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01/10/2015

For the week 1/5-1/9

[Posted 11:00 PM ET, Friday]

Edition 822

France...and Europe...Under Attack

Before I get to Wall Street and the economy, just last week I wrote of how government leaders in Europe used their New Year’s addresses to issue calls against extremism, while in Sweden, a three-month-old minority center-left government cut an 8-year deal with the opposition with the aim of shutting out the far right party that had been gaining strength in parliament.

I noted how in her New Year’s speech, German Chancellor Angela Merkel blasted those supporting the ongoing protests in Dresden by Pegida, an anti-Islamist movement that has been gaining followers.

Immigration, Merkel said, was “a gain for everybody” – and, as I wrote, “she appealed to the German people to accept refugees at a time when there were more displaced people in the world than since the Second World War.”   But in a poll for Stern magazine, 29% of Germans felt the marches were justified.

One of my predictions for 2015 was that “movements like Pegida will continue to gain traction.”

So I wrote that on Friday, January 2nd. Wednesday, January 7th, France, and Europe, were convulsed by a heinous attack on satirical newspaper Charlie Hebdo in the heart of Paris that killed 12 people. Islamist terrorists were responsible, at least two of whom, brothers, were directly linked to Al-Qaeda in the Arabian Peninsula (AQAP), while the third, involved in separate incidents that would result in the deaths of five innocents, is tied to the brothers but it’s not known as yet just how tight his connections to al-Qaeda were.

All three then died in hostage situations on Friday as French security forces stormed both locations almost simultaneously. In total, the three took out 17 citizens.

Needless to say, many in France and around Europe do not want to hear talk of tolerance and unity. Maybe one day, but not now. Not today and certainly not this year.

Going back to the days of Austria’s Jorg Haider I have written endlessly of the far-right, and leftist, causes in Europe, spurred by poor economic performance, for the most part, and anti-immigrant biases. In terms of stability in Europe, this week’s attacks could not have come at a worse time. The continent is rightfully on edge tonight and will be so for a long time to come.

I won’t get into obvious topics like sleeper cells that everyone else is discussing and suddenly an expert on.

For now, I’m the guy, the only American I can guarantee you, who walked alongside Marine Le Pen on May Day in Paris in 2011 and 2014. Not as a supporter...but as a reporter. I have a curiosity about the world and I’ve seen and experienced a lot, particularly since the start of StocksandNews in 1999 (but a lot before then as well, going back to my childhood and trips behind the Iron Curtain).

Today, while French President Hollande talks of unity, in bars frequented by Le Pen’s Front National (FN) supporters, or those of Pegida, or Britain’s UKIP, they are talking about taking their countries back...and in some cases revenge. This will only result in further tragedies. And it needs to be said that, to put it bluntly, what really sucks is that the Jews of Europe, who have zero to do with the tensions that have been building up the last ten years in particular in Europe, are being victimized all over again.

Marine Le Pen said this week, “Time’s up for denial and hypocrisy. The absolute rejection of Islamic fundamentalism must be proclaimed loudly and clearly.”

Le Pen, already leading in polls for the 2017 presidential election, will now gain scores of new supporters (especially if she can shut her father up).

But France is also home to Europe’s largest Muslim community, about 8% of the population, and their numbers continue to explode.

Again, there will be no room for tolerance. The rhetoric will grow uglier and uglier and the acts more violent.

I’ve been to Paris four times in the last seven years. I love the place. I love the history, and I have been treated great by the French people. If you’re looking for me to talk about stupid stereotypes, you won’t find it here.

I’ve also noted in these pages that it’s been France, not Britain, or any of our other European allies, who has done the most to support America’s cause since 9/11, and/or taken their own initiative, like in Mali.

I’ve written how I wished every American could take the train from Charles de Gaulle Airport into the heart of Paris, to see the crumbling suburbs, the tenements on the outskirts of the main tourist area, to see who is getting on the train at all the stops...it’s always an eye-opener for me.

Yes, an entire generation, or more, of youth from North Africa and the Middle East who have found their way to Paris, and elsewhere in France (Marseilles is a seething cauldron of hate), and all over Europe, is lost, unassimilated, bitter, angry, no jobs...just ripe for the picking of some ugly, nasty cleric.

And yet at a march for unity on Sunday in Paris, the National Front is being excluded, at least as of today. This only compounds the tension.

Back in Dresden, 18,000 marched on Monday, before the attacks. You can imagine the crowds this coming week.

And in Berlin, on New Year’s Eve, as reported in the Jerusalem Post on Jan. 5, “A Jewish man was badly beaten by several men in the center of Berlin after he asked them to stop singing anti-Semitic songs.” The assailants spoke both German and Arabic. The victim took cellphone videos that he has turned over to the police.

On a subway train, seven were singing and saying “F--- Israel” and “F--- Juden”. That’s when the man asked them to stop...as he recorded it. When the assailants reached a central station, they asked him to erase the recording. When he refused, “they allegedly spit on him, kicked him and punched him in the head.”

Happy New Year. Pray for Europe.

---

Washington and Wall Street

Turning to the U.S. economy, the December non-farm payroll figure was 252,000, which, when upward revisions are factored in for October (from 243,000 to 261,000) and November (321,000 to a revised 353,000), means the economy generated 2,952,000 jobs for all of 2014, the most since 1999.

The unemployment rate fell from 5.8% to 5.6%, the lowest since June 2008, though this was largely because many people stopped looking, with the labor-force participation rate falling to 62.7%, a low not seen since the late 1970s. [U6, a broader measure of the jobs picture, ‘underemployment,’ fell from 11.4% to 11.2%, the lowest since Sept. 2008.]

But the single item that really caught everyone’s eye in the report was average hourly earnings, down 0.2%, with November’s figure being revised to down 0.4%. For the last 12 months, the gain in wages is just 1.7%, barely above the 1.3% inflation rate.

So I’ve been telling you wages would rise and that the Fed would at some point be caught with its pants down. Am I that wrong? No. This month’s figure will be reversed over time. That’s my story and I’m sticking to it.

But certainly the Federal Reserve looks at all this and one thing they don’t have to worry about with plunging oil prices is inflation. Instead, ‘deflation’ is the new concern. Thus the Fed is under zero pressure to raise interest rates and the minutes from December’s Fed Open Market Committee meeting reiterated Janet Yellen and her band of merry pranksters won’t be hiking until late April at the earliest. The president of the Federal Reserve Bank of Chicago, Charles Evans, who will be voting this year at the FOMC confabs, said he didn’t feel rates should be hiked off the zero level until 2016, or even later.

Back to oil, its price fell for a seventh straight week, 14 in 15 since it closed at $93.54 on Sept. 26. The average nationwide price at the pump is down to $2.16 as of Friday, according to AAA, down about $1.50 just since June when oil hit its high for the year of $107.

This week’s latest slide of about $4.00 in the price of West Texas Intermediate to $48.36 mainly had to do with ongoing signs, and public statements from the likes of Saudi Arabia, Iran and the United Arab Emirates, as well as evidence from Russia and Iraq, that all the major players are going to continue to pump as much as they can, price be damned...in some cases, such as Russia’s, because they desperately need the revenues, while for all I just mentioned it’s also about maintaining market share. 

Iran’s oil minister, Bijan Namdar Zanganeh, said last weekend that Iran would strive to protect its share. “I will not lose market share under any conditions...and will increase production, regardless of prices, when [oil] sanctions are lifted.”

The exporters, by willingly adding to production that they know helps bring down prices all seek to break the back of U.S. shale drillers.

[According to Bloomberg New Energy Finance, 37 of 38 U.S. shale oilfields need oil prices of over $50 to break even.]  

U.S. crude production totaled 9.13 million barrels a day last week, up about 1 million from a year ago. It has held steady in recent weeks, but won’t much longer.

The Energy Information Administration estimates the price decline will cost all 12 OPEC members a collective $257 billion in lost revenue this year. Qatar estimates the current global oversupply is 2 million barrels a day.

[A big positive from lower oil prices is it gives those countries subsidizing fuel costs for their people, at huge expense, an opportunity to slash the subsidies at low political cost. Several countries, such as Egypt, Malaysia and Indonesia have already been doing so.]

As for the holiday shopping season, lower gas prices were no doubt a big help. According to First Data, same-store retail sales increased 3.2% from Nov. 1-Jan. 4, far better than last year’s gain of 0.5%. The National Retail Federation is still expecting to report sales increased 4.1% when it releases its results next week, while ShopperTrak said sales at 1,000 retail chains it monitors nationwide rose 4.6% for November and December, vs. an original estimate of up 3.8%. For ShopperTrak, the 4.6% figure represents the strongest holiday shopping season since 2005, when sales rose 5.2%.

J.C. Penny announced same-store sales growth for November and December of 3.7%. Macy’s said its sales increased 2.7% for the same period. [Both retailers reported they will also close underperforming stores this spring and lay off thousands.] Urban Outfitters had 4% same-store holiday sales growth. And Costco’s rose 3.0%, when you factor out lower gas prices, better than expected.

Meanwhile, in his monthly investment outlook, Bill Gross, now of Janus, said in part: “Beware the Ides of March, or the Ides of any month in 2015 for that matter. When the year is done, there will be minus signs in front of returns for many asset classes. The good times are over.”

Investors should “lower their expectations” this year.

“Manias can outlast any forecaster because they are driven not only by rational inputs, but by irrational human expressions of fear and greed. Knowing when the ‘crowd’ has had enough is an often frustrating task, and it behooves an individual with a reputation at stake to stand clear. As you know, however, moving out of the way has never been my style so I will stake my claim with as much logic as possible and hope to persuade you to lower expectations for future returns over the next 12 months.”

Bottom line, record-low interest rates won’t restore growth to normal levels.

“There comes a time...when zero-based, and in some cases negative yields, fail to generate sufficient economic growth.”

Europe and Asia

In Europe, aside from the renewed terror threat, the story remains the same. It’s about two dates, Jan. 22 and Jan. 25. The European Central Bank is expected to launch large-scale quantitative easing and sovereign debt buying on the 22nd, while Greek voters go to the polls on the 25th in an election of great importance.

On the economic front, there was a slew of data for the eurozone. The final composite PMI for the euro-19 (remember, Lithuania is now in the fold as of Jan. 1) came in at 51.4 in December vs. 51.1 in November. Germany was at 52.0 (50 being the dividing line between growth and contraction), with France at 49.7 (8-month high) and Italy at 49.4 (13-month low).

A flash reading on eurozone inflation for December came in at -0.2% annualized, with the core figure up 0.8%. The -0.2% was the first time the eurozone has been in deflation since October 2009. The annualized pace in December 2013 was up 0.8%. The data only helped fuel expectations the ECB will act aggressively.

Euro retail trade for November was up 0.6% over October, up 1.5% year over year, which is just a further sign of stagnation.

And then you had the employment data for November. The eurozone unemployment rate for November is still 11.5% (more than twice that of the U.S.), unchanged from October and only down a few ticks from the 11.9% reading of November 2013. This is awful.

Yes, Germany’s jobless rate is at a record low 5.0%, while Ireland’s at 10.7% is down from the 12.2% of November 2013, so good progress there.

But France is at 10.3%, up a tick from the 11/13 level of 10.2%. Greece is at 25.7% (September), Spain at 23.9% (though down from 25.8%, 11/13), and Italy’s jobless rate has risen to 13.4% from 12.5% a year earlier.

Then you have the still sky-high youth unemployment rates in some of the euro-19 nations. Greece 49.8% (Sept.), Spain 53.5%, and Italy 43.9% (up from 41.4% yoy).

Chris Williamson, chief economist at Markit, which supplied some of the above data (Eurostat is responsible for the rest), said the latest PMI surveys will “add to calls for more aggressive central bank stimulus...to be undertaken as soon as possible.”

He added: “The eurozone will look upon 2014 as a year in which recession was avoided by the narrowest of margins, but the weakness of the survey data suggests there’s no guarantee that a renewed downturn will not be seen in 2015.

“Of greatest concerns are the ongoing downturns in France and Italy, alongside the stuttering performance seen in Germany.”

[Germany reported that November industrial production and a reading on factory orders were both down on the month vs. October.]

Some key 10-year yields at the close on Friday....

Germany 0.49% (after hitting a record low of 0.44% on Wednesday)
France 0.78%
Spain 1.71%
Italy 1.87%
Greece 9.82%

For all but this last one, it’s all about the presumed massive stimulus the ECB is set to announce on Jan. 22, or so the markets want to believe. Certainly the fundamentals in the likes of Italy in particular otherwise in no way warrant such a ridiculously low yield.

But, regarding Greece, the term “Grexit” is back in the lexicon; a Greek exit from the eurozone. German Chancellor Merkel said she wants Greece to remain in the euro currency club, but does not want to grant debt relief or other concessions sought by the Greeks for fear the costs will fall on the German taxpayer. Der Spiegel magazine ran a piece last weekend that said Germany is fully prepared to jettison Greece.

[A poll of Germans this week by the public broadcaster ARD revealed 68% were opposed to forgiving some of Greece’s debt to support an economic recovery in the country. At the same time, 61% fear Europe’s economic and financial crisis could recur.]

In terms of Greek politics, there is a lot of bluffing going on. Prime Minister Samaras said the upcoming vote will determine membership in the euro bloc, knowing most Greek people want to retain the euro (74% according to a poll this week), in an attempt to scare them into voting for his party, while the leftist Syriza party, led by Alexis Tsipras, is trying to allay fears it seeks to exit the euro group and instead just wants to renegotiate a better deal, which would include a debt write-off, as well as an end to austerity.

But I have to emphasize as I did last week that while Syriza’s lead in the polls has been about 3 percent the past two weeks, that doesn’t mean it will be able to form a government should it win, which creates potential chaos of a different kind but more likely means Prime Minister Samaras would have a shot at staying in power.

Richard Barley / Wall Street Journal

“Greece’s elections, due Jan. 25, are being painted as a renewed referendum on whether the country remains in the single currency. That probably overstates the risks: the left-wing Syriza party...isn’t campaigning for an exit and a majority of Greek voters want to keep the euro. But a victory for Syriza, which wants Greece’s debt burden to be eased, will lead to tricky negotiations with the rest of Europe. If those negotiations become a standoff, events might yet conspire to propel Greece out of the euro....

“Yes, the eurozone is in a stronger position than it was three years ago....

“But a Greek exit would still pose fundamental threats to the euro in the long run. A key ECB tenet is that the euro is irreversible. ECB President Mario Draghi’s pledge to buy eurozone government bonds if necessary under the Outright Monetary Transactions program was based on the idea that investors had irrational fears about a collapse of the euro. An exit would destroy these foundations: a precedent would be set. If one country can leave, so can others.”

Lorenzo Bini Smaghi / Financial Times

“Five years after the start of the European financial crisis, Greece is back at the center of the agenda. As long as the Greek problem is not addressed, the eurozone as a whole is unlikely to recover, or be able to further integrate politically in a way that would make it resilient against future shocks.

“However, the problem is not easy to solve....

“(How, for example,) can Greece ask for additional financial support from its eurozone partners unless it is willing to adhere to an adjustment program, which monitors not only budgetary discipline but especially all those structural reforms which have been delayed for too long? No debt relief has ever been given by the international community without tight conditions.”

Editorial / The Economist

“There was a worrying echo this week of the Lehman crisis of September 2008. Then the widespread assumption was that the global financial system was robust enough to cope with the failure of a single investment bank. Now investors are putting their trust in the resilience of unemployment-plagued countries like France, whose president has record levels of unpopularity, and Italy, whose economy has shrunk in constant prices in the first 14 years of this century (even Greece’s GDP is higher now than it was in 1999).

“That stagnation points to the deeper reason for caution. The continuing dismal economic performance of the eurozone now poses a big political risk to the single currency. In the short run, so long as creditor countries (and that means principally Germany) insist only on budgetary rectitude and reject all proposals for further monetary and fiscal stimulus, that performance seems unlikely to improve. Worse, inflation is now so dangerously low that the eurozone threatens to tip into years of deflation and stagnation worryingly reminiscent of Japan in the 1990s. The continent’s leaders have largely failed to push through the structural reforms that could make their economies more competitive. When voters see no hope, they are likely to vote for populists – and not just in Greece.

“As 2015 approached, most of Europe’s leaders assumed that the worst of the euro crisis was behind them. The early Greek election shows that hope was premature. Populist parties of left and right that are against the euro, explicitly or not, continue to gain ground in many countries – the leader of Podemos, Spain’s highest-polling party, welcomed Mr. Tsipras’ success in forcing an election this week. Ironically, when a country starts to recover is also when popular discontent often boils over. That message needs to be heeded this week in Berlin as much as in Athens.”

One other election tidbit, British Prime Minister David Cameron said that if his Conservatives win a national election in May, he would like to move his promised referendum on EU membership forward from 2017. Immigration is the biggest immediate issue and Cameron has laid out plans to restrict EU migrants’ access to welfare payments.

But Cameron is also expecting to renegotiate Britain’s ties with the European Union and claw back some powers from Brussels to convince his people to stay in the EU, though Chancellor Merkel told him in a meeting this week, ‘not so fast.’ For example, she has said she will not allow the EU’s rules on freedom of movement be diluted, but after this week’s events in Paris, all bets are off.

Finally, just a note or two on China. Factory-gate, or producer prices for December fell 3.3% year over year, the 34th-straight monthly decline, while consumer prices rose just 1.5%, as reported by the National Statistics Office. At the same time, President Xi Jinping is reiterating there will be no broad-based stimulus program, that instead the nation will deal with a “new normal,” which many read as a growth target of 7.0%, or a little lower, vs. the current 7.4% or thereabouts.

Terrorism, part deux:

President Obama said of France: “For us to see the kind of cowardly, evil attacks that took place today I think reinforces once again why it’s so important for us to stand in solidarity with them, just as they stand in solidarity with us.”

The head of Britain’s intelligence agency, MI5, Andrew Parker, gave a rare speech following the Charlie Hebdo attack, saying: “We face a very serious level of threat that is complex to combat and unlikely to abate significantly for some time.” MI5 “cannot hope to stop everything.”

“The dark places from where those who wish us harm can plot and plan are increasing. We need to be able to access communications and obtain relevant data on those people when we have good reason to do so.”

Mr. Parker pleaded for help from the public in identifying potential threats and suspects.

Editorial / Wall Street Journal

“The deadliest terror attack on French soil in more than a decade is a fresh reminder that the war on Islamist terror is far from won, and that jihadists are bent on eradicating the heritage of Western freedom.

“Charlie Hebdo was founded in 1970, and the left-wing weekly has always been an equal-opportunity offender. Its politics and taste aren’t ours, but from Jesus to Michael Jackson and from 9/11 to the Pope, nothing has been off-limits....

“Wednesday’s massacre, following a long string of plots foiled by police in the U.K., France and elsewhere, is a reminder that jihadism isn’t a distant Middle Eastern phenomenon. There will be many more such attempts at mass murder, and authorities in the U.S. and Europe need broad authority to surveil and interrogate potential plotters to stop them.

“This offends some liberals and libertarians, but imagine the restrictions on liberty that would follow if radical Muslims succeed in blowing up a soccer stadium or half a city. Men willing to execute cartoonists in Paris and 132 children at point-blank range in Peshawar in the name of religion won’t shrink from using more destructive means to impose mass casualties. Better to collect metadata and surveil some people now than deal with public demands for mass Muslim arrests or expulsions after a catastrophe....

“Charlie Hebdo Editor Stephane Charbonnier, who was murdered on Wednesday, understood the ideals he represented. Responding to threats and pressure over the newspaper’s decisions to publish provocative cartoons, he once said: ‘I prefer to die standing than live on my knees.’ It is now the epitaph of a principled and courageous man.”

Benny Avni / New York Post

“The hashtag #JeSuisCharlie (“I am Charlie”) dominated Twitter in the hours after the attack on the satirical newspaper Charlie Hebdo, which killed 10 members of the staff and two policemen guarding them.

“But are we all Charlie? Very few of us are cartoonists who revel in making fun of Catholics, Hindus, Jews, Muslims and other frequent targets of Charlie Hebdo. Even some press people scoff at such journalism.

“Yet it’s easy to understand that when people who make a living using drawing pencils and computer keyboards are gunned down, everybody’s freedom of speech is endangered....

“Although ‘The Book of Mormon,’ a stinging satire making fun of the Church of Latter Day Saints, has been a huge Broadway hit for the last four years, not one Mormon would even dream of inflicting harm on Matt Stone or Trey Parker. Jews have made fun of their own religious sentiments for ages.”

Jim Hoagland / Washington Post

“(Even) if it comes in the form of smaller attacks against the ‘soft targets’ of defenseless artists in France or subway commuters in Spain and England, the war of terror that jihadist groups have declared on Western ways of life will now make security as much a preoccupation for Europeans as it has been for Americans for 13-plus years.

“That concern has, of course, been growing in European chanceries. When I asked French Prime Minister Manuel Valls in September if he feared that a European 9/11 could be mounted by Europeans returning from fighting with jihadists in Syria and Iraq, I expected that even the straight-talking Valls might duck the question. Instead, he immediately said yes and outlined his reasons.

“ ‘We have to be very vigilant every day against the development of an enemy within,’ he said, noting that he had just steered through Parliament a law restricting travel to conflict zones by French terrorism suspects. He estimated that 1,000 French citizens were fighting in Syria, along with about ‘3,000 British citizens, some Germans, Italians and others.’....

“France has, in some ways, a tougher task in reacting to this day of calculated terror and destruction. Americans immediately understood 9/11 as a foreign attack against the homeland. We did not have to – and still do not – worry about ‘an enemy within.’ It will require great care, and great skill, to prevent the Charlie Hebdo attack from becoming a point of division. Brilliant individually, French politicians will need to develop an unfamiliar unity of purpose in the months ahead. And they will need the help of their European neighbors.”

Radical Muslim cleric Anjem Choudary / USA TODAY

[It was controversial USA TODAY gave this man space for his views...but as I write all the time, we need to know what the other side is saying.]

“Contrary to popular misconception, Islam does not mean peace but rather means submission to the commands of Allah alone. Therefore, Muslims do not believe in the concept of freedom of expression, as their speech and actions are determined by divine revelation and not based on people’s desires.

“Although Muslims may not agree about the idea of freedom of expression, even non-Muslims who espouse it say it comes with responsibilities. In an increasingly unstable and insecure world, the potential consequences of insulting the Messenger Muhammad are known to Muslims and non-Muslims alike.

“Muslims consider the honor of the Prophet Muhammad to be dearer to them than that of their parents or even themselves. To defend it is considered to be an obligation upon them. The strict punishment if found guilty of this crime under sharia (Islamic law) is capital punishment implementable by an Islamic State. This is because the Messenger Muhammad said, ‘Whoever insults a Prophet kill him.’

“However, because the honor of the Prophet is something which all Muslims want to defend, many will take the law into their own hands, as we often see....

“So why in this case did the French government allow the magazine Charlie Hebdo to continue to provoke Muslims, thereby placing the sanctity of its citizens at risk?

“It is time that the sanctity of a Prophet revered by up to one-quarter of the world’s population was protected.”

Editorial / USA TODAY

“Cartoonists are not ordinarily people you’d think of as threatening. Their most dangerous weapon is rapier wit, artistically aimed to provoke thought. But for the thin-skinned, the intolerant and the arrogant, mockery stings more than an acid bath.

“So on Wednesday, in an act of primitive brutality, Islamist radicals angered by the work of four cartoonists simply murdered them, along with other journalists and bystanders at the satirical Paris weekly Charlie Hebdo.

“The satirists might be unlikely heroes, but they are heroes nevertheless – martyrs to that most fundamental of Western values, the right to free expression, which they chose to exercise despite threats and a firebombing just three years ago that might have muted others....

“Looking (at their history), one might be tempted to say the tabloid acted like a man who pokes a bear with a stick; it’s no surprise that the bear clawed back. But that would miss the point. So, too, would it be a mistake to focus on the crudeness of the newspaper’s humor or its apparent indifference to the consequences of its actions.

“Instead, the issue is free speech, which inevitably involves tolerance of offensive speech. The unacceptable alternative is to have speech judged by government censors.”

Bernard-Henri Levy / Wall Street Journal

“This is the Churchillian moment of France’s Fifth Republic, the moment to face the implacable truth about a test that promises to be long and trying.

“It is time for us to break, once and for all, with the Leninist reasoning that has been served up for so long by the useful idiots of a radical Islam immersed in the sociology of poverty and frustration. And most of all it is the moment, now or never, for a calm resolve among all believers in democracy to look evil in the face without losing ourselves in the catastrophic measures of a state of emergency....

“It is essential that the de facto democratic union of people across the religious and political spectrum who filled the streets in the hours following the carnage continue to mount a response to the ‘France for the French’ of Marine Le Pen and her far-right ilk. Because France for the French is the opposite of national unity. From Cato the Elder to the theoreticians of the modern social contract, the beautiful idea of national unity never mistakes its true enemy. National unity is a sign that the French have understood that the Charlie Hebdo killers are not ‘the Muslims,’ but rather the small fraction of Muslims who confuse the Quran with a death warrant.

“Those whose faith is Islam must proclaim very loudly, very often and in great numbers their rejection of this corrupt and abject form of theocratic passion.... they should feel called to express their tangible brotherhood with their massacred fellow citizens. In so doing, they would put to rest once and for all the lie of a spiritual commonality between their faith as they know it and that of the murderers....

“In the dark times ahead, battles await: Islam against Islam, pluralistic civilization against the nihilists of jihad. But it is really one war, and we must wage it together, united.”

Street Bytes

--What a crazy start to the year, with the S&P 500 losing 2.7% the first three sessions, then rallying 3% on Wednesday and Thursday, only to fall back on Friday.

For the week, the Dow Jones lost 0.5% to 17737, while the S&P declined 0.7% and Nasdaq lost 0.5%.

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.56% 10-yr. 1.94% 30-yr. 2.53%

Treasuries rose sharply (yields fell) on the putrid wage component of the labor report on Friday. Many traders now don’t believe the Fed will raise rates until June at the earliest. The 30-year is nearing its record low set in July 2012 of 2.44%.

Leading bond manager Jeffrey Gundlach thinks we take out the modern-era low of 1.38% on the 10-year in 2015, particularly if crude-oil prices fall to $40 a barrel, which would only accentuate deflationary forces he sees at work globally.

--The U.S. auto industry completed its best year since 2006, selling 16.5 million vehicles in 2014. Employment in the auto manufacturing sector also increased 47,700 last year, a 7% increase over 2013, according to the Center for Automotive Research.

Estimates for 2015 generally range from 16.7 million to 17 million vehicles sold, which would be the highest since 2001.

For December, GM’s sales were up 19.3% from a year earlier. Ford’s were up 1.3%, though it was the company’s best December since 2005. Chrysler/Fiat was up 20%. [It’s actually now called FCA US.] Toyota was up 12.7%, Honda up 1.5%, Nissan up 6.9% last month, and Subaru up 21%.

For all of 2014, FCA’s sales rose 16%, GM’s 5%, Toyota’s 6%, Honda’s 1% and Nissan’s 11%. Ford’s fell 1%, though this was due to the automaker’s switchover to the new aluminum F-150 pickup. 

--The National Highway Traffic Safety Administration has fined Honda Motor a record $70 million for failing to report 1,729 death and injury claims to the agency for the last 11 years, as well as failing to report various warranty issues.

Honda said it did not intend to underreport and that the reporting failures stemmed from data entry and programming errors. Hardly a good excuse.

--U.S. Steel is laying off 750 workers in Lorain, Ohio and Houston because of the collapse in oil prices. Plants in those two locations make steel pipe and tube for oil and gas exploration and drilling and energy companies are beginning to cut their cap-ex budgets for 2015, some in a big way.

But U.S. Steel is but one example. As the Wall Street Journal points out, many foreign companies have been building capacity in the U.S. “France’s Vallourec SA, for example, built a $650 million, 500,000-ton-per-year mill in Youngstown, Ohio.” Layoffs can be expected there as well.

--President Obama will veto any legislation approving the controversial Keystone XL pipeline, which isn’t exactly the right way to begin a new era of cooperation. 

White House spokesman Josh Earnest said the president did not think a decision should be made until the final routing through Nebraska had been settled.

Well then the Nebraska Supreme Court on Friday removed the major hurdle to construction, ruling that Republican Gov. Dave Heineman has the authority to approve the project’s route without review by a state agency, thus striking down a lower court ruling that had left the pipeline without an approved route.

So on Friday afternoon, the House passed a bill approving construction (28 Democrats siding with Republicans). The Senate is expected to begin consideration of the bill early next week and then we’ll see what Obama does given the Nebraska court’s ruling.

--As the Financial Times’ Samantha Pearson reports, the corruption scandal surrounding Brazilian energy giant Petrobras threatens to destabilize the country in different ways, including due to problems with a major construction firm (OAS) linked to the allegations that has already missed two debt payments.

OAS is building the world’s third-largest dam and revamping Sao Paulo’s international airport.

If Petrobras can’t regain access to capital markets, you could have a major credit event. Petrobras is the world’s most indebted oil company with $139 billion in total debt, though it still has an investment grade rating.

At least 30 executives of Petrobras and OAS (as well as other construction firms) have been arrested thus far for their involvement in a $multibillion kickback scheme. Contracts with Petrobras were inflated to provide bribes and funnel cash to the ruling Workers Party (PT) and its allies.

--The bad news out of PIMCO continues. Investors withdrew a record $150.3 billion from the bond fund giant last year, the largest annual decline in assets ever recorded by a mutual fund family, according to Morningstar Inc.

$102.9 billion of the $150b figure (net) was from PIMCO Total Return Fund.

Then there is Janus and Bill Gross. After Gross left PIMCO end of September to run a bond fund at Janus, it was reported that $1.1 billion had flowed into his Janus Global Unconstrained Bond fund, which was strong. But on Wednesday, the Wall Street Journal reported that $700 million of that flow came from a single Morgan Stanley office in La Jolla, Calif., the same office where one of Mr. Gross’ financial advisers works. Ergo, the $700 million is from Gross’ personal funds.

The chairman of Janus, Glenn Schafer, told the Journal on Thursday, “I had no idea” how much of the fund was made up of money from that brokerage office. Schafer did say the board was aware Gross put some of his own money into it.

Bill Gross has always invested heavily in his funds, so this isn’t the point. Shareholders should want that. It’s that the flows were obviously misleading, especially since many institutions won’t invest in an individual fund until assets are over $1 billion and without Gross’ personal investment, the assets would have been well under that target.

[I just saw that December inflows into the Unconstrained Bond fund were $176 million, bringing total assets to $1.4 billion.]

--According to Morningstar, investors poured a record $216 billion into Vanguard Group in 2014, the largest inflows for any mutual-fund firm.

--Apple Inc. reported surging growth in its App Store, up 50% last year from more than $10 billion in 2013, implying sales of about $15 billion. Apple keeps 30 cents of every dollar.

While this is but a small slice of Apple’s overall revenues of $183 billion, this is a segment most investors have probably ignored in terms of the potential. Much of this flows directly to the bottom line.

Last June, Google implied it had app sales of $7 billion. [Wall Street Journal]

--Samsung, the world’s No. 1 maker of smartphones, warned profits fell 37% in the fourth quarter, though they will still come in around $4.7 billion, with sales down about 12% as it struggles to compete with a number of new Chinese rivals.

--Coca-Cola announced it was cutting 1,600-1,800 white-collar jobs worldwide due to putrid soda sales. About 500 of the positions will be eliminated at its Atlanta headquarters.

--The World Health Organization said on Wednesday that the spread of Ebola in Sierra Leone, the country worst affected, may be slowing. The death toll is now 8,235 out of 20,747 known cases worldwide. 495 of 838 health workers infected have died, the WHO said.

--In an encouraging sign for the publishing industry, Barnes & Noble Inc. reported sales at its retail segment were nearly flat during the holiday season, as sales of physical books continue to stabilize. 

Separately, sales of young adult fiction, overall, rose 12% year over year in the U.S. in 2014, while adult fiction fell nearly 8%.

[Waterstones, the U.K.’s biggest remaining book chain, said its hardcover sales rose 5% in December compared to the previous year.]

--As of the end of the week, signals thought to be from AirAsia flight QZ8501 have been picked up by Indonesian search and rescue teams operating in the Java Sea. 48 of 162 bodies have been recovered, including at least two still strapped to their seats, one of which was reported to have been from the cockpit.

The tail has been discovered and recovery teams will attempt to lift it out of the water, but it appears the black boxes have been separated from the tail section.

Weather is still being seen as the leading cause of the disaster, possibly icing that would have caused engine damage as the airplane flew into severe storms.

--AirlineRatings.com has named Qantas the world’s safest airline, after a year that saw fatal air accidents soar above the 10-year average. The report says, “Certainly, 21 fatal accidents with 986 fatalities...is sickening. However, the world’s airlines carried a record 3.3 billion passengers on 27 million flights.”

The 21 figure for fatal flights is actually a record low. MH370 and MH17 were unprecedented in modern times; the two claiming 537 lives.

The report adds: “Flashback 50 years and there were a staggering 87 crashes killing 1597 when airlines carried only 141 million passengers – five percent of today’s number.”

Qantas, in its 94-year history, still has yet to have a fatality in the jet era and is praised as the leader in real-time monitoring of its engines using satellite communications, which “allows the airline to detect problems before they become a major safety issue,” the report says.

British Airways and Singapore Airlines are among the others in the top 10 for safety. There were no U.S. airlines among major carriers.

Jetblue, though, was in the top 10 among low-cost carriers.

--Uber said it had its best day ever over New Year’s Eve, giving 2 million rides globally. More than 50,000 people used the service twice or more, through the night. I stayed home, watched football and drank beer.

--James Comey, the FBI director, said he had “high confidence” in the bureau’s conclusion that the Sony Pictures hack attack was the work of North Korea.

Referring to Guardians of Peace, the group claiming credit for the attack, Comey said, “Several times either because they forgot or they had a technical problem they connected directly and we could see them. And we could see that the IP addresses that were being used to post and to send the emails were coming from IPs that were exclusively used by the North Koreans,” he said. [Financial Times]

As for the movie at the center of the attack, through last Sunday, “The Interview” had grossed $31 million through video on demand, which is pretty impressive. The film had generated $5 million at the box office as it has been gradually released through the theaters. 

Personally, I’m still trying to carve out time to watch “Dawn of the Planet of the Apes.”

--For the first time ever, ESPN will be available without paying a cable or satellite bill. For $20 a month, viewers will get the sports network, CNN, the Food Network and the Cartoon Network through a Dish Network service called Sling TV.

So this is the beginning of the end of civilization as we know it. 2015 is the year HBO and Showtime will roll out their own digital streaming services. Sony will launch a package that includes MTV, Nickelodeon and Comedy Central. 

I was about to ridicule all of this, but then my own personal package would be all sports channels, the four major networks, CNN, Fox News, CNBC and HBO. I like the Weather Channel but I can get that online.

Back to Dish, in order to prevent families from cutting their satellite television subscriptions for Sling TV, Dish said the new service would only play on one device at a time. You’d have to pay $40 a month to do otherwise.

--An advisory panel to the Agriculture Department has completed a study on the impact of eating beef vs. pork and poultry (as well as dairy and eggs). Needless to say the cattle industry isn’t happy. About a year from now the Agriculture and Health and Human Services Department will draw up final dietary guidelines and it will no doubt encourage eating less meat.

For example, according to the National Academy of Sciences (and the Associated Press), raising 1,000 calories of beef requires 146.6 square meters of land vs. 4.1 for poultry. 9.6 kilograms of greenhouse gases are generated by beef vs. 1.7 kilograms for chicken.

--Yet another update on the Harold Hamm $1 billion divorce settlement. The judge who initially awarded it to the ex-wife of the Continental Resources Inc. founder, declined to revisit his ruling saying “It is what it is.”

Harold Hamm had argued plunging oil prices entitled him to a break, while his ex-wife said $1 billion was too small.

Meanwhile, at Dollar Tree, you can get extra-large cans of Campbell’s Chicken Noodle Soup for $1.00! [It remains your best flu prevention remedy.]

--Sirius XM Holdings Inc. announced it ended 2014 with 27.3 million subscribers, up 1.75 million net for the year, beating expectations.  

--Inflation Alert: The cost of a Masters series badge (all four rounds of play), is going up $75 this year to $325, 30%. [This is still quite a deal, however.]

“The Masters...a tradition unlike any other...on CBS.” [And this year ESPN for rounds one and two.]

Foreign Affairs

Iraq / Syria / ISIS: A large snowstorm that buffeted Syria and Lebanon* only added to the ongoing refugee crisis, claiming at least 10 lives, according to the Syrian opposition-in-exile National Coalition, which is urging the international community to step up their aid. The prime minister of the opposition’s interim government, Ahmad Touma, said conditions on the ground were “catastrophic.”

The good news with the storm is that the Syrian regime stopped its airstrikes on cities such as Homs.

*Lebanon announced this week that Syrians will soon need visas to enter the country, a significant step as the Lebanese attempt to control the overwhelming flow of refugees. An estimated 1.1 million are in Lebanon, creating a crisis of enormous proportions. Understand, this is a place of just four million citizens. [Jordan announced it would no longer be able to provide health care for the 623,000 registered refugees in its territory.] There were also reports this week that ISIS is seeking a toehold in Lebanon and control of some mountain villages on the border with Syria.

In the embattled town of Kobane in northern Syria, on the Turkish border, Kurdish fighters supposedly now control 80% of it, according to the Syrian Observatory for Human Rights. Fighting here has been going on since September, when ISIS first quickly overran it. Hundreds have died since.

Separately, the Pentagon announced the U.S. will be sending additional troops to Iraq over the next six weeks to ramp up the training of Iraqi forces. 2,150 of 3,100 American troops slated for deployment are already there, including 300 in Anbar Province, who are at greatest risk with fighting all around them.

The goal is to train 5,000 Iraqis every six weeks.

But as retired Army four-star general Barry McCaffrey said on NBC’s “Meet the Press” last Sunday, “It’s hard to imagine a modest training mission being the key to gluing Iraq back together. I think it’s come apart and it will now have to settle along new geo-political grounds.” [Defense One]

The U.N. announced this week that violence in Iraq killed at least 12,282 civilians last year, the deadliest since 2007. The U.N. added “the figures reported have to be considered as the absolute minimum.”

Finally, the World Health Organization has been trying to investigate reports some jihadists have contracted Ebola and that there might be Ebola patients at a Mosul hospital under ISIS control. The Ebola would come from fighters who traveled from western Africa. HIV is also an issue.

Iran: President Hassan Rohani threatened to hold a referendum as he warned hardline opponents of a nuclear deal with the West that Iran must end its isolation. In essence, he appears to be warning that he will put any nuclear deal to a public vote.

“Our political experience shows that the country cannot have sustainable growth when it is isolated,” he said at a conference on Iran’s economy on Sunday.

If “we are ready to stop some types of enrichment which we do not need at this time, does it mean we have compromised our principles and cause?” Rohani asked.

He responded: “Our ideals are not bound to centrifuges. Our ideals are bound to our hearts, brains and determination,” he said. [Daily Star,  Financial Times]

Hardliners are insisting a nuclear deal should only be concluded if all sanctions are lifted, which is simply not going to be the case.

As for the negotiations, which have been sporadic since the latest extension to June 30, it’s important to remember that the U.S. Congress will have a say in any agreement that is reached; this is a certainty...and the debate could be quite explosive, especially when there are many Democrats, such as New Jersey Sen. Robert Menendez, who have been extremely wary of the administration’s end game.

Editorial / Daily Star (of Lebanon)

“Having urged an end to Iran’s international isolation, President Rohani’s courageous words Sunday must now be followed up with genuine commitment to reform and an admission of Tehran’s foreign policy failings.

“Rohani also called for increased transparency and an end to corruption, and admitted that the government’s monopoly over the economy – coupled with the sanctions program – was crippling the country.

“But while Rohani may very well believe what he says, his will alone will not be enough to change the reality on the ground. There are clearly divisions within the country’s leadership, and it is likely Sunday’s speech – ahead of a new round of nuclear talks – was not welcomed by Supreme Leader Khamenei, or indeed the Revolutionary Guard Corps, who are far less enthusiastic about cooperation with the West.

“And though Rohani seemed to be speaking to an international audience in affirming his commitment to opening up Iran, and a desire to end the sanctions program, there was a conspicuous omission on why the sanctions were implemented in the first place.

“Iran’s regional role – its increasingly rigid and militant policies – must be confronted for any tangible reform to take place at home. Until Rohani can admit that under his watch the country has only stepped up involvement across the region – from Lebanon to Yemen, by way of Iraq, Syria, Saudi Arabia and Bahrain – then any relaxing of sanctions or opening up of the economy will be impossible, and his promises of reform are merely an exercise in semantics.

“As it is, Iran is merely encouraging and supporting violence throughout the Mideast, and until this stops, even the most humble rapprochement with the West – and first the Gulf – is merely a fantasy.”

Egypt: Jonah Goldberg had an important op-ed in USA TODAY, in light of the Charlie Hebdo massacre.

“It is a sad commentary that the more shocking and, arguably more significant, event came a week earlier in Cairo. Egyptian President (and strongman) Abdel Fattah al-Sisi delivered a possibly epochal speech at Al-Azhar University on New Year’s’ Day. More than a thousand years old, Al-Azhar is considered by many to be the epicenter of scholarly Islam.

“Addressing the assemblage of imams in the room, al-Sisi called for a ‘religious revolution in which Muslim clerics take the lead in rethinking the direction Islam has taken recently. An excerpt:

“ ‘I am referring here to the religious clerics... It’s inconceivable that the thinking that we hold most sacred should cause the entire umma (Islamic world) to be a source of anxiety, danger, killing and destruction for the rest of the world. Impossible!

“ ‘That thinking – I am not saying ‘religion’ but ‘thinking’ – that corpus of texts and ideas that we have sacralized over the centuries, to the point that departing from them has become almost impossible, is antagonizing the entire world. It’s antagonizing the entire world! ...All this that I am telling you, you cannot feel it if you remain trapped within this mindset. You need to step outside of yourselves to be able to observe it and reflect on it from a more enlightened perspective.

“ ‘I say and repeat again that we are in need of a religious revolution. You, imams, are responsible before Allah. The entire world, I say it again, the entire world is waiting for your next move...because this umma is being torn, it is being destroyed, it is being lost – and it is being lost by our own hands.’”

Al-Sisi backed up his words with deeds, attending a Coptic Christian Christmas Mass, the first time an Egyptian president has done so.

What to make of these bold words and actions?
Jonah Goldberg:

“Who knows? What is clear, however, is that this is a big deal. Al-Sisi is doing exactly what Westerners have been crying out for since at least Sept. 11, 2001, if not before that. And yet his speech has been almost entirely ignored by the mainstream news media.”

Nothing from the major news outlets, the New York Times, the Washington Post, and others.

“Whatever your own view of the man, and whether you think he’s sincere, al-Sisi’s efforts to combat Muslim extremism – militarily and rhetorically – deserve closer attention, if not now then after the images from Paris fade.”

I’m thinking we have an early candidate for “Person of the Year,” hard as that may be to believe. I’ve had no problems with al-Sisi and all you need to know for now is that the level of cooperation between Israel and the Egyptian government is high.

Israel: In response to Palestinian steps to join the International Criminal Court, which would allow them to bring up Israelis on war crimes, Israel is looking at ways to prosecute senior Palestinians, including President Mahmoud Abbas, for war crimes in the United States and elsewhere over their support for Hamas.

Also in response to the Palestinians’ move, Israel is withholding $127 million in tax revenue it collects for the Palestinian Authority.

In the snap parliamentary (general) elections to be held on March 17, according to a Peace Index poll, Prime Minister Benjamin Netanyahu is favored by 34.4% of voters to be the next prime minister, with Labor leader Isaac Herzog second at 17.7%. 59.8% of Israeli Jews believe the Right bloc will form the government.

According to a Gallup survey, 61% of American Jews identified as either Democrats or Democratic-leaning in 2014, down from 71% in 2008, while 29% counted themselves in the Republican camp. [Jerusalem Post]

According to Pew, of the 234 Democrats in the new Congress, 27 are Jewish, while there is only one among the 301 Republicans.

Turkey: In another worrisome development, a female suicide bomber walked up to a police post servicing tourists in the heart of Istanbul’s most-visited district and in good English said: “I have lost my wallet.” Then she blew herself up, killing one of the policemen staffing the post.

Yemen: At least 35 were killed by a large car bomb outside a police academy in Yemen’s capital of Sana, Wednesday. More than 70 were wounded. Clearly the work of Al-Qaeda in the Arabian Peninsula.

Russia / Ukraine: The European Union promised more aid for near-bankrupt Ukraine, proposing about $2 billion in medium-term loans for this year and early 2016, though the proposal must be approved by EU governments and the European Parliament.

According to Reuters and the Moscow Times, there were some signs Russia was changing its behavior, with Latvia’s foreign minister saying talks with Russia last month showed signs of a new approach to the conflict.

But then on Friday, fighting flared up again in eastern Ukraine, with six government soldiers and two civilians killed in a heavy exchange of artillery fire between Russian-backed rebels and government troops. There are rumors of new armor crossing from Russia into rebel-held areas as well.

For its part, France announced it would not deliver two Mistral helicopter carriers to Russia unless a ceasefire is completely respected in Ukraine.

Meanwhile, in another sign of an imploding Russian economy, the flow of migrants into the country fell 70% over the first week of January compared to the same period a year ago.

China: Shanghai police have been rounding up and detaining “dozens of people who posted comments online about the deadly New Year’s Eve stampede, an officer has told the Sunday Morning Post, in an apparent drive to contain public criticism against the authorities.” [South China Morning Post]

Nigeria: Boko Haram attacked a last holdout in northeast Nigeria, the town of Baga, over the weekend and there are reports as many as 2,000...2,000...were killed.

As reported by the Washington Post’s Terrence McCoy, Baga, along the shores of Lake Chad, had been defended by a multinational force from Niger, Chad and Nigeria (though according to the BBC only Nigerian troops were there last weekend) and was the last major town in Borno State that was not under Boko Haram’s control. [The Islamists control 70% of the territory.]

So when Boko Haram attacked, the troops melted away, leaving the residents defenseless.

The 2,000 figure comes from a government official in Borno and, if true, means that in one 24-48 hour period, Boko Haram killed as many people as it did all last year. Some drowned in the lake trying to escape, with up to 20,000 displaced.

Baga is now said to be “non-existent.” One resident who managed to escape told the BBC, “The indiscriminate killing went on and on and on.”

Cuba: 26 dissidents were finally released, with some of them believed to be among the 53 dissidents Cuba had agreed to free last month as part of the diplomatic moves between the U.S. and the island.

But neither side has released the names and it was just last week that the Cuban government rounded up at least 50 dissidents.

Editorial / Washington Post

“In announcing the normalization of relations with Cuba last month, President Obama violated two pledges he had made: to link such a liberalization to ‘significant steps toward democracy,’ including the freeing of all political prisoners; and to consult with Cuban civil society, including pro-democracy activists, on the change. In what looked at the time like a partial recompense, the White House announced that the Castro regime had agreed to free 53 detainees – or about half the number of political prisoners identified by Cuban human rights activists.

“Now it’s becoming clear that Mr. Obama chose not to make even that half-step a condition for the broad relaxation of travel and economic restrictions he is granting to Havana along with the normalization of relations. As of Wednesday, three weeks after the U.S.-Cuba accord, Cuban human rights activists had reported only five released prisoners. On Thursday, Cuban blogger Yoani Sanchez tweeted that the number had risen to 26. Meanwhile, however, the State Department was emphasizing that steps toward normalization – including the highest-level visit by a U.S. official to Cuba in a half-century – will go forward this month whether the promised release is completed or not.

“The administration’s priority, spokeswoman Jen Psaki said this week, is the ‘direct dialogue’ Mr. Obama believes will lead to better conditions in Cuba. ‘We’re not waiting to make progress on the other components,’ she said.....

“Were any of those latest detainees among those whose freedom was promised? Their families can’t know because the White House refuses to say. If they are on the list and the regime reneges on its commitment, the Obama administration won’t have to acknowledge it was cheated – and the normalization will go forward. Could that be the real reason for the secrecy?”

Random Musings

--Congress is back (hide the wife and kids) and John Boehner was reelected as House speaker, but not before 25 Republicans chose not to vote for him (one voting present, the other 24 for other candidates). 30-plus needed to turn against the Speaker to prevent him from winning a majority on the first vote, though no one was teed up to really challenge him in a second ballot. It simply would have been a major embarrassment.

--In a speech on Wednesday, Democratic Sen. Elizabeth Warren reasserted the U.S. political system is “rigged” in favor of wealthy corporations at the expense of the rest of us, but, as reported by the Washington Post, she took “thinly veiled jabs at Bill and Hillary Clinton as examples of economic stewardship gone wrong.”

Is Ms. Warren beginning to position herself to challenge Hillary? We’ll see what she says in her speeches and interviews the next month or so, but in addressing an AFL-CIO event in Washington, she made an allusion to Bill Clinton’s disavowal of “big government” and his decision to deregulate parts of the financial sector.

“Pretty much the whole Republican Party – and, if we’re going to be honest, too many Democrats – talked about the evils of ‘big government’ and called for deregulation,” she said. “It sounded good, but what it was really about was tying the hands of regulators and turning loose big banks and giant international corporations to do whatever they wanted to do.”

Sen. Warren also made a reference to Wal-Mart and company workers earning wages too low to feed their families. The significance of this was Hillary Clinton spent six years on the board of directors there.

Dick Harpootlian, former Democratic Party chairman in South Carolina, told the Post: “What (Warren is) doing is putting a stake in the ground and saying the policies during the Clinton years were good for the economy in general but not good for average Americans.”

Joe Trippi, senior adviser in past Democratic presidential campaigns, said, “It looks increasingly to me like she’s thinking about actually making a run, but at the same time not taking the steps necessary to actually pull it off.”

--Mike Huckabee gave his clearest signal yet that he’s running for president in announcing he was ending his cable talk show on Fox. Huckabee briefly shook things up in 2008 when he ran as a Christian conservative and had a big win in the Iowa caucuses. But his campaign was being run on a shoestring and he flamed out.

--Speaking of Iowa, the Wall Street Journal interviewed more than half of the state’s Democratic county leaders and Hillary Clinton’s support is lukewarm at best. Recall, in 2008 she not only lost to Barack Obama, but also to John Edwards there.

So guess what? Turns out many of these Democratic party officials are pining for Elizabeth Warren.

--What’s this? Is Mitt Romney really considering another run at the White House? The Wall Street Journal is reporting he told GOP donors in Manhattan he was doing so. Eh.

--California Democratic Sen. Barbara Boxer says she won’t seek another term in 2016, setting off a land rush of sorts to fill her seat among California’s most prominent politicians.

--NYPD union leaders met with Commissioner Bill Bratton on Wednesday, with Mayor Bill de Blasio staying away. A proposal came up. The five union chiefs suggested that Bill Clinton could be used to heal the rift between the police and City Hall. [Clinton reportedly said no. Bratton said this wasn’t necessary.]

Michael Goodwin / New York Post

“There’s an old saying that it’s ‘better to be lucky than good,’ but what if you are unlucky and bad?

“That would describe Mayor de Blasio, who in the span of a few hours went from defiant to deflated. He started out crowing and ended up eating crow.

“The mayor emerged from hiding Monday to use the release of 2014 crime stats to heap more abuse on cops, saying a decline of 4.6 percent in major felonies meant he was right to demand both a ‘safe city’ and a ‘fairer city.’ He also blasted officers for turning their backs on him at Sunday’s funeral for Officer Wenjian Liu, calling them ‘disrespectful’ and saying ‘it defies a lot of what we all feel is the right and decent thing to do.’

“Hours later, he was at a Bronx hospital visiting two undercover cops wounded in a late-night shootout with armed robbers.

“The roller-coaster day revealed the incoherence of de Blasio’s mayoralty. He claims lower crime justifies his anti-police agenda, but can’t resist throwing an elbow at the people who actually do the dangerous job. And when two officers are wounded, he praises their courage without any recognition of why so many of the Finest believe he has made the job even more dangerous.

“The toxic tangle is growing worse, with data suggesting a widespread slowdown.* Arrests and summonses are falling so steeply that there is no other reasonable explanation. Meanwhile, murders and other serious crimes jumped in the last two weeks of December, erasing some of the gains made throughout the year.

“The mayor knew all of this when he spoke Monday, which makes his boasting and criticism especially unwise. He could have used the 2014 stats as a moment to turn the page and make a fresh start.

“Instead, he threw gasoline on the fire – and has the nerve to accuse cops of disrespect....

“At this point, it is hard to be optimistic. Fundamentally, de Blasio makes it clear on many issues that he views his election as a blank check, and feels no need to represent the 7.7 million people who did not vote for him or those who don’t agree with him.

“That’s the nut of the problem. The real disrespect is that the mayor is failing to do his duty to end the war on cops. After all, he started it.”

*For two straight weeks, the number of arrests fell by about half versus year ago levels, while the issuing of summonses, such as for parking violations, dropped by more than 90 percent. On Friday, Commissioner Bratton acknowledged there had been a ‘slowdown,’ but that things were getting back to normal.

On a different topic, Michael Goodwin notes the following, for those of you who are New York politics junkies.

“First Ed Koch passed away, then in quick succession came David Garth, Herman Badillo, Mario Cuomo and Bess Myerson. The roll call of the recently departed amounts to an All-Star lineup from a tumultuous era in Gotham.”

Speaking of Bess Myerson, it was kind of bizarre. The former Miss America (the only Jewish winner of the pageant when she took the crown in 1945), died at the age of 90 in Santa Monica, Calif., but we only learned of this three weeks after the fact.

She was a fascinating figure. Myerson ended up being Ed Koch’s de facto girlfriend and she worked as New York City’s consumer affairs commissioner for a spell (under Mayor John Lindsay) before helping Koch get elected for the first time in 1977, appearing by his side constantly. She then lost a campaign for the U.S. Senate in 1980.

But her career in New York ended badly when she got swept up in an influence peddling case involving her ‘real’ longtime companion, a major city contractor.

But back to when she entered the Miss America pageant, she was urged to change her name to Betty Merrick, which she refused to do, telling People magazine in 2000: “I live in a cooperative with 250 other families, all of them Jewish. If I win, they’ll feel very, very good, but if I change my name, they won’t even know it’s me.”

So picture she won on Sept. 8, 1945, as the extent of the Holocaust was becoming evident. So during her yearlong reign, as an obituary in Crain’s New York Business put it, she “became a traveling speaker for the Anti-Defamation League of B’nai B’rith.”

That took courage.

“I was determined to do something with my year, to make it mean something,” she wrote.

Yes, Bess Myerson became far more than a beauty queen. RIP.

--Another pioneer passed away this week. Edward W. Brooke III, who in 1966 became the first African-American elected to the United States Senate by popular vote, winning as a Republican in Democratic Massachusetts. He was 95.

Brooke was re-elected in 1972 and remains the only black senator ever to have been returned to office, as noted by Douglas Martin in the New York Times.

I was shocked how little was said of Brooke’s passing (of course I wasn’t really shocked... Brooke being a Republican and all...). This was a classic centrist. He was also the first Republican senator to demand Richard Nixon’s resignation.

Brooke was a decorated World War II veteran who started off in the infantry and rose to captain.  Later on, as Douglas Martin writes, “On the issue of the Vietnam War he was torn, moving from dove to hawk, then back to dove.”

Brooke lost a bid for a third term to Democrat Paul Tsongas.

Douglas Martin: “Mr. Brooke never presented himself as a black politician and grew tired of being called ‘first this, first that,’ he said. He represented all the people of Massachusetts, he said, and wanted no part of being ‘a national leader for the Negro people.”

--Former Virginia governor Robert McDonnell was sentenced to two years in prison Tuesday, the first Virginia governor to go to prison unless his case is overturned on appeal. McDonnell was convicted of influence peddling in gaining sweetheart loans, luxury vacations and expensive jewelry from a wealthy benefactor. Prosecutors had sought a 6 ½-year term, while sentencing guidelines called for eight, so McDonnell, once touted as a Republican presidential contender, is getting off easy.

--The F.B.I. and Justice Department prosecutors have recommended bringing felony charges against retired Gen. David Petraeus for providing classified information to his then mistress when he was director of the C.I.A. Petraeus has long denied he gave such information to Paula Broadwell, an Army Reserve officer who was writing his biography.

The Justice Department is claiming Petraeus gave Broadwall access to his C.I.A. email account and other highly classified information.

It is now up to Attorney General Eric Holder to decide whether to seek an indictment. Boy, you just know Holder is thinking, ‘Why didn’t I resign sooner.’

--Radical Muslim cleric Abu Hamza al-Masri was sentenced to life in prison by a court in New York for supporting terrorism.

Judge Katherine Forrest called Abu Hamza’s actions “barbaric” and “misguided” as she read out the names of the four British tourists killed in the Yemen kidnapping in 1998.

His trial followed his extradition to the U.S. from Britain in 2012 at the end of an eight-year legal battle.

--President Obama unveiled a proposal for making community college tuition-free for “responsible students” in what sounds like a worthy program but it’s a non-starter given the cost. A minimum of $60 billion over ten years.

--Ripped from the pages of the South China Morning Post (and Agence France-Presse): “Nine people have choked to death in Japan after eating traditional glutinous ‘mochi’ rice cakes to celebrate the New Year, an official and local media said.

“In Tokyo alone, 18 people were sent to hospital due to suffocation after eating the New Year delicacy, and three of them – all men – died, a fire department official said.”

Actually, the Yomiuri Shimbun newspaper said, “At least 128 people were rushed to the hospital after choking last week.”

Good lord!

--NASA’s Kepler Space Telescope has been on planet patrol and this week at a meeting of the American Astronomical Society, scientists verified Kepler’s 1000th planetary discovery, though there are 554 new candidates.

So, as reported by Rachel Feltman of the Washington Post, “Of those possible planets, eight are in the so-called ‘Goldilocks zone,’ or habitable zone, where the host star is at just the right distance to keep water liquid. Too close, and water heats up and boils off. Too far, and the planet is covered in permanent, solid ice.”

So there are two “exoplanets – planets outside Earth’s solar system” that scientists are particularly excited about.

“Both planets orbit a small red-dwarf star, cooler than Earth’s sun, but they also orbit more closely.” One has a 70 percent chance of being able to hold liquid water. The other has a 97 percent chance of being in the habitable zone.

NASA scientist Fergal Mullally said, “We are now closer than we’ve ever been to finding a twin for the Earth around another star.” Wonder what kind of streaming packages they have.

---

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

Prayers to France.
God bless America.
---

Gold closed at $1216
Oil $48.36

Returns for the week 1/5-1/9

Dow Jones -0.5% [17737]
S&P 500 -0.7% [2044]
S&P MidCap -0.7%
Russell 2000 -1.1%
Nasdaq -0.5% [4704]

Returns for the period 1/1/15-1/9/15

Dow Jones -0.5%
S&P 500 -0.7%
S&P MidCap -0.8%
Russell 2000 -1.6%
Nasdaq -0.7%

Bulls 50.5
Bears 15.2 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore



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Week in Review

01/10/2015

For the week 1/5-1/9

[Posted 11:00 PM ET, Friday]

Edition 822

France...and Europe...Under Attack

Before I get to Wall Street and the economy, just last week I wrote of how government leaders in Europe used their New Year’s addresses to issue calls against extremism, while in Sweden, a three-month-old minority center-left government cut an 8-year deal with the opposition with the aim of shutting out the far right party that had been gaining strength in parliament.

I noted how in her New Year’s speech, German Chancellor Angela Merkel blasted those supporting the ongoing protests in Dresden by Pegida, an anti-Islamist movement that has been gaining followers.

Immigration, Merkel said, was “a gain for everybody” – and, as I wrote, “she appealed to the German people to accept refugees at a time when there were more displaced people in the world than since the Second World War.”   But in a poll for Stern magazine, 29% of Germans felt the marches were justified.

One of my predictions for 2015 was that “movements like Pegida will continue to gain traction.”

So I wrote that on Friday, January 2nd. Wednesday, January 7th, France, and Europe, were convulsed by a heinous attack on satirical newspaper Charlie Hebdo in the heart of Paris that killed 12 people. Islamist terrorists were responsible, at least two of whom, brothers, were directly linked to Al-Qaeda in the Arabian Peninsula (AQAP), while the third, involved in separate incidents that would result in the deaths of five innocents, is tied to the brothers but it’s not known as yet just how tight his connections to al-Qaeda were.

All three then died in hostage situations on Friday as French security forces stormed both locations almost simultaneously. In total, the three took out 17 citizens.

Needless to say, many in France and around Europe do not want to hear talk of tolerance and unity. Maybe one day, but not now. Not today and certainly not this year.

Going back to the days of Austria’s Jorg Haider I have written endlessly of the far-right, and leftist, causes in Europe, spurred by poor economic performance, for the most part, and anti-immigrant biases. In terms of stability in Europe, this week’s attacks could not have come at a worse time. The continent is rightfully on edge tonight and will be so for a long time to come.

I won’t get into obvious topics like sleeper cells that everyone else is discussing and suddenly an expert on.

For now, I’m the guy, the only American I can guarantee you, who walked alongside Marine Le Pen on May Day in Paris in 2011 and 2014. Not as a supporter...but as a reporter. I have a curiosity about the world and I’ve seen and experienced a lot, particularly since the start of StocksandNews in 1999 (but a lot before then as well, going back to my childhood and trips behind the Iron Curtain).

Today, while French President Hollande talks of unity, in bars frequented by Le Pen’s Front National (FN) supporters, or those of Pegida, or Britain’s UKIP, they are talking about taking their countries back...and in some cases revenge. This will only result in further tragedies. And it needs to be said that, to put it bluntly, what really sucks is that the Jews of Europe, who have zero to do with the tensions that have been building up the last ten years in particular in Europe, are being victimized all over again.

Marine Le Pen said this week, “Time’s up for denial and hypocrisy. The absolute rejection of Islamic fundamentalism must be proclaimed loudly and clearly.”

Le Pen, already leading in polls for the 2017 presidential election, will now gain scores of new supporters (especially if she can shut her father up).

But France is also home to Europe’s largest Muslim community, about 8% of the population, and their numbers continue to explode.

Again, there will be no room for tolerance. The rhetoric will grow uglier and uglier and the acts more violent.

I’ve been to Paris four times in the last seven years. I love the place. I love the history, and I have been treated great by the French people. If you’re looking for me to talk about stupid stereotypes, you won’t find it here.

I’ve also noted in these pages that it’s been France, not Britain, or any of our other European allies, who has done the most to support America’s cause since 9/11, and/or taken their own initiative, like in Mali.

I’ve written how I wished every American could take the train from Charles de Gaulle Airport into the heart of Paris, to see the crumbling suburbs, the tenements on the outskirts of the main tourist area, to see who is getting on the train at all the stops...it’s always an eye-opener for me.

Yes, an entire generation, or more, of youth from North Africa and the Middle East who have found their way to Paris, and elsewhere in France (Marseilles is a seething cauldron of hate), and all over Europe, is lost, unassimilated, bitter, angry, no jobs...just ripe for the picking of some ugly, nasty cleric.

And yet at a march for unity on Sunday in Paris, the National Front is being excluded, at least as of today. This only compounds the tension.

Back in Dresden, 18,000 marched on Monday, before the attacks. You can imagine the crowds this coming week.

And in Berlin, on New Year’s Eve, as reported in the Jerusalem Post on Jan. 5, “A Jewish man was badly beaten by several men in the center of Berlin after he asked them to stop singing anti-Semitic songs.” The assailants spoke both German and Arabic. The victim took cellphone videos that he has turned over to the police.

On a subway train, seven were singing and saying “F--- Israel” and “F--- Juden”. That’s when the man asked them to stop...as he recorded it. When the assailants reached a central station, they asked him to erase the recording. When he refused, “they allegedly spit on him, kicked him and punched him in the head.”

Happy New Year. Pray for Europe.

---

Washington and Wall Street

Turning to the U.S. economy, the December non-farm payroll figure was 252,000, which, when upward revisions are factored in for October (from 243,000 to 261,000) and November (321,000 to a revised 353,000), means the economy generated 2,952,000 jobs for all of 2014, the most since 1999.

The unemployment rate fell from 5.8% to 5.6%, the lowest since June 2008, though this was largely because many people stopped looking, with the labor-force participation rate falling to 62.7%, a low not seen since the late 1970s. [U6, a broader measure of the jobs picture, ‘underemployment,’ fell from 11.4% to 11.2%, the lowest since Sept. 2008.]

But the single item that really caught everyone’s eye in the report was average hourly earnings, down 0.2%, with November’s figure being revised to down 0.4%. For the last 12 months, the gain in wages is just 1.7%, barely above the 1.3% inflation rate.

So I’ve been telling you wages would rise and that the Fed would at some point be caught with its pants down. Am I that wrong? No. This month’s figure will be reversed over time. That’s my story and I’m sticking to it.

But certainly the Federal Reserve looks at all this and one thing they don’t have to worry about with plunging oil prices is inflation. Instead, ‘deflation’ is the new concern. Thus the Fed is under zero pressure to raise interest rates and the minutes from December’s Fed Open Market Committee meeting reiterated Janet Yellen and her band of merry pranksters won’t be hiking until late April at the earliest. The president of the Federal Reserve Bank of Chicago, Charles Evans, who will be voting this year at the FOMC confabs, said he didn’t feel rates should be hiked off the zero level until 2016, or even later.

Back to oil, its price fell for a seventh straight week, 14 in 15 since it closed at $93.54 on Sept. 26. The average nationwide price at the pump is down to $2.16 as of Friday, according to AAA, down about $1.50 just since June when oil hit its high for the year of $107.

This week’s latest slide of about $4.00 in the price of West Texas Intermediate to $48.36 mainly had to do with ongoing signs, and public statements from the likes of Saudi Arabia, Iran and the United Arab Emirates, as well as evidence from Russia and Iraq, that all the major players are going to continue to pump as much as they can, price be damned...in some cases, such as Russia’s, because they desperately need the revenues, while for all I just mentioned it’s also about maintaining market share. 

Iran’s oil minister, Bijan Namdar Zanganeh, said last weekend that Iran would strive to protect its share. “I will not lose market share under any conditions...and will increase production, regardless of prices, when [oil] sanctions are lifted.”

The exporters, by willingly adding to production that they know helps bring down prices all seek to break the back of U.S. shale drillers.

[According to Bloomberg New Energy Finance, 37 of 38 U.S. shale oilfields need oil prices of over $50 to break even.]  

U.S. crude production totaled 9.13 million barrels a day last week, up about 1 million from a year ago. It has held steady in recent weeks, but won’t much longer.

The Energy Information Administration estimates the price decline will cost all 12 OPEC members a collective $257 billion in lost revenue this year. Qatar estimates the current global oversupply is 2 million barrels a day.

[A big positive from lower oil prices is it gives those countries subsidizing fuel costs for their people, at huge expense, an opportunity to slash the subsidies at low political cost. Several countries, such as Egypt, Malaysia and Indonesia have already been doing so.]

As for the holiday shopping season, lower gas prices were no doubt a big help. According to First Data, same-store retail sales increased 3.2% from Nov. 1-Jan. 4, far better than last year’s gain of 0.5%. The National Retail Federation is still expecting to report sales increased 4.1% when it releases its results next week, while ShopperTrak said sales at 1,000 retail chains it monitors nationwide rose 4.6% for November and December, vs. an original estimate of up 3.8%. For ShopperTrak, the 4.6% figure represents the strongest holiday shopping season since 2005, when sales rose 5.2%.

J.C. Penny announced same-store sales growth for November and December of 3.7%. Macy’s said its sales increased 2.7% for the same period. [Both retailers reported they will also close underperforming stores this spring and lay off thousands.] Urban Outfitters had 4% same-store holiday sales growth. And Costco’s rose 3.0%, when you factor out lower gas prices, better than expected.

Meanwhile, in his monthly investment outlook, Bill Gross, now of Janus, said in part: “Beware the Ides of March, or the Ides of any month in 2015 for that matter. When the year is done, there will be minus signs in front of returns for many asset classes. The good times are over.”

Investors should “lower their expectations” this year.

“Manias can outlast any forecaster because they are driven not only by rational inputs, but by irrational human expressions of fear and greed. Knowing when the ‘crowd’ has had enough is an often frustrating task, and it behooves an individual with a reputation at stake to stand clear. As you know, however, moving out of the way has never been my style so I will stake my claim with as much logic as possible and hope to persuade you to lower expectations for future returns over the next 12 months.”

Bottom line, record-low interest rates won’t restore growth to normal levels.

“There comes a time...when zero-based, and in some cases negative yields, fail to generate sufficient economic growth.”

Europe and Asia

In Europe, aside from the renewed terror threat, the story remains the same. It’s about two dates, Jan. 22 and Jan. 25. The European Central Bank is expected to launch large-scale quantitative easing and sovereign debt buying on the 22nd, while Greek voters go to the polls on the 25th in an election of great importance.

On the economic front, there was a slew of data for the eurozone. The final composite PMI for the euro-19 (remember, Lithuania is now in the fold as of Jan. 1) came in at 51.4 in December vs. 51.1 in November. Germany was at 52.0 (50 being the dividing line between growth and contraction), with France at 49.7 (8-month high) and Italy at 49.4 (13-month low).

A flash reading on eurozone inflation for December came in at -0.2% annualized, with the core figure up 0.8%. The -0.2% was the first time the eurozone has been in deflation since October 2009. The annualized pace in December 2013 was up 0.8%. The data only helped fuel expectations the ECB will act aggressively.

Euro retail trade for November was up 0.6% over October, up 1.5% year over year, which is just a further sign of stagnation.

And then you had the employment data for November. The eurozone unemployment rate for November is still 11.5% (more than twice that of the U.S.), unchanged from October and only down a few ticks from the 11.9% reading of November 2013. This is awful.

Yes, Germany’s jobless rate is at a record low 5.0%, while Ireland’s at 10.7% is down from the 12.2% of November 2013, so good progress there.

But France is at 10.3%, up a tick from the 11/13 level of 10.2%. Greece is at 25.7% (September), Spain at 23.9% (though down from 25.8%, 11/13), and Italy’s jobless rate has risen to 13.4% from 12.5% a year earlier.

Then you have the still sky-high youth unemployment rates in some of the euro-19 nations. Greece 49.8% (Sept.), Spain 53.5%, and Italy 43.9% (up from 41.4% yoy).

Chris Williamson, chief economist at Markit, which supplied some of the above data (Eurostat is responsible for the rest), said the latest PMI surveys will “add to calls for more aggressive central bank stimulus...to be undertaken as soon as possible.”

He added: “The eurozone will look upon 2014 as a year in which recession was avoided by the narrowest of margins, but the weakness of the survey data suggests there’s no guarantee that a renewed downturn will not be seen in 2015.

“Of greatest concerns are the ongoing downturns in France and Italy, alongside the stuttering performance seen in Germany.”

[Germany reported that November industrial production and a reading on factory orders were both down on the month vs. October.]

Some key 10-year yields at the close on Friday....

Germany 0.49% (after hitting a record low of 0.44% on Wednesday)
France 0.78%
Spain 1.71%
Italy 1.87%
Greece 9.82%

For all but this last one, it’s all about the presumed massive stimulus the ECB is set to announce on Jan. 22, or so the markets want to believe. Certainly the fundamentals in the likes of Italy in particular otherwise in no way warrant such a ridiculously low yield.

But, regarding Greece, the term “Grexit” is back in the lexicon; a Greek exit from the eurozone. German Chancellor Merkel said she wants Greece to remain in the euro currency club, but does not want to grant debt relief or other concessions sought by the Greeks for fear the costs will fall on the German taxpayer. Der Spiegel magazine ran a piece last weekend that said Germany is fully prepared to jettison Greece.

[A poll of Germans this week by the public broadcaster ARD revealed 68% were opposed to forgiving some of Greece’s debt to support an economic recovery in the country. At the same time, 61% fear Europe’s economic and financial crisis could recur.]

In terms of Greek politics, there is a lot of bluffing going on. Prime Minister Samaras said the upcoming vote will determine membership in the euro bloc, knowing most Greek people want to retain the euro (74% according to a poll this week), in an attempt to scare them into voting for his party, while the leftist Syriza party, led by Alexis Tsipras, is trying to allay fears it seeks to exit the euro group and instead just wants to renegotiate a better deal, which would include a debt write-off, as well as an end to austerity.

But I have to emphasize as I did last week that while Syriza’s lead in the polls has been about 3 percent the past two weeks, that doesn’t mean it will be able to form a government should it win, which creates potential chaos of a different kind but more likely means Prime Minister Samaras would have a shot at staying in power.

Richard Barley / Wall Street Journal

“Greece’s elections, due Jan. 25, are being painted as a renewed referendum on whether the country remains in the single currency. That probably overstates the risks: the left-wing Syriza party...isn’t campaigning for an exit and a majority of Greek voters want to keep the euro. But a victory for Syriza, which wants Greece’s debt burden to be eased, will lead to tricky negotiations with the rest of Europe. If those negotiations become a standoff, events might yet conspire to propel Greece out of the euro....

“Yes, the eurozone is in a stronger position than it was three years ago....

“But a Greek exit would still pose fundamental threats to the euro in the long run. A key ECB tenet is that the euro is irreversible. ECB President Mario Draghi’s pledge to buy eurozone government bonds if necessary under the Outright Monetary Transactions program was based on the idea that investors had irrational fears about a collapse of the euro. An exit would destroy these foundations: a precedent would be set. If one country can leave, so can others.”

Lorenzo Bini Smaghi / Financial Times

“Five years after the start of the European financial crisis, Greece is back at the center of the agenda. As long as the Greek problem is not addressed, the eurozone as a whole is unlikely to recover, or be able to further integrate politically in a way that would make it resilient against future shocks.

“However, the problem is not easy to solve....

“(How, for example,) can Greece ask for additional financial support from its eurozone partners unless it is willing to adhere to an adjustment program, which monitors not only budgetary discipline but especially all those structural reforms which have been delayed for too long? No debt relief has ever been given by the international community without tight conditions.”

Editorial / The Economist

“There was a worrying echo this week of the Lehman crisis of September 2008. Then the widespread assumption was that the global financial system was robust enough to cope with the failure of a single investment bank. Now investors are putting their trust in the resilience of unemployment-plagued countries like France, whose president has record levels of unpopularity, and Italy, whose economy has shrunk in constant prices in the first 14 years of this century (even Greece’s GDP is higher now than it was in 1999).

“That stagnation points to the deeper reason for caution. The continuing dismal economic performance of the eurozone now poses a big political risk to the single currency. In the short run, so long as creditor countries (and that means principally Germany) insist only on budgetary rectitude and reject all proposals for further monetary and fiscal stimulus, that performance seems unlikely to improve. Worse, inflation is now so dangerously low that the eurozone threatens to tip into years of deflation and stagnation worryingly reminiscent of Japan in the 1990s. The continent’s leaders have largely failed to push through the structural reforms that could make their economies more competitive. When voters see no hope, they are likely to vote for populists – and not just in Greece.

“As 2015 approached, most of Europe’s leaders assumed that the worst of the euro crisis was behind them. The early Greek election shows that hope was premature. Populist parties of left and right that are against the euro, explicitly or not, continue to gain ground in many countries – the leader of Podemos, Spain’s highest-polling party, welcomed Mr. Tsipras’ success in forcing an election this week. Ironically, when a country starts to recover is also when popular discontent often boils over. That message needs to be heeded this week in Berlin as much as in Athens.”

One other election tidbit, British Prime Minister David Cameron said that if his Conservatives win a national election in May, he would like to move his promised referendum on EU membership forward from 2017. Immigration is the biggest immediate issue and Cameron has laid out plans to restrict EU migrants’ access to welfare payments.

But Cameron is also expecting to renegotiate Britain’s ties with the European Union and claw back some powers from Brussels to convince his people to stay in the EU, though Chancellor Merkel told him in a meeting this week, ‘not so fast.’ For example, she has said she will not allow the EU’s rules on freedom of movement be diluted, but after this week’s events in Paris, all bets are off.

Finally, just a note or two on China. Factory-gate, or producer prices for December fell 3.3% year over year, the 34th-straight monthly decline, while consumer prices rose just 1.5%, as reported by the National Statistics Office. At the same time, President Xi Jinping is reiterating there will be no broad-based stimulus program, that instead the nation will deal with a “new normal,” which many read as a growth target of 7.0%, or a little lower, vs. the current 7.4% or thereabouts.

Terrorism, part deux:

President Obama said of France: “For us to see the kind of cowardly, evil attacks that took place today I think reinforces once again why it’s so important for us to stand in solidarity with them, just as they stand in solidarity with us.”

The head of Britain’s intelligence agency, MI5, Andrew Parker, gave a rare speech following the Charlie Hebdo attack, saying: “We face a very serious level of threat that is complex to combat and unlikely to abate significantly for some time.” MI5 “cannot hope to stop everything.”

“The dark places from where those who wish us harm can plot and plan are increasing. We need to be able to access communications and obtain relevant data on those people when we have good reason to do so.”

Mr. Parker pleaded for help from the public in identifying potential threats and suspects.

Editorial / Wall Street Journal

“The deadliest terror attack on French soil in more than a decade is a fresh reminder that the war on Islamist terror is far from won, and that jihadists are bent on eradicating the heritage of Western freedom.

“Charlie Hebdo was founded in 1970, and the left-wing weekly has always been an equal-opportunity offender. Its politics and taste aren’t ours, but from Jesus to Michael Jackson and from 9/11 to the Pope, nothing has been off-limits....

“Wednesday’s massacre, following a long string of plots foiled by police in the U.K., France and elsewhere, is a reminder that jihadism isn’t a distant Middle Eastern phenomenon. There will be many more such attempts at mass murder, and authorities in the U.S. and Europe need broad authority to surveil and interrogate potential plotters to stop them.

“This offends some liberals and libertarians, but imagine the restrictions on liberty that would follow if radical Muslims succeed in blowing up a soccer stadium or half a city. Men willing to execute cartoonists in Paris and 132 children at point-blank range in Peshawar in the name of religion won’t shrink from using more destructive means to impose mass casualties. Better to collect metadata and surveil some people now than deal with public demands for mass Muslim arrests or expulsions after a catastrophe....

“Charlie Hebdo Editor Stephane Charbonnier, who was murdered on Wednesday, understood the ideals he represented. Responding to threats and pressure over the newspaper’s decisions to publish provocative cartoons, he once said: ‘I prefer to die standing than live on my knees.’ It is now the epitaph of a principled and courageous man.”

Benny Avni / New York Post

“The hashtag #JeSuisCharlie (“I am Charlie”) dominated Twitter in the hours after the attack on the satirical newspaper Charlie Hebdo, which killed 10 members of the staff and two policemen guarding them.

“But are we all Charlie? Very few of us are cartoonists who revel in making fun of Catholics, Hindus, Jews, Muslims and other frequent targets of Charlie Hebdo. Even some press people scoff at such journalism.

“Yet it’s easy to understand that when people who make a living using drawing pencils and computer keyboards are gunned down, everybody’s freedom of speech is endangered....

“Although ‘The Book of Mormon,’ a stinging satire making fun of the Church of Latter Day Saints, has been a huge Broadway hit for the last four years, not one Mormon would even dream of inflicting harm on Matt Stone or Trey Parker. Jews have made fun of their own religious sentiments for ages.”

Jim Hoagland / Washington Post

“(Even) if it comes in the form of smaller attacks against the ‘soft targets’ of defenseless artists in France or subway commuters in Spain and England, the war of terror that jihadist groups have declared on Western ways of life will now make security as much a preoccupation for Europeans as it has been for Americans for 13-plus years.

“That concern has, of course, been growing in European chanceries. When I asked French Prime Minister Manuel Valls in September if he feared that a European 9/11 could be mounted by Europeans returning from fighting with jihadists in Syria and Iraq, I expected that even the straight-talking Valls might duck the question. Instead, he immediately said yes and outlined his reasons.

“ ‘We have to be very vigilant every day against the development of an enemy within,’ he said, noting that he had just steered through Parliament a law restricting travel to conflict zones by French terrorism suspects. He estimated that 1,000 French citizens were fighting in Syria, along with about ‘3,000 British citizens, some Germans, Italians and others.’....

“France has, in some ways, a tougher task in reacting to this day of calculated terror and destruction. Americans immediately understood 9/11 as a foreign attack against the homeland. We did not have to – and still do not – worry about ‘an enemy within.’ It will require great care, and great skill, to prevent the Charlie Hebdo attack from becoming a point of division. Brilliant individually, French politicians will need to develop an unfamiliar unity of purpose in the months ahead. And they will need the help of their European neighbors.”

Radical Muslim cleric Anjem Choudary / USA TODAY

[It was controversial USA TODAY gave this man space for his views...but as I write all the time, we need to know what the other side is saying.]

“Contrary to popular misconception, Islam does not mean peace but rather means submission to the commands of Allah alone. Therefore, Muslims do not believe in the concept of freedom of expression, as their speech and actions are determined by divine revelation and not based on people’s desires.

“Although Muslims may not agree about the idea of freedom of expression, even non-Muslims who espouse it say it comes with responsibilities. In an increasingly unstable and insecure world, the potential consequences of insulting the Messenger Muhammad are known to Muslims and non-Muslims alike.

“Muslims consider the honor of the Prophet Muhammad to be dearer to them than that of their parents or even themselves. To defend it is considered to be an obligation upon them. The strict punishment if found guilty of this crime under sharia (Islamic law) is capital punishment implementable by an Islamic State. This is because the Messenger Muhammad said, ‘Whoever insults a Prophet kill him.’

“However, because the honor of the Prophet is something which all Muslims want to defend, many will take the law into their own hands, as we often see....

“So why in this case did the French government allow the magazine Charlie Hebdo to continue to provoke Muslims, thereby placing the sanctity of its citizens at risk?

“It is time that the sanctity of a Prophet revered by up to one-quarter of the world’s population was protected.”

Editorial / USA TODAY

“Cartoonists are not ordinarily people you’d think of as threatening. Their most dangerous weapon is rapier wit, artistically aimed to provoke thought. But for the thin-skinned, the intolerant and the arrogant, mockery stings more than an acid bath.

“So on Wednesday, in an act of primitive brutality, Islamist radicals angered by the work of four cartoonists simply murdered them, along with other journalists and bystanders at the satirical Paris weekly Charlie Hebdo.

“The satirists might be unlikely heroes, but they are heroes nevertheless – martyrs to that most fundamental of Western values, the right to free expression, which they chose to exercise despite threats and a firebombing just three years ago that might have muted others....

“Looking (at their history), one might be tempted to say the tabloid acted like a man who pokes a bear with a stick; it’s no surprise that the bear clawed back. But that would miss the point. So, too, would it be a mistake to focus on the crudeness of the newspaper’s humor or its apparent indifference to the consequences of its actions.

“Instead, the issue is free speech, which inevitably involves tolerance of offensive speech. The unacceptable alternative is to have speech judged by government censors.”

Bernard-Henri Levy / Wall Street Journal

“This is the Churchillian moment of France’s Fifth Republic, the moment to face the implacable truth about a test that promises to be long and trying.

“It is time for us to break, once and for all, with the Leninist reasoning that has been served up for so long by the useful idiots of a radical Islam immersed in the sociology of poverty and frustration. And most of all it is the moment, now or never, for a calm resolve among all believers in democracy to look evil in the face without losing ourselves in the catastrophic measures of a state of emergency....

“It is essential that the de facto democratic union of people across the religious and political spectrum who filled the streets in the hours following the carnage continue to mount a response to the ‘France for the French’ of Marine Le Pen and her far-right ilk. Because France for the French is the opposite of national unity. From Cato the Elder to the theoreticians of the modern social contract, the beautiful idea of national unity never mistakes its true enemy. National unity is a sign that the French have understood that the Charlie Hebdo killers are not ‘the Muslims,’ but rather the small fraction of Muslims who confuse the Quran with a death warrant.

“Those whose faith is Islam must proclaim very loudly, very often and in great numbers their rejection of this corrupt and abject form of theocratic passion.... they should feel called to express their tangible brotherhood with their massacred fellow citizens. In so doing, they would put to rest once and for all the lie of a spiritual commonality between their faith as they know it and that of the murderers....

“In the dark times ahead, battles await: Islam against Islam, pluralistic civilization against the nihilists of jihad. But it is really one war, and we must wage it together, united.”

Street Bytes

--What a crazy start to the year, with the S&P 500 losing 2.7% the first three sessions, then rallying 3% on Wednesday and Thursday, only to fall back on Friday.

For the week, the Dow Jones lost 0.5% to 17737, while the S&P declined 0.7% and Nasdaq lost 0.5%.

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.56% 10-yr. 1.94% 30-yr. 2.53%

Treasuries rose sharply (yields fell) on the putrid wage component of the labor report on Friday. Many traders now don’t believe the Fed will raise rates until June at the earliest. The 30-year is nearing its record low set in July 2012 of 2.44%.

Leading bond manager Jeffrey Gundlach thinks we take out the modern-era low of 1.38% on the 10-year in 2015, particularly if crude-oil prices fall to $40 a barrel, which would only accentuate deflationary forces he sees at work globally.

--The U.S. auto industry completed its best year since 2006, selling 16.5 million vehicles in 2014. Employment in the auto manufacturing sector also increased 47,700 last year, a 7% increase over 2013, according to the Center for Automotive Research.

Estimates for 2015 generally range from 16.7 million to 17 million vehicles sold, which would be the highest since 2001.

For December, GM’s sales were up 19.3% from a year earlier. Ford’s were up 1.3%, though it was the company’s best December since 2005. Chrysler/Fiat was up 20%. [It’s actually now called FCA US.] Toyota was up 12.7%, Honda up 1.5%, Nissan up 6.9% last month, and Subaru up 21%.

For all of 2014, FCA’s sales rose 16%, GM’s 5%, Toyota’s 6%, Honda’s 1% and Nissan’s 11%. Ford’s fell 1%, though this was due to the automaker’s switchover to the new aluminum F-150 pickup. 

--The National Highway Traffic Safety Administration has fined Honda Motor a record $70 million for failing to report 1,729 death and injury claims to the agency for the last 11 years, as well as failing to report various warranty issues.

Honda said it did not intend to underreport and that the reporting failures stemmed from data entry and programming errors. Hardly a good excuse.

--U.S. Steel is laying off 750 workers in Lorain, Ohio and Houston because of the collapse in oil prices. Plants in those two locations make steel pipe and tube for oil and gas exploration and drilling and energy companies are beginning to cut their cap-ex budgets for 2015, some in a big way.

But U.S. Steel is but one example. As the Wall Street Journal points out, many foreign companies have been building capacity in the U.S. “France’s Vallourec SA, for example, built a $650 million, 500,000-ton-per-year mill in Youngstown, Ohio.” Layoffs can be expected there as well.

--President Obama will veto any legislation approving the controversial Keystone XL pipeline, which isn’t exactly the right way to begin a new era of cooperation. 

White House spokesman Josh Earnest said the president did not think a decision should be made until the final routing through Nebraska had been settled.

Well then the Nebraska Supreme Court on Friday removed the major hurdle to construction, ruling that Republican Gov. Dave Heineman has the authority to approve the project’s route without review by a state agency, thus striking down a lower court ruling that had left the pipeline without an approved route.

So on Friday afternoon, the House passed a bill approving construction (28 Democrats siding with Republicans). The Senate is expected to begin consideration of the bill early next week and then we’ll see what Obama does given the Nebraska court’s ruling.

--As the Financial Times’ Samantha Pearson reports, the corruption scandal surrounding Brazilian energy giant Petrobras threatens to destabilize the country in different ways, including due to problems with a major construction firm (OAS) linked to the allegations that has already missed two debt payments.

OAS is building the world’s third-largest dam and revamping Sao Paulo’s international airport.

If Petrobras can’t regain access to capital markets, you could have a major credit event. Petrobras is the world’s most indebted oil company with $139 billion in total debt, though it still has an investment grade rating.

At least 30 executives of Petrobras and OAS (as well as other construction firms) have been arrested thus far for their involvement in a $multibillion kickback scheme. Contracts with Petrobras were inflated to provide bribes and funnel cash to the ruling Workers Party (PT) and its allies.

--The bad news out of PIMCO continues. Investors withdrew a record $150.3 billion from the bond fund giant last year, the largest annual decline in assets ever recorded by a mutual fund family, according to Morningstar Inc.

$102.9 billion of the $150b figure (net) was from PIMCO Total Return Fund.

Then there is Janus and Bill Gross. After Gross left PIMCO end of September to run a bond fund at Janus, it was reported that $1.1 billion had flowed into his Janus Global Unconstrained Bond fund, which was strong. But on Wednesday, the Wall Street Journal reported that $700 million of that flow came from a single Morgan Stanley office in La Jolla, Calif., the same office where one of Mr. Gross’ financial advisers works. Ergo, the $700 million is from Gross’ personal funds.

The chairman of Janus, Glenn Schafer, told the Journal on Thursday, “I had no idea” how much of the fund was made up of money from that brokerage office. Schafer did say the board was aware Gross put some of his own money into it.

Bill Gross has always invested heavily in his funds, so this isn’t the point. Shareholders should want that. It’s that the flows were obviously misleading, especially since many institutions won’t invest in an individual fund until assets are over $1 billion and without Gross’ personal investment, the assets would have been well under that target.

[I just saw that December inflows into the Unconstrained Bond fund were $176 million, bringing total assets to $1.4 billion.]

--According to Morningstar, investors poured a record $216 billion into Vanguard Group in 2014, the largest inflows for any mutual-fund firm.

--Apple Inc. reported surging growth in its App Store, up 50% last year from more than $10 billion in 2013, implying sales of about $15 billion. Apple keeps 30 cents of every dollar.

While this is but a small slice of Apple’s overall revenues of $183 billion, this is a segment most investors have probably ignored in terms of the potential. Much of this flows directly to the bottom line.

Last June, Google implied it had app sales of $7 billion. [Wall Street Journal]

--Samsung, the world’s No. 1 maker of smartphones, warned profits fell 37% in the fourth quarter, though they will still come in around $4.7 billion, with sales down about 12% as it struggles to compete with a number of new Chinese rivals.

--Coca-Cola announced it was cutting 1,600-1,800 white-collar jobs worldwide due to putrid soda sales. About 500 of the positions will be eliminated at its Atlanta headquarters.

--The World Health Organization said on Wednesday that the spread of Ebola in Sierra Leone, the country worst affected, may be slowing. The death toll is now 8,235 out of 20,747 known cases worldwide. 495 of 838 health workers infected have died, the WHO said.

--In an encouraging sign for the publishing industry, Barnes & Noble Inc. reported sales at its retail segment were nearly flat during the holiday season, as sales of physical books continue to stabilize. 

Separately, sales of young adult fiction, overall, rose 12% year over year in the U.S. in 2014, while adult fiction fell nearly 8%.

[Waterstones, the U.K.’s biggest remaining book chain, said its hardcover sales rose 5% in December compared to the previous year.]

--As of the end of the week, signals thought to be from AirAsia flight QZ8501 have been picked up by Indonesian search and rescue teams operating in the Java Sea. 48 of 162 bodies have been recovered, including at least two still strapped to their seats, one of which was reported to have been from the cockpit.

The tail has been discovered and recovery teams will attempt to lift it out of the water, but it appears the black boxes have been separated from the tail section.

Weather is still being seen as the leading cause of the disaster, possibly icing that would have caused engine damage as the airplane flew into severe storms.

--AirlineRatings.com has named Qantas the world’s safest airline, after a year that saw fatal air accidents soar above the 10-year average. The report says, “Certainly, 21 fatal accidents with 986 fatalities...is sickening. However, the world’s airlines carried a record 3.3 billion passengers on 27 million flights.”

The 21 figure for fatal flights is actually a record low. MH370 and MH17 were unprecedented in modern times; the two claiming 537 lives.

The report adds: “Flashback 50 years and there were a staggering 87 crashes killing 1597 when airlines carried only 141 million passengers – five percent of today’s number.”

Qantas, in its 94-year history, still has yet to have a fatality in the jet era and is praised as the leader in real-time monitoring of its engines using satellite communications, which “allows the airline to detect problems before they become a major safety issue,” the report says.

British Airways and Singapore Airlines are among the others in the top 10 for safety. There were no U.S. airlines among major carriers.

Jetblue, though, was in the top 10 among low-cost carriers.

--Uber said it had its best day ever over New Year’s Eve, giving 2 million rides globally. More than 50,000 people used the service twice or more, through the night. I stayed home, watched football and drank beer.

--James Comey, the FBI director, said he had “high confidence” in the bureau’s conclusion that the Sony Pictures hack attack was the work of North Korea.

Referring to Guardians of Peace, the group claiming credit for the attack, Comey said, “Several times either because they forgot or they had a technical problem they connected directly and we could see them. And we could see that the IP addresses that were being used to post and to send the emails were coming from IPs that were exclusively used by the North Koreans,” he said. [Financial Times]

As for the movie at the center of the attack, through last Sunday, “The Interview” had grossed $31 million through video on demand, which is pretty impressive. The film had generated $5 million at the box office as it has been gradually released through the theaters. 

Personally, I’m still trying to carve out time to watch “Dawn of the Planet of the Apes.”

--For the first time ever, ESPN will be available without paying a cable or satellite bill. For $20 a month, viewers will get the sports network, CNN, the Food Network and the Cartoon Network through a Dish Network service called Sling TV.

So this is the beginning of the end of civilization as we know it. 2015 is the year HBO and Showtime will roll out their own digital streaming services. Sony will launch a package that includes MTV, Nickelodeon and Comedy Central. 

I was about to ridicule all of this, but then my own personal package would be all sports channels, the four major networks, CNN, Fox News, CNBC and HBO. I like the Weather Channel but I can get that online.

Back to Dish, in order to prevent families from cutting their satellite television subscriptions for Sling TV, Dish said the new service would only play on one device at a time. You’d have to pay $40 a month to do otherwise.

--An advisory panel to the Agriculture Department has completed a study on the impact of eating beef vs. pork and poultry (as well as dairy and eggs). Needless to say the cattle industry isn’t happy. About a year from now the Agriculture and Health and Human Services Department will draw up final dietary guidelines and it will no doubt encourage eating less meat.

For example, according to the National Academy of Sciences (and the Associated Press), raising 1,000 calories of beef requires 146.6 square meters of land vs. 4.1 for poultry. 9.6 kilograms of greenhouse gases are generated by beef vs. 1.7 kilograms for chicken.

--Yet another update on the Harold Hamm $1 billion divorce settlement. The judge who initially awarded it to the ex-wife of the Continental Resources Inc. founder, declined to revisit his ruling saying “It is what it is.”

Harold Hamm had argued plunging oil prices entitled him to a break, while his ex-wife said $1 billion was too small.

Meanwhile, at Dollar Tree, you can get extra-large cans of Campbell’s Chicken Noodle Soup for $1.00! [It remains your best flu prevention remedy.]

--Sirius XM Holdings Inc. announced it ended 2014 with 27.3 million subscribers, up 1.75 million net for the year, beating expectations.  

--Inflation Alert: The cost of a Masters series badge (all four rounds of play), is going up $75 this year to $325, 30%. [This is still quite a deal, however.]

“The Masters...a tradition unlike any other...on CBS.” [And this year ESPN for rounds one and two.]

Foreign Affairs

Iraq / Syria / ISIS: A large snowstorm that buffeted Syria and Lebanon* only added to the ongoing refugee crisis, claiming at least 10 lives, according to the Syrian opposition-in-exile National Coalition, which is urging the international community to step up their aid. The prime minister of the opposition’s interim government, Ahmad Touma, said conditions on the ground were “catastrophic.”

The good news with the storm is that the Syrian regime stopped its airstrikes on cities such as Homs.

*Lebanon announced this week that Syrians will soon need visas to enter the country, a significant step as the Lebanese attempt to control the overwhelming flow of refugees. An estimated 1.1 million are in Lebanon, creating a crisis of enormous proportions. Understand, this is a place of just four million citizens. [Jordan announced it would no longer be able to provide health care for the 623,000 registered refugees in its territory.] There were also reports this week that ISIS is seeking a toehold in Lebanon and control of some mountain villages on the border with Syria.

In the embattled town of Kobane in northern Syria, on the Turkish border, Kurdish fighters supposedly now control 80% of it, according to the Syrian Observatory for Human Rights. Fighting here has been going on since September, when ISIS first quickly overran it. Hundreds have died since.

Separately, the Pentagon announced the U.S. will be sending additional troops to Iraq over the next six weeks to ramp up the training of Iraqi forces. 2,150 of 3,100 American troops slated for deployment are already there, including 300 in Anbar Province, who are at greatest risk with fighting all around them.

The goal is to train 5,000 Iraqis every six weeks.

But as retired Army four-star general Barry McCaffrey said on NBC’s “Meet the Press” last Sunday, “It’s hard to imagine a modest training mission being the key to gluing Iraq back together. I think it’s come apart and it will now have to settle along new geo-political grounds.” [Defense One]

The U.N. announced this week that violence in Iraq killed at least 12,282 civilians last year, the deadliest since 2007. The U.N. added “the figures reported have to be considered as the absolute minimum.”

Finally, the World Health Organization has been trying to investigate reports some jihadists have contracted Ebola and that there might be Ebola patients at a Mosul hospital under ISIS control. The Ebola would come from fighters who traveled from western Africa. HIV is also an issue.

Iran: President Hassan Rohani threatened to hold a referendum as he warned hardline opponents of a nuclear deal with the West that Iran must end its isolation. In essence, he appears to be warning that he will put any nuclear deal to a public vote.

“Our political experience shows that the country cannot have sustainable growth when it is isolated,” he said at a conference on Iran’s economy on Sunday.

If “we are ready to stop some types of enrichment which we do not need at this time, does it mean we have compromised our principles and cause?” Rohani asked.

He responded: “Our ideals are not bound to centrifuges. Our ideals are bound to our hearts, brains and determination,” he said. [Daily Star,  Financial Times]

Hardliners are insisting a nuclear deal should only be concluded if all sanctions are lifted, which is simply not going to be the case.

As for the negotiations, which have been sporadic since the latest extension to June 30, it’s important to remember that the U.S. Congress will have a say in any agreement that is reached; this is a certainty...and the debate could be quite explosive, especially when there are many Democrats, such as New Jersey Sen. Robert Menendez, who have been extremely wary of the administration’s end game.

Editorial / Daily Star (of Lebanon)

“Having urged an end to Iran’s international isolation, President Rohani’s courageous words Sunday must now be followed up with genuine commitment to reform and an admission of Tehran’s foreign policy failings.

“Rohani also called for increased transparency and an end to corruption, and admitted that the government’s monopoly over the economy – coupled with the sanctions program – was crippling the country.

“But while Rohani may very well believe what he says, his will alone will not be enough to change the reality on the ground. There are clearly divisions within the country’s leadership, and it is likely Sunday’s speech – ahead of a new round of nuclear talks – was not welcomed by Supreme Leader Khamenei, or indeed the Revolutionary Guard Corps, who are far less enthusiastic about cooperation with the West.

“And though Rohani seemed to be speaking to an international audience in affirming his commitment to opening up Iran, and a desire to end the sanctions program, there was a conspicuous omission on why the sanctions were implemented in the first place.

“Iran’s regional role – its increasingly rigid and militant policies – must be confronted for any tangible reform to take place at home. Until Rohani can admit that under his watch the country has only stepped up involvement across the region – from Lebanon to Yemen, by way of Iraq, Syria, Saudi Arabia and Bahrain – then any relaxing of sanctions or opening up of the economy will be impossible, and his promises of reform are merely an exercise in semantics.

“As it is, Iran is merely encouraging and supporting violence throughout the Mideast, and until this stops, even the most humble rapprochement with the West – and first the Gulf – is merely a fantasy.”

Egypt: Jonah Goldberg had an important op-ed in USA TODAY, in light of the Charlie Hebdo massacre.

“It is a sad commentary that the more shocking and, arguably more significant, event came a week earlier in Cairo. Egyptian President (and strongman) Abdel Fattah al-Sisi delivered a possibly epochal speech at Al-Azhar University on New Year’s’ Day. More than a thousand years old, Al-Azhar is considered by many to be the epicenter of scholarly Islam.

“Addressing the assemblage of imams in the room, al-Sisi called for a ‘religious revolution in which Muslim clerics take the lead in rethinking the direction Islam has taken recently. An excerpt:

“ ‘I am referring here to the religious clerics... It’s inconceivable that the thinking that we hold most sacred should cause the entire umma (Islamic world) to be a source of anxiety, danger, killing and destruction for the rest of the world. Impossible!

“ ‘That thinking – I am not saying ‘religion’ but ‘thinking’ – that corpus of texts and ideas that we have sacralized over the centuries, to the point that departing from them has become almost impossible, is antagonizing the entire world. It’s antagonizing the entire world! ...All this that I am telling you, you cannot feel it if you remain trapped within this mindset. You need to step outside of yourselves to be able to observe it and reflect on it from a more enlightened perspective.

“ ‘I say and repeat again that we are in need of a religious revolution. You, imams, are responsible before Allah. The entire world, I say it again, the entire world is waiting for your next move...because this umma is being torn, it is being destroyed, it is being lost – and it is being lost by our own hands.’”

Al-Sisi backed up his words with deeds, attending a Coptic Christian Christmas Mass, the first time an Egyptian president has done so.

What to make of these bold words and actions?
Jonah Goldberg:

“Who knows? What is clear, however, is that this is a big deal. Al-Sisi is doing exactly what Westerners have been crying out for since at least Sept. 11, 2001, if not before that. And yet his speech has been almost entirely ignored by the mainstream news media.”

Nothing from the major news outlets, the New York Times, the Washington Post, and others.

“Whatever your own view of the man, and whether you think he’s sincere, al-Sisi’s efforts to combat Muslim extremism – militarily and rhetorically – deserve closer attention, if not now then after the images from Paris fade.”

I’m thinking we have an early candidate for “Person of the Year,” hard as that may be to believe. I’ve had no problems with al-Sisi and all you need to know for now is that the level of cooperation between Israel and the Egyptian government is high.

Israel: In response to Palestinian steps to join the International Criminal Court, which would allow them to bring up Israelis on war crimes, Israel is looking at ways to prosecute senior Palestinians, including President Mahmoud Abbas, for war crimes in the United States and elsewhere over their support for Hamas.

Also in response to the Palestinians’ move, Israel is withholding $127 million in tax revenue it collects for the Palestinian Authority.

In the snap parliamentary (general) elections to be held on March 17, according to a Peace Index poll, Prime Minister Benjamin Netanyahu is favored by 34.4% of voters to be the next prime minister, with Labor leader Isaac Herzog second at 17.7%. 59.8% of Israeli Jews believe the Right bloc will form the government.

According to a Gallup survey, 61% of American Jews identified as either Democrats or Democratic-leaning in 2014, down from 71% in 2008, while 29% counted themselves in the Republican camp. [Jerusalem Post]

According to Pew, of the 234 Democrats in the new Congress, 27 are Jewish, while there is only one among the 301 Republicans.

Turkey: In another worrisome development, a female suicide bomber walked up to a police post servicing tourists in the heart of Istanbul’s most-visited district and in good English said: “I have lost my wallet.” Then she blew herself up, killing one of the policemen staffing the post.

Yemen: At least 35 were killed by a large car bomb outside a police academy in Yemen’s capital of Sana, Wednesday. More than 70 were wounded. Clearly the work of Al-Qaeda in the Arabian Peninsula.

Russia / Ukraine: The European Union promised more aid for near-bankrupt Ukraine, proposing about $2 billion in medium-term loans for this year and early 2016, though the proposal must be approved by EU governments and the European Parliament.

According to Reuters and the Moscow Times, there were some signs Russia was changing its behavior, with Latvia’s foreign minister saying talks with Russia last month showed signs of a new approach to the conflict.

But then on Friday, fighting flared up again in eastern Ukraine, with six government soldiers and two civilians killed in a heavy exchange of artillery fire between Russian-backed rebels and government troops. There are rumors of new armor crossing from Russia into rebel-held areas as well.

For its part, France announced it would not deliver two Mistral helicopter carriers to Russia unless a ceasefire is completely respected in Ukraine.

Meanwhile, in another sign of an imploding Russian economy, the flow of migrants into the country fell 70% over the first week of January compared to the same period a year ago.

China: Shanghai police have been rounding up and detaining “dozens of people who posted comments online about the deadly New Year’s Eve stampede, an officer has told the Sunday Morning Post, in an apparent drive to contain public criticism against the authorities.” [South China Morning Post]

Nigeria: Boko Haram attacked a last holdout in northeast Nigeria, the town of Baga, over the weekend and there are reports as many as 2,000...2,000...were killed.

As reported by the Washington Post’s Terrence McCoy, Baga, along the shores of Lake Chad, had been defended by a multinational force from Niger, Chad and Nigeria (though according to the BBC only Nigerian troops were there last weekend) and was the last major town in Borno State that was not under Boko Haram’s control. [The Islamists control 70% of the territory.]

So when Boko Haram attacked, the troops melted away, leaving the residents defenseless.

The 2,000 figure comes from a government official in Borno and, if true, means that in one 24-48 hour period, Boko Haram killed as many people as it did all last year. Some drowned in the lake trying to escape, with up to 20,000 displaced.

Baga is now said to be “non-existent.” One resident who managed to escape told the BBC, “The indiscriminate killing went on and on and on.”

Cuba: 26 dissidents were finally released, with some of them believed to be among the 53 dissidents Cuba had agreed to free last month as part of the diplomatic moves between the U.S. and the island.

But neither side has released the names and it was just last week that the Cuban government rounded up at least 50 dissidents.

Editorial / Washington Post

“In announcing the normalization of relations with Cuba last month, President Obama violated two pledges he had made: to link such a liberalization to ‘significant steps toward democracy,’ including the freeing of all political prisoners; and to consult with Cuban civil society, including pro-democracy activists, on the change. In what looked at the time like a partial recompense, the White House announced that the Castro regime had agreed to free 53 detainees – or about half the number of political prisoners identified by Cuban human rights activists.

“Now it’s becoming clear that Mr. Obama chose not to make even that half-step a condition for the broad relaxation of travel and economic restrictions he is granting to Havana along with the normalization of relations. As of Wednesday, three weeks after the U.S.-Cuba accord, Cuban human rights activists had reported only five released prisoners. On Thursday, Cuban blogger Yoani Sanchez tweeted that the number had risen to 26. Meanwhile, however, the State Department was emphasizing that steps toward normalization – including the highest-level visit by a U.S. official to Cuba in a half-century – will go forward this month whether the promised release is completed or not.

“The administration’s priority, spokeswoman Jen Psaki said this week, is the ‘direct dialogue’ Mr. Obama believes will lead to better conditions in Cuba. ‘We’re not waiting to make progress on the other components,’ she said.....

“Were any of those latest detainees among those whose freedom was promised? Their families can’t know because the White House refuses to say. If they are on the list and the regime reneges on its commitment, the Obama administration won’t have to acknowledge it was cheated – and the normalization will go forward. Could that be the real reason for the secrecy?”

Random Musings

--Congress is back (hide the wife and kids) and John Boehner was reelected as House speaker, but not before 25 Republicans chose not to vote for him (one voting present, the other 24 for other candidates). 30-plus needed to turn against the Speaker to prevent him from winning a majority on the first vote, though no one was teed up to really challenge him in a second ballot. It simply would have been a major embarrassment.

--In a speech on Wednesday, Democratic Sen. Elizabeth Warren reasserted the U.S. political system is “rigged” in favor of wealthy corporations at the expense of the rest of us, but, as reported by the Washington Post, she took “thinly veiled jabs at Bill and Hillary Clinton as examples of economic stewardship gone wrong.”

Is Ms. Warren beginning to position herself to challenge Hillary? We’ll see what she says in her speeches and interviews the next month or so, but in addressing an AFL-CIO event in Washington, she made an allusion to Bill Clinton’s disavowal of “big government” and his decision to deregulate parts of the financial sector.

“Pretty much the whole Republican Party – and, if we’re going to be honest, too many Democrats – talked about the evils of ‘big government’ and called for deregulation,” she said. “It sounded good, but what it was really about was tying the hands of regulators and turning loose big banks and giant international corporations to do whatever they wanted to do.”

Sen. Warren also made a reference to Wal-Mart and company workers earning wages too low to feed their families. The significance of this was Hillary Clinton spent six years on the board of directors there.

Dick Harpootlian, former Democratic Party chairman in South Carolina, told the Post: “What (Warren is) doing is putting a stake in the ground and saying the policies during the Clinton years were good for the economy in general but not good for average Americans.”

Joe Trippi, senior adviser in past Democratic presidential campaigns, said, “It looks increasingly to me like she’s thinking about actually making a run, but at the same time not taking the steps necessary to actually pull it off.”

--Mike Huckabee gave his clearest signal yet that he’s running for president in announcing he was ending his cable talk show on Fox. Huckabee briefly shook things up in 2008 when he ran as a Christian conservative and had a big win in the Iowa caucuses. But his campaign was being run on a shoestring and he flamed out.

--Speaking of Iowa, the Wall Street Journal interviewed more than half of the state’s Democratic county leaders and Hillary Clinton’s support is lukewarm at best. Recall, in 2008 she not only lost to Barack Obama, but also to John Edwards there.

So guess what? Turns out many of these Democratic party officials are pining for Elizabeth Warren.

--What’s this? Is Mitt Romney really considering another run at the White House? The Wall Street Journal is reporting he told GOP donors in Manhattan he was doing so. Eh.

--California Democratic Sen. Barbara Boxer says she won’t seek another term in 2016, setting off a land rush of sorts to fill her seat among California’s most prominent politicians.

--NYPD union leaders met with Commissioner Bill Bratton on Wednesday, with Mayor Bill de Blasio staying away. A proposal came up. The five union chiefs suggested that Bill Clinton could be used to heal the rift between the police and City Hall. [Clinton reportedly said no. Bratton said this wasn’t necessary.]

Michael Goodwin / New York Post

“There’s an old saying that it’s ‘better to be lucky than good,’ but what if you are unlucky and bad?

“That would describe Mayor de Blasio, who in the span of a few hours went from defiant to deflated. He started out crowing and ended up eating crow.

“The mayor emerged from hiding Monday to use the release of 2014 crime stats to heap more abuse on cops, saying a decline of 4.6 percent in major felonies meant he was right to demand both a ‘safe city’ and a ‘fairer city.’ He also blasted officers for turning their backs on him at Sunday’s funeral for Officer Wenjian Liu, calling them ‘disrespectful’ and saying ‘it defies a lot of what we all feel is the right and decent thing to do.’

“Hours later, he was at a Bronx hospital visiting two undercover cops wounded in a late-night shootout with armed robbers.

“The roller-coaster day revealed the incoherence of de Blasio’s mayoralty. He claims lower crime justifies his anti-police agenda, but can’t resist throwing an elbow at the people who actually do the dangerous job. And when two officers are wounded, he praises their courage without any recognition of why so many of the Finest believe he has made the job even more dangerous.

“The toxic tangle is growing worse, with data suggesting a widespread slowdown.* Arrests and summonses are falling so steeply that there is no other reasonable explanation. Meanwhile, murders and other serious crimes jumped in the last two weeks of December, erasing some of the gains made throughout the year.

“The mayor knew all of this when he spoke Monday, which makes his boasting and criticism especially unwise. He could have used the 2014 stats as a moment to turn the page and make a fresh start.

“Instead, he threw gasoline on the fire – and has the nerve to accuse cops of disrespect....

“At this point, it is hard to be optimistic. Fundamentally, de Blasio makes it clear on many issues that he views his election as a blank check, and feels no need to represent the 7.7 million people who did not vote for him or those who don’t agree with him.

“That’s the nut of the problem. The real disrespect is that the mayor is failing to do his duty to end the war on cops. After all, he started it.”

*For two straight weeks, the number of arrests fell by about half versus year ago levels, while the issuing of summonses, such as for parking violations, dropped by more than 90 percent. On Friday, Commissioner Bratton acknowledged there had been a ‘slowdown,’ but that things were getting back to normal.

On a different topic, Michael Goodwin notes the following, for those of you who are New York politics junkies.

“First Ed Koch passed away, then in quick succession came David Garth, Herman Badillo, Mario Cuomo and Bess Myerson. The roll call of the recently departed amounts to an All-Star lineup from a tumultuous era in Gotham.”

Speaking of Bess Myerson, it was kind of bizarre. The former Miss America (the only Jewish winner of the pageant when she took the crown in 1945), died at the age of 90 in Santa Monica, Calif., but we only learned of this three weeks after the fact.

She was a fascinating figure. Myerson ended up being Ed Koch’s de facto girlfriend and she worked as New York City’s consumer affairs commissioner for a spell (under Mayor John Lindsay) before helping Koch get elected for the first time in 1977, appearing by his side constantly. She then lost a campaign for the U.S. Senate in 1980.

But her career in New York ended badly when she got swept up in an influence peddling case involving her ‘real’ longtime companion, a major city contractor.

But back to when she entered the Miss America pageant, she was urged to change her name to Betty Merrick, which she refused to do, telling People magazine in 2000: “I live in a cooperative with 250 other families, all of them Jewish. If I win, they’ll feel very, very good, but if I change my name, they won’t even know it’s me.”

So picture she won on Sept. 8, 1945, as the extent of the Holocaust was becoming evident. So during her yearlong reign, as an obituary in Crain’s New York Business put it, she “became a traveling speaker for the Anti-Defamation League of B’nai B’rith.”

That took courage.

“I was determined to do something with my year, to make it mean something,” she wrote.

Yes, Bess Myerson became far more than a beauty queen. RIP.

--Another pioneer passed away this week. Edward W. Brooke III, who in 1966 became the first African-American elected to the United States Senate by popular vote, winning as a Republican in Democratic Massachusetts. He was 95.

Brooke was re-elected in 1972 and remains the only black senator ever to have been returned to office, as noted by Douglas Martin in the New York Times.

I was shocked how little was said of Brooke’s passing (of course I wasn’t really shocked... Brooke being a Republican and all...). This was a classic centrist. He was also the first Republican senator to demand Richard Nixon’s resignation.

Brooke was a decorated World War II veteran who started off in the infantry and rose to captain.  Later on, as Douglas Martin writes, “On the issue of the Vietnam War he was torn, moving from dove to hawk, then back to dove.”

Brooke lost a bid for a third term to Democrat Paul Tsongas.

Douglas Martin: “Mr. Brooke never presented himself as a black politician and grew tired of being called ‘first this, first that,’ he said. He represented all the people of Massachusetts, he said, and wanted no part of being ‘a national leader for the Negro people.”

--Former Virginia governor Robert McDonnell was sentenced to two years in prison Tuesday, the first Virginia governor to go to prison unless his case is overturned on appeal. McDonnell was convicted of influence peddling in gaining sweetheart loans, luxury vacations and expensive jewelry from a wealthy benefactor. Prosecutors had sought a 6 ½-year term, while sentencing guidelines called for eight, so McDonnell, once touted as a Republican presidential contender, is getting off easy.

--The F.B.I. and Justice Department prosecutors have recommended bringing felony charges against retired Gen. David Petraeus for providing classified information to his then mistress when he was director of the C.I.A. Petraeus has long denied he gave such information to Paula Broadwell, an Army Reserve officer who was writing his biography.

The Justice Department is claiming Petraeus gave Broadwall access to his C.I.A. email account and other highly classified information.

It is now up to Attorney General Eric Holder to decide whether to seek an indictment. Boy, you just know Holder is thinking, ‘Why didn’t I resign sooner.’

--Radical Muslim cleric Abu Hamza al-Masri was sentenced to life in prison by a court in New York for supporting terrorism.

Judge Katherine Forrest called Abu Hamza’s actions “barbaric” and “misguided” as she read out the names of the four British tourists killed in the Yemen kidnapping in 1998.

His trial followed his extradition to the U.S. from Britain in 2012 at the end of an eight-year legal battle.

--President Obama unveiled a proposal for making community college tuition-free for “responsible students” in what sounds like a worthy program but it’s a non-starter given the cost. A minimum of $60 billion over ten years.

--Ripped from the pages of the South China Morning Post (and Agence France-Presse): “Nine people have choked to death in Japan after eating traditional glutinous ‘mochi’ rice cakes to celebrate the New Year, an official and local media said.

“In Tokyo alone, 18 people were sent to hospital due to suffocation after eating the New Year delicacy, and three of them – all men – died, a fire department official said.”

Actually, the Yomiuri Shimbun newspaper said, “At least 128 people were rushed to the hospital after choking last week.”

Good lord!

--NASA’s Kepler Space Telescope has been on planet patrol and this week at a meeting of the American Astronomical Society, scientists verified Kepler’s 1000th planetary discovery, though there are 554 new candidates.

So, as reported by Rachel Feltman of the Washington Post, “Of those possible planets, eight are in the so-called ‘Goldilocks zone,’ or habitable zone, where the host star is at just the right distance to keep water liquid. Too close, and water heats up and boils off. Too far, and the planet is covered in permanent, solid ice.”

So there are two “exoplanets – planets outside Earth’s solar system” that scientists are particularly excited about.

“Both planets orbit a small red-dwarf star, cooler than Earth’s sun, but they also orbit more closely.” One has a 70 percent chance of being able to hold liquid water. The other has a 97 percent chance of being in the habitable zone.

NASA scientist Fergal Mullally said, “We are now closer than we’ve ever been to finding a twin for the Earth around another star.” Wonder what kind of streaming packages they have.

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

Prayers to France.
God bless America.
---

Gold closed at $1216
Oil $48.36

Returns for the week 1/5-1/9

Dow Jones -0.5% [17737]
S&P 500 -0.7% [2044]
S&P MidCap -0.7%
Russell 2000 -1.1%
Nasdaq -0.5% [4704]

Returns for the period 1/1/15-1/9/15

Dow Jones -0.5%
S&P 500 -0.7%
S&P MidCap -0.8%
Russell 2000 -1.6%
Nasdaq -0.7%

Bulls 50.5
Bears 15.2 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore