Week in Review

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Week in Review

12/20/2014

For the week 12/15-12/19

Edition 819

Washington, Wall Street and Cuba

Prior to the market opening Wednesday morning, stocks had extended their losses on Tuesday to a seventh consecutive session as oil prices continued to collapse, along with the Russian ruble, amid growing concerns the global growth outlook was deteriorating heading into 2015.

But then the Federal Reserve wrapped up its two-day end of year confab and in its policy statement said:

“The committee judges that it can be patient in beginning to normalize the stance of monetary policy,” removing the pledge to keep interest rates at zero, while adding, “The committee sees this guidance as consistent with its previous statement that” rates are likely to stay near zero for a “considerable time.”

Then in her press conference after, Chair Janet Yellen said the Fed wouldn’t be raising rates until April at the earliest (with most currently pegging June as the target date for the first hike).

In forecasts released along with the statement, 15 of 17 Fed officials said they expected to raise rates in the coming year, with the median estimate for the fed funds benchmark being 1.125% by the fourth quarter of 2015. 2.5% for 2016, which would mean gradual, incremental moves.

Fed officials also projected GDP growth of between 2.6% and 3.0% next year with the unemployment rate falling to 5.2% or 5.3%, a zone that is commonly labeled “full employment.”

3 of the 10 voting members on the Federal Open Market Committee dissented (though for different reasons).

But the same day the Fed was offering its latest musings, the consumer price index for November was released and it showed prices declined 0.3% from a month earlier, the most since December 2008, and for the 12 months are up just 1.3%, ex-food and energy up 1.7%; so inflation is hardly a concern, rather falling prices could be the issue, especially if oil continues to slide.

Economist Paul Krugman is challenging the consensus that the Fed will raise interest rates in 2015. Speaking in Dubai, Krugman said: “When push comes to shove they’re going to look and say: ‘It’s a pretty weak world economy out there, we don’t see any inflation, and the risk if we raise rates and it turns out we were mistaken is just so huge. It’s certainly a real possibility that they’ll go ahead and do it, but probably not, and for what it’s worth I and others are trying to bully them into not doing it.”

Bill Gross, ex- of PIMCO and now Janus, is another who isn’t convinced rate hikes are coming next year.

Anyway, the markets took the Fed’s latest policy statement, and the comments of Chair Yellen, and it was back off to the races, with the Dow Jones registering its biggest two-day point gain since Nov. 2008, while the S&P 500 had back-to-back 2% moves for the first time since March 2009. Including further gains on Friday it ended up being the biggest three-day rally in both since Nov. 2011. The S&P had fallen 5% in seven days through Dec. 16; then rose 5% the last three.

As for oil, OPEC secretary-general Abdalla Salem el-Badri said the group hasn’t set a fixed oil-price target, with the price of West Texas Intermediate finishing a second straight week below $60 at $57.13 (the new Feb. contract). Despite a hefty percentage rally on Friday, crude nonetheless declined an 11th week out of 12.

AAA is reporting the average nationwide price of unleaded regular fell below $2.50 a gallon to $2.45, well over a $1 below the peak for the year and down for 85 straight days. The negative, though, is that job growth in the energy sector is coming to a screeching halt and this has been the major driver of the economic recovery.

Bottom line...investors are once again ignoring the stagnation in Europe and slowing economies virtually around the world, including in Japan and China.

It’s December, after all....almost always a strong month for equities. 

Lastly, a follow-up to my last review. As expected the Senate on Saturday night approved a sweeping $1.1 trillion spending bill to fund most of the federal government through September, the end of the fiscal year. The vote was 56-40, the House having previously passed it. President Obama then signed it into law.

Once again Texas Republican Sen. Ted Cruz sought to slow the debate, specifically on President Obama’s immigration policy, but this only infuriated many in his party who said (correctly) there was absolutely nothing to be gained by the grandstanding and that the time for such maneuvers is in January and February when the Republicans take control.

After 18 months of secret negotiations, what started out as a prisoner exchange – Alan Gross, a subcontractor with the U.S. Agency for International Development, for three still-jailed prisoners of the Cuban Five, who had reported to Havana on the activities of anti-Castro Cubans in Miami – evolved into discussions on what it would take to reestablish diplomatic relations between the United States and Cuba.

Negotiations at the presidential aide level involved a series of face-to-face talks in Ottawa, while Pope Francis, in a meeting with President Obama at the Vatican in March, offered to help resolve differences between the two countries and later sent letters to Obama and Raul Castro.

We have a long ways to go on this one. For years I have been ambivalent. The embargo wasn’t working in terms of forcing change in Havana, but at the same time attitudes have been changing among Cuban-Americans.

I just wonder, as you read further below, why we didn’t demand more immediate concessions from the Castro regime.

House Speaker John Boehner (R-Ohio): “Relations with the Castro regime should not be revisited, let alone normalized, until the Cuban people enjoy freedom – and not one second sooner. There is no ‘new course’ here, only another in a long line of mindless concessions to a dictatorship that brutalizes its people and schemes with our enemies. If anything, this emboldens all state sponsors of terrorism, as they now have an even better idea of what the president meant when he once told Russian leaders he would have ‘more flexibility’ after his reelection.”

Sen. Robert Menendez (D-N.J., Senate Foreign Relations Committee chairman: “This asymmetrical trade will invite further belligerence toward Cuba’s opposition movement and the hardening of the government’s dictatorial hold on its people.”

Sen. Patrick Leahy (D-Vt.), who was one of three lawmakers accompanying Alan Gross on a flight to Washington, said Obama had “wisely charted a new course that serves our national interests in this hemisphere and the world.”

Sen. Marco Rubio (R-Fla.): “This entire policy shift announced today is based on an illusion, on a lie, the lie and the illusion that more commerce and access to money and goods will translate to political freedom for the Cuban people. All this is going to do is give the Castro regime, which controls every aspect of Cuban life, the opportunity to manipulate these changes to perpetuate itself in power.”

Former Florida governor Jeb Bush wrote on his Facebook page that the administration’s decision to restore diplomatic ties with Cuba is “the latest foreign policy misstep by this President, and another dramatic overreach of his executive authority. It undermines America’s credibility and undermines the quest for a free and democratic Cuba.”

Sen. Lindsey Graham (R-S.C.) tweeted he would “do all in my power to block the use of funds to open an embassy in Cuba....Normalizing relations with Cuba is a bad idea at a bad time.”

Sen. Jerry Moran (R-Kan.), who had been calling for Gross’ release, praised the move: “Today, news of Alan’s release brings great relief to his loved ones and to every American who has called for his freedom.”

In 2009, a Washington Post-ABC News survey found that two-thirds of Americans supported restoring diplomatic relations with Cuba, while only 27% opposed doing so. Attitudes have been indeed been changing, but it’s how the president decided to begin the normalization process that matters.

Obama is betting that as the older generation of Cuban Americans moves on, the younger ones  won’t care about the stories their forefathers may have passed down about the repressive Castro regime. In 2012, Obama won the vote of Cuban Americans nationally by two percentage points and took a majority of their votes in Miami. He’s also won Florida twice.

Republican political consultant Alex Castellanos, however, said that Obama’s latest move potentially elevates foreign policy as an issue in 2016.

“Weakness invites the wolves,” Castellanos said. “This is a president whose naivete is dangerous, who sees the world as he wishes it were and not as it is.” [Karen Tumulty and Anne Gearan / Washington Post]

“Alan Gross is home now. His five-year imprisonment for providing Internet access to Cuba’s small Jewish community was cruel, arbitrary and consistent with the behavior of the Cuban regime.

“By releasing Mr. Gross in exchange for three convicted Cuban spies who conspired to commit espionage against our nation, this administration has wrongly rewarded a totalitarian regime and thrown the Cuban regime an economic lifeline.

“Cuba is a repressive state, but it will now receive the support of the United States, the world’s greatest democracy.

“For compromising on bedrock U.S. values, we received zero commitments from the regime to change its ways, to hold free elections, permit dissent, halt censorship and free all political prisoners. We abandoned U.S. policy, while the Castro brothers’ stranglehold on power just got tighter.

“The swap sets an extremely dangerous precedent and invites dictatorial and rogue regimes to use Americans serving overseas as bargaining chips....

“There is no reason that Cuba will reform just because the American president believes that, if he extends his hand in peace, the Castro brothers will suddenly unclench their fists.

“Cuba should not be taken off the list of state sponsors of terrorism either. Cuba harbors American fugitive Joanne Chesimard, who is on the FBI’s list of Most Wanted Terrorists for murdering New Jersey State Trooper Werner Foerster. Cuba also colluded with North Korea to smuggle jets, missile batteries, and arms through the Panama Canal in violation of United Nations Security Council Resolutions....

“In Cuba today, an untold number of ordinary people yearning for democracy remain imprisoned by the exact same tormentors who punished Alan Gross. They, along with all Cubans, deserve a free and liberated homeland.

“That vision is less of a reality today than it was yesterday.”

“When a strategy – any strategy – is tried for half a century and fails utterly, the next step seems obvious: Change it. Try something new.

“On Wednesday, more than 50 years after the United States broke off contact with Cuba in hopes of deposing Fidel Castro’s revolutionary communist regime, President Obama finally tried something else.

“A broad trade embargo, which can only be lifted by Congress, will remain in place. But full diplomatic relations will be restored, and talks on matters of common interest will begin.  Trade will be selectively increased. Travel restrictions will be slightly loosened. And significantly for a closed society, more Cubans will gain access to the Internet, which only 5% have now.

“Those steps and several others announced by the president – particularly an exchange of prisoners who had been a point of friction on both sides – should not be wildly controversial. They advance American interests with little risk....

“The Obama administration insisted Wednesday that with or without the embargo, it will press for human rights, freedom and civil society in Cuba – goals with widespread support.

“There’s room to argue over how that should be done. But one thing is sure: The old way has failed. Confrontation is giving way to engagement, and soon Fidel, 88, and Raul, 83, will pass from the scene.

“It’s time to trust in the power of our ideas, and the strength of our economy, to lure Cubans through freedom’s gates.”

“The Cuban government finally released American Alan Gross from prison on Wednesday after five harsh years, and what a haul Raul and Fidel Castro received in return: The release and repatriation of three of their spies serving life sentences in the U.S., plus the start of an American diplomatic and economic embrace that they have long sought.

“Mr. Obama hailed these steps as ‘historic,’ adding that his goal is nothing less than ‘to begin to normalize relations between our two countries.’ In his familiar claim to superior wisdom, he assailed the ‘outdated’ U.S. diplomatic and trade embargo and claimed that ‘through a policy of engagement we can more effectively stand up for our values and help the Cuban people help themselves as they move into the 21st century.’

“We should stipulate that 20 years ago these columns called for lifting the U.S. trade embargo on Cuba. We did so to assist the impoverished Cuban people and perhaps undermine the regime.

“But we also stressed that ‘no U.S. officials have to dignify Castro’s regime by sitting down at a negotiating table’ with Cuban officials: ‘The whole point is to continue to oppose Castro’s government while allowing succor for Cuba’s people.’ Mr. Obama’s approach will provide immediate succor to the Castro government in the hope of eventually helping the Cuban people....

“Mr. Obama came to office in 2009 promising a new era of engagement with U.S. adversaries, and engage he has. Perhaps his Cuban ‘reset’ will turn out better than have his efforts with Russia, Syria, North Korea and Iran.”

“The announcement by President Obama on Wednesday giving the Castro regime diplomatic legitimacy and access to American dollars isn’t just bad for the oppressed Cuban people, or for the millions who live in exile and lost everything at the hands of the dictatorship. Mr. Obama’s new Cuba policy is a victory for oppressive governments the world over and will have real, negative consequences for the American people.....

“The opportunity for Cuba to normalize relations with the U.S. has always been there, but the Castro regime has never been interested in changing its ways. Now, thanks to President Obama’s concessions, the regime in Cuba won’t have to change.

“The entire policy shift is based on the illusion – in fact, on the lie – that more commerce and access to money and goods will translate to political freedom for the Cuban people. Cuba already enjoys access to commerce, money and goods from other nations, and yet the Cuban people are still not free. They are not free because the regime – just as it does with every aspect of life – manipulates and controls to its own advantage all currency that flows into the island. More economic engagement with the U.S. means that the regime’s grip on power will be strengthened for decades to come – dashing the Cuban people’s hopes for freedom and democracy....

“But the policy changes announced by President Obama will have far-reaching consequences for the American people. President Obama made it clear that if you take an American hostage and are willing to hold him long enough, you may not only get your own prisoners released from U.S. jails – as three Cuban spies were – you may actually win lasting policy concessions from the U.S. as well. This precedent places a new price on the head of every American, and it gives rogue leaders around the world more clear-cut evidence of this president’s naivete and his willingness to abandon fundamental principles in a desperate attempt to burnish his legacy. There can be no doubt that the regime in Tehran is watching closely, and it will try to exploit President Obama’s naivete as the Iranian leaders pursue concessions from the U.S. in their quest to establish themselves as a nuclear power.”

“In recent months, the outlook for the Castro regime in Cuba was growing steadily darker. The modest reforms it adopted in recent years to improve abysmal economic conditions had stalled, due to the regime’s refusal to allow Cubans greater freedoms. Worse, the accelerating economic collapse of Venezuela meant that the huge subsidies that have kept the Castros afloat for the past decade were in peril. A growing number of Cubans were demanding basic human rights, such as freedom of speech and assembly.

“On Wednesday, the Castros suddenly obtained a comprehensive bailout – from the Obama administration. President Obama granted the regime everything on its wish list that was within his power to grant; a full lifting of the trade embargo requires congressional action. Full diplomatic relations will be established, Cuba’s place on the list of terrorism sponsors reviewed and restrictions lifted on U.S. investment and most travel to Cuba. That liberalization will provide Havana with a fresh source of desperately needed hard currency and eliminate U.S. leverage for political reforms....

“U.S. officials said the regime agreed to release 53 political prisoners and allow more access to the Internet. But Raul Castro promised four years ago he’d release all political prisoners, so the White House has purchased the same horse already sold to the Vatican and Spain.

“The administration says its move will transform relations with Latin America, but that is naïve.    Countries that previously demanded an end to U.S. sanctions on Cuba will not now look to Havana for reforms; instead, they will press the Obama administration not to sanction Venezuela. Mr. Obama says normalizing relations will allow the United States to be more effective in promoting political change in Cuba. That is contrary to U.S. experience with Communist regimes such as Vietnam, where normalization has led to no improvements on human rights in two decades....

“The Vietnam outcome is what the Castros are counting on: a flood of U.S. tourists and business investment that will allow the regime to maintain its totalitarian system indefinitely. Mr. Obama may claim that he has dismantled a 50-year-old failed policy; what he has really done is give a 50-year-old failed regime a new lease on life.”

“Normalizing relations with Cuba will not, as Sen. Marco Rubio passionately put it in these pages, grant the Castro regime ‘legitimacy.’

“Fidel Castro ruined his country for a dead ideology and the whole world knows it. It may be closer to the truth to see the Castro brothers’ eagerness for normalization as an admission that they’ve run out their string. They’ve lost everything that kept them alive, from the Soviet Union to once-oil-rich Venezuela. The Castro government is stuck. Their economy is nothing. They have no strength. They enjoy vestigial respect from certain quarters, but only vestigial. They’ve lost and they know it.

