltic Sea and the Gulf of Finland.

But even as the Russian currency collapses amid the plunge in oil prices, Moscow has vowed to increase defense spending by 30% next year to a record post-Soviet high of $62 billion, with much of the increase focused on the navy (specifically, submarines) and missiles for the armed forces.

According to the consultancy IHS Jane’s, however, U.S. defense spending next year will be $584 billion (I’m assuming including the war on ISIS) and China’s $159.6 billion. [Moscow Times]

Back to the currency and budget situation, Bloomberg Businessweek reports that a year ago, Russia’s central bank had foreign reserves of $515 billion, but now that total is less than $419 billion and falling fast.

That’s still an awful lot, but, recall, a few weeks ago I told you of how Putin’s crony, Igor Sechin, was asking for $44 billion to shore up his oil giant, Rosneft, that would come out of a fund designed to support the pension system.

And regarding the South Stream pipeline project, originally intended to go through Bulgaria but due to political pressure now having to be rerouted through Turkey, the Ankara government is playing hardball on many fronts, including over its right to re-export gas bought at its border as its own. Turkey is also demanding even lower prices for its gas supplies if it is to approve of the project.

So will Moscow even be able to afford South Stream?

Ukraine: The government is broke, on the verge of bankruptcy, but is still vowing to double the defense budget to combat the separatists in the east, adding some 40,000 conscripts in the process (though many of these will replace those whose service obligations expire). A two-day-old truce expired when pro-Russian rebels killed three Ukrainian soldiers on Thursday.

Regarding the finances, Prime Minister Yatsenyuk said his nation needs an expanded bailout program or it will default, calling for a new international donor conference. The Financial Times reported on Tuesday that Ukraine needed $15 billion to avoid default within weeks, though the government denies it is that imminent.

One of the many major issues is that the fighting in the east has wiped out Ukraine’s industrial sector, always the strength, with Yatsenyuk saying essentially 20% of the country’s GDP has gone up in smoke. [The Wall Street Journal says Donetsk and Luhansk account for 16% of Ukraine’s GDP and roughly a quarter of industrial output. Output overall in Ukraine declined 16.3% in October from a year earlier.] It’s just an immense tragedy on so many levels.

Afghanistan: Editorial / Washington Post

“Not much attention was paid in Washington to the formal end Monday of U.S. combat operations in Afghanistan. The 13-year-old war is something most Americans, led by their president, are eager to put behind them. That’s unfortunate, because far from fading away, the fighting in Afghanistan is intensifying – and so is the threat it poses to everything that the U.S.-led coalition accomplished.

“Over several months, attacks by the Taliban have steadily escalated, including in a once-relatively secure capital. International aid groups are pulling their staffs out of Kabul after a wave of bombings and assaults on foreigners’ compounds, while many educated and affluent Afghans who returned from exile to invest in the country are leaving again….

“The Afghan army built by the United States and its allies at huge expense is under enormous stress. More than 5,000 soldiers and police have been killed this year – more than the total number of U.S. and allied deaths since 2001….

“The deteriorating situation can only be exacerbated by the rigid timetable imposed by President Obama for ending combat missions and withdrawing the remaining U.S. troops…It’s a political timetable that suits the president’s legacy aspirations but bears no relation to the military situation.”

This week, a Taliban suicide bomber targeted a bus carrying Afghan soldiers in Kabul, killing at least five. Again, this kind of attack never happened in Kabul.

China / Hong Kong: Without much violence, the last protest camps in Hong Kong were dismantled this week, with some of the student leaders quietly allowing to be arrested on Thursday. One of the leaders, Alan Leong, said, “The occupation is certainly going to end soon. But it is certainly not the end of the movement.”

Nope, far from it. The protests will come and go over the next few years.

Separately, according to an annual report to Congress submitted by the U.S.-China Economic and Security Review Commission, by yearend, China will be conducting initial patrols with its stealthiest submarines that will for the first time be armed with nuclear missiles; the virtually impossible-to-detect JIN class of subs.

What this means is that for the first time, China’s nuclear force will be invulnerable to a first strike.

Doesn’t that give you a warm and fuzzy feeling? 

