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12/27/2014

For the week 12/22-12/26

[Posted 9:00 PM ET, Friday]

Edition 820

Washington and Wall Street

I’m going to try and keep the economic commentary brief this week because next time I’ll look at 2015, as well as review the past year.

But this past Tuesday was an important day. The final look at third-quarter GDP was released and it was a whopping 5.0%, the best gain since Q3 of 2003, 11 years ago. Coupled with the 4.6% pace we registered in the second quarter and you have the best two-month performance also since 2003.

So third-quarter GDP went from a flash estimate of 3.5%, to 3.9% on the first revision, and then up to 5.0%. As Ronald Reagan would have said, ‘Not bad, not bad at all.’ [By the way, the value of the production of goods and services in the United States is now $17,599.8 billion...or when you are at your New Year’s parties, wow your friends in telling them we have a $17.6 trillion economy these days.]

Household purchases, consumer spending, rose at a strong 3.2% annual pace in Q3, up from the 2.5% pace of the prior three-month period, and as the consumer represents 70% of the economy, this is good, sports fans.

The other big piece of news on Tuesday, at least in my estimation, was the release of a new CNN/ORC poll that showed for the first time in seven years, a majority of Americans, 51%, have a positive view of the economy, a sharp increase from the 38% who felt that way in October. Republicans should thank their lucky stars the mid-term elections were November 4 and not Dec. 22.

So we’re feeling better, and not coincidentally, that 13-point pickup in sentiment basically corresponds with the latest collapse in oil prices and the price we all pay at the pump...now just $2.32 a gallon as a national average, down another 13 cents in one week. It helps, no doubt.

As the holiday shopping season winds down, including these final, significant days of the year, particularly the 26th and 27th, I have little doubt the National Retail Federation’s projection for sales rising 4.1% over last year will be accurate, which I agreed with at the time. [This is versus a 3.1% rise in 2013.]

But there was some less than rosy economic news this week. November (i.e., fourth quarter) durable goods were down 0.7% when an increase was expected, while November existing and new home sales for the month were both less than forecast and down over October.

Existing sales were at an annualized 4.93 million pace, while new home sales came in at 438,000. The median existing home price is $205,300, up 5% year over year, while the median new home price is $280,900, up 1.4% for the last 12 months.

So housing remains shaky, even with a record-low 30-year fixed mortgage at 3.80%. It’s about still strict lending standards, affordability in some regions, and a job market that while improving, isn’t necessarily in the highest paying wage sectors. But that could change next year. I’ve been calling for higher wages for some time now and the November labor report offered the first signs of that.

[November personal income was up 0.4%, while consumption increased 0.6%, both essentially in line, just to squeeze in two other releases on the week.]

Meanwhile, the Federal Reserve’s favorite inflation indicator, the personal consumption expenditures index, or PCE, was down 0.2% in November over October and is up only 1.2% from a year earlier, up 1.4% on core (ex-food and energy), so both remain well under the Fed’s 2% inflation target.

As for stocks, the Dow and S&P 500 powered to new highs yet again. More in a bit.

But for a dose of reality, economist Stephen S. Roach, as posted by Project Syndicate and Yahoo.

“America’s Federal Reserve is headed down a familiar – and highly dangerous – path. Steeped in denial of its past mistakes, the Fed is pursuing the same incremental approach that helped set the stage for the financial crisis of 2008-09. The consequences could be similarly catastrophic.”

Mr. Roach then talks about the last Federal Reserve Open Market Committee meeting and its use of language that “seems to be telegraphing a protracted journey on the road to policy normalization,” i.e., raising its policy rate off zero.

“Central banking has lost its way. Trapped in a post-crisis quagmire of zero interest rates and swollen balance sheets, the world’s major central banks do not have an effective strategy for regaining control over financial markets or the real economies that they are supposed to manage. Policy levers – both benchmark interest rates and central banks’ balance sheets – remain at their emergency settings, even though the emergency ended long ago.

“While this approach has succeeded in boosting financial markets, it has failed to cure bruised and battered developed economies, which remain mired in subpar recoveries and plagued with deflationary risks. Moreover, the longer central banks promote financial-market froth, the more dependent their economies become on these precarious markets and the weaker the incentives for politicians and fiscal authorities to address the need for balance-sheet repair and structural reform.

“A new approach is needed. Central banks should normalize crisis-induced policies as soon as possible. Financial markets will, of course, object loudly. But what do independent central banks stand for if they are not prepared to face up to the markets and make the tough and disciplined choices that responsible economic stewardship demands?”

Europe and Asia

We once again begin with Russia, where monetary authorities, at least for a few days, stabilized the currency, the ruble, in the 50s to the dollar (54 on Friday) vs. the 80 level it hit on December 16th that had global financial markets gasping for breath, if ever briefly. 

Finance Minister Anton Siluanov said extreme signs of a liquidity squeeze had receded and the currency had “found its equilibrium.” Including the hike in the key lending rate to 17% from 10.5% earlier, Siluanov said, “The key rate was raised in order to stabilize the situation... That period has already, in our opinion, passed,” he told parliament on Thursday.

But Russia had to go through over $15 billion in foreign exchange reserves to wage the fight (along with a government directive to big exporters to convert their foreign exchange holdings to rubles as a further support of same), and total reserves are now below the psychologically important $400 billion level ($398.9 billion). Standard & Poor’s put Russian sovereign debt on review for a potential downgrade.

Plus now Russia has to fight inflation, with consumer prices slated to rise 11% or 11.5% for the full year, depending on which government official is issuing the alert. [Russia imports a large portion of its goods, such as food and high-tech, and as the ruble weakens the people have to pay more for these products.]

As for President Vladimir Putin, he said the Kremlin was “definitely coping with the problems faced by the economy and the country as a whole in a worthy manner,” but he told his cabinet they would be skipping their New Year holidays (Jan. 1-12, with Russian Orthodox Christmas Jan. 7) in order to deal with the economic crisis.

“The government can definitely not afford such long holidays, at least not this year,” said Vlad. As reported by the Financial Times’ Kathrin Hille, “The president advised the government to focus on social issues and the volatile exchange rate as first priorities.”

As for the rest of the European continent and the eurozone, both statistics arms responsible for economic data, Eurostats and Markit, took the week off (actually, I don’t know what the bosses did at each, I just know neither outfit released anything), though the French government said more people were unemployed in November than ever before, the third monthly gain in a row...not good, considering the government has been counting on a pick-up in business activity in the second half but has now cut its economic growth forecast for all of 2014 to just 0.4%.

And Britain’s statistics agency said the economy has been growing a bit slower than first thought, with the year over year figure up 2.6% in the third quarter vs. the previously announced 3.0%.

But there was one big story in euroland this holiday week, that being the second attempt by Greek Prime Minister Antonis Samaras to get his candidate for president elected and, as expected, he failed again, needing 200 of 300 votes in parliament.

Instead, the candidate, Stavros Dimas, received just 168, but for the next and final vote, Monday, the threshold falls to 180 and it has been thought that Samaras will gradually get enough MPs from outside of his coalition (which is 155 strong) to shift allegiances in order to prevent a snap election and the possible elevation of left-wing Syriza.

So by the time U.S. markets open on Dec. 29, we should know the outcome in Greece and if Samaras doesn’t get his way, it could be a bit chaotic, especially in Europe. Parliament would be dissolved and a new election would have to be called for end of January / early February.

Not to beat a dead horse, but, remember, Syriza is led by Alexis Tsipras who is anti-euro and anti-austerity and has called for renegotiation of Greece’s sovereign debt, which would be a major test case for European Central Bank president Mario Draghi, let alone financial markets. Fears of a Greek exit from the currency bloc would soar.

In Japan, there was a slew of bad news this week. Industrial production was down 0.6% in November from October when a gain was expected, retail sales were down 0.3%, consumer prices ex-fresh food (their core) were up 2.7% from a year earlier, but up only 0.7% stripping out the effects of April’s sales-tax increase, with the government having a 2% target, while real wages fell the most since 2009, down 4.3% last month vs. a year earlier.

Japan has already had two down quarters in a row and now growth in the fourth is very much in question. Also, for the first time since records were collected in 1955, Japan has a negative savings rate. It is a country that is aging rapidly and the Japanese are drawing down their savings. Household spending is thus down 2.5% as well.

Even the yield on the 10-year bond hit a record-low 0.30%. With zero growth and inflation, and a renewed feeling deflation could be around the corner all over again, yields have been falling. 

Prime Minister Shinzo Abe is supposed to be unveiling a new stimulus plan over the weekend. More on Japan next time.

As for China, the central bank is loosening lending restrictions and stocks staged their biggest two-day rally in years, Thursday and Friday, but late next week we’ll begin receiving data on December that could be quite telling.

George Magnus had the following take on China in an op-ed for the Financial Times.

“The 50 percent fall in oil prices this year is self-evidently good news for all but oil-producing states, regions and companies. It also reminds us that the world economy is deflation-prone – both because of deficient demand in Europe, Japan and several big emerging markets and because China’s deflation, rooted in excess capacity, is structural and of growing significance.

“A persistent and as yet unfinished slowdown in the country’s economic growth has been accompanied by the emergence of substantial overcapacity, a significant rise in non-financial corporate debt and a big drop in inflation. Between 2011 and November 2014, Chinese producer prices fell by 10 percent – the annual change has been negative for 33 months – and the annual rate of consumer price inflation has fallen from 6 percent to 1.4 percent over the same period.

“The ratio of output to capacity in many sectors – for example, steel, plate glass, construction materials, chemicals and fertilizers, aluminum, shipbuilding, and solar panel and wind turbine manufacturing – has fallen sharply. Last year it was 70-72 percent, and it is likely to have dropped further since. Property was the main beneficiary of the post-2008 investment and credit surge, accounting for about 16 percent of China’s gross domestic product directly; it is now in a secular downturn. Inventories of unsold homes in many cities outside Beijing, Shanghai and Shenzhen have risen sharply to between 25 and 40 months of supply. [Ed. I sure saw this firsthand with my trip to Fuzhou in February.]....

“The consequences of China’s deflation problems are ubiquitous and spilling into the rest of the world. Slower economic growth and a steady decline in the economy’s commodity intensity is already affecting commodity producers from Perth to Peru, with negative multiplier effects arising from lower revenues and reduced capital spending by resource companies. Moreover, as Chinese companies cut prices to clear excess supply, global competitive pressures intensify, forcing foreign manufacturers to do so too....

“China’s structural deflation, along with factors such as excess debt and rapid aging, will continue to have repercussions for monetary policy in advanced economies. Nine European countries, including Italy and France, are already experiencing mild deflation, and others may soon join them. Japan has won only a brief deflation respite from the fall in the yen, and by mid-2015 ‘lowflation’ in the U.S. and the U.K. could have dropped to zero.

“The U.S. Federal Reserve and other western central banks have failed to anticipate this deflation environment, persistently undershooting their inflation targets and appear powerless to reverse the trend. At some point, we will probably wonder if it is time for the anti-deflation baton to pass to governments.”

Street Bytes

--The Dow Jones finished up 1.4% on the week to close at a record 18053. The S&P 500 gained 0.9% to finish at its own record of 2088, while Nasdaq, also up 0.9% to 4806, is just 242 points shy of the March 10, 2000 record close of 5048.

Back to the Dow, for the five days ending Tuesday, it had a 5.6% run, its best five-day stretch since 2011.

But the trailing P/E on the S&P is over 20 (20.26) and that’s pricey. Can it continue? Of course. But if you’re just getting in, remember, be careful out there.

--U.S. Treasury Yields

6-mo. 0.10% 2-yr. 0.74% 10-yr. 2.25% 30-yr. 2.82%

The yield on the two-year has been skyrocketing in relative terms.

--It’s kind of ironic that I chose to highlight a story by Claire Atkinson of the New York Post last week that read in part: “Home streaming of first-run films at the same time they are playing in movie theaters could be on the horizon....

“ ‘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 (12/17).”

Well, it happened a year earlier than expected and it is indeed a game changer. As a story in the Los Angeles Times put it: “Sony’s decision to stream the controversial comedy ‘The Interview’ has upended the often fractious relationship between Silicon Valley’s biggest Internet company and Hollywood’s film industry.

“Google has repeatedly clashed with major studios over the piracy of films, which can be readily viewed and downloaded online. In fact, leaked emails from the hack of Sony Pictures show that film studios launched a project to counter the influence of ‘Goliath,’ a code name used for Google.”

But Wednesday, Sony struck deals with Google Play, YouTube Movies and Microsoft’s Xbox Video to stream the film. About 300 independent theaters around the country also agreed to run it.

Meanwhile, President Obama, who initially called Sony’s decision to cancel the film’s release a ‘mistake,’ said in a statement that he applauded the change of mind.

“The decision made by Sony and participating theatres allows people to make their own choices about the film, and we welcome that outcome.”

[More on the cyberattack and North Korea below.]

But here’s something that should scare the heck out of you.

Patrick Tucker / Defense One

“(According) to cyber-security professionals, the Sony hack may be a prelude to a cyberattack on United States infrastructure that could occur in 2015, as a result of a very different, self-inflicted document dump from the Department of Homeland Security in July.

“Here’s the background: On July 3, DHS, which plays a ‘key role’ in responding to cyberattacks on the nation, replied to a Freedom of Information Act request on a malware attack on Google called ‘Operation Aurora.’

“Unfortunately, as Threatpost writer Dennis Fisher reports, DHS officials made a grave error in their response. DHS released more than 800 pages of documents related not to Operation Aurora but rather the Aurora Project, a 2007 research effort led by Idaho National Laboratory demonstrating how easy it was to hack elements in power and water systems.

“Oops.

“The Aurora Project exposed a vulnerability common to many electrical generators, water pumps and other pieces of infrastructure, wherein an attacker remotely opens and closes key circuit breakers, throwing the machine’s rotating parts out of synchronization causing parts of the system to break down.

“In 2007, in an effort to cast light on the vulnerability that was common to many electrical components, researchers from Idaho National Lab staged an Aurora attack live on CNN....

“How widespread is the Aurora vulnerability? In this 2013 article for Power Magazine:

“ ‘The Aurora vulnerability affects much more than rotating equipment inside power plants. It affects nearly every electricity system worldwide and potentially any rotating equipment – whether it generates power or is essential to an industrial or commercial facility.’....

“Perpetrating an Aurora attack is not easy, but it becomes much easier the more knowledge a would-be attacker has on the specific equipment they may want to target.”

There are easy ways for a utility operator to defend against the Aurora vulnerability, but “there is no obvious incentive” for the operators to do so. Experts told Patrick Tucker that both North Korea and Iran are capable of doing things like this.

--Related to the above, South Korea’s nuclear-plant operator’s computers were hacked. Korea Hydro & Nuclear Power Co. Ltd. said the controllers for the reactors are protected from a breach but internal data including blueprints of reactors and radiation-exposure estimates were leaked.

--But wait...there’s more. Somehow I missed this story last week from the Wall Street Journal’s Rachel King.

“A German federal agency has acknowledged in a report Wednesday (12/17) that a cyberattack caused physical damage to an iron plant in the country. It was a rare admission by a government tying a cyber action to actual physical destruction.

“The attackers gained access to the unnamed plant’s office network through a targeted malicious email and were ultimately able to cross over into the production network. The plant’s control systems were breached which ‘resulted in an incident where a furnace could not be shut down in the regular way and the furnace was in an undefined condition which resulted in massive damage to the whole system,’ according to the report, called the IT Security Situation in Germany in 2014.”

Well, that sounds like an Aurora-style attack, doesn’t it?

--But back to Sony, Friday, a hacker group calling itself Lizard Squad took down the Sony PlayStation Network and Microsoft Xbox Live, the services video gamers use to play online.

--Saudi oil minister Ali al-Naimi, said OPEC will not cut production even if the price of oil falls to $20 a barrel. [It closed this week at $54.73 on West Texas Intermediate, down a 12th week in 13.]

In an interview for the Middle East Economic Survey, Naimi said, “It is not in the interest of OPEC producers to cut their production, whatever the price is. Whether it goes down to $20, $40, $50, $60, it is irrelevant.”

He also said the world may never see $100 a barrel oil again.

As Anjli Raval reports in the Financial Times: “Analysts say that Saudi Arabia is throwing down the gauntlet to all the high-cost sources of crude – from the oil sands of Canada and U.S. shale to deepwater Brazil and the Arctic – in an attempt to face down the threat they pose to its market share.

“Mr. Naimi said that if the kingdom reduced its production, ‘the price will go up and the Russians, the Brazilians, U.S. shale oil producers will take my share.”

--Continental Resources, one of the largest oil producers in the Bakken field in North Dakota announced it was cutting its 2015 capital spending plans for the second time and intends to reduce the number of rigs it is operating by 40%. Yup, as I’ve been warning, the bust in North Dakota may have begun. And I can only imagine how bad it’s going to get in the Calgary, Canada area, that being the hub for oil sands projects in the region.

--There are plusses and minuses in the plunging price for oil in terms of the Pentagon. It could save $billions in fuel costs. In 2015, the Pentagon budgeted $13.6 billion for fuel, according to the Defense Logistics Agency.

But, the drop in oil prices could also alter defense procurement plans across the Middle East. Saudi Arabia, UAE, Kuwait, Qatar and Jordan were collectively expected to spend more than $95 billion on arms next year, and up to $546 billion between 2015 and 2019, according to Avascent Analytics, a Washington-based consulting firm. You would expect these totals to fall unless the price of crude recovers. [Marcus Weisgerber / Defense One]

--Natural gas futures fell below $3 per million British thermal units for the first time since 2012 on Friday before closing at $3.03. Just like with crude, it’s largely about record production overwhelming demand, especially since our coldest weather thus far was in November. I mean it’s going to be 55 in New York, Saturday. At one point on Friday, futures were down 26% for the month, which would be the biggest decline since July 2008.

--As FedEx Corp. CEO Fred Smith told analysts the other day, “The slowdown in the West Coast ports has been a much bigger deal than people think. I suspect that you’ll see a lot of purchases of gift cards in lieu of merchandise,” because the congestion at the ports is wreaking havoc on the supply chain, as reported by the Los Angeles Times’ Andrew Khouri

The situation has improved only slightly since Thanksgiving, as nearly 20,000 dockworkers at 29 West Coast ports have been working without a contract since July, when their six-year agreement expired.

--Amazon.com said it signed up more than 10 million new Prime members over the holiday season. Prime is a $99 a year service offering free two-day shipping, unlimited listening to more than 1 million songs, streaming of movies and free passage to Mars. [OK, one of those items is not accurate. You guess which one it is.]

--On the Ebola front...Sierra Leone declared a lockdown for a few days in the northern part of the country, with all shops and markets to be shut. Sierra Leone banned many public Christmas celebrations.

The World Health Organization said this week the death toll is now 7,500, with the highest number of cases (9,000) in Sierra Leone. A leading researcher who helped to discover the virus, Peter Piot, returned from a trip to the country and told the BBC that while he was encouraged by the progress made, the epidemic could have a “very long and bumpy tail.” And it all started with one case, he reminded us. He felt Ebola will be an issue for all of 2015.

And for the archives, I should have noted last review that TIME’s “Person of the Year” was “The Ebola Fighters.” In the old sense of how TIME makes their selections, I would have gone with Vladimir Putin.

--Facebook acquired Instagram for $1 billion in 2012. Today, the valuation is $35 billion after a new round of funding by investors.

--California’s unemployment rate is down to 7.2% after state employers added 90,100 positions in November.

Mississippi now has the highest unemployment rate in the U.S. at 7.3%. North Dakota continues to have the lowest at 2.7%, followed by Nebraska, 3.1%. Of course I’m expecting North Dakota’s rate to begin rising with the January or February data.

I do have to note two states that have made a lot of progress over the past 12 months. Rhode Island’s unemployment rate Nov. ’13 was 9.4% and is now 7.1%, while Nevada was at 9.1% and is now 6.9%.

Reminder, the national average is 5.8%.

--Home prices across Ireland this year have risen 16%, according to the Central Statistics Office, and have been rising at their strongest level outside Dublin since June 2007.

However, while prices have risen nationally by 27% since the start of 2013, they are still almost 40% off their peak valuations, to give you a sense of the scale of the bubble there.

--Meredith Whitney, one of Wall Street’s most famous analysts who then turned to the hedge fund business, is struggling big time with her fund down 11% through November and her main investor asking for their money back.

--After peaking at nearly 219 million barrels in 2008, American beer sales have been trending down, reaching just 211.7 million barrels in 2013, according to USA TODAY and data provided by Beer Marketer’s Insights. American sales of seven major brands, including Budweiser, declined a rather startling 20% between 2008 and 2013.

One reason cited for the reduced sales is the price of beer has increased dramatically compared to that of wine and spirits and some are replacing beer with these two.

On the other hand, sales of beer imports such as Dos Equis are rising rapidly, while shipments of craft beer rose by 80% to a total of more than 16 million barrels, or 7.6% of the total U.S. market.

As for the top-selling brand in America, it’s Bud Light, which shipped 38 million barrels in 2013, or 18% of all beer consumed.

--China’s General Administration of Quality Supervision, Inspection and Quarantine examined Christmas lights manufactured in the country and found of 40 batches tested more than 80% were a shock hazard and more than a third did not comply with fire-safety rules.

More and more Chinese are celebrating Christmas, not in a religious sense, but just to decorate their homes and give gifts.

Foreign Affairs

Iraq / Syria / ISIS: Islamic State says it shot down a Jordanian Air Force F-16 warplane over Syria, capturing the Jordanian pilot, with Jordan warning there would be “grave consequences” if ISIS harmed the man.

The father of the captured pilot apparently comes from a prominent Sunni family and he told the captors to treat his son like a guest.

The plane was the first to crash since the America-led coalition began bombing ISIS targets. There is some question whether the plane was indeed shot down or suffered mechanical problems. ISIS does have Russian shoulder-fired missiles capable of taking down aircraft, but American officials said there is no evidence this fighter jet was hit.

Separately, the British-based Syrian Observatory for Human Rights told Reuters that in three months of U.S.-led strikes in Syria, at least 1,171 people (as of Tuesday), mostly IS militants, were killed. Only 52 were civilians.

Just a reminder on who our partners are: Jordan, UAE, Saudi Arabia and Bahrain are part of the coalition conducting airstrikes against ISIS in Syria.

Australia, Belgium, Canada, Denmark, France, the Netherlands and the U.K. have joined the U.S. in conducting air strikes on IS in Iraq.

Iran: Foreign Minister Javad Zarif said an agreement on Iran’s nuclear program was “within reach,” but the P5+1 (U.S., Russia, China, Britain, France and Germany) had to curb their demands on limiting nuclear activities.

Zarif wrote his counterparts: “I am confident that a comprehensive agreement is within reach. But we will firmly resist any humiliating illegitimate demands.”

Zarif said Tehran’s goal was “a long-term comprehensive agreement guaranteeing its right to an exclusively peaceful nuclear program in return for full removal of all sanctions.” [Jerusalem Post]

I’ll have a say on this next week as part of my look ahead to 2015, but it’s really outrageous how Zarif castigates the West when Iran hasn’t done anything close to what it first agreed to in terms of inspections and document disclosure.

Meanwhile, Ali Shamkhani, the secretary of Iran’s Supreme National Council, told the Financial Times that even if a deal is struck, Iran is not prepared to resume full ties with the United States, but “Everything will depend on the honesty of the Americans” in the talks. Oh brother.

As for the Iranian economy, sanctions are one thing; the plunging oil price another. But as revenues dry up, Iran is still committed to spending $billions to prop up President Bashar Assad in Syria.

The positive of falling oil prices is that it is allowing governments such as Iran’s to reduce subsidies on fuel.

Israel: In a Christmas Day message, Prime Minister Benjamin Netanyahu reminded everyone that Israel was the lone exception in the Middle East where Christians live without fear, violence or persecution.

“Here in Israel religious freedom is a sacred principle. Israel’s Christian citizens enjoy the full blessing of freedom and democracy. Their equal rights are enshrined in Israeli law.”

On the issue of Hamas, Yossi Melman had some of the following thoughts in an op-ed for the Jerusalem Post:

“Hamas’ situation has badly deteriorated as compared to the group’s standing before the war. The international isolation has gotten worse, despite an EU court’s ruling last week to remove Hamas temporarily from its list of terrorist organizations. The court’s decision was based on a legal technicality and EU states have already announced that they will work to put Hamas back on the list....

“Additionally, Egypt continues to see Hamas as a cruel enemy, accusing the group of directly and indirectly aiding the worsening terror in Sinai of Ansar Bayit al-Maqdis, the local al-Qaeda affiliate, which has recently sworn allegiance to Islamic State. The security-intel-operations cooperation between Israel and Egypt in the fight against Hamas and terror in Sinai is unprecedented.

“The rehabilitation of Gaza, which was also supposed to be one of Hamas’ achievements from the war, is not progressing. Of the $4.5 billion that countries pledged after the conflict ended, only some two percent has been delivered thus far, about $100 million. Tens-of-thousands of refugees who had their homes destroyed, including hundreds of Hamas commanders, are spending the winter living in tents or UNRWA institutions. The defense establishment is transferring building materials, such as cement and metal, too slowly and in too small a quantity.

“Hamas is suffering from economic suffocation, extremely decreased military abilities and a bigger crisis than it was facing prior to the war. In the IDF [Ed. Israel Defense Forces], they admit that the situation in Gaza is extremely explosive and that Hamas is at a crossroads. The group may again come to the conclusion that only through exchanging blows with Israel, even if it spirals out of control as it did this summer, can they get out of the trap they are in. Or there is also a belief that, if the rehabilitation money will begin flowing more quickly, Hamas will not want to escalate the situation because it will have on its hands a population, whose support the group needs, that has something to lose.”

Russia / Ukraine: After zero progress was made in peace talks between Ukraine’s government and pro-Russia rebels on Wednesday and Thursday in Minsk, talks slated for Friday were called off.

This all goes back to the ceasefire that was announced in Minsk back in September, which then never really held.

The current round of talks was to tackle issues such as the withdrawal of heavy weapons from the front line and an exchange of prisoners. [Not sure if any exchange actually took place as agreed to earlier.]

The death toll in the conflict that began in April is now over 4,700, according to the U.N., of which 1,357 have died since the September 5 ceasefire date.

A total of 1,140,000 have either been displaced inside Ukraine or are refugees outside the country.

But earlier in the week Ukraine’s parliament renounced the nation’s neutral status as a step towards joining NATO, which outraged Moscow and clearly had an impact on the peace talks that followed. Russian Foreign Minister Sergei Lavrov said Ukraine’s pursuit of NATO membership posed a danger to European security.

“There are a few Western countries that want to maintain the crisis in Ukraine and to maintain and boost the confrontation between Ukraine and Russia, including through provocative efforts towards membership in the Atlantic alliance,” he said.

“The very idea of Ukraine’s efforts to join NATO are dangerous, not only for Ukrainian people, because there is no unity over that issue, it is dangerous for European security.” [Reuters]

The Kiev government has stopped paying pensions and social benefits in Donetsk and Luhansk, believing the money would just end up in the hands of the rebels, but it has continued to supply gas and electricity.

But now the government may shut these off if the two regions, as well as Crimea, don’t adhere to official guidelines to ration power. 

[And a late report, Friday. Ukraine apparently cut off electricity as well as train and bus service to Crimea, which no doubt will torque off Moscow further.]

Meanwhile, both the United States and Ukraine have increased sanctions on Russia, with the U.S. prohibiting trade with Crimea, while Canada slapped fresh measures on Russia’s oil and gas sector, among other things.

In response the Foreign Ministry issued a statement: “The sanctions are directed to disrupt the political process. We advise Washington and Ottawa to think about the consequences of such actions,” adding, “we will start to develop counter measures.”

Finally, President Putin invited Kim Jong-un to Moscow next year to mark the 70th anniversary of the Soviet defeat of Nazi Germany in World War II, which would be Kim’s first foreign visit since taking over for his father in 2011.

Moscow needs cooperation from Pyongyang as Gazprom wants to build a gas pipeline to South Korea that would pass through North Korea. Speaking of which....

North Korea: So days after the U.S. government accused Pyongyang of hacking into Sony Corp.’s files, North Korea began experiencing intermittent problems on Sunday and Monday, going totally black for a reported ten hours on Monday.

The U.S. continued to say it was exploring a range of options in response, but was coy regarding the outage. North Korea only has four networks connected to the Net, while the U.S. has more than 152,000, according to Bloomberg and Dyn Research. A representative for Dyn told the Washington Post, “I haven’t seen such a steady beat of routing instability and outages in KP before.”

According to the U.S. government, China has started an investigation into North Korea’s role in the Sony hacking, per Washington’s request. The U.S. had also reportedly asked China for help in attacking North Korea’s digital infrastructure and we may never know if they did, though all the telecom routes into the North run through China.

Earlier, Pyongyang said the FBI’s suggestion that it was behind the Sony attack was “slander” and that there would be “gave consequences” if the U.S. refused to agree to a joint inquiry and continued to accuse them.

Editorial / Wall Street Journal

“The serious threat posed by North Korea far transcends cyberspace. Only one approach is commensurate with the challenge: ending North Korea’s existence as an independent entity and reunifying the Korean Peninsula.

“Pyongyang possesses between four and 10 nuclear devices as well as hundreds of short- and intermediate-range missiles. The regime has active uranium enrichment and plutonium programs. It is only a matter of time before North Korea can place a nuclear warhead on one or more of its missiles and produce missiles capable of reaching the U.S. The regime is already a known proliferation threat – a decade ago it was helping to build a nuclear reactor in Syria – and it remains a potential source of missiles and nuclear materials to rogue states and terrorists.

“North Korea also poses a serious conventional military threat. With a population of only 25 million, it maintains the fourth-largest standing armed forces in the world. North Korea’s active military forces are twice those of South Korea, even though its population is only half that of its far wealthier southern neighbor.

“All this has a significant effect on U.S. defense planning. There are 28,500 American troops stationed in South Korea; aggression by the North would instantly bring the U.S. into a major, costly, dangerous war.

“North Korea also is a threat to its own people....

“For decades Beijing has supported its North Korean ally out of a mixture of ideological commitment, strategic concerns (to keep the peninsula from being united in the U.S. security orbit) and a desire to avoid refugee inflows....

“Increasingly, though, one encounters public and private signs that Chinese officials are viewing North Korea as more strategic liability than asset....

“China needs years and more likely decades of relative stability in the region so that it can continue to address its many domestic challenges. North Korea is a threat to such stability. Meanwhile China’s ties with South Korea have flourished. China is the South’s leading economic partner; Chinese leader Xi Jinping has traveled to Seoul but not to Pyongyang.

“So what needs doing? The priority must be to persuade China that the demise of North Korea need not be something to fear.”

China: Ling Jihua, the one-time aide of former president Hu Jintao, is the latest to fall under investigation for corruption and he is likely to meet the same fate as disgraced party chief Bo Xilai. Ling is being investigated for “suspected serious disciplinary violations.”

Bo was expelled from the party in 2012 and then sentenced to life in prison for bribery, corruption and abuse of power.

Coupled with the probes into the activities of former security chief Zhou Yongkang, and the former vice-chairman of the Central Military Commission, Xu Caihou, that makes four very high-profile figures to be taken down. Many analysts in China believe the four “tigers” are closely linked.

As the Wall Street Journal put it in a story Friday, “China’s economy is struggling to carry on without the widespread corruption and official extravagance that once spurred so much business. The impact is rippling through far corners of the economy, squeezing state-owned enterprises and small-business owners alike.”

I’ve been noting all year the huge drop in sales for liquor, for example, and gone are the days of over-the-top dinners and entertaining.

Here’s a good example of the ripple through effect, as reported by the Journal’s Brian Spegele:

“(Liu Qunhui), a 43-year-old divorcee from the city of Dujiangyan, in Sichuan province, until this year supplemented her daytime income as a subway security guard by running a foot-massage stall at a hotel that hosted retreats for local cadres. Visiting officials provided steady business, but as Mr. Xi’s campaign moved into high gear, customers dwindled and Ms. Liu closed her shop in July.

“ ‘Today I can’t buy any of the things I want to,’ said Ms. Liu, who now relies on her job at the local subway and a monthly salary equivalent to about $200. ‘In the past, I could buy clothes for 1,000 yuan ($161), but now I can only buy ones for 200 yuan.’”

On a much larger scale, companies such as China National Petroleum Corp. are delaying making deals, or investing in new projects, for fear of falling under the government microscope.

On a totally different issue, the National Tourism Administration said China saw a 2.5% drop in visitors last year to about 129 million and has been in decline since the first quarter of 2012.

Beijing is considering measures such as extending its visa-free entry to 96 hours from a 72-hour program to visitors from the United States and 44 other countries going back to 2013.

As Bree Feng writes in the New York Times, part of the reason for the decline is Beijing is faring poorly in various travel surveys, including one for TripAdvisor that voted Beijing the world’s second-worst city for the unhelpfulness of locals and the poor quality of taxi service.

Air pollution is another factor cited, which the government admits is a cause for the decrease in international visitors.

Lastly, President Xi Jinping was in Macau for the inauguration of the territory’s re-elected Chief Executive Fernando Chui, and Xi said Macau needed to deepen its reform and diversify its economy away from gambling, which accounts for more than 80% of its revenue. Yes, Xi’s anti-corruption campaign has had a big impact on Macau, scaring off high-rollers.

Pakistan: The government says it has killed 1,200 militants in its campaign in North Waziristan since mid-June. It executed at least six Islamists in the days following the school massacre in Peshawar that claimed 148 lives, including 132 students.

Tunisia: In last weekend’s presidential election, 88-year-old Beji Caid Essebsi claimed victory, capping an election cycle that, coupled with a new progressive constitution, leaves Tunisia as an example of democratic change that has worked, the only one since the 2011 Arab Spring revolts.

Essebsi is part of the old regime of ousted autocrat Ben Ali, but this was seen as a way to restore calm and keep the transition to democracy on track.

Saudi Arabia: Boy, don’t get caught with drugs here. On Thursday, the kingdom beheaded a Pakistani man for heroin smuggling, the twelfth person from Pakistan to be executed for drug trafficking since mid-October, according to the Daily Star. 85 foreigners and Saudis have been put to death this year in the country.

Nigeria: Boko Haram’s latest terror tactic is to round up the elderly, who are unable to flee areas under control, and executing them. More than 50 were killed the other day in such a fashion in the village of Gwoza, according to the Associated Press.

Cuba: President Raul Castro, in a speech to parliament last Saturday, stressed Cuba would not change its political system despite U.S. efforts to normalize relations. “In the same way that we have never demanded that the United States change its political system, we will demand respect for ours.” Castro also warned Cuba faced a “long and difficult struggle” before the U.S. removed its economic embargo.

He did praise President Obama for his ‘bravery’ in trying to reverse decades of hostilities between the two countries and confirmed that he would attend the Summit of the Americas in Panama in April, which President Obama is expected to attend.

The fight in Congress over this issue and the embargo commences in earnest as soon as everyone returns to Washington in January. Congress still controls some of the most significant restrictions on travel, tourism and trade and they can easily refuse to fund certain aspects of Obama’s plans. They could also refuse to confirm any of his nominees to fill diplomatic posts.

Editorial / Washington Post

“(Mr. Obama) should have learned and applied some of the hard lessons of normalization with China and Vietnam – most notably that engagement doesn’t automatically promote freedom. When the United States debated extending ‘most-favored-nation’ trading status to China, we shared in what was then the conventional wisdom: Economic engagement would inevitably lead, over time, to political reform inside that Communist dictatorship. President Bill Clinton argued that no autocracy could control the relatively new tool of connection known as the Internet, certainly not while hoping to foster international trade and investment. Travel, openness, exposure to the American example – all this would, inexorably if gradually, push China to liberalize.

“But the men who run China had other ideas. They were determined to reap the fruits of foreign investment and trade – for themselves and their families, first, but also for their country – without ceding power. So far, confounding expectations, they have succeeded. The Chinese standard of living has risen... but in the past decade, political freedom in China has declined – there is less freedom of speech, of the press, of cultural expression. More political prisoners have been locked up and tortured. Tens of thousands of censors keep tight control over the Internet.

“The same is true of Vietnam: more foreign investment, less political and religious freedom, more bloggers in prison. And these are not anomalies: In the years that Mr. Obama has been in office, freedom has receded across the globe – without much protest or response from his administration.

“What is the right reaction to this? Not to turn away from engagement, which would be impossible and also, in our view, wrong.... Rather, practice engagement intelligently instead of simply assuming that it will help promote freedom, take steps to increase the likelihood that it will do so....

“In Cuba’s case, that means listening to the brave freedom fighters Mr. Obama spurned.... Opposition leaders from throughout the island have agreed on four immediate demands to put before the government: the release of political prisoners; the end of repression against human rights and pro-democracy groups; the ratification of international covenants on human rights; and the recognition of Cuban civil society groups.

“Mr. Obama could have linked a step-by-step normalization with Cuba to the regime’s satisfaction of these steps, which fall far short of introducing democracy. Instead he settled for the release of 53 political prisoners – or about half the number that Cuban human rights activists say are held – and a vague promise of greater access to the Internet....

“If U.S. policy is really to be revised and refocused on helping the Cuban people, it would be well to promote the changes that their citizen leaders are seeking – not just the ones sought by their totalitarian rulers.”

I totally concur with the above. Funny how this turned out to be a topic of discussion at Christmas with the family, too.

Random Musings

--President Obama received some good news this week on the polling front. A CNN/ORC poll has his approval rating at a 20-month high, 48%. In one month, his support among women increased nine points! That’s unheard of. Between women, independents and millennials it jumped 10 points. Conversely, his numbers among men, Republicans and Americans between 35 and 49 ticked down.

A Gallup weekly tracking poll put Obama’s approval rating at 45% through Sunday, the highest since May. The more volatile three-day average had Obama at 47%.

Clearly the president gained with his actions on immigration and Cuba. As CNN reporter Dana Bash put it, Americans just want their president to lead and agree or disagree, Obama has been leading recently.

And as noted in my opening, it doesn’t hurt the economy is doing much better.

--In a telling survey of active-duty service members, Military Times asked the same question it did in 2007, seven years earlier: “In your opinion how likely is the U.S. to succeed in Afghanistan?”

The number expressing optimism – responding either “very likely” or “somewhat likely” – has plunged to 23% from 76% in 2007.

On the issue of President Obama, the question was asked: “Do you approve or disapprove of the way Obama is handling his job as commander in chief?”

55% disapprove, only 15% approve. In 2009, it was 40% disapprove, 35% approve.

--New York Republican Congressman Michael Grimm pleaded guilty to a federal tax evasion charge that could land him in jail. He has refused to resign, though we’ll see what House Speaker John Boehner decides to do. He has forced out Republican congressmen before for far lesser offenses.

Grimm underreported more than $1 million in wages and receipts to evade payroll, income and sales taxes on a small Manhattan restaurant he owned. He won re-election in November while fighting the charges.

--New York lost the number three slot in population to Florida, according to the U.S. Census Bureau. California and Texas are 1-2. The rest of the top ten are: Illinois, Pennsylvania, Ohio, Georgia, North Carolina and Michigan. [New Jersey is 11, Virginia 12.]

--One of the bigger news stories of the week could easily have been the breakup of a gun smuggling ring allegedly involving a current former Delta Air Lines employee at Hartsfield-Jackson Atlanta International Airport.

Two men worked together to smuggle guns and ammunition on at least 20 flights from Atlanta to New York from May to December. In total, 153 guns were recovered as part of the investigation.

One of the two was arrested in New York on Dec. 10 after landing at John F. Kennedy International Airport with 18 handguns in his bag – seven of which were loaded.

The problem was that employees in Atlanta didn’t have to go through screening.

Brooklyn District Attorney Kenneth Thompson said the investigation was “deeply troubling” – not only for the gun running, but for what it said about the vulnerability to acts of terrorism.

Kudos to the undercover agent who was able to get hold of all the weapons before they hit the streets.

--And then you had the assassination of two New York City police officers last Saturday afternoon as the two, Officers Rafael Ramon and Wenjian Liu, sat in their patrol car eating lunch in Brooklyn. The killer had previously shot his ex-girlfriend that morning in Baltimore and then used her phone to Instagram threats against police – “I’m putting wings on pigs today.” The gunman turned the weapon on himself after executing the policemen.

William A. Galston / Wall Street Journal

“The confrontation of recent months between the police and African-American communities has had a major impact on public opinion. A recent Gallup survey found that the percentage of Americans naming race relations as the country’s most important problem has climbed to its highest level in more than two decades.

“According to the latest NBC/Wall Street Journal poll, the share who think that race relations are very good or fairly good is barely half what it was when Barack Obama first took office. And a chasm has reopened between the perceptions of African-Americans and other groups. In New York City, a Quinnipiac survey finds, only African-Americans approve of Mayor Bill de Blasio’s handling of the police department and police/community relations, while large majorities of whites and Hispanics disapprove.

“These charged events have challenged influential people to measure their words carefully, a test that too many have failed.

“Here is what Patrick Lynch, the president of New York City’s largest police union, chose to say just hours after the murders.... ‘There’s blood on many hands tonight. Those that incited violence on the street in the guise of protest, that tried to tear down what the New York City police officers did every day. We tried to warn it must not go on, it shouldn’t be tolerated. That blood on the hands starts at the steps of City Hall in the office of the mayor.’

“In the opinion of Howard Safir, who was New York City’s police commissioner under Mayor Rudy Giuliani, the trail of blame reaches even higher: ‘The [anti-police] rhetoric this time is not from the usual suspects, but from the Mayor of New York City, the Attorney General of the United States, and even the president,’ he wrote for TIME magazine. ‘It emboldens criminals and sends a message that every encounter a black person has with a police officer is one to be feared.’

“Messrs. Lynch and Safir are hardly models to emulate. Giving voice to anger when you know your supporters are already angry is irresponsible, not least because it tends to incite and legitimize acts of retribution.

“But norms of public speech apply to everyone, not only police supporters. Appearing on ABC News earlier this month, Mayor de Blasio was blunt: ‘It’s different for a white child. That’s just the reality in this country. And with Dante, very early on with my son, we said, ‘Look, if a police officer stops you, do everything he tells you to do, don’t move suddenly, don’t reach for your cellphone,’ because we knew, sadly, there is a greater chance it might be misinterpreted if it was a young man of color.’

“I have no doubt that Mr. de Blasio was honestly reflecting his concern about his biracial son. If he had been a private citizen, his candor would have been beyond reproach. But the question is not only whether what Mr. de Blasio said is true, but also whether it was appropriate for him to say it. As mayor of the country’s largest and most complex city, he has a responsibility to weigh the impact of his words on all New Yorkers, not just those who agree with him.

“If I were a policeman, I might well have taken the mayor’s words as a thinly veiled accusation of racism. How can the mayor hope to govern effectively, let alone heal his city, if he questions the motives of those who uphold public order?”

For his part, de Blasio was in full damage-control mode, calling for a moratorium on the demonstrations for police accountability, which was promptly ignored with a rally in midtown Tuesday night, many of the protesters carrying vile posters.

Bob McManus / New York Post

“ ‘What do we want?’ drones the blood chant.

“ ‘Dead cops!’ comes the reply.

“Done.

“Thus does rhetoric have consequences.

“There may have been just a single shooter in Bedford-Stuyvesant on Saturday afternoon. But New York’s failure to denounce without nuance the bloodlust that’s been boiling out of the corners of the Eric Garner-Michael Brown demonstrations for weeks now boils down to this:

“There is blood on many hands this morning.

“Yes, First Amendment. Yes, redress of grievances. Yes, peaceful protests – even as clogged bridges and mobbed boulevards created, however temporarily, very real peril for tens of thousands of New Yorkers every night for a week.

“The free-speech trope is so obviously true that it’s a deflection even to raise it.

“Here’s the real issue: It was, and it remains, the responsibility of protest organizers – such as they may be in the face of ubiquitous social media – to directly address murderous incantations, to unequivocally condemn those who call down harm on the city’s protectors.

“And they didn’t do that.

“Moreover, when two of the six people who ‘allegedly’ attacked two cops on the Brooklyn Bridge a week ago Saturday night turn out to be, respectively, a CUNY professor and an organizer for a union that placed five one-time senior union leaders in top de Blasio-administration posts, it’s clear that New York isn’t dealing with bearded Bolsheviks living in caves.

“Violence against cops has gone mainstream – that is, violent threats to society itself can manifest virtually without a soul among the city’s elected leaders saying so much as boo. Pitiful....

“It’s wrong to blame the protests wholly for the actions of one person – up to a point.

“That is, right up to the point when the protesters began to demand dead cops – and nobody put a stop to it....

“You wanted dead cops, protesters? You got ‘em.

“Now live with it. If you can.”

Michael Goodwin / New York Post

“There is no way (de Blasio) wanted to see NYPD officers murdered, and his distress is surely genuine. But he is accountable nonetheless.

“ ‘Once a bullet leaves a gun, it has no friends,’ the late Sen. Pat Moynihan once said. That is the nature of power, too. Those how have it must take extra care to be precise in their words and actions, lest they unleash the dogs of hell.

“The mayor failed that test miserably. He can run from the consequences, but he can’t hide. His mayoralty is sunk unless he comes to grips with the fact that he lit the fuse that led to Saturday’s explosion.

“For two years, starting with his 2013 campaign, he painted a target on the NYPD. Many of us warned repeatedly that he was playing with fire, but he saw his election as a blank check.

“With Al Sharpton protecting his radical flank, the once-amiable back-bencher from Brooklyn has grown pompous with power. He fancies himself the leader of a national movement, and is comfortable lecturing the public and even the Democratic Party about its shortcomings. He has a habit of silencing critics by declaring, ‘I am right.’

“Again and again, he depicted the great and gallant NYPD as an occupying army of racist brutes and foolishly boasted that he had warned his biracial son that the police were a danger to him....

“As John Lindsay and David Dinkins learned, you cannot govern New York if you are hostile to the police. But even those mayors never experienced the shunning dished out to de Blasio Saturday night at the hospital.

“The instant when scores of officers turned their backs on him was spontaneous, but reflected the hostility he spent two years creating. He earned their wrath.

“As it stands, the bonds between City Hall and the Thin Blue Line are not merely strained. They are severed.

“That is a threat to the entire fabric of the city....

“Gotham became the safest big city in America only through smart, aggressive policing that was demanded by two mayors who knew the difference between good and evil. Their relentless approach to arresting criminals and preventing crime was not without risks or mistakes. But their approach worked beyond imagination and amounted to a man-made miracle.

“The lesson they left was that, as mayor, you are either with the police, or you are against them. No matter what you say about respecting them or how many tears you shed when you try to comfort grieving families, the choice is binary.

“That fact is nowhere to be found in the progressive playbook, which sees everything through race and class. But it is how the real world works.

“Yes or no? De Blasio said no to the police, and now he reaps the whirlwind.”

--Amanda Bennett / Washington Post

“So, dear Rolling Stone managing editor Will Dana, a month has passed since you published the dramatic, and now questioned, tale of gang rape at a fraternity at the University of Virginia. You have told us you are now reporting out the story to find out what really happened, and that you will tell us what you have found as soon as possible. And so you should. The brutal account that landed with such force deserves a thorough vetting. Unfortunately, as you now undoubtedly know, the time to do that was before you published, not afterward.

“Everyone involved in that story – the fraternity, the campus, the unnamed (but since identified) alleged perpetrators and especially the victim – deserves a calm, dispassionate, evenhanded presentation of the facts of the evening in question, presented from all points of view. Do not rush this. Good investigative work rests on facts, and facts can be stubbornly hard to acquire. But once you get these facts and present them to us, your job is far from done.

“For no matter what your investigation finds, you have done untold damage. You have done so by allowing a narrative to take control, by relying on what you have called ‘credibility’ rather than facts to rule.

“Allowing the narrative to take control is what crowds do. It is what mobs do. It is what despots and tyrants do. It is what, unchecked, we all will do. We believe the narrative that makes the best story. We believe the narrative that fits our point of view. We believe the narrative that underlies our fears. We will believe the narratives that allow us to feel good about our own actions and to demonize those who act differently....

“You, Will – as editor of a major publication with huge readership and huge credibility – had an obligation to do one thing well, and that was to find out what really happened.”

--The Economist sites the work of Christopher Tessum, Jason Hill and Julian Marshall of the University of Minnesota on just how clean electric vehicles are, as published in the Proceedings of the National Academy of Sciences.

“Driving an electric car confers a badge of greenery, or so the marketing departments of their makers would have you believe. Yet a report which analyzes the life cycle of car emissions (i.e., all the way from those created by the mining of materials for batteries, via the ones from the production of fuel and the generation of electricity, to the muck that actually comes out of the exhaust) presents a rather different picture. A battery-powered car recharged with electricity generated by coal-fired power stations, it found, is likely to cause more than three times as many deaths from pollution as a conventional petrol-driven vehicle. Even a battery car running on the average mix of electrical power generated in America is much more hazardous than the conventional alternative....

“Overall, the research shows that electric cars are cleaner than those that rely on internal-combustion engines only if the power used to charge them is also clean. That is hardly a surprise, but the magnitude of the difference is. How green electric cars really are, then, will depend mainly on where they are driven. In France, which obtains more than half its power from nuclear stations, they look like a good bet. In China – which is keen on electric cars, but produces some 80% of its electricity from coal – rather less so.”

--The National Highway Traffic Safety Administration reported that 32,719 people died on U.S. highways in 2013, a 3.1% decline from 2012.

--Pope Francis blasted the Vatican bureaucracy in a harshly worded Christmas greeting that listed “15 ills” that were weakening their mission, including “spiritual Alzheimer’s.”

Francis said the Catholic hierarchy was arrogant and consumed by egotism and gossip and out of touch with ordinary people.

His first ‘ill’ was feeling “immortal, immune, or indispensable,” as the Pope put it. ‘It derives from a pathology of power, from a complex of the chosen, from a narcissism that views one’s own image passionately and not that of God impressed on others, especially the weak and the needy.”

Francis also addressed the malady of “chatter, murmur, and gossip.” “This is the illness of those cowards who don’t have the courage to speak directly so they talk behind people’s backs.” [James Politi / Financial Times]

Separately, in his Christmas Day message, the Pope decried the “brutal persecution” of religious and ethnic minorities, saying Christians in Iraq and Syria had endured conflict for too long, and “together with those belonging to other ethnic and religious groups, are suffering a brutal persecution.” He also singled out Nigeria, where “too many people are being held hostage or massacred.”

--Finally, ten years ago the Indian Ocean tsunami hit, killing an estimated 228,000 after a magnitude 9.1 quake generated waves along the front of 60-90 feet. It was one of the darkest days in human history.

---

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

God bless America.

---

Gold closed at $1195
Oil $54.73

Returns for the week 12/22-12/26

Dow Jones   +1.4% [18053...record high]
S&P 500 +0.9% [2088.77...record high]
S&P MidCap +1.3%
Russell 2000 +1.6% [1215...record high]
Nasdaq +0.9% [4806]

Returns for the period 1/1/14-12/26/14

Dow Jones +8.9%
S&P 500 +13.0%
S&P MidCap +9.3%
Russell 2000 +4.4%
Nasdaq +15.1%

Bulls 52.5
Bears  15.8 [Source: Investors Intelligence]

Have a safe holiday week. Happy New Year!

Next time I’m throwing everything at you...yearend review of how wrong I was with my predictions and another stab at them for 2015.

Happy Birthday to our own Dr. Bortrum! For Oakland Raiders fans, he’s about to become Dave Casper. For Pittsburgh Penguins supporters, he’s Sidney Crosby! [Seeing as he got his doctorate at Pitt, I’m guessing he wants to be associated with Mr. Crosby.]

Brian Trumbore



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Week in Review

12/27/2014

For the week 12/22-12/26

[Posted 9:00 PM ET, Friday]

Edition 820

Washington and Wall Street

I’m going to try and keep the economic commentary brief this week because next time I’ll look at 2015, as well as review the past year.

But this past Tuesday was an important day. The final look at third-quarter GDP was released and it was a whopping 5.0%, the best gain since Q3 of 2003, 11 years ago. Coupled with the 4.6% pace we registered in the second quarter and you have the best two-month performance also since 2003.

So third-quarter GDP went from a flash estimate of 3.5%, to 3.9% on the first revision, and then up to 5.0%. As Ronald Reagan would have said, ‘Not bad, not bad at all.’ [By the way, the value of the production of goods and services in the United States is now $17,599.8 billion...or when you are at your New Year’s parties, wow your friends in telling them we have a $17.6 trillion economy these days.]

Household purchases, consumer spending, rose at a strong 3.2% annual pace in Q3, up from the 2.5% pace of the prior three-month period, and as the consumer represents 70% of the economy, this is good, sports fans.

The other big piece of news on Tuesday, at least in my estimation, was the release of a new CNN/ORC poll that showed for the first time in seven years, a majority of Americans, 51%, have a positive view of the economy, a sharp increase from the 38% who felt that way in October. Republicans should thank their lucky stars the mid-term elections were November 4 and not Dec. 22.

So we’re feeling better, and not coincidentally, that 13-point pickup in sentiment basically corresponds with the latest collapse in oil prices and the price we all pay at the pump...now just $2.32 a gallon as a national average, down another 13 cents in one week. It helps, no doubt.

As the holiday shopping season winds down, including these final, significant days of the year, particularly the 26th and 27th, I have little doubt the National Retail Federation’s projection for sales rising 4.1% over last year will be accurate, which I agreed with at the time. [This is versus a 3.1% rise in 2013.]

But there was some less than rosy economic news this week. November (i.e., fourth quarter) durable goods were down 0.7% when an increase was expected, while November existing and new home sales for the month were both less than forecast and down over October.

Existing sales were at an annualized 4.93 million pace, while new home sales came in at 438,000. The median existing home price is $205,300, up 5% year over year, while the median new home price is $280,900, up 1.4% for the last 12 months.

So housing remains shaky, even with a record-low 30-year fixed mortgage at 3.80%. It’s about still strict lending standards, affordability in some regions, and a job market that while improving, isn’t necessarily in the highest paying wage sectors. But that could change next year. I’ve been calling for higher wages for some time now and the November labor report offered the first signs of that.

[November personal income was up 0.4%, while consumption increased 0.6%, both essentially in line, just to squeeze in two other releases on the week.]

Meanwhile, the Federal Reserve’s favorite inflation indicator, the personal consumption expenditures index, or PCE, was down 0.2% in November over October and is up only 1.2% from a year earlier, up 1.4% on core (ex-food and energy), so both remain well under the Fed’s 2% inflation target.

As for stocks, the Dow and S&P 500 powered to new highs yet again. More in a bit.

But for a dose of reality, economist Stephen S. Roach, as posted by Project Syndicate and Yahoo.

“America’s Federal Reserve is headed down a familiar – and highly dangerous – path. Steeped in denial of its past mistakes, the Fed is pursuing the same incremental approach that helped set the stage for the financial crisis of 2008-09. The consequences could be similarly catastrophic.”

Mr. Roach then talks about the last Federal Reserve Open Market Committee meeting and its use of language that “seems to be telegraphing a protracted journey on the road to policy normalization,” i.e., raising its policy rate off zero.

“Central banking has lost its way. Trapped in a post-crisis quagmire of zero interest rates and swollen balance sheets, the world’s major central banks do not have an effective strategy for regaining control over financial markets or the real economies that they are supposed to manage. Policy levers – both benchmark interest rates and central banks’ balance sheets – remain at their emergency settings, even though the emergency ended long ago.

“While this approach has succeeded in boosting financial markets, it has failed to cure bruised and battered developed economies, which remain mired in subpar recoveries and plagued with deflationary risks. Moreover, the longer central banks promote financial-market froth, the more dependent their economies become on these precarious markets and the weaker the incentives for politicians and fiscal authorities to address the need for balance-sheet repair and structural reform.

“A new approach is needed. Central banks should normalize crisis-induced policies as soon as possible. Financial markets will, of course, object loudly. But what do independent central banks stand for if they are not prepared to face up to the markets and make the tough and disciplined choices that responsible economic stewardship demands?”

Europe and Asia

We once again begin with Russia, where monetary authorities, at least for a few days, stabilized the currency, the ruble, in the 50s to the dollar (54 on Friday) vs. the 80 level it hit on December 16th that had global financial markets gasping for breath, if ever briefly. 

Finance Minister Anton Siluanov said extreme signs of a liquidity squeeze had receded and the currency had “found its equilibrium.” Including the hike in the key lending rate to 17% from 10.5% earlier, Siluanov said, “The key rate was raised in order to stabilize the situation... That period has already, in our opinion, passed,” he told parliament on Thursday.

But Russia had to go through over $15 billion in foreign exchange reserves to wage the fight (along with a government directive to big exporters to convert their foreign exchange holdings to rubles as a further support of same), and total reserves are now below the psychologically important $400 billion level ($398.9 billion). Standard & Poor’s put Russian sovereign debt on review for a potential downgrade.

Plus now Russia has to fight inflation, with consumer prices slated to rise 11% or 11.5% for the full year, depending on which government official is issuing the alert. [Russia imports a large portion of its goods, such as food and high-tech, and as the ruble weakens the people have to pay more for these products.]

As for President Vladimir Putin, he said the Kremlin was “definitely coping with the problems faced by the economy and the country as a whole in a worthy manner,” but he told his cabinet they would be skipping their New Year holidays (Jan. 1-12, with Russian Orthodox Christmas Jan. 7) in order to deal with the economic crisis.

“The government can definitely not afford such long holidays, at least not this year,” said Vlad. As reported by the Financial Times’ Kathrin Hille, “The president advised the government to focus on social issues and the volatile exchange rate as first priorities.”

As for the rest of the European continent and the eurozone, both statistics arms responsible for economic data, Eurostats and Markit, took the week off (actually, I don’t know what the bosses did at each, I just know neither outfit released anything), though the French government said more people were unemployed in November than ever before, the third monthly gain in a row...not good, considering the government has been counting on a pick-up in business activity in the second half but has now cut its economic growth forecast for all of 2014 to just 0.4%.

And Britain’s statistics agency said the economy has been growing a bit slower than first thought, with the year over year figure up 2.6% in the third quarter vs. the previously announced 3.0%.

But there was one big story in euroland this holiday week, that being the second attempt by Greek Prime Minister Antonis Samaras to get his candidate for president elected and, as expected, he failed again, needing 200 of 300 votes in parliament.

Instead, the candidate, Stavros Dimas, received just 168, but for the next and final vote, Monday, the threshold falls to 180 and it has been thought that Samaras will gradually get enough MPs from outside of his coalition (which is 155 strong) to shift allegiances in order to prevent a snap election and the possible elevation of left-wing Syriza.

So by the time U.S. markets open on Dec. 29, we should know the outcome in Greece and if Samaras doesn’t get his way, it could be a bit chaotic, especially in Europe. Parliament would be dissolved and a new election would have to be called for end of January / early February.

Not to beat a dead horse, but, remember, Syriza is led by Alexis Tsipras who is anti-euro and anti-austerity and has called for renegotiation of Greece’s sovereign debt, which would be a major test case for European Central Bank president Mario Draghi, let alone financial markets. Fears of a Greek exit from the currency bloc would soar.

In Japan, there was a slew of bad news this week. Industrial production was down 0.6% in November from October when a gain was expected, retail sales were down 0.3%, consumer prices ex-fresh food (their core) were up 2.7% from a year earlier, but up only 0.7% stripping out the effects of April’s sales-tax increase, with the government having a 2% target, while real wages fell the most since 2009, down 4.3% last month vs. a year earlier.

Japan has already had two down quarters in a row and now growth in the fourth is very much in question. Also, for the first time since records were collected in 1955, Japan has a negative savings rate. It is a country that is aging rapidly and the Japanese are drawing down their savings. Household spending is thus down 2.5% as well.

Even the yield on the 10-year bond hit a record-low 0.30%. With zero growth and inflation, and a renewed feeling deflation could be around the corner all over again, yields have been falling. 

Prime Minister Shinzo Abe is supposed to be unveiling a new stimulus plan over the weekend. More on Japan next time.

As for China, the central bank is loosening lending restrictions and stocks staged their biggest two-day rally in years, Thursday and Friday, but late next week we’ll begin receiving data on December that could be quite telling.

George Magnus had the following take on China in an op-ed for the Financial Times.

“The 50 percent fall in oil prices this year is self-evidently good news for all but oil-producing states, regions and companies. It also reminds us that the world economy is deflation-prone – both because of deficient demand in Europe, Japan and several big emerging markets and because China’s deflation, rooted in excess capacity, is structural and of growing significance.

“A persistent and as yet unfinished slowdown in the country’s economic growth has been accompanied by the emergence of substantial overcapacity, a significant rise in non-financial corporate debt and a big drop in inflation. Between 2011 and November 2014, Chinese producer prices fell by 10 percent – the annual change has been negative for 33 months – and the annual rate of consumer price inflation has fallen from 6 percent to 1.4 percent over the same period.

“The ratio of output to capacity in many sectors – for example, steel, plate glass, construction materials, chemicals and fertilizers, aluminum, shipbuilding, and solar panel and wind turbine manufacturing – has fallen sharply. Last year it was 70-72 percent, and it is likely to have dropped further since. Property was the main beneficiary of the post-2008 investment and credit surge, accounting for about 16 percent of China’s gross domestic product directly; it is now in a secular downturn. Inventories of unsold homes in many cities outside Beijing, Shanghai and Shenzhen have risen sharply to between 25 and 40 months of supply. [Ed. I sure saw this firsthand with my trip to Fuzhou in February.]....

“The consequences of China’s deflation problems are ubiquitous and spilling into the rest of the world. Slower economic growth and a steady decline in the economy’s commodity intensity is already affecting commodity producers from Perth to Peru, with negative multiplier effects arising from lower revenues and reduced capital spending by resource companies. Moreover, as Chinese companies cut prices to clear excess supply, global competitive pressures intensify, forcing foreign manufacturers to do so too....

“China’s structural deflation, along with factors such as excess debt and rapid aging, will continue to have repercussions for monetary policy in advanced economies. Nine European countries, including Italy and France, are already experiencing mild deflation, and others may soon join them. Japan has won only a brief deflation respite from the fall in the yen, and by mid-2015 ‘lowflation’ in the U.S. and the U.K. could have dropped to zero.

“The U.S. Federal Reserve and other western central banks have failed to anticipate this deflation environment, persistently undershooting their inflation targets and appear powerless to reverse the trend. At some point, we will probably wonder if it is time for the anti-deflation baton to pass to governments.”

Street Bytes

--The Dow Jones finished up 1.4% on the week to close at a record 18053. The S&P 500 gained 0.9% to finish at its own record of 2088, while Nasdaq, also up 0.9% to 4806, is just 242 points shy of the March 10, 2000 record close of 5048.

Back to the Dow, for the five days ending Tuesday, it had a 5.6% run, its best five-day stretch since 2011.

But the trailing P/E on the S&P is over 20 (20.26) and that’s pricey. Can it continue? Of course. But if you’re just getting in, remember, be careful out there.

--U.S. Treasury Yields

6-mo. 0.10% 2-yr. 0.74% 10-yr. 2.25% 30-yr. 2.82%

The yield on the two-year has been skyrocketing in relative terms.

--It’s kind of ironic that I chose to highlight a story by Claire Atkinson of the New York Post last week that read in part: “Home streaming of first-run films at the same time they are playing in movie theaters could be on the horizon....

“ ‘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 (12/17).”

Well, it happened a year earlier than expected and it is indeed a game changer. As a story in the Los Angeles Times put it: “Sony’s decision to stream the controversial comedy ‘The Interview’ has upended the often fractious relationship between Silicon Valley’s biggest Internet company and Hollywood’s film industry.

“Google has repeatedly clashed with major studios over the piracy of films, which can be readily viewed and downloaded online. In fact, leaked emails from the hack of Sony Pictures show that film studios launched a project to counter the influence of ‘Goliath,’ a code name used for Google.”

But Wednesday, Sony struck deals with Google Play, YouTube Movies and Microsoft’s Xbox Video to stream the film. About 300 independent theaters around the country also agreed to run it.

Meanwhile, President Obama, who initially called Sony’s decision to cancel the film’s release a ‘mistake,’ said in a statement that he applauded the change of mind.

“The decision made by Sony and participating theatres allows people to make their own choices about the film, and we welcome that outcome.”

[More on the cyberattack and North Korea below.]

But here’s something that should scare the heck out of you.

Patrick Tucker / Defense One

“(According) to cyber-security professionals, the Sony hack may be a prelude to a cyberattack on United States infrastructure that could occur in 2015, as a result of a very different, self-inflicted document dump from the Department of Homeland Security in July.

“Here’s the background: On July 3, DHS, which plays a ‘key role’ in responding to cyberattacks on the nation, replied to a Freedom of Information Act request on a malware attack on Google called ‘Operation Aurora.’

“Unfortunately, as Threatpost writer Dennis Fisher reports, DHS officials made a grave error in their response. DHS released more than 800 pages of documents related not to Operation Aurora but rather the Aurora Project, a 2007 research effort led by Idaho National Laboratory demonstrating how easy it was to hack elements in power and water systems.

“Oops.

“The Aurora Project exposed a vulnerability common to many electrical generators, water pumps and other pieces of infrastructure, wherein an attacker remotely opens and closes key circuit breakers, throwing the machine’s rotating parts out of synchronization causing parts of the system to break down.

“In 2007, in an effort to cast light on the vulnerability that was common to many electrical components, researchers from Idaho National Lab staged an Aurora attack live on CNN....

“How widespread is the Aurora vulnerability? In this 2013 article for Power Magazine:

“ ‘The Aurora vulnerability affects much more than rotating equipment inside power plants. It affects nearly every electricity system worldwide and potentially any rotating equipment – whether it generates power or is essential to an industrial or commercial facility.’....

“Perpetrating an Aurora attack is not easy, but it becomes much easier the more knowledge a would-be attacker has on the specific equipment they may want to target.”

There are easy ways for a utility operator to defend against the Aurora vulnerability, but “there is no obvious incentive” for the operators to do so. Experts told Patrick Tucker that both North Korea and Iran are capable of doing things like this.

--Related to the above, South Korea’s nuclear-plant operator’s computers were hacked. Korea Hydro & Nuclear Power Co. Ltd. said the controllers for the reactors are protected from a breach but internal data including blueprints of reactors and radiation-exposure estimates were leaked.

--But wait...there’s more. Somehow I missed this story last week from the Wall Street Journal’s Rachel King.

“A German federal agency has acknowledged in a report Wednesday (12/17) that a cyberattack caused physical damage to an iron plant in the country. It was a rare admission by a government tying a cyber action to actual physical destruction.

“The attackers gained access to the unnamed plant’s office network through a targeted malicious email and were ultimately able to cross over into the production network. The plant’s control systems were breached which ‘resulted in an incident where a furnace could not be shut down in the regular way and the furnace was in an undefined condition which resulted in massive damage to the whole system,’ according to the report, called the IT Security Situation in Germany in 2014.”

Well, that sounds like an Aurora-style attack, doesn’t it?

--But back to Sony, Friday, a hacker group calling itself Lizard Squad took down the Sony PlayStation Network and Microsoft Xbox Live, the services video gamers use to play online.

--Saudi oil minister Ali al-Naimi, said OPEC will not cut production even if the price of oil falls to $20 a barrel. [It closed this week at $54.73 on West Texas Intermediate, down a 12th week in 13.]

In an interview for the Middle East Economic Survey, Naimi said, “It is not in the interest of OPEC producers to cut their production, whatever the price is. Whether it goes down to $20, $40, $50, $60, it is irrelevant.”

He also said the world may never see $100 a barrel oil again.

As Anjli Raval reports in the Financial Times: “Analysts say that Saudi Arabia is throwing down the gauntlet to all the high-cost sources of crude – from the oil sands of Canada and U.S. shale to deepwater Brazil and the Arctic – in an attempt to face down the threat they pose to its market share.

“Mr. Naimi said that if the kingdom reduced its production, ‘the price will go up and the Russians, the Brazilians, U.S. shale oil producers will take my share.”

--Continental Resources, one of the largest oil producers in the Bakken field in North Dakota announced it was cutting its 2015 capital spending plans for the second time and intends to reduce the number of rigs it is operating by 40%. Yup, as I’ve been warning, the bust in North Dakota may have begun. And I can only imagine how bad it’s going to get in the Calgary, Canada area, that being the hub for oil sands projects in the region.

--There are plusses and minuses in the plunging price for oil in terms of the Pentagon. It could save $billions in fuel costs. In 2015, the Pentagon budgeted $13.6 billion for fuel, according to the Defense Logistics Agency.

But, the drop in oil prices could also alter defense procurement plans across the Middle East. Saudi Arabia, UAE, Kuwait, Qatar and Jordan were collectively expected to spend more than $95 billion on arms next year, and up to $546 billion between 2015 and 2019, according to Avascent Analytics, a Washington-based consulting firm. You would expect these totals to fall unless the price of crude recovers. [Marcus Weisgerber / Defense One]

--Natural gas futures fell below $3 per million British thermal units for the first time since 2012 on Friday before closing at $3.03. Just like with crude, it’s largely about record production overwhelming demand, especially since our coldest weather thus far was in November. I mean it’s going to be 55 in New York, Saturday. At one point on Friday, futures were down 26% for the month, which would be the biggest decline since July 2008.

--As FedEx Corp. CEO Fred Smith told analysts the other day, “The slowdown in the West Coast ports has been a much bigger deal than people think. I suspect that you’ll see a lot of purchases of gift cards in lieu of merchandise,” because the congestion at the ports is wreaking havoc on the supply chain, as reported by the Los Angeles Times’ Andrew Khouri

The situation has improved only slightly since Thanksgiving, as nearly 20,000 dockworkers at 29 West Coast ports have been working without a contract since July, when their six-year agreement expired.

--Amazon.com said it signed up more than 10 million new Prime members over the holiday season. Prime is a $99 a year service offering free two-day shipping, unlimited listening to more than 1 million songs, streaming of movies and free passage to Mars. [OK, one of those items is not accurate. You guess which one it is.]

--On the Ebola front...Sierra Leone declared a lockdown for a few days in the northern part of the country, with all shops and markets to be shut. Sierra Leone banned many public Christmas celebrations.

The World Health Organization said this week the death toll is now 7,500, with the highest number of cases (9,000) in Sierra Leone. A leading researcher who helped to discover the virus, Peter Piot, returned from a trip to the country and told the BBC that while he was encouraged by the progress made, the epidemic could have a “very long and bumpy tail.” And it all started with one case, he reminded us. He felt Ebola will be an issue for all of 2015.

And for the archives, I should have noted last review that TIME’s “Person of the Year” was “The Ebola Fighters.” In the old sense of how TIME makes their selections, I would have gone with Vladimir Putin.

--Facebook acquired Instagram for $1 billion in 2012. Today, the valuation is $35 billion after a new round of funding by investors.

--California’s unemployment rate is down to 7.2% after state employers added 90,100 positions in November.

Mississippi now has the highest unemployment rate in the U.S. at 7.3%. North Dakota continues to have the lowest at 2.7%, followed by Nebraska, 3.1%. Of course I’m expecting North Dakota’s rate to begin rising with the January or February data.

I do have to note two states that have made a lot of progress over the past 12 months. Rhode Island’s unemployment rate Nov. ’13 was 9.4% and is now 7.1%, while Nevada was at 9.1% and is now 6.9%.

Reminder, the national average is 5.8%.

--Home prices across Ireland this year have risen 16%, according to the Central Statistics Office, and have been rising at their strongest level outside Dublin since June 2007.

However, while prices have risen nationally by 27% since the start of 2013, they are still almost 40% off their peak valuations, to give you a sense of the scale of the bubble there.

--Meredith Whitney, one of Wall Street’s most famous analysts who then turned to the hedge fund business, is struggling big time with her fund down 11% through November and her main investor asking for their money back.

--After peaking at nearly 219 million barrels in 2008, American beer sales have been trending down, reaching just 211.7 million barrels in 2013, according to USA TODAY and data provided by Beer Marketer’s Insights. American sales of seven major brands, including Budweiser, declined a rather startling 20% between 2008 and 2013.

One reason cited for the reduced sales is the price of beer has increased dramatically compared to that of wine and spirits and some are replacing beer with these two.

On the other hand, sales of beer imports such as Dos Equis are rising rapidly, while shipments of craft beer rose by 80% to a total of more than 16 million barrels, or 7.6% of the total U.S. market.

As for the top-selling brand in America, it’s Bud Light, which shipped 38 million barrels in 2013, or 18% of all beer consumed.

--China’s General Administration of Quality Supervision, Inspection and Quarantine examined Christmas lights manufactured in the country and found of 40 batches tested more than 80% were a shock hazard and more than a third did not comply with fire-safety rules.

More and more Chinese are celebrating Christmas, not in a religious sense, but just to decorate their homes and give gifts.

Foreign Affairs

Iraq / Syria / ISIS: Islamic State says it shot down a Jordanian Air Force F-16 warplane over Syria, capturing the Jordanian pilot, with Jordan warning there would be “grave consequences” if ISIS harmed the man.

The father of the captured pilot apparently comes from a prominent Sunni family and he told the captors to treat his son like a guest.

The plane was the first to crash since the America-led coalition began bombing ISIS targets. There is some question whether the plane was indeed shot down or suffered mechanical problems. ISIS does have Russian shoulder-fired missiles capable of taking down aircraft, but American officials said there is no evidence this fighter jet was hit.

Separately, the British-based Syrian Observatory for Human Rights told Reuters that in three months of U.S.-led strikes in Syria, at least 1,171 people (as of Tuesday), mostly IS militants, were killed. Only 52 were civilians.

Just a reminder on who our partners are: Jordan, UAE, Saudi Arabia and Bahrain are part of the coalition conducting airstrikes against ISIS in Syria.

Australia, Belgium, Canada, Denmark, France, the Netherlands and the U.K. have joined the U.S. in conducting air strikes on IS in Iraq.

Iran: Foreign Minister Javad Zarif said an agreement on Iran’s nuclear program was “within reach,” but the P5+1 (U.S., Russia, China, Britain, France and Germany) had to curb their demands on limiting nuclear activities.

Zarif wrote his counterparts: “I am confident that a comprehensive agreement is within reach. But we will firmly resist any humiliating illegitimate demands.”

Zarif said Tehran’s goal was “a long-term comprehensive agreement guaranteeing its right to an exclusively peaceful nuclear program in return for full removal of all sanctions.” [Jerusalem Post]

I’ll have a say on this next week as part of my look ahead to 2015, but it’s really outrageous how Zarif castigates the West when Iran hasn’t done anything close to what it first agreed to in terms of inspections and document disclosure.

Meanwhile, Ali Shamkhani, the secretary of Iran’s Supreme National Council, told the Financial Times that even if a deal is struck, Iran is not prepared to resume full ties with the United States, but “Everything will depend on the honesty of the Americans” in the talks. Oh brother.

As for the Iranian economy, sanctions are one thing; the plunging oil price another. But as revenues dry up, Iran is still committed to spending $billions to prop up President Bashar Assad in Syria.

The positive of falling oil prices is that it is allowing governments such as Iran’s to reduce subsidies on fuel.

Israel: In a Christmas Day message, Prime Minister Benjamin Netanyahu reminded everyone that Israel was the lone exception in the Middle East where Christians live without fear, violence or persecution.

“Here in Israel religious freedom is a sacred principle. Israel’s Christian citizens enjoy the full blessing of freedom and democracy. Their equal rights are enshrined in Israeli law.”

On the issue of Hamas, Yossi Melman had some of the following thoughts in an op-ed for the Jerusalem Post:

“Hamas’ situation has badly deteriorated as compared to the group’s standing before the war. The international isolation has gotten worse, despite an EU court’s ruling last week to remove Hamas temporarily from its list of terrorist organizations. The court’s decision was based on a legal technicality and EU states have already announced that they will work to put Hamas back on the list....

“Additionally, Egypt continues to see Hamas as a cruel enemy, accusing the group of directly and indirectly aiding the worsening terror in Sinai of Ansar Bayit al-Maqdis, the local al-Qaeda affiliate, which has recently sworn allegiance to Islamic State. The security-intel-operations cooperation between Israel and Egypt in the fight against Hamas and terror in Sinai is unprecedented.

“The rehabilitation of Gaza, which was also supposed to be one of Hamas’ achievements from the war, is not progressing. Of the $4.5 billion that countries pledged after the conflict ended, only some two percent has been delivered thus far, about $100 million. Tens-of-thousands of refugees who had their homes destroyed, including hundreds of Hamas commanders, are spending the winter living in tents or UNRWA institutions. The defense establishment is transferring building materials, such as cement and metal, too slowly and in too small a quantity.

“Hamas is suffering from economic suffocation, extremely decreased military abilities and a bigger crisis than it was facing prior to the war. In the IDF [Ed. Israel Defense Forces], they admit that the situation in Gaza is extremely explosive and that Hamas is at a crossroads. The group may again come to the conclusion that only through exchanging blows with Israel, even if it spirals out of control as it did this summer, can they get out of the trap they are in. Or there is also a belief that, if the rehabilitation money will begin flowing more quickly, Hamas will not want to escalate the situation because it will have on its hands a population, whose support the group needs, that has something to lose.”

Russia / Ukraine: After zero progress was made in peace talks between Ukraine’s government and pro-Russia rebels on Wednesday and Thursday in Minsk, talks slated for Friday were called off.

This all goes back to the ceasefire that was announced in Minsk back in September, which then never really held.

The current round of talks was to tackle issues such as the withdrawal of heavy weapons from the front line and an exchange of prisoners. [Not sure if any exchange actually took place as agreed to earlier.]

The death toll in the conflict that began in April is now over 4,700, according to the U.N., of which 1,357 have died since the September 5 ceasefire date.

A total of 1,140,000 have either been displaced inside Ukraine or are refugees outside the country.

But earlier in the week Ukraine’s parliament renounced the nation’s neutral status as a step towards joining NATO, which outraged Moscow and clearly had an impact on the peace talks that followed. Russian Foreign Minister Sergei Lavrov said Ukraine’s pursuit of NATO membership posed a danger to European security.

“There are a few Western countries that want to maintain the crisis in Ukraine and to maintain and boost the confrontation between Ukraine and Russia, including through provocative efforts towards membership in the Atlantic alliance,” he said.

“The very idea of Ukraine’s efforts to join NATO are dangerous, not only for Ukrainian people, because there is no unity over that issue, it is dangerous for European security.” [Reuters]

The Kiev government has stopped paying pensions and social benefits in Donetsk and Luhansk, believing the money would just end up in the hands of the rebels, but it has continued to supply gas and electricity.

But now the government may shut these off if the two regions, as well as Crimea, don’t adhere to official guidelines to ration power. 

[And a late report, Friday. Ukraine apparently cut off electricity as well as train and bus service to Crimea, which no doubt will torque off Moscow further.]

Meanwhile, both the United States and Ukraine have increased sanctions on Russia, with the U.S. prohibiting trade with Crimea, while Canada slapped fresh measures on Russia’s oil and gas sector, among other things.

In response the Foreign Ministry issued a statement: “The sanctions are directed to disrupt the political process. We advise Washington and Ottawa to think about the consequences of such actions,” adding, “we will start to develop counter measures.”

Finally, President Putin invited Kim Jong-un to Moscow next year to mark the 70th anniversary of the Soviet defeat of Nazi Germany in World War II, which would be Kim’s first foreign visit since taking over for his father in 2011.

Moscow needs cooperation from Pyongyang as Gazprom wants to build a gas pipeline to South Korea that would pass through North Korea. Speaking of which....

North Korea: So days after the U.S. government accused Pyongyang of hacking into Sony Corp.’s files, North Korea began experiencing intermittent problems on Sunday and Monday, going totally black for a reported ten hours on Monday.

The U.S. continued to say it was exploring a range of options in response, but was coy regarding the outage. North Korea only has four networks connected to the Net, while the U.S. has more than 152,000, according to Bloomberg and Dyn Research. A representative for Dyn told the Washington Post, “I haven’t seen such a steady beat of routing instability and outages in KP before.”

According to the U.S. government, China has started an investigation into North Korea’s role in the Sony hacking, per Washington’s request. The U.S. had also reportedly asked China for help in attacking North Korea’s digital infrastructure and we may never know if they did, though all the telecom routes into the North run through China.

Earlier, Pyongyang said the FBI’s suggestion that it was behind the Sony attack was “slander” and that there would be “gave consequences” if the U.S. refused to agree to a joint inquiry and continued to accuse them.

Editorial / Wall Street Journal

“The serious threat posed by North Korea far transcends cyberspace. Only one approach is commensurate with the challenge: ending North Korea’s existence as an independent entity and reunifying the Korean Peninsula.

“Pyongyang possesses between four and 10 nuclear devices as well as hundreds of short- and intermediate-range missiles. The regime has active uranium enrichment and plutonium programs. It is only a matter of time before North Korea can place a nuclear warhead on one or more of its missiles and produce missiles capable of reaching the U.S. The regime is already a known proliferation threat – a decade ago it was helping to build a nuclear reactor in Syria – and it remains a potential source of missiles and nuclear materials to rogue states and terrorists.

“North Korea also poses a serious conventional military threat. With a population of only 25 million, it maintains the fourth-largest standing armed forces in the world. North Korea’s active military forces are twice those of South Korea, even though its population is only half that of its far wealthier southern neighbor.

“All this has a significant effect on U.S. defense planning. There are 28,500 American troops stationed in South Korea; aggression by the North would instantly bring the U.S. into a major, costly, dangerous war.

“North Korea also is a threat to its own people....

“For decades Beijing has supported its North Korean ally out of a mixture of ideological commitment, strategic concerns (to keep the peninsula from being united in the U.S. security orbit) and a desire to avoid refugee inflows....

“Increasingly, though, one encounters public and private signs that Chinese officials are viewing North Korea as more strategic liability than asset....

“China needs years and more likely decades of relative stability in the region so that it can continue to address its many domestic challenges. North Korea is a threat to such stability. Meanwhile China’s ties with South Korea have flourished. China is the South’s leading economic partner; Chinese leader Xi Jinping has traveled to Seoul but not to Pyongyang.

“So what needs doing? The priority must be to persuade China that the demise of North Korea need not be something to fear.”

China: Ling Jihua, the one-time aide of former president Hu Jintao, is the latest to fall under investigation for corruption and he is likely to meet the same fate as disgraced party chief Bo Xilai. Ling is being investigated for “suspected serious disciplinary violations.”

Bo was expelled from the party in 2012 and then sentenced to life in prison for bribery, corruption and abuse of power.

Coupled with the probes into the activities of former security chief Zhou Yongkang, and the former vice-chairman of the Central Military Commission, Xu Caihou, that makes four very high-profile figures to be taken down. Many analysts in China believe the four “tigers” are closely linked.

As the Wall Street Journal put it in a story Friday, “China’s economy is struggling to carry on without the widespread corruption and official extravagance that once spurred so much business. The impact is rippling through far corners of the economy, squeezing state-owned enterprises and small-business owners alike.”

I’ve been noting all year the huge drop in sales for liquor, for example, and gone are the days of over-the-top dinners and entertaining.

Here’s a good example of the ripple through effect, as reported by the Journal’s Brian Spegele:

“(Liu Qunhui), a 43-year-old divorcee from the city of Dujiangyan, in Sichuan province, until this year supplemented her daytime income as a subway security guard by running a foot-massage stall at a hotel that hosted retreats for local cadres. Visiting officials provided steady business, but as Mr. Xi’s campaign moved into high gear, customers dwindled and Ms. Liu closed her shop in July.

“ ‘Today I can’t buy any of the things I want to,’ said Ms. Liu, who now relies on her job at the local subway and a monthly salary equivalent to about $200. ‘In the past, I could buy clothes for 1,000 yuan ($161), but now I can only buy ones for 200 yuan.’”

On a much larger scale, companies such as China National Petroleum Corp. are delaying making deals, or investing in new projects, for fear of falling under the government microscope.

On a totally different issue, the National Tourism Administration said China saw a 2.5% drop in visitors last year to about 129 million and has been in decline since the first quarter of 2012.

Beijing is considering measures such as extending its visa-free entry to 96 hours from a 72-hour program to visitors from the United States and 44 other countries going back to 2013.

As Bree Feng writes in the New York Times, part of the reason for the decline is Beijing is faring poorly in various travel surveys, including one for TripAdvisor that voted Beijing the world’s second-worst city for the unhelpfulness of locals and the poor quality of taxi service.

Air pollution is another factor cited, which the government admits is a cause for the decrease in international visitors.

Lastly, President Xi Jinping was in Macau for the inauguration of the territory’s re-elected Chief Executive Fernando Chui, and Xi said Macau needed to deepen its reform and diversify its economy away from gambling, which accounts for more than 80% of its revenue. Yes, Xi’s anti-corruption campaign has had a big impact on Macau, scaring off high-rollers.

Pakistan: The government says it has killed 1,200 militants in its campaign in North Waziristan since mid-June. It executed at least six Islamists in the days following the school massacre in Peshawar that claimed 148 lives, including 132 students.

Tunisia: In last weekend’s presidential election, 88-year-old Beji Caid Essebsi claimed victory, capping an election cycle that, coupled with a new progressive constitution, leaves Tunisia as an example of democratic change that has worked, the only one since the 2011 Arab Spring revolts.

Essebsi is part of the old regime of ousted autocrat Ben Ali, but this was seen as a way to restore calm and keep the transition to democracy on track.

Saudi Arabia: Boy, don’t get caught with drugs here. On Thursday, the kingdom beheaded a Pakistani man for heroin smuggling, the twelfth person from Pakistan to be executed for drug trafficking since mid-October, according to the Daily Star. 85 foreigners and Saudis have been put to death this year in the country.

Nigeria: Boko Haram’s latest terror tactic is to round up the elderly, who are unable to flee areas under control, and executing them. More than 50 were killed the other day in such a fashion in the village of Gwoza, according to the Associated Press.

Cuba: President Raul Castro, in a speech to parliament last Saturday, stressed Cuba would not change its political system despite U.S. efforts to normalize relations. “In the same way that we have never demanded that the United States change its political system, we will demand respect for ours.” Castro also warned Cuba faced a “long and difficult struggle” before the U.S. removed its economic embargo.

He did praise President Obama for his ‘bravery’ in trying to reverse decades of hostilities between the two countries and confirmed that he would attend the Summit of the Americas in Panama in April, which President Obama is expected to attend.

The fight in Congress over this issue and the embargo commences in earnest as soon as everyone returns to Washington in January. Congress still controls some of the most significant restrictions on travel, tourism and trade and they can easily refuse to fund certain aspects of Obama’s plans. They could also refuse to confirm any of his nominees to fill diplomatic posts.

Editorial / Washington Post

“(Mr. Obama) should have learned and applied some of the hard lessons of normalization with China and Vietnam – most notably that engagement doesn’t automatically promote freedom. When the United States debated extending ‘most-favored-nation’ trading status to China, we shared in what was then the conventional wisdom: Economic engagement would inevitably lead, over time, to political reform inside that Communist dictatorship. President Bill Clinton argued that no autocracy could control the relatively new tool of connection known as the Internet, certainly not while hoping to foster international trade and investment. Travel, openness, exposure to the American example – all this would, inexorably if gradually, push China to liberalize.

“But the men who run China had other ideas. They were determined to reap the fruits of foreign investment and trade – for themselves and their families, first, but also for their country – without ceding power. So far, confounding expectations, they have succeeded. The Chinese standard of living has risen... but in the past decade, political freedom in China has declined – there is less freedom of speech, of the press, of cultural expression. More political prisoners have been locked up and tortured. Tens of thousands of censors keep tight control over the Internet.

“The same is true of Vietnam: more foreign investment, less political and religious freedom, more bloggers in prison. And these are not anomalies: In the years that Mr. Obama has been in office, freedom has receded across the globe – without much protest or response from his administration.

“What is the right reaction to this? Not to turn away from engagement, which would be impossible and also, in our view, wrong.... Rather, practice engagement intelligently instead of simply assuming that it will help promote freedom, take steps to increase the likelihood that it will do so....

“In Cuba’s case, that means listening to the brave freedom fighters Mr. Obama spurned.... Opposition leaders from throughout the island have agreed on four immediate demands to put before the government: the release of political prisoners; the end of repression against human rights and pro-democracy groups; the ratification of international covenants on human rights; and the recognition of Cuban civil society groups.

“Mr. Obama could have linked a step-by-step normalization with Cuba to the regime’s satisfaction of these steps, which fall far short of introducing democracy. Instead he settled for the release of 53 political prisoners – or about half the number that Cuban human rights activists say are held – and a vague promise of greater access to the Internet....

“If U.S. policy is really to be revised and refocused on helping the Cuban people, it would be well to promote the changes that their citizen leaders are seeking – not just the ones sought by their totalitarian rulers.”

I totally concur with the above. Funny how this turned out to be a topic of discussion at Christmas with the family, too.

Random Musings

--President Obama received some good news this week on the polling front. A CNN/ORC poll has his approval rating at a 20-month high, 48%. In one month, his support among women increased nine points! That’s unheard of. Between women, independents and millennials it jumped 10 points. Conversely, his numbers among men, Republicans and Americans between 35 and 49 ticked down.

A Gallup weekly tracking poll put Obama’s approval rating at 45% through Sunday, the highest since May. The more volatile three-day average had Obama at 47%.

Clearly the president gained with his actions on immigration and Cuba. As CNN reporter Dana Bash put it, Americans just want their president to lead and agree or disagree, Obama has been leading recently.

And as noted in my opening, it doesn’t hurt the economy is doing much better.

--In a telling survey of active-duty service members, Military Times asked the same question it did in 2007, seven years earlier: “In your opinion how likely is the U.S. to succeed in Afghanistan?”

The number expressing optimism – responding either “very likely” or “somewhat likely” – has plunged to 23% from 76% in 2007.

On the issue of President Obama, the question was asked: “Do you approve or disapprove of the way Obama is handling his job as commander in chief?”

55% disapprove, only 15% approve. In 2009, it was 40% disapprove, 35% approve.

--New York Republican Congressman Michael Grimm pleaded guilty to a federal tax evasion charge that could land him in jail. He has refused to resign, though we’ll see what House Speaker John Boehner decides to do. He has forced out Republican congressmen before for far lesser offenses.

Grimm underreported more than $1 million in wages and receipts to evade payroll, income and sales taxes on a small Manhattan restaurant he owned. He won re-election in November while fighting the charges.

--New York lost the number three slot in population to Florida, according to the U.S. Census Bureau. California and Texas are 1-2. The rest of the top ten are: Illinois, Pennsylvania, Ohio, Georgia, North Carolina and Michigan. [New Jersey is 11, Virginia 12.]

--One of the bigger news stories of the week could easily have been the breakup of a gun smuggling ring allegedly involving a current former Delta Air Lines employee at Hartsfield-Jackson Atlanta International Airport.

Two men worked together to smuggle guns and ammunition on at least 20 flights from Atlanta to New York from May to December. In total, 153 guns were recovered as part of the investigation.

One of the two was arrested in New York on Dec. 10 after landing at John F. Kennedy International Airport with 18 handguns in his bag – seven of which were loaded.

The problem was that employees in Atlanta didn’t have to go through screening.

Brooklyn District Attorney Kenneth Thompson said the investigation was “deeply troubling” – not only for the gun running, but for what it said about the vulnerability to acts of terrorism.

Kudos to the undercover agent who was able to get hold of all the weapons before they hit the streets.

--And then you had the assassination of two New York City police officers last Saturday afternoon as the two, Officers Rafael Ramon and Wenjian Liu, sat in their patrol car eating lunch in Brooklyn. The killer had previously shot his ex-girlfriend that morning in Baltimore and then used her phone to Instagram threats against police – “I’m putting wings on pigs today.” The gunman turned the weapon on himself after executing the policemen.

William A. Galston / Wall Street Journal

“The confrontation of recent months between the police and African-American communities has had a major impact on public opinion. A recent Gallup survey found that the percentage of Americans naming race relations as the country’s most important problem has climbed to its highest level in more than two decades.

“According to the latest NBC/Wall Street Journal poll, the share who think that race relations are very good or fairly good is barely half what it was when Barack Obama first took office. And a chasm has reopened between the perceptions of African-Americans and other groups. In New York City, a Quinnipiac survey finds, only African-Americans approve of Mayor Bill de Blasio’s handling of the police department and police/community relations, while large majorities of whites and Hispanics disapprove.

“These charged events have challenged influential people to measure their words carefully, a test that too many have failed.

“Here is what Patrick Lynch, the president of New York City’s largest police union, chose to say just hours after the murders.... ‘There’s blood on many hands tonight. Those that incited violence on the street in the guise of protest, that tried to tear down what the New York City police officers did every day. We tried to warn it must not go on, it shouldn’t be tolerated. That blood on the hands starts at the steps of City Hall in the office of the mayor.’

“In the opinion of Howard Safir, who was New York City’s police commissioner under Mayor Rudy Giuliani, the trail of blame reaches even higher: ‘The [anti-police] rhetoric this time is not from the usual suspects, but from the Mayor of New York City, the Attorney General of the United States, and even the president,’ he wrote for TIME magazine. ‘It emboldens criminals and sends a message that every encounter a black person has with a police officer is one to be feared.’

“Messrs. Lynch and Safir are hardly models to emulate. Giving voice to anger when you know your supporters are already angry is irresponsible, not least because it tends to incite and legitimize acts of retribution.

“But norms of public speech apply to everyone, not only police supporters. Appearing on ABC News earlier this month, Mayor de Blasio was blunt: ‘It’s different for a white child. That’s just the reality in this country. And with Dante, very early on with my son, we said, ‘Look, if a police officer stops you, do everything he tells you to do, don’t move suddenly, don’t reach for your cellphone,’ because we knew, sadly, there is a greater chance it might be misinterpreted if it was a young man of color.’

“I have no doubt that Mr. de Blasio was honestly reflecting his concern about his biracial son. If he had been a private citizen, his candor would have been beyond reproach. But the question is not only whether what Mr. de Blasio said is true, but also whether it was appropriate for him to say it. As mayor of the country’s largest and most complex city, he has a responsibility to weigh the impact of his words on all New Yorkers, not just those who agree with him.

“If I were a policeman, I might well have taken the mayor’s words as a thinly veiled accusation of racism. How can the mayor hope to govern effectively, let alone heal his city, if he questions the motives of those who uphold public order?”

For his part, de Blasio was in full damage-control mode, calling for a moratorium on the demonstrations for police accountability, which was promptly ignored with a rally in midtown Tuesday night, many of the protesters carrying vile posters.

Bob McManus / New York Post

“ ‘What do we want?’ drones the blood chant.

“ ‘Dead cops!’ comes the reply.

“Done.

“Thus does rhetoric have consequences.

“There may have been just a single shooter in Bedford-Stuyvesant on Saturday afternoon. But New York’s failure to denounce without nuance the bloodlust that’s been boiling out of the corners of the Eric Garner-Michael Brown demonstrations for weeks now boils down to this:

“There is blood on many hands this morning.

“Yes, First Amendment. Yes, redress of grievances. Yes, peaceful protests – even as clogged bridges and mobbed boulevards created, however temporarily, very real peril for tens of thousands of New Yorkers every night for a week.

“The free-speech trope is so obviously true that it’s a deflection even to raise it.

“Here’s the real issue: It was, and it remains, the responsibility of protest organizers – such as they may be in the face of ubiquitous social media – to directly address murderous incantations, to unequivocally condemn those who call down harm on the city’s protectors.

“And they didn’t do that.

“Moreover, when two of the six people who ‘allegedly’ attacked two cops on the Brooklyn Bridge a week ago Saturday night turn out to be, respectively, a CUNY professor and an organizer for a union that placed five one-time senior union leaders in top de Blasio-administration posts, it’s clear that New York isn’t dealing with bearded Bolsheviks living in caves.

“Violence against cops has gone mainstream – that is, violent threats to society itself can manifest virtually without a soul among the city’s elected leaders saying so much as boo. Pitiful....

“It’s wrong to blame the protests wholly for the actions of one person – up to a point.

“That is, right up to the point when the protesters began to demand dead cops – and nobody put a stop to it....

“You wanted dead cops, protesters? You got ‘em.

“Now live with it. If you can.”

Michael Goodwin / New York Post

“There is no way (de Blasio) wanted to see NYPD officers murdered, and his distress is surely genuine. But he is accountable nonetheless.

“ ‘Once a bullet leaves a gun, it has no friends,’ the late Sen. Pat Moynihan once said. That is the nature of power, too. Those how have it must take extra care to be precise in their words and actions, lest they unleash the dogs of hell.

“The mayor failed that test miserably. He can run from the consequences, but he can’t hide. His mayoralty is sunk unless he comes to grips with the fact that he lit the fuse that led to Saturday’s explosion.

“For two years, starting with his 2013 campaign, he painted a target on the NYPD. Many of us warned repeatedly that he was playing with fire, but he saw his election as a blank check.

“With Al Sharpton protecting his radical flank, the once-amiable back-bencher from Brooklyn has grown pompous with power. He fancies himself the leader of a national movement, and is comfortable lecturing the public and even the Democratic Party about its shortcomings. He has a habit of silencing critics by declaring, ‘I am right.’

“Again and again, he depicted the great and gallant NYPD as an occupying army of racist brutes and foolishly boasted that he had warned his biracial son that the police were a danger to him....

“As John Lindsay and David Dinkins learned, you cannot govern New York if you are hostile to the police. But even those mayors never experienced the shunning dished out to de Blasio Saturday night at the hospital.

“The instant when scores of officers turned their backs on him was spontaneous, but reflected the hostility he spent two years creating. He earned their wrath.

“As it stands, the bonds between City Hall and the Thin Blue Line are not merely strained. They are severed.

“That is a threat to the entire fabric of the city....

“Gotham became the safest big city in America only through smart, aggressive policing that was demanded by two mayors who knew the difference between good and evil. Their relentless approach to arresting criminals and preventing crime was not without risks or mistakes. But their approach worked beyond imagination and amounted to a man-made miracle.

“The lesson they left was that, as mayor, you are either with the police, or you are against them. No matter what you say about respecting them or how many tears you shed when you try to comfort grieving families, the choice is binary.

“That fact is nowhere to be found in the progressive playbook, which sees everything through race and class. But it is how the real world works.

“Yes or no? De Blasio said no to the police, and now he reaps the whirlwind.”

--Amanda Bennett / Washington Post

“So, dear Rolling Stone managing editor Will Dana, a month has passed since you published the dramatic, and now questioned, tale of gang rape at a fraternity at the University of Virginia. You have told us you are now reporting out the story to find out what really happened, and that you will tell us what you have found as soon as possible. And so you should. The brutal account that landed with such force deserves a thorough vetting. Unfortunately, as you now undoubtedly know, the time to do that was before you published, not afterward.

“Everyone involved in that story – the fraternity, the campus, the unnamed (but since identified) alleged perpetrators and especially the victim – deserves a calm, dispassionate, evenhanded presentation of the facts of the evening in question, presented from all points of view. Do not rush this. Good investigative work rests on facts, and facts can be stubbornly hard to acquire. But once you get these facts and present them to us, your job is far from done.

“For no matter what your investigation finds, you have done untold damage. You have done so by allowing a narrative to take control, by relying on what you have called ‘credibility’ rather than facts to rule.

“Allowing the narrative to take control is what crowds do. It is what mobs do. It is what despots and tyrants do. It is what, unchecked, we all will do. We believe the narrative that makes the best story. We believe the narrative that fits our point of view. We believe the narrative that underlies our fears. We will believe the narratives that allow us to feel good about our own actions and to demonize those who act differently....

“You, Will – as editor of a major publication with huge readership and huge credibility – had an obligation to do one thing well, and that was to find out what really happened.”

--The Economist sites the work of Christopher Tessum, Jason Hill and Julian Marshall of the University of Minnesota on just how clean electric vehicles are, as published in the Proceedings of the National Academy of Sciences.

“Driving an electric car confers a badge of greenery, or so the marketing departments of their makers would have you believe. Yet a report which analyzes the life cycle of car emissions (i.e., all the way from those created by the mining of materials for batteries, via the ones from the production of fuel and the generation of electricity, to the muck that actually comes out of the exhaust) presents a rather different picture. A battery-powered car recharged with electricity generated by coal-fired power stations, it found, is likely to cause more than three times as many deaths from pollution as a conventional petrol-driven vehicle. Even a battery car running on the average mix of electrical power generated in America is much more hazardous than the conventional alternative....

“Overall, the research shows that electric cars are cleaner than those that rely on internal-combustion engines only if the power used to charge them is also clean. That is hardly a surprise, but the magnitude of the difference is. How green electric cars really are, then, will depend mainly on where they are driven. In France, which obtains more than half its power from nuclear stations, they look like a good bet. In China – which is keen on electric cars, but produces some 80% of its electricity from coal – rather less so.”

--The National Highway Traffic Safety Administration reported that 32,719 people died on U.S. highways in 2013, a 3.1% decline from 2012.

--Pope Francis blasted the Vatican bureaucracy in a harshly worded Christmas greeting that listed “15 ills” that were weakening their mission, including “spiritual Alzheimer’s.”

Francis said the Catholic hierarchy was arrogant and consumed by egotism and gossip and out of touch with ordinary people.

His first ‘ill’ was feeling “immortal, immune, or indispensable,” as the Pope put it. ‘It derives from a pathology of power, from a complex of the chosen, from a narcissism that views one’s own image passionately and not that of God impressed on others, especially the weak and the needy.”

Francis also addressed the malady of “chatter, murmur, and gossip.” “This is the illness of those cowards who don’t have the courage to speak directly so they talk behind people’s backs.” [James Politi / Financial Times]

Separately, in his Christmas Day message, the Pope decried the “brutal persecution” of religious and ethnic minorities, saying Christians in Iraq and Syria had endured conflict for too long, and “together with those belonging to other ethnic and religious groups, are suffering a brutal persecution.” He also singled out Nigeria, where “too many people are being held hostage or massacred.”

--Finally, ten years ago the Indian Ocean tsunami hit, killing an estimated 228,000 after a magnitude 9.1 quake generated waves along the front of 60-90 feet. It was one of the darkest days in human history.

---

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

God bless America.

---

Gold closed at $1195
Oil $54.73

Returns for the week 12/22-12/26

Dow Jones   +1.4% [18053...record high]
S&P 500 +0.9% [2088.77...record high]
S&P MidCap +1.3%
Russell 2000 +1.6% [1215...record high]
Nasdaq +0.9% [4806]

Returns for the period 1/1/14-12/26/14

Dow Jones +8.9%
S&P 500 +13.0%
S&P MidCap +9.3%
Russell 2000 +4.4%
Nasdaq +15.1%

Bulls 52.5
Bears  15.8 [Source: Investors Intelligence]

Have a safe holiday week. Happy New Year!

Next time I’m throwing everything at you...yearend review of how wrong I was with my predictions and another stab at them for 2015.

Happy Birthday to our own Dr. Bortrum! For Oakland Raiders fans, he’s about to become Dave Casper. For Pittsburgh Penguins supporters, he’s Sidney Crosby! [Seeing as he got his doctorate at Pitt, I’m guessing he wants to be associated with Mr. Crosby.]

Brian Trumbore