“Nothing magical will immediately follow normalization. The Castro brothers will not say, ‘I can’t believe it, free markets and democracy really are better, I had no idea!’ Nothing will make Cuba democratic overnight. But American involvement and presence – American tourists and businessmen, American diplomats, American money, American ways and technology – will likely in time have a freeing effect. With increased contact a certain amount of good feeling will build. And that could make Cuba, within a generation or even less, a friend.

“And that would be good for the American national interest, because it’s better to have a friend 90 miles away than an active and avowed enemy.”

Europe and Asia

Russia: In an attempt to stabilize the collapsing ruble, the Russian Central Bank at midnight, local time, Monday, hiked its key interest rate 6.5 percentage points from the previous 10.5% to 17%. The next day the ruble traded at record lows, after an initial rally from 63 to the dollar to 58. Within hours it then zoomed to 80, before settling down the remainder of the week around the 60 level as the Central Bank announced a package of measures to support the banking sector – including liquidity injections and looser capital requirements.

Many Russian consumers rushed to buy things before the ruble’s meltdown further dragged down their purchasing power. Some merchants were adjusting prices hourly. Other Russians were scrambling to close real estate transactions before rates went up. The Russian stock market fell 12% the day after the Central Bank move and at one point was down 45% since June (before oil prices rolled over).

Earlier the Central Bank said the economy could contract as much as 4.7% next year if oil remains at $60 per barrel. It also sees capital outflows of around $120 billion next year, $75 billion in 2016 and $55 billion in 2017. [Left unsaid by the bank is a flight of intellectual capital of immense importance as well.]

In his annual end-of-year news conference (which lasted three hours), Putin blamed “outside factors” for the falling ruble and conceded the Central Bank could have acted sooner. He also warned the economic crisis could last two years.

If the economic problems persist, he said the government would have to “reduce social spending and future growth.”

But he added: “Our economy will get out of this crisis. How long? Maybe two years, but after that, growth is inevitable.”

Putin said the government wouldn’t “thoughtlessly burn” its reserves (said to be between $400 billion and $430 billion) in support of the currency.

He ruled out the imposition of capital controls and said the economic troubles were mainly due to the drop in the price of crude – but also reflect Russia’s failure to diversify the economy.

The president also conceded economic sanctions were “about 25-30%” of the current problem.

Regarding the West, Putin compared Russia to a bear in the Siberian Taiga wilderness, saying it was naïve to hope the West would leave Russia alone.

“They will always try to put it in chains and once they have it in chains, they will take out its teeth and claws, which in this case means our strategic nuclear deterrent. Once they’ve got the Taiga, they won’t need the bear,” accusing Western leaders of deliberately trying to deprive Russia of its natural resources.

Regarding Ukraine and Crimea, Putin said, “The issue is not Crimea, the issue is that we are protecting our sovereignty and our right to exist.” [More on the two below.]

But despite the chaos, President Putin continues to garner high approval ratings...very high. An Associated Press-NORC Center for Public Affairs Research poll released Thursday found 80% of Russians still support him. [A recent Levada Center survey had Putin’s approval at 74%.]

“The Russian people have a sense that they are under sanctions, they are a fortress under siege,” said independent analyst, Maria Lipman. “This kind of mentality is disseminated consistently and steadily by Russian television: Who else is there to rely on except Putin? Putin is seen as the savior of the nation, and I think he sees himself in this fashion.” [Associated Press]

Of course most Russians get their news only from state television.

“Under Mr. Putin’s stewardship, the Russian economy has evolved into a corrupt version of state capitalism. The opportunity for modernization that might have reduced the country’s reliance on oil and gas has been squandered. True, Russia remains an economy open to the world. But what makes this position unsustainable is the confrontation that Mr. Putin triggered with the West by annexing Crimea and offering military support for separatist rebels in east Ukraine. The EU and U.S. had no choice but to impose sanctions in response to this challenge to the European security order. The plunge in oil prices in recent weeks has now intensified the pain. Russia’s economy is suddenly at a point that the architects of western sanctions had anticipated might take years to reach, if it could be reached at all....

“Mr. Putin doubtless believes that any compromise now with the West would expose him to a challenge from hardline nationalists. But sticking to his current course will bring greater risks. Failure to stabilize the ruble will lead to higher inflation and a deeper recession. The rise in living standards that has underpinned his popularity will go into reverse. Throw in capital controls and he will alienate the very oligarchs who have propped up his regime....

“The hope must be that, even now, Mr. Putin is in a mood to change course. The fear is that his response to Russia’s deepening economic crisis will be to take revanchism to a new and more dangerous level.” [More below.]

Turning to the eurozone...the economic data continued to be putrid. Markit’s flash comp PMI for December was 51.7 vs. 51.1 in November, with the manufacturing reading going from 50.1 to 50.8 and the service sector rising to 51.9 from 51.1, but in terms of the two countries where individual figures are released for the flash report, France saw its manufacturing PMI fall to 47.9 when an increase had been expected, while Germany’s PMI rose to 51.2 from 49.5, but the services PMI fell from 52.1 to 51.4.

A reading on euro area inflation for November was just 0.3%, annualized, vs. 0.4% in October and 0.9% a year ago. Prices declined in Greece (-1.2%) and Spain (-0.5%), while they rose just 0.4% in France and 0.5% in Germany.

Auto sales across Europe did rise in November for a 15th consecutive month, up 1.4% year over year, but here too there was bad news as sales in Germany fell 1.8% and in France 2.7%.

Belgium was hit by strikes that brought the country to a standstill, with transport shut down, ports blockaded and schools closed. It’s about the new guy in charge, 38-year-old Prime Minister Charles Michel, who heads a center-right government that is plowing ahead with austerity policies, including the scrapping of a cost of living wage increase next year. Well, that would be a wee bit unpopular in certain segments of the population.

As for Greece, Prime Minister Antonis Samaras failed in his first attempt to elect a new head of state, not unexpectedly, as 160 lawmakers (less than required) in the 300-seat parliament voted to approve the candidacy of Stavros Dimas for the presidency. But there are two more rounds, Dec. 23 and Dec. 29, and by the 29th, Samaras will need 180 votes to avoid having to dissolve parliament under the constitution with an early election for late January or February that would not only rile up the country, but the European Union as well.

It is thought that over the next 10 days, Samaras will get more lawmakers on board, knowing that the result of not approving Dimas could easily be the election of the leftist party Syriza in a snap vote.

Syriza continues to hold a lead over Samaras’ center-right New Democracy party, though Syriza’s support has gone down a bit, roughly to 25-26% vs. New Democracy’s 22-23%.

A majority of Greeks, according to the latest polls, also don’t want snap elections.

The danger is that if Syriza gains control (though there is zero certainty that even if they get the most votes in an election they could then form a coalition), its leader, Alexis Tsipras, would seek a second debt renegotiation, an end to austerity, and a huge spending program that would roil financial markets all over again.

Separately, the EU’s top economic official, Pierre Moscovici, lauded the reforms of the current government in a visit to Athens and was seen by many as taking sides in any future election.

“I wanted to give a political signal that there is progress. Who can deny that? Nobody,” he said. “The Greek government made a huge effort to reform the economy.”

He did add that with respects to Syriza’s plans to restructure Greece’s debt, “The eurozone is about obligations, mutual obligations. When one has a debt, the debt needs to be reimbursed. The idea of contemplating not reimbursing debt is, in my view, suicidal, with a risk of default. It’s not against Syriza. It’s for the reality.” [Financial Times]

Finally, as for the European Central Bank and its long talked about version of quantitative easing, the ECB is still facing dissent in its proposal to buy sovereign debt and the bottom line is nothing is going to happen until Jan. 22, at the earliest, as the issue just gets strung further along.

In Japan, Prime Minister Shinzo Abe’s gamble to win a renewed mandate, and another rolling four-year term (without having to stand for election unless he calls one), was successful as his Liberal Democratic Party retained its House of Representatives majority. Together with a coalition partner, they control 325 seats out of 475, a two-thirds majority ensuring it can pass “Abenomics”... economic reforms.

Abe said he called the election to get a mandate to delay a second increase in the sales tax to 10% scheduled for 2015 (now slated for April 2017), but perplexed voters said he already had the power to do that. A vast majority of Japanese were not in favor of the election. Turnout was a mere 35%. Approval for Abe’s cabinet had fallen to 42% from a peak of more than 70% in April 2013.

Clearly Abe called it because the opposition is in a major state of flux and, again, it was an easy way to ensure four years.

Now he has to get down to the hard stuff in his program, reforming the labor market. But there he faces an entrenched bureaucracy.

Under Abenomics, stock prices have doubled, with record corporate profits, but the average worker isn’t feeling the benefits as wages fail to keep up with higher prices; the weaker yen (which helps exporters) hurting consumers by raising the cost of imports.

[Related to the above, November exports rose 4.9% year over year, less than expected. Sales to the U.S. rose 6.8%, just 0.9% to China, and were down 1.3% to the EU.]

Turning to China, an influential think tank, the Chinese Academy of Social Sciences (CASS), forecast economic growth of 7% next year, down from an expected 7.3% this year.

CASS deputy president Li Yang said, while 7% growth is still high by international standards, the slowdown may not be even. “One or more industries may get hurt particularly hard. Some businesses may be forced to close suddenly. The subsequent social problems would be very serious.”

On the data front, HSBC’s flash manufacturing PMI for December fell to 49.5 vs. 50.0 the month before, 50 being the dividing line between growth and contraction.

Foreign direct investment for the first 11 months of 2014 is up just 0.7%, though rose 22.2% in November from a year earlier.

Street Bytes

--After a wild last ten days, the Dow Jones gained 3.0% on the week to 17804, while the S&P’s 3.4% gain to 2070 leaves it just five points below its all-time high. Nasdaq added 2.4% to 4765.

A Barron’s survey of top Wall Street strategists forecasts an S&P 500 rise of 10% in 2015. I’ll have my own thoughts in two weeks.

--U.S. Treasury Yields

6-mo. 0.11% 2-yr. 0.64% 10-yr. 2.16% 30-yr. 2.75%

The yield on the 10-year rose 8 basis points, with the 2-year gaining 10.

By contrast, the 10-year in Germany closed at a record low yield of 0.59%, while in Spain the 10-year is down to 1.69%, and just 1.95% in Italy on the hopes of quantitative easing on the part of the ECB; in the latter’s case, a debt to GDP level of 135% be damned.

--Two other U.S. economic data points of note. November industrial production was up a better than expected 1.3%, while November housing starts were less than expected, a 1.028 million unit annualized pace, down 7% vs. a year ago.

--It is truly pathetic that Sony had to cancel the release of “The Interview,” with the company saying it was “deeply saddened at this brazen effort to suppress the distribution of a movie.”

Of the theatre chains that pulled back, Sony said, “We respect and understand our partners’ decision and, of course, completely share their paramount interest in the safety of employees and theatre-goers.”

The Guardians of Peace, the hackers, were identified by the FBI, and then President Obama during a Friday press conference, as coming from North Korea. In a warning against cinemas thinking of screening “The Interview,” the hackers referred to 9/11, claiming “the world will be full of fear.”

“Remember the 11th of September 2001. We recommend you to keep yourself distant from the places at that time.” 

The stilted English was one of the reasons North Korea was fingered, let alone electronic footprints, such as in the malware employed, that matched past attacks.

The FBI said in a statement: “North Korea’s actions were intended to inflict significant harm on a U.S. business and suppress the right of American citizens to express themselves. Such acts of intimidation fall outside the bounds of acceptable state behavior.”

President Obama said the U.S. will respond “in a place and time and manner that we choose,” but he said Sony made a mistake by canceling the release, adding he wished the studio had spoken to him first.

But then Sony Pictures CEO Michael Lynton said he had spoken to a top aide at the White House, asking for their assistance. In his defense of the studio, Lynton said in an interview with CNN Friday afternoon, “We have not caved,” adding the president, the press and the public don’t understand the full story. For one, the theater chains gave Sony no choice once they started backing away from a Christmas Day release.

That said, Ben Stiller called the move to pull the flick “a threat to freedom of expression,” with Rob Lowe calling it a “victory” for hackers.

Actor Steve Carell said it was a “sad day for creative expression,” as he learned his planned project, called “Pyongyang,” was shelved.

Comedian Jimmy Kimmel tweeted the decision by theatres to refuse to show the film was “an un-American act of cowardice that validates terrorist actions and sets a terrifying precedent.” [BBC News]

On the other hand, some feel that eventually this film will be viewed by far more than it otherwise would have been; it’s just going to take some time for a distributor to have the guts to show it.

Meanwhile the U.S. suspects the hack attack was carried out by a North Korean team known as Unit 121 in the General Bureau of Reconnaissance, which the Wall Street Journal reported has previously been linked to other cyberattacks against South Korean targets.

And as noted by the Journal’s Devlin Barrett and Danny Yadron, when it comes to a response, “Those options are constrained, given how North Korea is already sanctioned and cut off from much of the world. Some U.S. officials have also expressed concern that blaming North Korea for the attack could put Japan, a U.S. ally, in a bind. Tokyo, unlike America, has to deal with North Korea as a neighbor just across the Sea of Japan.”

“Capitulating to the threats of North Korea’s department of global propaganda – and the U.S. government now believes Pyongyang was behind the Sony attack – will not be remembered as a profile in Hollywood courage, and will set a precedent for further bullying of a notably weak-kneed industry.”

“The cyberattack on Sony Pictures Entertainment has taken an even more disturbing turn. First it demonstrated how cyberthieves can raid a company’s most valuable trade secrets. Now it has escalated into a blatant terrorism threat by a group linked to North Korea and an assault on the freedom of speech directed from a capital of totalitarianism. Both the cyberattack and the coercion are unacceptable and cannot go unanswered....

“Congress has tried but failed to approve legislation that would have allowed the federal government to work more closely with the private sector to protect corporate networks. We hope the next Congress will act soon. Not only movie studios but also electric utilities, banks and other essential corporate actors are vulnerable....

“The nation would not tolerate a ballistic missile landing in a movie lot; how should it respond to a cybermissile and a direct threat of violence? President Obama has signed a directive laying out criteria for the use of U.S. cyberforces for offense and defense. We hope he is reading it anew today.”

One thing is for sure. The Sony attack has the attention of every single corporation in America. This is far beyond the data breaches inflicted upon Target Corp. and Home Depot.

“Dealing with the threat is not easy. The Internet is a platform, not a fortress. But a forceful response, perhaps including interference with North Korean broadcasts and computer networks, is necessary. Otherwise, North Korea and others will feel empowered to be not only censors but also extortionists, and possibly attack vital systems such as power grids and financial institutions.

“Yes, there’s a lot to be concerned about. It starts with a lame comedy and Sony’s craven behavior. But it goes way beyond. There’s nothing funny about it.”

--Very much related to the above, Claire Atkinson / New York Post:

“Home streaming of first-run films at the same time they are playing in movie theaters could be on the horizon.

“Hollywood studios, in the wake of the decision Wednesday by six theater owners to dump Sony’s controversial ‘The Interview,’ have been emboldened to press theaters at the next round of contract talks to do away with the theaters’ exclusive exhibition window, The Post has learned.

“Any change could give studios the right to stream the films directly to movie lovers’ homes on the same day they open in theaters, sources said.

“ ‘Something is going to happen that will make digital day and date a reality by January 2016,’ one knowledgeable source told The Post on Wednesday.”

--The chairman of the UK’s independent explorers’ association said the country’s oil industry is in “crisis” as prices drop and that North Sea production is “close to collapse.”

Robin Allan told the BBC that “It’s almost impossible to make money at these oil prices...

“This has happened before, and the industry adapts, but the adaptation is one of slashing people, slashing projects and reducing costs wherever possible, and that’s painful for our staff, painful for companies and painful for the country.”

Previously, Goldman Sachs said close to $1 trillion of projects, worldwide, could get shelved next year, while the North Sea is one of the costlier regions for oil exploration in the world.

--This week, the Fed and its fellow regulators decided to give the banks until 2017 to comply with a part of what’s known as the Volcker rule, named after former Federal Reserve chairman Paul Volcker. The relief has to do with a rule designed to prevent them from owning hedge funds. It didn’t get a lot of press, what with everything else going on this week, but it made no sense to yours truly.

So Friday evening, before I go to post, I see that Mr. Volcker responded as only he can; an attack on his successors at the Fed as well as the banks.

“It is striking, that the world’s leading investment bankers, noted for their cleverness and agility in advising clients on how to restructure companies and even industries, however complicated, apparently can’t manage the orderly reorganization of their own activities in more than five years.

“Or, do I understand that lobbying is eternal, and by 2017 or beyond, the expectation can be fostered that the law itself can be changed?”

--Madrid-based Repsol SA reached an agreement with Talisman Energy Inc. to acquire the Canadian company for $8.3 billion.

--New York Gov. Andrew Cuomo is formally banning hydraulic fracking in New York State, after a de facto ban of more than five years. Acting commissioner of health for New York, Howard Zucker, said, “I cannot support high volume hydraulic fracturing” due to health risks.

Cuomo had been walking a tightrope between accepting fracking for an area on the border with Pennsylvania, only (the Marcellus Shale), and an outright ban, so he ordered a health study at the urging of environmentalists. Now he can claim it wasn’t his decision.

Dozens of towns across New York had already passed moratoriums banning fracking.

--There hasn’t been much news on the Ebola front recently, but the death toll continues to rise, now 6,915 as of December 14, according to the World Health Organization. Sierra Leone’s leading doctor died of the virus on Thursday. 12 doctors in the country have now contracted the disease with 11 succumbing. The death rate for all health workers in Sierra Leone is now 109 of 142 infected.

--Shares in Oracle Corp. soared nearly 10% after earnings and revenues exceeded expectations (though not by much), with overall revenue increasing 3.5% for the quarter ended November. Revenue from cloud computing, Oracle’s new focus, however, rose 45%.

--Home prices in the bellwether Southern California housing market rose 7% in November from a year ago, but were unchanged from October as sales are on track to fall 10% in 2014 over last year.

--PetSmart Inc. agreed to be acquired by a group called BC Partners for $8.3 billion (the magic # of the week) in the largest leveraged buyout for a U.S. company this year. PetSmart is being taken out at about 39% above the company’s price on July 2, before an activist investor, Jana Partners, began pushing for a sale.

--Thai Union Frozen Products is buying rival Bumble Bee Foods for $1.5 billion, though the acquisition needs U.S. approval.

In case you were wondering, Dongwon Industries acquired Starkist in 2008 from Del Monte, with Starkist’s Charlie Tuna being convicted of insider trading in that one, receiving a sentence of canning in the process. 

--Early in the week, billionaire investor Carl Icahn saved the Trump Taj Mahal casino in Atlantic City by reaching an agreement with the union representing roughly 1,100 casino workers.  Icahn owns all the Taj Mahal’s debt, which he was to exchange for full ownership of the place. He would also receive some substantial tax breaks from the state of New Jersey.

But then on Thursday Icahn backed out of that agreement and said he would lend the Taj $20 million instead that he says keeps it from closing until next summer, by which time he hopes to get a favorable court ruling giving him the right to toss the expired collective bargaining agreement, which Icahn has wanted to shelve because of the health care and pension benefit levels involved.

It’s said that Icahn had left the numbers to others and hadn’t really looked at the deal until Thursday morning, at which point he went back on his word.

Atlantic City had already lost four casinos this year, so Icahn’s move is critical in stopping the bleeding. A report this week said Atlantic County had lost 9,900 jobs in the past year; “the largest job loss of the 372 metropolitan statistical areas in the country and more than quadruple the 2,200 jobs lost in the Davenport, Iowa area, which recorded the second-highest figure.” [Jeff Goldman / Nj Advance Media]

--A Wall Street Journal study of federal data released Friday shows “Deaths in car crashes have fallen by about a quarter in the last decade...as safety features built into the latest models have powered a drop in fatalities even as auto-safety recalls have surged.”

The biggest safety improvement is the addition of electronic stability control systems that make vehicles less likely to flip, as well as additional air bags.

--Boy, it’s kind of spooky having this massive, empty former Merck headquarters across the street from moi. Much easier getting out of my lot with no traffic, though.

--Instagram decided to purge fake accounts so the number of followers many celebrities have has fallen drastically. For example the New York Post noticed on Thursday, 1.3 million of Kim Kardashian’s vanished. 1.2 million of Rihanna’s also went away.

All of the ‘stars’ have social media teams that purchase followers for very cheap sums, most of which are either fake accounts or spam.

Foreign Affairs

Iraq / Syria / ISIS

At a news conference from the Pentagon, Lt. Gen. James Terry, the commander of U.S. forces in Iraq and Syria, said recent airstrikes killed two senior Islamic State military leaders and have yielded progress, including the breaking of the ISIS siege on Mount Sinjar, where thousands of Yazidis and other displaced Iraqis have been trapped since August, but it will still take a minimum of three years for Iraqi security forces to be able to act on their own and succeed. [The Kurdish peshmerga fighters led the action on Sinjar in combination with U.S. airpower.]

There seems to be a consensus that the combination of Iraqi operations and U.S. airstrikes have stopped the ISIS offensive in Iraq, but, as I noted last time, the Iraqi military has trouble holding territory it retakes.

In Syria, jihadi and rebel militias overran the government military base in Idlib province (Wadi Deif), the biggest victory against the regime of President Bashar Assad this year. This one was the work of the Nusra Front, al-Qaeda’s affiliate in Syria. Death tolls were all over the board. The provincial capital of Idlib remains in regime hands but is now under threat.

Gayle Tzemach Lemmon and Stephanie Gaskell / Defense One

“When it comes to U.S. military action against the Islamic State, the Obama administration is pursuing an Iraq first policy of strengthening Baghdad while taking back terrain the group has claimed in the country. In Iraq, unlike in Syria, the United States notes it has a government that invited them in, American forces know the terrain well, and U.S. troops spent years training Iraqi forces.

“The strategy is not only Iraq first in pursuing ISIS in Iraq rather than Syria, but also in the sense of putting Iraqi forces in the lead in the fight versus American ‘boots on the ground.’

“But the question is: Can Iraq first work in this fight when the source of the problem is headquartered in Syria? Or is containment really the best the U.S. can hope for?....

“(As those) within the administration working on Syria policy note, there is a challenge in pursuing an Iraq-first policy for fighting a Syria-based ISIS when Washington is the only one who sees the border between the two countries. For ISIS, that border ceased to exist in practical terms months ago. ISIS now controls a third of both Iraq and Syria and its forces move freely and fight in both countries.”

Mosul, Iraq’s second largest city, fell to ISIS six months ago.

“Since this summer the Obama administration has ratcheted up the number of troops sent to Iraq, from a few hundred to possibly as many as 3,000 by February.

“The idea behind the politically palatable policy has been to stand up the Iraqi Army and security forces for the fight in Iraq and to do what America could to help in Syria without getting dragged into another ground war in the Middle East – or anything resembling it.

“ ‘There’s no real choice on one level. In Iraq there’s a government, hopefully, that we can work with... In Syria, we’re lucky we can find a few hundred on our side,’ said Michael O’Hanlon, senior fellow at Brookings Institution....

“ ‘There’s a very distinct possibility that Syria has become the new Somalia, and it’s just too late to change that,’ O’Hanlon said.”

Yup, I knew that in 2012, and when it comes to Iraq and Syria next year, it is likely to be more of the same. An example is the discovery of a mass grave of 230 in eastern Syria, members of the Shuayat tribe (fellow Sunnis resisting ISIS) that had been battling IS militants. Many of the victims had been decapitated and mutilated. Last summer there was a massacre of 700 Shuayat.

But the Financial Times’ Erika Solomon has a piece in the weekend edition that should add some hope.

“Flagging morale, desertion and factionalism are starting to affect the Islamic State of Iraq and the Levant, known as ISIS, testing the cohesion of the jihadi force as its military momentum slows.

“Activists and fighters in parts of eastern Syria controlled by ISIS said as military progress slows and focus shifts to governing the area, frustration has grown among militants who had been seen as the most disciplined and effective fighting force in the country’s civil war.”

One development that bears watching is that of “foreign fighters who thought they were on an adventure are now exhausted.”

Many have been trying to flee the northern Syrian city of Raqqa, ISIS’ de facto capital. Many fighters are being arrested or executed for failing to report to duty.

“It has been remarkable in the past three years that the Syrian human rights situation has failed to really scratch the world’s conscience. Syrians are indeed children of what Lebanese writer Ziad Majed has called an orphaned revolution...

“Syria is not a cause celebre in the same way that Darfur was. No benefit concerts have been organized to assist Syrian refugees...no Bonos or Bob Geldofs making noise about Syria....

“The regime of Bashar Assad has shot peaceful, unarmed protesters and ordered its air force and army to bomb civilians. It has tortured tens of thousands of people, and, thanks to the courage of a former Syrian government photographer, code-named Cesar, there is documentary evidence of the killing of around 11,000 detainees. The Assad regime has used chemical weapons against its own population, killing perhaps as many as 1,700 people, including many children... And it continues to deploy barrel bombs as a terror weapon against entire neighborhoods.

“The reaction in America after the Ghouta chemical attack last year was illustrative of the mood in many Western societies. In a New York Times/CBS News poll conducted in September 2013, as Barack Obama was considering airstrikes against Syria, 60% of respondents said they opposed such action...even though 75% said they thought Assad’s forces had used chemical weapons....

“The indifference shown for the plight of Syria’s refugees is, above all, a moral deficiency. America shook the world after almost 3,000 people were killed in the Sept. 11, 2001, attacks... This week Americans have literally writhed with angst over the release of a report on CIA torture, with a Washington Post editorial proclaiming, ‘This is not how Americans should behave. Ever.’

“Yet in Syria, such casualty figures and such disgraceful behavior have been unrelenting since the start of the uprising against Assad rule. Many people around the world have been understandably horrified by the savagery of ISIS, but remain utterly blind to the mass murder conducted by the Syrian regime. Indeed, there are those in the West inviting their governments to collaborate with Assad against the Jihadis....

“(Overall) the situation leaves a bitter taste. Some victims, it seems, are more equal than others. The Syrian population has endured frightful suffering in the past three years. That the world still has difficulty acknowledging this is profoundly unsettling, even intolerable.”

Pakistan: Tuesday, a team of nine Taliban gunmen (other reports say seven) stormed the Army Public School and Degree College in Peshawar, killing at least 148, 132 of them students, who were shot in cold blood. The Taliban said it was in retaliation for the Pakistani military’s operation against the group in the North Waziristan tribal region, where hundreds are said to have died.

A Taliban spokesman said the school had been selected because it serves predominantly children of military personnel. Later in the week the Taliban vowed further similar attacks.

Tuesday’s massacre was so brutal that even the Afghan Taliban said it was un-Islamic.

Malala Yousafzai, the Pakistani teenager who was joint winner of this year’s Nobel Peace Prize for her education campaign, released a statement from her central England home.

“I am heartbroken by this senseless and cold-blooded act of terror in Peshawar that is unfolding before us. Innocent children in their school have no place in horror such as this. I condemn these atrocious and cowardly acts and stand united with the government and armed forces of Pakistan whose efforts so far to address this horrific event are commendable.” [Reuters]

On Wednesday, Prime Minister Nawaz Sharif lifted a moratorium on executions in terrorism-related cases. Thursday, six “hard core terrorists” convicted and sentenced to death by military courts, were slated to be hanged, soon.

By Friday, the army announced that airstrikes and ground attacks had killed at least 67 Taliban fighters as retribution.

[The Peshawar attack is probably the worst on a school since the September 2004 attack by Islamist rebels on a school in Beslan in North Ossetia in Russia’s North Caucusus region. That one killed at least 330, nearly half of them children.]

“There is no silver lining to a calamity of this kind, but perhaps this is an opportunity for Pakistanis at every level of society to realize that they will not be safe from terrorism until they stop colluding with terrorists of any stripe, including those fighting for the ‘liberation’ of Indian-held Kashmir.

“That means treating the democratic governments in Kabul and New Delhi not as adversaries but as allies in a common struggle, which could usefully begin by rooting out the terrorist hideaways in Pakistan that support the Afghan Taliban in its own barbaric campaigns across the border. It’s worth remembering that the ultimate Islamist goal is to gain control of a state, preferably nuclear-armed, and Pakistan is the most vulnerable and obvious target.”

“The slaughtered children in Peshawar underline a truth that Pakistan’s elite have been slow to fully accept: Islamic jihadism poses a mortal threat to the nation. The best response to the atrocity would be for the army and government to join in an uncompromising campaign against the terrorists.”

Afghanistan: The Taliban launched an attack last Saturday in Kabul, killing six Afghan soldiers aboard a transport bus. Separately, they assassinated a Supreme Court official and shot 12 men to death who were clearing land mines in Helmand province the same day.

It’s the recent attacks in Kabul that are most unsettling, including one about a month ago inside the police chief’s heavily fortified compound.

We also learned over the weekend that two American soldiers had been killed in a bombing of a convoy near Bagram military base, north of Kabul.

On a different issue, according to a study by the Financial Times, the Afghan war has cost U.S. taxpayers nearly $1 trillion and will require several hundred billion dollars more, even after it is to have officially ended this month. Around 80% of the spending has taken place during the Obama administration.

The government has never detailed the spending on the war.

According to another study, the Iraq War has cost $1.7 trillion.

Russia / Ukraine: The U.S. Congress unanimously approved fresh economic sanctions against Russia and lethal weapons for Kiev in a hardening response to the Russian-backed insurgency in eastern Ukraine. President Obama signed the legislation on Thursday but a statement from the White House made it sound as if the president wasn’t going to implement it; Obama in the past being against unilaterally putting the squeeze on Moscow and saying it would be “counterproductive” for Washington to “get out ahead of Europe further” on sanctions. [To be continued...]

Ukraine has been worried Russian-backed separatists will launch an offensive against the port city of Mariupol to carve out a land corridor between the Russian border and the Crimean peninsula.

Making matters worse, Russian Foreign Minister Sergei Lavrov said his nation reserved the right to put nuclear weapons in Crimea.

“Crimea became part of a country that possesses such arms. ...The Russian state, in line with international law, has the right to manage its nuclear arsenal...in accordance with its interests and international legal obligations,” Lavrov said.

But in his Thursday press conference, Putin said Ukraine must remain one political entity. True, Crimea is his, but the two eastern regions shouldn’t break away. [He also suggested both sides conduct a prisoner swap for Christmas.]

German Chancellor Angela Merkel said in a speech to the German parliament on Thursday that sanctions against Russia over Ukraine remain unavoidable as long as Moscow fails to respect Ukraine’s sovereignty and help ensure what she called “European security with Russia, not against Russia.”

“As long as we do not reach this goal...sanctions remain unavoidable, though I would like to reiterate that they were not and are not an end in themselves.”

Separately, Sweden’s defense minister claimed a Russian military aircraft turned off its transponder and nearly collided with a passenger jet over Sweden, which would be the second time this year such action was taken. The Kremlin denied the incident occurred, admitting it had a plane in the area but that it was at a safe distance. Swedish fighter jets were scrambled and identified the aircraft as an intelligence plane.

Turkey: Turkish police raided media outlets allied with a U.S.-based Muslim cleric and detained 24 people including top executives in operations that President Erdogan said were against a terrorist network conspiring to take him down.

This was a severe escalation of a battle Erdogan has been waging against a one-time ally, Fetullah Gulen, and goes back to a corruption investigation that targeted Erdogan’s inner circle.

But many Turks saw the police action as an attack on the free press and a sign of further repression on the part of the government.

Gulen, living in self-imposed exile in Pennsylvania since 1999, denies any ambition to overthrow the president.

Israel: Hamas held its biggest military exercise since the 50-day war in Gaza last summer. This came after a European Union court annulled the EU’s decision to designate Hamas a terrorist organization.

Prime Minister Benjamin Netanyahu said that Israel was “not satisfied” with the explanations coming from the EU that the court’s decision was only a technical matter.

According to this argument, as reported by Herb Keinon of the Jerusalem Post, “Hamas was removed from the list because the evidence used to place the organization on the list did not meet European standards. Two central EU countries have already been working on a dossier providing the court with the evidence that will satisfy it.”

“The burden of proof is on the EU and we expect them to immediately return Hamas to the list where everyone realizes they should be,” Netanyahu said. “Hamas is a murderous terrorist organization whose charter says that its aim is to destroy Israel. We will continue to fight it with determination and strength so that it will never realize its aims.”

Economy Minister Naftali Bennett said that if anyone thinks that sacrificing Israel can save Europe, they are mistaken.

“The corrupt law of the EU court gives license for the shedding of Jewish blood everywhere and demonstrates the loss of a moral path,” he said. “Israel is strong and can defend itself from its enemies, but Europe itself will be the one to suffer from the strengthening of terrorist organizations,” he added. 

Foreign Minister Avigdor Liberman: “While terror is rearing its head, not only in the Middle East, but in the whole world – we’ve seen acts of terror in Australia and Pakistan – of all days to take Hamas off of the list of terrorist organizations and to justify it with technical clauses and such is an erroneous decision that does not reflect the struggle against terror in the Middle East and in the world.

“There is no difference between Hamas, al-Qaeda, Jabhat al-Nusra or Islamic State. These are the same organizations with the same ideology and the same hatred for the civilized, modern world.” [Jerusalem Post]

Australia: The government came under fire to explain how a gunman, known for his criminal record and history of violence, Man Haron Monis, was not being monitored, after Monis held 17 people hostage in central Sydney on Monday before police brought an end to a 16-hour siege, leaving Monis and two others dead.

Prime Minister Tony Abbott questioned why the gunman had been removed from the government’s terrorism watch list around 2009 and granted permanent residency.

It also came to light that the self-described Islamist had been sought by Iran 14 years ago, but Australian authorities refused to extradite him. Iran said Monis had committed a number of “violent” and fraud-related offenses before he fled the country in 1996, according to statements from Iran’s chief of police this week.

This wasn’t a good week for Australia on so many levels. Friday, a mother was arrested for stabbing to death seven of her children, as well as one of their friends, with the children ranging from 18 months to 14 years. This happened in Cairns, the gateway to the Great Barrier Reef. I spent about a week in this city four years ago. My thoughts are with the good people there.

China: A top Chinese official said Hong Kong needs “re-enlightenment” to give citizens a better understanding of “one country, two systems,” in a move seen as Beijing taking a harder line on Hong Kong’s affairs.

Zhang Rongshun, vice-chairman of the legislative affairs commission, urged Hongkongers to “reflect deeply” on how to contribute to the nation’s security and other interests.

“It seems that some people [in Hong Kong] still cannot find an identity with the country.”

A student leader of the protest movement dismissed Zhang’s remarks.

“To say Hong Kong needs re-enlightenment is to further [encourage] ignorance, because we don’t lack understanding. It’s just [a difference] between conservative and liberal approaches to the Basic Law.” [South China Morning Post]

Hong Kong’s Chief Executive Leung Chun-ying declared an end to 78 days of mass protests by pro-democracy demonstrators after police cleared the last major camp.

Meanwhile, in yet another example of Chinese behaving badly, “A group of tourists from the mainland who threw hot water and noodles on a Thai flight attendant and threatened to bomb the plane after becoming enraged over their seating arrangements will be ‘severely punished,’ tourism authorities have vowed.

“The rowdy group disrupted the flight, hurt other passengers and ‘badly damaged the overall image of the Chinese people,’ the China National Tourism Administration said.”

The incident occurred on a charter flight to Nanjing aboard Thai AirAsia. [South China Morning Post]

Nigeria: Boko Haram reportedly kidnapped more than 200 women and children and killed at least 35 others this week during a raid on a remote northeast Nigerian village, just 24 kilometers from where earlier in the year the Islamists abducted another 200.

On Wednesday the Nigerian Army sentenced 54 soldiers to death by firing squad for a mutiny while fighting insurgents.

Separately, Cameroon said it killed 116 Boko Haram fighters when they attacked a base inside that country.

Random Musings

Fox News: Undeclared candidate Mitt Romney leads the Republican pack among those identifying themselves as Republicans with 19%, followed by Jeb Bush at 10%, the only other in double digits. [Gov. Chris Christie, Mike Huckabee and Sen. Rand Paul are at 8%.]

On the Democratic side, Hillary Clinton received 62% among self-identified Democrats, down from a high of 69% in April, with Massachusetts Sen. Elizabeth Warren next at 12% and Vice President Joe Biden at 10%.

In a hypothetical matchup with Bush, Clinton leads 49-42.

Washington Post-ABC News: Bush led with 15% among Republicans and GOP-leaning independents, with Rand Paul and Paul Ryan at 11% each.

If Romney ran again, he would enter the race with 20%, leading his rivals by 10 points or more.

Wall Street Journal / NBC News: 48% of Americans say they couldn’t see voting for Hillary Clinton – but half say they could see voting for her. No Republican among nine potential GOP candidates drew backing from more than one-third of voters.

Among Republican voters, 63% say they would consider voting for Mitt Romney, 55% for Jeb Bush, and 47% each for Rand Paul and Mike Huckabee.

Among voters overall, 57% say they couldn’t see backing Bush, while 31% say they could.

Marist College-McClatchy survey: Mitt Romney leads among Republicans and Republican-leaning independents with 19% of the vote, followed by Bush, 14%, and Christie and Huckabee at 9%.

In hypothetical matchups, a poll of registered voters showed Clinton defeating both Christie and Romney by the same 53-41 margin; and Bush by 53-40.

--On Tuesday, Jeb Bush left no doubt he is running for president, telling his followers on Facebook and Twitter he will “actively explore” a campaign and set up a leadership PAC in January to “discuss the most critical challenges facing our exceptional nation” with Americans.

--Jeb Bush’s entry into the race most impacts Chris Christie (and Romney), as they appeal to the moderate voter bloc, and would be going after the same political donors.   Christie is trying to assure backers that the ongoing Bridgegate investigations won’t yield any surprises and that he is working on the state’s many economic problems.

This last point, the fact he just hasn’t done a great job as governor is why I continue to say I’m rather amazed Christie thinks he should be president.

The Republican establishment will clearly rally around Jeb. His entry also makes it tougher for lesser-known candidates like John Kasich and Scott Walker to gain traction.

Sen. Tom Coburn (R-Okla.) said: “I don’t think we need another Bush. Period. I like ‘em all, but I don’t think we need another Bush.”

And Jeb Bush certainly wouldn’t be a lock for 2016. For one thing, his “web of interests face scrutiny,” as the Financial Times put it this week.

“From his advisory role at Barclays, the British bank, to a budding career as a private equity mogul, Mr. Bush’s drive to boost his personal wealth in recent years has worried donors who are still scarred by voters’ rebuke of multimillionaire Mitt Romney in 2012....

“After a widely circulated Bloomberg Businessweek story claimed that his growing portfolio of private equity ventures may hang over a campaign in much the same way that Mr. Romney’s career at Bain Capital helped to sink his candidacy, Mr. Bush said looking at their portfolios was ‘like comparing an apple to a peanut.’....

“Mr. Bush, who served as an adviser to Lehman Brothers before its collapse during the financial crisis, has rarely spoken about his work at the British bank, which has been ensnared by scandals such as the manipulation of key benchmark interest rates and the mis-selling of payment protection insurance in recent years.” [Megan Murphy / Financial Times]

[On Thursday, a spokeswoman for Barclays confirmed Bush would step down as a senior adviser to the company on Dec. 31.]

--Back to Christie, a new Rutgers-Eagleton Poll of New Jersey voters shows Christie has a 48% job approval rating, while 47% disapprove, little changed from an October survey.

By the way, since Christie became governor, the state’s credit rating has been adjusted downward a total of eight times by the three major ratings agencies. [Claude Brodesser-Akner / NJ Advance Media]

--Jennifer Rubin, a conservative, had some of the following thoughts on the above-mentioned Sen. Ted Cruz from her perch at the Washington Post.

Regarding his actions on Obama’s immigration executive order that delayed passage of the spending bill, “The notion that (Cruz) alone would obtain a referendum...was preposterous. The House has already condemned it and when Congress returns with Republican majorities in both houses, they can vote to reverse it. Cruz surely knows better, but his insatiable appetite for attention and belief the average voter won’t see through his stunts are evident even to casual political observers.

“Cruz’s colleagues blamed him for giving Senate Majority Leader Harry Reid time to push through an additional batch of nominations, while defenders of the stunt claimed Reid would have gotten the nominations through after the ‘cromnibus’ anyway. As The Post noted, at the very least, Cruz made confirmation of the final nominees easier and less painless for Democrats....

“Cruz remains the odd man out in the Senate, justifiably hated by his peers. Among those openly disparaging Cruz and his antics were Republican Sens. Kelly Ayotte (N.H.), Orrin Hatch (Utah), Johnny Isakson (Ga.), Lindsey Graham (S.C.), Susan Collins (Maine), Bob Corker (Tenn.) and John Cornyn (Tex.).

“Cruz likes to say he is ‘leading’; he seems not to know the difference between leading and preening. A fatuous tweet from a Cruz flack (‘GOP [senators] should quit complaining about Cruz and [Mike] Lee and start working with us to stop amnesty’) was par for the course: dishonest (they all will fight the executive action in the new Senate), self-serving and insulting.

“In the new Senate, Cruz can expect less and less indulgence from fellow Republicans. ...In reminding everyone – in case they forgot the 2013 shutdown – Cruz cannot even get along with members of his own party, he reminds responsible Republicans how ludicrous it would be to put him in the White House. The man who has come to define the dysfunction and nastiness voters loathe about Beltway politicians is going to have quite a tough time convincing voters he is the answer to the strife and incompetence of the Obama years.”

--A Wall Street Journal / NBC News poll found that 51% of those surveyed said the CIA’s “harsh interrogation practices on suspected terrorists” were “acceptable under the circumstances.” Only 28% said the interrogations were wrong and 20% said they didn’t have an opinion. 45% also said the CIA should continue to use them, with just 28% saying they are wrong.

Last Sunday on “Meet the Press,” Dick Cheney said he would use the CIA’s interrogation techniques again “in a minute.”

“I have no problem as long as we achieve our objective. It worked. It worked now for 13 years. We have avoided another mass casualty attack against the United States.”

--In a Military Times survey of 2,300 active-duty troops, morale is dropping in a big way. In 2009, 91% said their overall quality of life was good or excellent. Today it’s just 56% that are happy. Plus 70% believe the quality of life will decline in coming years. Only 63% had the desire to re-enlist.

--In a Quinnipiac University Poll, 56% of New York City voters disapprove of Mayor Bill de Blasio’s job performance when it comes to his handling of relations between police and the community, while 36% approve.

49% of black voters approve of the mayor’s performance on police-community relations, and 44% disapprove. Among whites, 63% said they disapproved of de Blasio on the issue, 30% approve.

De Blasio’s overall approval rating is 47%, with 38% disapproval. Many of us are growing increasingly weary of his wife.

--The British Medical Journal published a study analyzing Dr. Mehmet Oz’s health claims along with those made on other medical talk shows, and the researchers charged the medical research either didn’t substantiate – or flat out contradicted – more than half of Oz’s recommendations.

“Recommendations made on medical talk shows often lack adequate information on specific benefits or the magnitude of the effects of these benefits,” the article said. “...The public should be skeptical about recommendations made on medical talk shows." [Terrence McCoy / Washington Post]

--294 applicants to Johns Hopkins University were told a week ago Friday by email that they had been turned down, but then two days later received emails that read: “Dear [Joe], Welcome to the Class of 2019! We can’t wait for you to get to campus...[blah blah blah].”

For all 294 the email was a mistake and the university scrambled to send apologies Sunday evening after being tipped off to the error by a rejected student.

“We regret this technical mistake and any confusion it may have caused.”

--Finally, Dec. 16 marked the 70th anniversary of the start of the Battle of the Bulge. For six weeks, 600,000 American soldiers took part in a massive effort to turn back a surprise German counteroffensive. At the end of the battle, Jan. 28, 1945, the U.S. and the Allies could declare victory but it came at a heavy price. 80,987 U.S. casualties, including 10,276 dead, 47,493 wounded and 23,218 missing, according to the U.S. Army’s official history. 

Last Saturday they held an official ceremony in Bastogne, southeastern Belgium, where soldiers of the 101st Airborne held out despite being cut off and surrounded. Locals displayed American flags in their shops and windows. One local restaurant displayed a drawing of an American flag and the message “thank you.” [Yves Logghe / Associated Press]

Few veterans of this battle are still with us. When the last one passes, may we always remember the glory of their spirit.

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

Gold closed at $1196
Oil $57.13

Returns for the week 12/15-12/19

Dow Jones +3.0% [17804]
S&P 500 +3.4% [2070]
S&P MidCap +3.4%
Russell 2000 +3.8%
Nasdaq +2.4% [4765]

Returns for the period 1/1/14-12/19/14

Dow Jones +7.4%
S&P 500 +12.0%
S&P MidCap +8.0%
Russell 2000 +2.8%
Nasdaq +14.1%

Bulls 49.5
Bears 14.9 [Source: Investors Intelligence]

Merry Christmas and Happy Hanukkah, friends.

Brian Trumbore

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