Lastly, China ramped up the rhetoric over the South China Sea all over again, blasting both the Philippines and Vietnam for staking claims to parts of it, which China basically says is all theirs.

China continues to have a separate dispute with Japan over islands in the East China Sea.

An international tribunal that the Philippines appealed to has given China until Dec. 15 to reply in a case brought by the former, but China has long said it would not participate in the arbitration proceedings.

Pakistan: In her Nobel Peace Prize acceptance speech, 17-year-old Malala Yousafzai said in part:

“It is for those forgotten children who want education. It is for those frightened children who want peace.

“It is for those voiceless children who want change. I am here to stand up for their rights, to raise their voice. It is not time to pity them.”

Malala told the BBC before she gave her speech that she wants to become prime minister of Pakistan one day. 

This is the single most important figure of the next 50 years…mark my words…if only we can keep her alive.

Should she gain power, say in 15-20 years, she’ll have some dictatorial traits, no doubt, to which if I’m still alive at the time, I’ll be cheering her on nonetheless.

In other news on Pakistan, a senior al-Qaeda militant, accused of planning to bomb trains in New York and London, was killed by the Pakistani military. The FBI describes the man, Adnan el Shukrijumah, as al-Qaeda’s global operations chief, a position once held by Khalid Sheikh Mohammed.

Shukrijumah was born in Saudi Arabia and lived for 15 years in the U.S., which is a most discomforting thought. [As in just how many sleeper cells are in the U.S. today?]

Zimbabwe: It’s been awhile since I mentioned President Robert Mugabe, multi-winner of the “Dirtball of the Year” award here at StocksandNews and a man I claimed back in my first days of writing this column should have been “taken out.” His country certainly would have been better off…and I long conjectured the world as well. [This was pre-9/11, remember. I’ll leave it at that.]

So Mugabe is now 90 years old and this week he named a successor, Emmerson Mnangagwa, known as the “Crocodile” for his viciousness and for having been the mastermind of the massacre of thousands of civilians.

Mnangagwa once threatened to “shorten the stay on Earth” of any “cockroaches” who dared to oppose Mugabe. Well now he is vice president after 40 years of loyal service to his leader.

In 1980, when Zimbabwe achieved independence, Mnangagwa was appointed security minister and head of intelligence and proceeded to wipe out the rival Zapu party, killing 8,000 in a campaign that was so brutal, even Mugabe later described it as a “moment of madness.”

Before this Mnangagwa was part of the “Crocodile Gang,” who specialized in attacking white-owned farms. Rhodesian security forces once arrested him and got him to confess to the capital crime of blowing up a train, but he avoided being hanged because he claimed to be under 21 and only received 10 years. [David Blair / The Telegraph]

It’s not known how old the guy is but the best guess is 68 to 72.

Good luck to all the good people in the country. They’ll need it.

Venezuela: Congress voted to restrict travel and freeze assets of some top Venezuelan officials due to the human rights crackdown on those protesting the government of President Nicolas Maduro. 40 have died recently as the country is literally falling apart.

Maduro took to national television to blast the sanctions, saying, “President Obama, I think you’re going to come out looking very bad.”

Democratic Sen. Robert Menendez (N.J.) has been leading the charge against the Maduro regime, saying “the absence of justice and the denial of human rights in Venezuela must end.” [Financial Times]

Maduro, at the same time, recognizes that oil exports to the U.S. are still the government’s largest cash-generator.

Random Musings

--The Senate Intelligence Committee released the results of its five-year investigation of the CIA’s interrogation program in the form of a 528-page summary, part of a longer, 6,000-page classified study, and the findings are bleak. As reported by the Washington Post’s Greg Miller, Adam Goldman and Julie Tate, the investigation describes “levels of brutality, dishonesty and seemingly arbitrary violence that at times brought even agency employees to moments of anguish.

“The report...delivers new allegations of cruelty in a program whose severe tactics have been abundantly documented, revealing that agency medical personnel voiced alarm that waterboarding methods had deteriorated to ‘a series of near drownings’ and that agency employees subjected detainees to ‘rectal rehydration’ and other painful procedures that were never approved.

“The 528-page document catalogues dozens of cases in which CIA officials allegedly deceived their superiors at the White House, members of Congress and even sometimes their peers about how the interrogation program was being run and what it had achieved. In one case, an internal CIA memo relays instructions from the White House to keep the program secret from then-Secretary of State Colin L. Powell out of concern that he would ‘blow his stack if he were to be briefed on what’s been going on.’

“A declassified summary of the committee’s work discloses for the first time a complete roster of the 119 prisoners held in CIA custody and indicates that at least 26 were held because of mistaken identities or bad intelligence.”

President Obama, in a statement, said the Senate report “documents a troubling program” and “reinforces my long-held view that these harsh methods were not only inconsistent with our values as [a] nation, they did not serve our broader counterterrorism efforts or our national security interests.”

While Obama praised the CIA’s work to degrade al-Qaeda, he added the program “did significant damage to America’s standing in the world and made it harder to pursue our interests with allies and partners.”

In a response to the Senate report, the CIA denied it intentionally misled the public or policymakers.

CIA Director John Brennan: “The intelligence gained from the program was critical to our understanding of al-Qaeda and continues to inform our counterterrorism efforts to this day.” The program “did produce intelligence that helped thwart attack plans, capture terrorists, and save lives.”

Then, in a rare news conference at CIA headquarters on Thursday, Brennan defended the agency, again, but criticized “enhanced interrogation techniques.” He did say, however, that detainees subjected to the methods provided useful intelligence, though he can’t be sure it was a result of the methods and techniques employed. He declined to say whether he regarded any of the techniques as “torture.”

The report was formally released on the Senate floor by California Democratic Sen. Dianne Feinstein, the chairman of the Senate committee. Beforehand, Sec. of State John Kerry pleaded with her not to release it because of fears the report could ignite violence against American interests.

The investigation was conducted exclusively by the Democratic staff of the Intelligence Committee. Republicans on it were furious, citing alleged inaccuracies and the failure to interview any of the operatives directly. Democrats claim they did so to avoid interfering with a separate Justice Department inquiry.

John McLaughlin, CIA acting director in 2004 and deputy director from 2000 to 2004 / Washington Post:

“The most incredible and false claim in the Senate intelligence committee’s report on the CIA interrogation program is that the program was neither necessary nor effective in the agency’s post-9/11 pursuit of al-Qaeda. The report, written by the committee’s Democratic majority and disputed by the Republican minority and the CIA, uses information selectively and distorts facts to ‘prove’ its point....

“The Democratic staffers who drafted the report assert the program contributed nothing important, apparently to bolster a bogus claim that the CIA lied. But let’s look at a few cases:

“Finding Osama bin Laden. The committee says the most critical information was acquired outside the interrogation program.

“Not true. The man who led the United States to bin Laden, a courier known as Abu Ahmed al-Kuwaiti, was mentioned by earlier sources but only as one of many associates bin Laden had years before. Detainees in the CIA interrogation program pushed Kuwaiti to the top of the list and caused the agency to focus tightly on him. The most specific information about the courier came from a detainee, Hassan Ghul, who, after interrogation, strengthened the case by telling of a specific message the courier had delivered for bin Laden to operations chief Abu Faraj al-Libi. Finally, interrogated senior operatives such as Khalid Sheik Mohammed, who by that time was enormously cooperative, lied when confronted with what we had learned about the courier. That was a dramatic tip-off that he was trying to protect bin Laden.

“The staffers who prepared the Senate draft do not appear to understand the role in analysis of accumulating detail, corroboration and levels of confidence in making momentous decisions like the May 2011 Abbottabad operation that killed bin Laden....

“To drive home their points, the committee frequently cherry-picks documents. It describes officers expressing concern via e-mail that they will be ‘ostracized’ for saying that certain detainees ‘did not tell us everything.’ But the staff leaves out the critical context: The CIA officers were actually discussing their dismay over the agency’s decision to cease the interrogation program, causing the loss of important intelligence information.

“Many administration and congressional officials ritualistically say we will never know whether we could have gotten important information another way. This is a dodge wrapped in political correctness. We could say that about all intelligence successes. We’ll never know, for example, what intelligence is missed when capture is declared too difficult and terrorists are killed from the air.

“The point is we did succeed in getting vital information – during a national emergency when time was limited by the great urgency of a clock ticking on the next plot.

“Terrorists had just killed thousands of Americans, and we felt a deep responsibility for ensuring they could not do it again.

“We succeeded.”

Editorial / Washington Post

“The report details painful and humiliating interrogation techniques, some authorized in advance, some not. A chief interrogator described an early detention site as a ‘dungeon,’ in which prisoners were shackled in total darkness and then sometimes stripped, hooded and dragged up and down a hallway while guards slapped and punched them. Agents blindfolded a prisoner and began operating a power drill to elicit extreme fear. They subjected detainees to excessive sleep deprivation – up to 180 hours – sometimes to the point that prisoners experienced ‘disturbing hallucinations.’ Prisoners were shackled for days with their arms above their heads, forced into prolonged nudity and soaked in cold water. Some endured ‘rectal rehydration’ and ‘rectal feeding.’ Interrogators demanded that detainees maintain stress positions indefinitely – even treating one for swelling so he could continue standing. Wounds were allowed to worsen. Early on, one prisoner died in CIA custody, probably due to prolonged exposure to cold. And there was waterboarding – leading in one instance to detainee Abu Zubaida becoming ‘completely unresponsive, with bubbles rising through his full, open mouth.’

“This is not how Americans should behave. Ever....

“Torture is wrong, whether or not it has ever ‘worked.’ As an Obama administration official said Tuesday, ‘The reason we prohibited these techniques is because they are contrary to our values.’

“We don’t discount warnings that releasing the report might rouse anti-American sentiment in the near term. But in the long term, the United States will benefit by demonstrating a commitment to transparency and self-criticism – and, most of all, by pledging never to repeat its post-9/11 mistakes.”

Former CIA Directors George J. Tenet, Porter J. Goss and Michael V. Hayden (and others) / Wall Street Journal

“Examining how the CIA handled these matters is an important subject of continuing relevance to a nation still at war. In no way would we claim that we did everything perfectly, especially in the emergency and often-chaotic circumstances we confronted in the immediate aftermath of 9.11. As in all wars, there were undoubtedly things in our program that should not have happened. When we learned of them, we reported such instances to the CIA inspector general or the Justice Department and sought to take corrective action.

“The country and the CIA would have benefited from a more balanced study of these programs and a corresponding set of recommendations. The committee’s report is not that study. It offers not a single recommendation.....

“What is wrong with the committee’s report?

“First, its claim that the CIA’s interrogation program was ineffective in producing intelligence that helped us disrupt, capture, or kill terrorists is just not accurate. The program was invaluable in three critical ways.

“It led to the capture of senior al Qaeda operatives, thereby removing them from the battlefield.

“It led to the disruption of terrorist plots and prevented mass casualty attacks, saving American and Allied lives.

“It added enormously to what we knew about al-Qaeda as an organization and therefore informed our approaches on how best to attack, thwart and degrade it....

“(The) majority left out something critical to understanding the program: context.

“The detention and interrogation program was formulated in the aftermath of the murders of close to 3,000 people on 9/11. This was a time when:

“We had evidence that al-Qaeda was planning a second wave of attacks on the U.S.

“We had certain knowledge that bin Laden had met with Pakistani nuclear scientists and wanted nuclear weapons.

“We had reports that nuclear weapons were being smuggled into New York City.

“We had hard evidence that al-Qaeda was trying to manufacture anthrax.

“It felt like the classic ‘ticking time bomb’ scenario – every single day.

“In this atmosphere, time was of the essence and the CIA felt a deep responsibility to ensure that an attack like 9/11 would never happen again. We designed the detention and interrogation programs at a time when ‘relationship building’ was not working with brutal killers who did not hesitate to behead innocents. These detainees had received highly effective counter-interrogation training while in al-Qaeda training camps. And yet it was clear they possessed information that could disrupt plots and save American lives....

“The committee also failed to make clear that the CIA was not acting alone in carrying out the interrogation program. Throughout the process, there was extensive consultation with the national security adviser, deputy national security adviser, White House counsel, and the Justice Department.

“The president approved the program. The attorney general deemed it legal....

“We can only conclude that the committee members or staff did not want to risk having to deal with data that did not fit their construct.  Which is another reason why the study is so flawed. What went on in preparing the report is clear: The staff picked up the signal at the outset that this study was to have a certain outcome, especially with respect to the question of whether the interrogation program produced intelligence that helped stop terrorists. The staff members then ‘cherry picked’ their way through six million pages of documents, ignoring some data and highlighting others, to construct their argument against the program’s effectiveness.

“In the intelligence profession, that is called politicization.

“As lamentable as the inaccuracies of the majority document are...some consequences are alarming:

“Many CIA officers will be concerned that being involved in legally approved sensitive actions can open them to politically driven scrutiny and censure from a future administration.

“Foreign intelligence partners will have even less confidence that Washington, already hemorrhaging with leaks, will be able to protect their cooperation from public scrutiny. They will cooperate less with the United States.

“Terrorists, having acquired now the largest haven (in the Middle East and North Africa) and string of successes they have had in a decade, will have yet another valuable recruitment tool.

“All of this means more danger for the American people and for our allies....

“Between 1998 and 2001, the al-Qaeda leadership in South Asia attacked two U.S. embassies in East Africa, a U.S. warship in the port of Aden, Yemen, and the American homeland – the most deadly single foreign attack on the U.S. in the country’s history. The al-Qaeda leadership has not managed another attack on the homeland in the 13 years since, despite a strong desire to do so. The CIA’s aggressive counterterrorism policies and programs are responsible for that success.”

Editorial / Wall Street Journal

“Debatable cases aside, the Senate’s choir boys are pretending that the business of intelligence is like a TV court drama with an ‘aha’ moment of admission. If only life were so easy. Intelligence work is about combining information from multiple sources, human and technical, to build a mosaic from which terrorist habits can be discerned and perhaps plots discovered. That the interrogations yielded such crucial information is beyond dispute.

“The report’s greatest offense is its dishonest treatment of political accountability. The authors portray a rogue CIA operating without legal authority and hiding information from Congress, the public and even President Bush. This charge is rebutted even by current CIA director John Brennan, who otherwise dries his predecessors out to hang.

“As for legal authority, no less than Attorney General Eric Holder hired a special prosecutor, who investigated interrogations and filed no charges. That suggests the practices were legally vetted, as the former CIA officials claim. As for Congress, its top officials – the Gang of Eight – were briefed from the very beginning. That included Nancy Pelosi.

“If they didn’t know as much as this report discloses, then they are at fault for not digging deeply enough. They may not have asked about what they didn’t want to hear. But more likely they liked what they heard and wanted it to continue as long as the public mood demanded it....

“So once again our politicians whipsaw the CIA, asking it to protect us from relentless killers only later to object when the political mood shifts. Frank Church and the left did this in the 1970s, and CIA needed years to recover. Now it’s the Obama Democrats. The CIA isn’t above accountability, but it deserves better than the partisan hindsight of this Senate report.”

Speaking to Fox News, Dick Cheney said President Bush was “fully informed” about CIA interrogation techniques condemned in the Senate report, and that the report was “full of crap.”

Cheney: “The notion that the committee is trying to peddle that somehow the agency was operating on a rogue basis and that we weren’t being told – that the president wasn’t being told – is a flat-out lie.”

Cheney said the interrogation program saved lives, and that the agency deserved “credit not condemnation.”

Charles Krauthammer / Washington Post

Back in the days after 9/11, including by Democrats such as Sen. Jay Rockefeller in 2003, “There was no uproar about this open countenancing of torture-by-proxy. Which demonstrates not just the shamelessness of Democrats today denouncing practices to which, at the time and at the very least, they made no objection. It demonstrates also how near-consensual was the idea that our national emergency might require extraordinary measures.

“This is not to say that in carrying out the program there weren’t abuses, excesses, mismanagement and appalling mistakes… It is to say that the root-and-branch denunciation of the program as, in principle, unconscionable is not just hypocritical but ahistorical.

“To make that case, to produce a prosecutorial brief so entirely and relentlessly one-sided, the committee report (written solely by Democrats) excluded any testimony from the people involved and variously accused. None. No interviews, no hearings, no statements.”

Overseas reaction....

“This will have a very negative impact on the image of the United States,” said Teng Jianqun, director of the Center for Arms Control at the China Institute of International Studies, as told to state-run CCTV. He said U.S. officials seek to present themselves as “the big boys on human rights affairs in the international community, publishing evaluations of other countries’ behavior while clandestinely engaging in ‘notorious’ actions of their own.”

The BBC and Al Jazeera were among those carrying Sen. Feinstein’s speech live.

A columnist for the Sydney Morning Herald, Andrew P. Street, wrote: “Winning the crown for Most Appalling Human Rights Record in the Western World could be a tough tournament” following the release of the report.

Britain’s Independent newspaper began its report on the details on interrogation practices, “Now we know how bad things were, and how out of control the CIA was, as it leapt into action in the aftermath of the 9/11 attacks.” [Carol J. Williams / Los Angeles Times]

--As expected, last Saturday, Sen. Mary Landrieu (D) lost her Louisiana runoff to Rep. Bill Cassidy (R) by 12 points.   So aside from the fact this formalizes the 54-46 Republican advantage in the Senate, it also means there are no Democratic senators from the Deep South come January. Landrieu’s seat will be held by a Republican for the first time in 132 years, as reported by the Washington Post.

--A new Bloomberg Politics poll revealed that 53% of Americans say relations between whites and blacks in America have deteriorated since Barack Obama took office. But when it comes to the Ferguson and Eric Garner decisions, 52% agreed on Ferguson compared with 25% who agreed with the grand jury decision on Garner, which is how I come down too; with the majority on both.

By the way, on Ferguson, 64% of whites agreed with the decision, while 89% of blacks disagreed.

Separately, in a USA TODAY/Pew Research Center poll, by 57%-22%, those surveyed say the grand jury made the wrong decision in not bringing charges against New York City police officer Daniel Pantaleo.

But by 50%-37% they say the Ferguson grand jury made the right decision.

--MIT economist Jonathan Gruber, whose remarks on ObamaCare sparked an uproar, apologized to Congress Tuesday for “offending” comments that he said were insulting and mean.

Gruber testified before the House Committee on Oversight and Government Reform and was skewered by both parties.

“I sincerely apologize both for conjecturing with a tone of expertise and for doing so in such a disparaging fashion,” Gruber said. “It is never appropriate to try to make oneself seem more important or smarter by demeaning others. I know better. I knew better. I am embarrassed, and I am sorry.”

Rep. Darrel Issa (R-Calif.), chairman of the committee, said the remarks reveal “a pattern of intentional misleading” of the public about the Affordable Care Act.

Rep. Elijah Cummings of Maryland, the top Democrat on the panel, said Gruber’s statements “gave Republicans a public-relations gift in their relentless political campaign to tear down the ACA and eliminate health care for millions of Americans.”

Gruber claimed, “I was not the architect of President Obama’s health-care plan.”

Republicans pressed him on how much money he made as an adviser on the topic. Gruber said, talk to his lawyer, which wasn’t helpful in terms of his relationship with many members of the committee.

According to a Wall Street Journal review, Gruber and associates received over $6 million in federal and state grants and contracts since 2000, including $400,000 from the Department of Health and Human Services.

Editorial / Wall Street Journal

“Maybe it’s easier to get tenure at MIT than we thought. At least that’s our reaction to the Forrest Gump routine put on Tuesday before Congress by MIT economist Jonathan Gruber, who sounded for all the world as if he knew nothing more about politics and health care than the lovable bumpkin who always showed up when history was being made.

“That wasn’t the way Mr. Gruber sounded in his now famous videos – including in a University of Pennsylvania appearance last year – when he credited the enactment of ObamaCare to a ‘lack of transparency,’ the gaming of Congressional rules intended to measure the law’s fiscal impact, the ‘stupidity of the American voter,’ and a lack of Democratic candor about the redistribution of wealth embedded in the new insurance scheme.

“But on Tuesday...Mr. Gruber distanced himself from his remarks while refusing to say if they were true. He apologized for the tone, arrogance, glibness and the inappropriate nature of his remarks. But his response to substantive questions suggested that he is mainly sorry for getting caught on tape.

“He even insisted on Tuesday that ObamaCare had been debated and passed in a transparent manner. But this position is 180 degrees from the one he expressed on tape. So he simply dismissed his taped remarks as ‘conjectures’ about a political process he now claims not to understand.”

--Nikki Schwab / U.S. News & World Report Weekly:

“Senate Democrats said ‘yea’ to Colleen Bell – a former producer of the soap opera ‘The Bold and the Beautiful,’ who has also been a fundraiser for President Barack Obama – as the next U.S. ambassador to Hungary, but not everyone in Washington quite understood how one job led to the other.

“At Tuesday’s (Ed. 12/2) White House press briefing, ABC News’ Jonathan Karl was curious as to why Bell was picked. ‘If you can remind me, what are Colleen Bell’s qualifications for ambassador?’ he began, pressing press secretary Josh Earnest at the podium. ‘Is it that she was a soap opera producer? Is it that she gave hundreds of thousands of dollars or helped to raise hundreds of thousands of dollars for the Obama re-election campaign?’....

“The Senate vote on Bell was basically along party lines, 52-42. Independent Sen. Angus King of Maine this time voted with Senate Republicans.

“On the right, criticism has been harsh. Before the Tuesday vote, Republican Sen. John McCain railed against the nomination on the Senate floor. ‘We’re about to vote on a totally unqualified individual to be ambassador to a nation, which is very important to our national security interest,’ McCain said. He added that besides producing ‘The Bold and the Beautiful,’ Bell contributed $800,000 to Obama’s 2012 re-election campaign and bundled more than $2.1 million for that effort.”

--The Washington Post has ripped Rolling Stones’ story titled “A Rape on Campus” by Sabrina Rubin Erdely. I told you last week this was a classic case of “wait 24 hours” and that has proven to be the case. Erik Wemple of the Post has done yeoman’s work in a series of reports, including the following from Dec. 9.

“Did Rolling Stone magazine agree not to contact the alleged assailants of a gang rape at the center of its Nov. 19 story on the University of Virginia? Or did it simply fail to reach them?

“Those questions hover over...the piece by (Ms. Erdely) alleging that the freshman named Jackie was raped in September 2012 by seven men at the Phi Kappa Psi fraternity house. The story fell under scrutiny last week, in large part because there was no indication that the magazine had reached out to the alleged assailants before publication....

“In an interview last month, Sean Woods, who edited ‘A Rape on Campus,’ told The Post’s Paul Farhi of the effort to seek the assailants: ‘We did not talk to them. We could not reach them.’

“That statement suggests at least an effort to contact these potential sources. Yet on Friday, Rolling Stone published a ‘note to readers’ with conflicting information: ‘Because of the sensitive nature of Jackie’s story, we decided to honor her request not to contact the man who she claimed orchestrated the attack on her nor any of the men who she claimed participated in the attack for fear of retaliation against her.’

“Asked about that discrepancy, Rolling Stone spokeswoman Melissa Bruno e-mailed the Erik Wemple Blog: ‘I believe [Woods] misspoke on that specific point.’ As with many fine points in this sequence of events, this answer uncorks yet another question: How is it that the story’s editor misspoke on such a central point?”

Meanwhile, Erdely, in an email reply to Paul Farhi wrote in part:

“As I’ve already told you, the gang rape scene that leads the story is the alarming account that Jackie – a person whom I found to be credible – told to me, told her friends, and importantly, what she told the UVA administration, which chose not to act on her allegations in any way – i.e., the overarching point of the article. THAT is the story: the culture that greeted her and so many other UVA women I interviewed, who came forward with allegations, only to be met with indifference. (That I’ve received so many emails from other women saying similar things just further makes the point.) The point holds true whether or not you personally believe Jackie’s account, which it sounds like you don’t. You’re entitled to your opinion.”

Erik Wemple: “Bold text [Ed. I italicized] denotes comment suggesting that the truth in this case is nothing more than a ‘rounding error,’ as a colleague put it.”

Editorial / New York Post

“(What) about Teresa Sullivan? When confronted with the Rolling Stone story, the UVA president suspended ‘all fraternal organizations and associated social activities’ until January 9.

“We’ll leave aside whether, at the time, this move was justified or mere pandering. But now that the story has fallen apart, and despite her own warnings about ‘indicting the whole Greek system,’ she’s keeping the fraternity suspension in place.

“Her note this week to UVA parents even throws in a reference to the ‘deaths of young black men in Staten Island and Ferguson.’

“Yes, violence against women on campus should never be tolerated or ignored. But neither should violence to the truth.”

Thursday, the Washington Post ran another story, this one by T. Rees Shapiro, wherein the three students who came to Jackie’s aide the night in question, per her request, “Randall,” “Andy” and “Cindy,” noted one inconsistency after another between what she said and what Rolling Stone reported, plus none of the three had been interviewed by Sabrina Erdely.

[Talk about the failure to ‘wait 24 hours,’ TIME magazine’s 12/15 issue had a big story on the UVA case prior to the discovery it was fake, labeling it a “harrowing" story of gang-rape. Idiots.]

--Yolande Korkie is the wife of the late Pierre Korkie, who was the South African hostage killed in the failed rescue attempt in Yemen that also resulted in the death of American photojournalist Luke Somers. Her husband was said to be hours from being released before he was killed by his captors, and the U.S. says that while it suspected there was a second hostage, they had no details on both the identity nor the specifics of the potential release.

So you would think Yolande Korkie would be deeply bitter towards the U.S., but days later she said:

“What will it help to accuse? What will it help to find out what happened? Will it bring Pierre back? Never.”

Yolande, speaking to reporters in Johannesburg after the remains of her husband arrived in the country, added:

“We can’t bring someone back by hating, therefore we want to say today that we forgive unconditionally.”

What a heroic woman, though if later she severely questions the U.S. and her own government for the lack of communication between the two, I will support her to the hilt. Frankly, I’m ticked at my government over this one. Not for the second rescue attempt in weeks for Somers, but for not knowing the backstory.

--Jim Lovell, veteran NASA astronaut and retired Navy captain, in an interview with Army Times.

Q: You have spent about a month of your life in space. That’s a long time. But the one-way trip to Mars is likely to take at least 300 days. Can humans physically handle that?

A: Submarine sailors stay in the water for up to six months, so we know it’s possible. The problem is you have to stay in shape, so there would have to be equipment to do that on the spacecraft. One problem would be the radiation. We don’t know the effects of being outside [our atmosphere] for so long. As for me, to tell you the truth, I haven’t [had any lingering effects]. According to Einstein, I think it added about seven-hundredths of a second to my life.”

--From the Moscow Times:

“A Russian astrophysicist has discovered a large asteroid that could potentially be on course to collide with Earth, Russian space agency Roscosmos announced on its website Sunday....

“With a diameter of about 370 meters, the space rock is slightly larger than the Apophis asteroid, which scientists previously feared would crash into Earth in 2029 or 2036. Last year NASA ruled out the possibility of an impact by Apophis.”

This new discovery, “UR116,” “could cause an explosion 8,000 times more powerful than that caused by the meteorite that exploded over Russia’s Chelyabinsk region in February 2013.”

The Russian professor who discovered it, Vladimir Lipunov, said the asteroid is expected to cross into Earth’s orbit within three years’ time.

So that’s three years for my Mets to capture a World Series title. I imagine some of you will have other priorities.  Like Cubs fans.

---

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

God bless America.
---

Gold closed at $1222
Oil $57.81

Returns for the week 12/8-12/12

Dow Jones -3.8% [17280]
S&P 500 -3.5% [2002]
S&P MidCap -2.9%
Russell 2000 -2.5%
Nasdaq -2.7% [4653]

Returns for the period 1/1/14-12/12/14

Dow Jones +4.3%
S&P 500 +8.3%
S&P MidCap +4.5%
Russell 2000 -1.0%
Nasdaq +11.4%

Bulls 51.1
Bears 14.8 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore