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01/17/2015

For the week 1/12-1/16

[Posted 10:30 PM ET, Friday]

Edition 823

Washington and Wall Street

Starting off with some economic news, the World Bank issued its bi-annual outlook for global growth, 3% in 2015, 3.3% in 2016; down from June’s 3.4% and 3.5% estimates.

The WB lifted its U.S. outlook to 3.2% this year from 3.0%.

It slashed the eurozone forecast from 1.8% to 1.1% in 2015, with Russia contracting 2.9%, while it sees China growing 7.1% this year and Japan 1.2%.

[The IMF issues its latest outlook this coming week.]

In the U.S., on Wednesday, the government reported a shockingly poor retail sales number for December, down 0.9%, owing to falling fuel prices, but the core rate, ex-fuel sales and other stuff, still declined 0.4%.

In keeping with the decline in crude, the December figures on producer and consumer prices were also down.

The PPI fell 0.3%, though ex-food and energy was up 0.3%. For all of 2014, producer prices rose 1.1%, up 2.1% on core.

The CPI fell 0.4% for December, the biggest decline in six years, though unchanged ex-food and energy. For the year, consumer prices rose only 0.8%, 1.6% on core.

December industrial production fell 0.1%, basically in line with expectations.

The National Retail Federation released its final look at holiday sales for November and December and they came in up 4.0%, or a tick below its 4.1% initial estimate. I said I would go with the NRF’s number and 4% is not bad.

The Wall Street Journal’s survey of 66 economists revealed a consensus of 3.0% for GDP growth in 2015, while the New York Times’ Neil Irwin gave some reasons why he sees higher wages, as do I. There are far more job openings, according to the Labor Department’s figures; the National Federation of Independent Business says its latest survey shows the highest level of optimism among small businesses around the country since 2006; and then Mr. Irwin points out the example of Aetna, which announced it would raise pay for its minimum hourly workers 11%, hiking them to about $33,000 a year for a 40-hour week, while offering new health benefits for low-income workers that the company says could save employees up to $4,000.

CEO Mark Bertolini said, “It’s not just about paying people, it’s about the whole social compact.”

A note on the budget deficit...the government reported for all of 2014 it was $488 billion, $72 billion less than 2013 and only 2.8% of GDP, which is historically good. The fiscal 2014 deficit for the year ending 9/30/14 was $483 billion. But there’s a caveat.

Editorial / Wall Street Journal

“The Fed disclosed in preliminary unaudited results that its Reserve Banks turned over no less than $98.7 billion to the Treasury in 2014. Most of that is interest income from the Fed’s purchase of bonds under its various quantitative easing programs that have expanded its balance sheet to $4.5 trillion or so in assets....

“In the six years since 2009, the Fed has contributed a remarkable $468.8 billion to Treasury....

“For perspective, the entire federal budget deficit for fiscal 2014, which ended in September, was $483 billion. Without the Fed’s windfall, it would have been nearly $100 billion more. Corporate income tax revenue in 2014 was $321 billion, so the Fed turned over nearly 30% of the amount provided by every American corporation.

“Treasury is spending the Fed’s windfall, naturally, which means that when the QE (quantitative easing) boom ends the country will have to spend that much less or find the revenue somewhere else. The danger is that politicians are getting used to the money, which is one more reason for the Fed to begin winding down its balance sheet sooner rather than later.”

Finally, President Obama gives his State of the Union address on Tuesday and this week he met with Republican congressional leaders at the White House, promising to veto any legislation that tries to roll back his executive actions on immigration and authorization for the Keystone XL oil pipeline. Immediately GOP leaders, who believe they received a midterm-election mandate to negotiate with Democrats after years of inaction, were miffed.

“The president seems to think we should start only by presenting the ideas that he likes,” Rep. Tom Cole (R-Okla.), an ally of GOP leaders, said Tuesday. “He’s the president of the United States – he’s not the emperor of the universe.” [Washington Post]

Oil

The price of crude, as measured by West Texas Intermediate, continued to slide, trading under $45 a barrel before recovering some by week’s end to $48.69, up a smidge. U.S. drillers laid down 61 rigs for the week of 1/5, which was the most since 1991, but then another 74 for the week of 1/12. 44 of the 74 were in Texas.

This week’s reasons for the further decline in crude until late Friday came from the likes of the United Arab Emirates, whose oil minister said OPEC would stand firm on its decision to keep output unchanged.

Saudi billionaire Prince Alwaleed bin Talal said in an interview with Maria Bartiromo for USA TODAY that it’s about oversupply in the market and slowing growth around the world. “There’s less demand and there’s oversupply. And both are recipes for a crash in oil. And that’s what happened. It’s a no-brainer.” Prince Alwaleed then said “I’m sure we’re never going to see $100 anymore.”

Goldman Sachs said it expected U.S. crude to average $47.15 a barrel this year, down from a previous prediction of $73.75.

China actually imported 13% more crude oil in December than a year earlier but it didn’t matter.

AAA reported the price of a gallon of regular had declined to a national average of $2.08 on Friday vs. an April 28 peak of $3.70.

So the low prices at the pump have some politicians such as Tennessee Republican Sen. Bob Corker calling for a hike in the federal gas tax, currently 18.4 cents a gallon, a figure that has held steady since 1993! Corker wants to see the federal Highway Trust Fund replenished. It’s currently running at a huge annual deficit and road and bridge work is going wanting.

But others want to see any increase go to the states to let them distribute it for projects as they see fit. Or eliminate the federal gas tax altogether and let the states decide what kinds of fees to add.

This is going to be a big debate coming up in Congress because a temporary highway funding bill expires in May.

Europe and Asia

The Swiss National Bank early Thursday morning unexpectedly scrapped its cap on the franc vs. the euro, sending Swiss stocks plunging while the value of the franc vs. the euro soared an unprecedented 30%. The Swiss stock market fell 8.7%, or the equivalent of about 1,500 points on the Dow Jones.

Editorial / The Economist

“Currencies don’t normally move that far on a daily basis – 2 to 3% is a big shift. The exception is when a country on a fixed exchange rate suffers a devaluation; then a 20-30% fall is a possibility. But a 20-30% plus upward move is almost unprecedented. That, however, is what happened to the Swiss franc on January 15th, as Switzerland’s central bank abandoned its policy of capping the currency at Sfr1.20 to the euro. Only a month ago, the central bank said it would enforce the policy with the ‘utmost determination.’

“The minimum exchange rate was introduced during a period of exceptional overvaluation of the Swiss franc and an extremely high level of uncertainty on the financial markets. This exceptional and temporary measure protected the Swiss economy from serious harm. While the Swiss franc is still high, the overvaluation has decreased as a whole since the introduction of the minimum exchange rate. The economy was able to take advantage of this phase to adjust to the new situation.

“The move clearly came as a complete shock for the markets... The currency cap had been controversial, since it required the central bank to create unlimited amounts of francs in order to cap the exchange rate. Whenever the franc looked in danger of breaching the cap, the bank could simply sell the newly-created currency to drive it back down again. The effect was to push up the bank’s balance sheet to some 60% of Swiss GDP, and giving the bank an estimated $56 billion in foreign assets; it will be nursing a big loss on such assets as a result of today’s action....

“The effect of such a big currency move may be significant; Capital Economics, a consultancy, says that some 60% of Swiss exports go to the eurozone and the United States, and its exporters will be a lot less competitive after such a shift.”

Mark Gilbert / Bloomberg

“The Swiss National Bank’s shock move today to stop intervening in the foreign exchange market all but guarantees the European Central Bank will finally introduce quantitative easing when it meets Jan. 22. Switzerland is surrendering before a wave of post-QE money fleeing the euro threatens to make a mockery of its currency policy. It’s also capitulating as slumping oil brings global deflation ever closer.

“It’s an astonishing U-turn. Just two days ago SNB Vice President Jean-Pierre Danthine told Swiss broadcaster RTS that ‘we’re convinced that the cap on the franc must remain the pillar of our monetary policy.’ He added, though, that it was ‘very possible’ that QE would make defending the threshold more difficult. It seems highly probable that the ECB has winked about its policy intentions to its Swiss counterparts.

“The ensuing whipsaw in the currency market is unprecedented. The franc immediately appreciated almost 30 percent against the currencies of the Group of Ten industrialized nations, and surged to a record against the euro.

“The Swiss central bank has capped the franc’s value since September 2011, intervening to sell its own currency whenever it threatened to strengthen beyond 1.20 per euro. The policy was designed to protect the economy from safe-haven seeking investors propelling the currency higher, and trashing exports....

“The official explanation posted on the central bank’s website is that the Swiss economy ‘was able to take advantage of this phase to adjust to the new situation,’ and that the dollar’s surge has offset euro weakness. Swiss exporters aren’t convinced: Swatch Group AG Chief Executive Officer Nick Hayek immediately called it a ‘tsunami for the export industry and for tourism, and finally for the entire country.’ Exports of Rolexes and other watches account for more than 10 percent of the country’s exports.”

Editorial / Wall Street Journal

“The prediction that 2015 will be a year of currency turmoil is already coming true. Under pressure from the eurozone’s devaluation policy, Switzerland’s central bank on Thursday abruptly dropped its currency peg to the euro and sent global markets reeling. This won’t be the last currency shock as the world’s big central banks go their own way in frantic attempts to spur a slowing global economy....

“(The peg introduced in 2011) worked very well....

“The Swiss National Bank maintained the peg of 1.20 francs per euro by buying foreign currency, mainly euros, as needed. The peg helped the Swiss avoid deflation and protected its businesses from currency whiplash. More than half of Swiss exports go to European Union countries.

“The end of the peg is thus a net loss for stable money and perhaps for economic growth, though the Swiss were finding the peg harder to support as the European Central Bank continues to seek a lower euro. The SNB had to buy ever more euros to maintain the peg, and its cost was growing for the relatively small central bank.”

The SNB is taking a big loss on its euro holdings with the franc soaring against the euro, but the bankers figured future losses would be even greater when inevitably they’d have to break the peg.

WSJ:

“The immediate trigger is the European Central Bank’s widely anticipated plunge next week into full-fledged quantitative easing. Everyone seems to anticipate the ECB will buy the bonds of European governments, perhaps as much as $500 billion, in its latest attempt to revive the stagnant Continental economy.

“The euro fell again Thursday in anticipation of the ECB move to about 1.16 against the dollar, down from about 1.39 in May. Markets understand that European politicians want a weaker euro to boost European exports by riding on faster U.S. growth. The Swiss, as a small economy closely tied to Europe’s but outside the eurozone, had to move or get run over.”

Mohamed El-Erian / Financial Times

“You need only look at the immediate reaction of the foreign exchange markets to the Swiss National Bank’s announcement on Thursday that it was dismantling its one-sided currency peg against the euro to get a sense of the momentous and surprising nature of the decision....

“The implications of this historic policy turnaround extend well beyond a period of bumpy economic and financial adjustment for Switzerland itself. They risk destabilizing some other countries and decision-making in the neighboring eurozone will become even more complicated and contentious....

“In implementing its Sfr1.20 floor against the euro three years ago, the SNB aimed to protect Switzerland from excessive volatility occasioned by the eurozone’s debt crisis. The approach served the country well as the European Central Bank took steps to overcome the crisis.

“But the ECB’s successful crisis management phase did not hand off to a comprehensive European policy response that produced growth; and with other policy-making entities failing to step up fully to their responsibilities, it has again fallen to the ECB to lead the policy response – and to do so in the context of large and growing divergence between the eurozone and the U.S. when it comes to both economic performance and policy prospects....

“Then there are the consequences for a global economy which, in the absence of a comprehensive policy response in the advanced world, has ended up overly reliant on central bank interventions. Given that their tools cannot reach directly and sufficiently at what holds back growth and jobs, these central banks have been forced to use the partial channel of financial asset prices to influence real economic outcomes.

“To this end, central banks have sought to repress market volatility as a means of encouraging risk taking that would then boost asset prices and thus encourage greater household consumption (via the wealth effect) and corporate investment (via animal spirits).

“The SNB’s decision is further evidence that central banks are finding it harder to implement a policy of volatility repression that already was being challenged by the growing divergence in policy prospects between the eurozone and the U.S.”

As a result of the turmoil created in the SNB’s move, Deutsche Bank AG and Citigroup said they suffered about $150 million in losses, while Barclays PLC said its losses were below $100 million. A New Zealand foreign-exchange trading house collapsed. And a major U.S. currency broker, FXCM, warned its equity was wiped out but late Friday was saved by investment firm Leucadia National Corp., which is lending it $300 million to get back on its feet (at 10% interest). FXCM’s shares didn’t open all day on the New York Stock Exchange.

Further stories to follow in the coming days, no doubt.

But back to the European Central Bank, next Thursday, Jan. 22, the ECB better act...and act aggressively, or the markets will absolutely tank. Expectations are high. Sky high when one looks at eurozone bond yields in the likes of Italy and Spain, for example.

Earlier this week, the European Court of Justice ruled the ECB’s crisis-fighting plan to buy government bonds through its Outright Monetary Transactions (OMT) program was compatible with EU law and fell under the domain of monetary policy. This was an important hurdle for ECB President Mario Draghi and gives him the legal backing when some in Finland and Germany, for example, dissent. The German constitutional court had previously questioned the legality of the OMT and its “potentially unlimited” nature.

In an interview on Wednesday, Draghi said, “All members of the Governing Council of the ECB are determined to fulfill our mandate.” To boost prices, the ECB “has to keep interest rates low and work toward an expansive monetary policy. The risk of deflation is still low, but it is certainly bigger than a year ago.”

Friday, Draghi briefed German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble on how QE would actually take place; national central banks would buy bonds issued by their own country; which would be a way of avoiding a transfer of risk between eurozone member states.

[But the Financial Times reports Friday night that Draghi “bowed to German pressure to ensure that its taxpayers are not liable for any losses incurred on other countries’ debt.”]

As for the other big issue facing Europe and the eurozone, the Greek election of Jan. 25, I’ll have more on this next time but the polls haven’t really changed. The leftist Syriza Party of Alexis Tsipras has about a 3-point lead over ruling New Democracy, with Tsipras trying to reassure everyone he does not want to leave the euro bloc, but he does want to roll back some of the budget cuts and this is a big deal for the troika; the European Commission, ECB and IMF, which oversees the bailout. 

There is a timing issue in that the current aid agreement for Greece expires end of February, so any new government must act fast. [A separate IMF program will go beyond February for a spell.]

One player has emerged as a potential thorn for Greece and that is Finland, which has told its eurozone partners it will not support debt forgiveness, another goal of Tsipras and Syriza.

Finally, remember, as I’ve written the past few weeks, just because Syriza might win the vote, and the 50-seat bonus that goes along with being the leading vote-getter, that doesn’t mean they will be able to form a government. I don’t think it’s going to be easy.

There were some economic reports for the eurozone and its members this week.

Eurozone industrial production in November rose 0.2% over October, though it was down 0.4% year over year. That said there was a solid consumer goods growth reading as part of the report.

Individually, I noted last week that Germany’s industrial production fell 0.1% in November and I just wanted to add that France’s was down 0.3% over October, Spain’s was down 0.1%, and Italy’s rose 0.3% November over October.

Germany also reported its first balanced budget since 1969, a year ahead of schedule, though many in the eurozone ridicule this when growth is as putrid as it is throughout the continent. Germany’s government did report its economy grew 1.5% in 2014, the strongest figure in three years (a preliminary estimate), while the economy grew 0.4% in 2012 and just 0.1% in 2013. Exports rose 3.7% in 2014 vs. a 1.6% increase in 2013.

Italy reported bank loans to the private sector fell 1.6% in November, year over year. Not good.

And in the U.K., its inflation rate in December, up 0.5% annualized, was the lowest in 15 years.

So speaking of inflation, Eurostat reported the final inflation data for the eurozone in December, down 0.2% annualized, same as an earlier estimate. Prices were down 2.5% in Greece, 1.1% in Spain. They were up just 0.1% in both France and Germany. Down 0.1% in Italy.

There was a bit of good news on the car front, though. European auto sales rose for the first time in seven years in 2014, off a two-decade low. December sales were up 4.9% from a year earlier.

For 2014, Spain’s increased 18%, the U.K.’s 9.3%, Italy’s 4.2%, Germany’s 2.9% and France’s 0.3%.

Turning to Asia, China’s vehicle sales were forecast to rise 7% in 2015, the same pace as last year and just half that of 2013. (GM’s were up 12% in China last year, while Ford reported record sales).

December exports in China rose 9.7% year over year, better than expected. For the full year, exports were up 6.1%, lower than the 7.5% target.

Exports to the U.S. in December were up 9.9% yoy, but down to Japan for a fifth straight month.

China’s fourth quarter GDP figure is released Jan. 20.

In Japan, the government released a record budget, with GDP estimated to increase 1.5% for the fiscal year ending March 2016, according to the Cabinet Office. Prime Minister Abe desperately needs Japanese companies to pass on some of their cash to workers in the form of higher wages.

Debt-to-GDP is expected to rise to 245% in 2015, according to the IMF.

Europe and Radical Islam

Speaking to reporters flying with him to the Philippines, Pope Francis said of freedom of speech:

“If my good friend Doctor Gasparri [who organizes the Pope’s trips] speaks badly of my mother, he can expect to get punched,” he said, throwing a pretend punch at the doctor, who was standing beside him.

“You cannot provoke. You cannot insult the faith of others. You cannot make fun of the faith of others. There is a limit.”

While this was seen as controversial, the Pope was misconstrued and made it clear later he was not making an excuse for the terror attack on Charlie Hebdo in Paris.

But I don’t necessarily disagree with what Francis said. Here’s what struck me about the estimated 3-4 million marching in Paris last Sunday in unity against terrorism and fanaticism. You hope people become more aware and more willing to give up information and suspicions; most nations need more police resources; civil liberties, especially in Europe, ironically may be restricted some; but mostly you hope the world harbors this moment and that it is about more than showing up and displaying some banners.

Unity alone doesn’t deter attacks.

As for what we’ve learned since the Paris attacks, al-Qaeda in the Arabian Peninsula (AQAP) claimed responsibility for the attack on Charlie Hebdo.

Amedy Coulibaly, the gunman in the kosher supermarket attack, pledged allegiance to ISIS in a video, and we learned he had married Hayat Boumeddiene in a Muslim ceremony. Boumeddiene was seen on video at the airport in Istanbul clearing passport security and is in Syria.

We also learned of Lassana Bathily of Mali, the young Muslim employee at the supermarket who emerged as a real hero and saved lives by helping hide people in the cold storage room in the basement.

It is now estimated 1,000 French (3,000 Europeans overall) have gone to Syria and Iraq, with many now having returned.

For their part, the French dropped surveillance of the Kouachi brothers six months before the attacks as they were deemed a low risk.

It’s also clear there were other intelligence failures, including a warning the day before the attack from Algeria.

Said Kouachi had trained with AQAP in Yemen in 2011.
France deployed 10,000 troops across the country.

French Prime Minister Manuel Valls declared: “We are at war – not a war against a religion, not a war against a civilization, but to defend our values, which are universal. It’s a war against terrorism and radical Islamism, against everything that would break our solidarity, our liberty, our fraternity....

“Everyone must take responsibility – politicians and citizens alike.”

Some Muslims were angered all over again when Charlie Hebdo was “reborn”, as President Francois Hollande declared after the magazine sold out of its initial 3 million copies in hours. Turkish Prime Minister Davutoglu condemned the cover of a weeping Prophet Muhammad as an “open provocation.” At least four people were killed in violent protests Friday against French interests in Niger’s second city of Zinder. The French cultural center was among several buildings raided and torched.

Thursday, Belgian authorities launched a raid on a suspected terror cell in Verviers, killing two with no police hurt. As of this post, 17 others have been rounded up throughout the country. The jihadists had just returned from Syria. [Recall, in May last year, four people were killed inside the Jewish museum in Brussels. A Frenchman of Algerian descent is in custody over the attack.]

Other developments....

A quarter of Jews in Britain have considered leaving the country in the last two years and well over half feel they have no long term future in Europe, according to a survey published on Wednesday. [Jerusalem Post]

Chancellor Angela Merkel promised to protect Jews and Muslims living in Germany from prejudice. At the same time a poll conducted before the Paris attacks said 57% of non-Muslims in Germany felt threatened by Islam.

Israeli Prime Minister Benjamin Netanyahu caught heat for reaching out to Jews in France and throughout Europe.

“I want to tell the Jews of France and the Jews of Europe – the State of Israel is your home.”

The Jewish Agency said that about 7,000 of France’s estimated half a million Jews left for Israel in 2014, up from 3,300 in 2013. Before the terrorist attack, the organization was forecasting as many as 10,000 Jews from France would move to Israel in 2015. [Wall Street Journal]

Natan Sharansky warned Israeli leaders against remarks encouraging immigration. Tzipi Livni, who is running against Netanyahu in elections set for March 17, said on Sunday that Jews should come to Israel because of Zionist ideology, “not because it is a safe haven.” Livni said asking Jews to leave France won’t improve safety for European Jewry. [Wall Street Journal]

Charles Krauthammer / Washington Post

“On Sunday, at the great Paris rally, the whole world was Charlie. By Tuesday, the veneer of solidarity was exposed as tissue thin. It began dissolving as soon as the real, remaining Charlie Hebdo put out its post-massacre issue featuring a Muhammad cover that, as the New York Times put it, ‘reignited the debate pitting free speech against religious sensibilities.’

“Again? Already? Had not 4 million marchers and 44 foreign leaders just turned out on the streets of France to declare ‘No’ to intimidation, and pledging solidarity, indeed identification (‘Je suis Charlie’) with a satirical weekly specializing in the most outrageous and often tasteless portrayals of Muhammad? And yet, within 48 hours, the new Charlie Hebdo issue featuring the image of Muhammad – albeit a sorrowful, indeed sympathetic Muhammad – sparked new protests, denunciations and threats of violence, which in turn evinced another round of doubt and self-flagellation in the West about the propriety and limits of free expression. Hopeless.

“As for President Obama, he never was Charlie, not even for those 48 hours. From the day of the massacre, he has been practically invisible. At the interstices of various political rallies, he issued bits of muted, mealy-mouthed boilerplate. Followed by the now-famous absence of any high-ranking U.S. official at the Paris rally, an abdication of moral and political leadership for which the White House has already admitted error.

“But this was no mere error of judgment or optics or, most absurdly, communications in which we are supposed to believe that the president was not informed by staff about the magnitude, both actual and symbolic, of the demonstration he ignored. (He needed to be told?)

“On the contrary, the no-show, following the near silence, precisely reflected the president’s profound ambivalence about the very idea of the war on terror....

“(But) the war on terror 2015 is at a new phase with a new geography. At the core are parallel would-be caliphates: in Syria and Iraq, the Islamic State; in Sub-Saharan Africa, now spilling out of Nigeria into Cameroon, a near-sovereign Boko Haram; in the badlands of Yemen, AQAP, the most dangerous of all al-Qaeda affiliates. And beyond lie not just a cast of mini-caliphates embedded in the most ungovernable parts of the Third World from Libya to Somalia to the borderlands of Pakistan, but an archipelago of no-go Islamist islands embedded in the heart of Europe.

“This is serious. In both size and reach it is growing. Our president will not say it. Fine. But does he even see it?”
Rich Lowry / New York Post

“It’s settled: The Paris terror attacks had almost nothing to do with Islam.

“Consider that on the one hand, you have the chilling new tape of the Charlie Hebdo attackers declaring, ‘We have avenged the Prophet Muhammad,’ and on the other, you have the tortured assurances of White House spokesman Josh Earnest. Which are you going to believe?

“The Obama administration’s mind-bogglingly determined refusal to say that we are at war with ‘radical Islam,’ together with the left’s evasions about Islamic terrorism, means that there has been a haze of euphemism around what should be a galvanizing event in the West’s fight against terror....

“Asked why the administration won’t say we are at war with radical Islam, Earnest explained the administration’s first concern ‘is accuracy. We want to describe exactly what happened. These are individuals who carried out an act of terrorism, and they later tried to justify that act of terrorism by invoking the religion of Islam and their own deviant view of it’ (emphasis added)....

“It was in this spirit that State Department deputy spokesperson Marie Harf said that the militants of Boko Haram ‘claim to be active in the name of Islam’ (emphasis added).

“So add alleged insincerity to the list of offenses that can be attributed to the hideous group formally known as People Committed to the Propagation of the Prophet’s Teachings and Jihad....

“There is a broad war of ideas within Islam between the forces of reaction and violence and the forces of moderation and modernity. The threat of radical Islam won’t diminish until that war is won, no matter how much the U.S. government wants to obscure it with its verbal fog machine.”

Editorial / New York Daily News

“Displaying powerful symbolic unity, in fitting and proper testament to the defense of civilization, more than 40 world leaders linked arms to lead the mass march in Paris in resolve against Islamist terror.

“The United States of America, Barack Obama, President, was inexcusably absent from one of the most critical turning points in the war between radical Islam and the West since 9/11.

“No Obama. No Joe Biden. No John Kerry from State. No Chuck Hagel or Ashton Carter from Defense. Not even Eric Holder from Justice, who happened to have been in Paris.

“Yet there was British Prime Minister David Cameron, German Chancellor Angela Merkel, Russian Foreign Minister Sergei Lavrov, Turkish Prime Minister Ahmet Davutoglu, Jordan’s King Abdullah and so many others – most extraordinarily including Israeli Prime Minister Benjamin Netanyahu and Palestinian Authority President Mahmoud Abbas.

“All linked arms with French President Francois Hollande, leader of the country where terrorists killed 17 in a deliberate attack on democratic values, leader of one of America’s most stalwart allies in the war on terror.

“Still worse, Obama’s abdication of leadership reflects a larger presidential failure to convey the gravity of the Charlie Hebdo attack, even if the substance of his anti-terror policy remains strong.”

As for the far right in Europe, Marine Le Pen, leader of France’s National Front party, was excluded from Sunday’s march, which she said made a mockery of the concept of national unity and was itself a violation of “freedom of expression.” She also accused the political elite of “astounding cowardice” to isolate “the only political movement that has no responsibility in the current situation, nor do its millions of voters.”

Le Pen said her supporters would see her exclusion as a “tribute” to their power, saying, “They will have the opportunity if they wish to express their opinion at the ballot box.” [Sydney Morning Herald]

In an interview Monday with the Washington Post, Le Pen added there should be dramatic new steps in France to cope with homegrown terrorism – including a crackdown on the financing of “radical” mosques and Islamic associations. She also argued that French Jews are now best served by the National Front because her party is standing against anti-Semitism in France.

“For many years, the FN has been the only political party that has been ringing the alarm bells, and we have not been heard.”

A flash poll for YouGov showed that Nigel Farage’s United Kingdom Independence Party (UKIP) had picked up four points to 18 percent in four days.

In Dresden, Germany, the largest crowd yet, 25,000, turned out for the anti-Islamist Pegida organization’s rally on Monday, 7,000 more than a week earlier. In response, Chancellor Merkel attended an anti-Pegida rally on Tuesday in Berlin that also attracted 25,000.

An anti-euro party, the Alternative for Germany, has seen its support increase to 7% in recent polls.

Editorial / Washington Post

“(Responsible) leaders must try to prevent exploitation of the attacks by right-wing populists who seek to scapegoat the Muslim population, stigmatize Islam and promote an agenda of xenophobia. In France...Marine Le Pen leads mainstream conservatives in early polling for the 2017 presidential election. In Germany, weekly anti-Muslim marches have been gathering dangerous momentum. The worst result of this week’s events would be the acceleration of political polarization based on religion and national origin.”

Gideon Rachman / Financial Times

“Public moods are ephemeral. But there are grounds for hoping this weekend’s rallies will be a turning point and remind French citizens of what unites them rather than what divides them.

“Unfortunately, a realistic assessment must also acknowledge that it is just as likely that – over time – the terrorist attacks will lead to even more bitter polarization. The far-right National Front (FN), whose leaders were conspicuously not invited to the march on Sunday, is well placed to capitalize on the outrage....

“Ms. Le Pen is a very effective politician who has done a lot to soften the image of the FN. But it is still a deeply racist party. According to a recent Ifop poll, while 65 percent of French people agree that a Muslim is a French person ‘like any other,’ just 21 percent of FN sympathizers agree. Some 51 percent of FN supporters say they would not want a Jew to be president of France and 28 percent would not want to be treated by a Jewish doctor.

“The direction that France now takes matters hugely to the rest of the world. For all its troubles, the country remains one of the largest economic and military powers in the world and an indispensable member of the EU. A France revitalized by this weekend’s demonstration of unity would revitalize Europe. But if France, the country with the largest Muslim population in the EU, succumbs to inter-communal tensions and political extremism, the rest of Europe will draw a dismal lesson.”

Street Bytes

--Stocks fell a third straight week in highly volatile trading, with the Dow Jones losing 1.3% to 17511, while the S&P 500 lost 1.2% and Nasdaq fell 1.5%. As described below the earnings releases from the investment banks were lousy, but Alcoa and Intel were solid. The next two weeks see the real crush of reports.

Fourth-quarter earnings estimates have been coming down hard due to the coming bad news out of the energy companies.

And it needs to be noted that the strong dollar will eventually take more of a toll than it already has as 40% of the S&P 500’s profits are generated overseas.

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.48% 10-yr. 1.84% 30-yr. 2.45%

The yield on the 10-year got down to 1.70%, the lowest since May 2013, while the 30-year at one point hit an all-time record low yield of 2.35%.

Eurozone bond yields registered new lows. Germany’s 10-year hit 0.41% before finishing the week at 0.45%. France closed at 0.63%. Spain 1.49%, Italy 1.65%. Greece is at 9.01%.

--Schlumberger, the world’s largest oil services company, plans to cut 9,000 jobs due to falling oil prices. The company is reducing capital spending to $3 billion this year from $4bn in 2014, which actually isn’t as bad a cut as some were expecting.

--BP announced it was cutting an estimated 200 staff jobs and another 100 contracting jobs due to, you guessed it, falling oil prices.

--Royal Dutch Shell and UK-based Premier Oil announced they were scrapping or putting on hold major oil and petrochemicals projects. One abandoned plan by the two is a $6.5 billion petrochemical plant with Qatar Petroleum, with the Anglo-Dutch major blaming “the current economic climate prevailing in the energy industry.”

Premier said it was putting on hold a $2 billion project off the Falkland Islands until there was a recovery in prices.

--Canadian Natural Resources said it was reducing its capital expenditure forecast for this year from $8.5 billion to $6 billion. Suncor Energy, which operates largely in Canada’s oil sands, axed 1,000 workers.

--And Apache Corp. said it is laying off 250 employees this week as another major oil producer cuts back.

--George Will / Washington Post

“Not since the multiplication of the loaves and fishes near the Sea of Galilee has there been creativity as miraculous as that of the Keystone XL pipeline. It has not yet been built but already is perhaps the most constructive infrastructure project since the Interstate Highway System. It has accomplished an astonishing trifecta:

“It has made mincemeat of Barack Obama’s pose of thoughtfulness. It has demonstrated that he lacks even a rudimentary understanding of the most basic economic realities. It has dramatized environmentalism’s descent into infantilism.

“Obama entered the presidency trailing clouds of intellectual self-regard. His carefully cultivated persona was of a uniquely thoughtful, judicious, deliberative, evidence-driven man comfortable with complexity. The protracted consideration of Keystone supposedly displayed these virtues. Now, however, it is clear that his mind has always been as closed as an unshucked oyster.

“America built the Empire State Building, then the world’s tallest office building, in 410 days during the Depression. We built the Pentagon, still the world’s largest low-rise office building, in 16 months while waging a war across two oceans. Keystone has been studied for more than six years. And Obama considers this insufficient?....

“The United States has more than 2 million miles of natural gas pipelines and approximately 175,000 miles of pipelines carrying hazardous liquids, yet we are exhorted to be frightened about 1,179 miles of Keystone?”

--China’s Xiaomi announced it was aggressively going after Apple as it unveiled a new smartphone, the Mi Note, that the world’s third-biggest smartphone maker said is a direct challenge to the iPhone 6 Plus. At $371, the Mi Note will retail for almost two-thirds less than Apple’s model.

Xiaomi, all of three years old, was valued in December at $45 billion following a $1.1 billion round of fundraising.

The company has been accused of copying other tech companies, most notably Apple. But CEO Lei Jun counters, “In 10 years we will have tens of thousands of patents.”

Lei plans to connect Xiaomi’s smartphones with Xiaomi-branded home appliances, allowing phone users to remotely control washing machines, air purifiers and surveillance cameras.

Facebook has been rumored as a potential investor in Xiaomi, though a deal has not been finalized as yet. [South China Morning Post / Reuters]

--After reporting earnings that fell short of expectations due to a $990 million after-tax charge for legal expenses, JPMorgan CEO Jamie Dimon said investors should expect further legal expenses this year.

“Banks are under assault,” Dimon said, noting that JPM has to deal with “five to six regulators” for every aspect of its legal issues. 

JPMorgan’s total revenue fell 3% from a year ago, with fixed-income revenue down 23%. [The FT said 14%.]

Still, don’t cry for the bank as it earned $21.8 billion last year, up 21% from 2013.

--Citigroup fell short of expectations due to a sharper-than-expected drop in trading revenues, particularly in fixed income, down 14% for the fourth quarter.

--Bank of America was another hit by falling fixed income trading revenues, down 21%. BofA missed on both the top and bottom line, with revenue falling to $19bn from $21.7bn in the same period a year ago.

--Goldman Sachs saw its revenues fall 12%, with earnings slightly beating expectations when in the good old days, Goldman would slaughter them. Revenues in its fixed income area fell 29%, while sales from the equity trading side rose 15%.

--The world’s largest asset manager, BlackRock, reported flat revenue and net income that was less than the fourth quarter of 2013.

--Intel handily beat expectations on fourth quarter earnings and revenues, but the shares slipped on a first quarter sales forecast that was less than analysts had expected. Its full-year outlook remained in line with earlier comments by the company.

Over half of Intel’s sales still come from the PC market which has largely stabilized the past 18 months.

--Target Corp. announced it is shutting down its money-losing Canadian operation, after having spent $4 billion over the years in setting up 133 stores in the Great White North. The division has lost $2.5 billion over the past two years and the company didn’t see it turning profitable until 2021. Target employs 17,600 in Canada. New CEO Brian Cornell has moved aggressively to cut the cord.

Cornell’s initiatives in the U.S., however, appear to be bearing fruit as the company expects to report a 3% same-store sales increase in the U.S. over the holidays. The shares rose on the news of the Canadian decision, which is obviously a big blow to a Canadian workforce already facing a down cycle in its energy industry. Most Target employees will receive 16 weeks’ severance pay.

--Alcoa reported strong earnings and gave an upbeat outlook for this year based on demand in the aerospace and automotive sectors. Each $10 drop in the price of a barrel of oil also adds about $40 million to net income, due to cheaper energy to power two of its oil-fueled smelters, as well as lower transport costs.

Alcoa CEO Klaus Kleinfeld deserves major kudos for bringing his company back from the brink in a rapid turnaround.

--After the close on Friday, AT&T announced it was taking a pretax loss of $7.9 billion to account for changes in its pension and retiree benefit plans. It’s also including a $2.1 billion noncash charge for copper assets no longer needed as customer demand declines for older voice and data products.

But the pension charges are an annual event.

--Speaking of copper, prices hit a 5 ½-year low on Wednesday before bouncing back some. Copper has always been viewed as an economic barometer, more so than oil. Today, it’s largely about growth fears in China.

--Home sales in six-county Southern California rose 4.3% in December vs. year ago levels, according to CoreLogic DataQuick; just the second time in a year that volume has increased on an annual basis.

--Australia’s unemployment rate dropped to 6.1% in December from a revised 6.2% in November.

--Tiffany’s U.S. holiday same-store sales were off a surprising 1%, though some of this fourth-quarter weakness could be the result of fewer foreign tourists owing to the strong dollar.   Worldwide net sales also fell 1% for November-December. Sales in the Asia-Pacific region jumped 10%, but comp store sales in Japan fell 8%. Sales in Europe rose 9%.

Tiffany gave weak guidance for 2015, saying the company would be buffeted by the stronger U.S. dollar, which “negatively affects both the translation of results and sales to tourists in the U.S.,” said President Frederic Cumenal. The shares got slammed in response, though they were trading at a high multiple to begin with.

--According to Dow Jones VentureSource, U.S. venture capital fundraising soared last year to $33 billion across 332 funds.

--From Bloomberg News: “A Florida medical device firm that employs a man who inspired the character played by Jonah Hill in the movie ‘The Wolf of Wall Street’ was raided by federal agents.”

Boca Raton-based Med-Care Diabetic & Medical Supplies Inc. has been accused of participating in a scheme to defraud Medicare.

The figure, Daniel M. Porush (Donnie Azoff in the flick) is married to the co-owner of the device firm, Lisa Porush. I’m sure they make a lovely couple.

--Matt O’Brien / Washington Post

“If Bitcoin were a currency, it’d be the worst-performing one in the world, worse even than the Russian ruble.

“But Bitcoin isn’t a currency. It’s a Ponzi scheme for redistributing wealth from one libertarian to another. At least that’s all it is right now.....

“(That’s) not much of a consolation to anyone who bought anywhere near Bitcoin’s $1,100 top. Or near $1,000, or $900, or $800, or, well even yesterday’s prices. That’s because Bitcoin hasn’t just fallen 76% the past year. It’s fallen 36% the past two days, with a 24% decline the past 24 hours. [Ed. Friday it closed at about $207. It was $288 on Jan. 9. $177 Jan. 14.]

“What in the name of Satoshi Nakamoto is going on? Well, two things. First, Bitcoin’s big bubble has been slowly deflating for over a year now. It has no inherent value, after all, because despite companies trying to get free PR by saying they’ll accept it, almost nobody uses it to buy anything other than drugs. Second, though, is a problem that’s all too familiar to anyone who tried flipping condos in Miami ten years ago. Bitcoin miners, you see, borrowed money – and real money, as in dollars – that they could only pay back if Bitcoin prices kept rising, or at least didn’t fall this much.”

--Following Amazon.com’s success at the Golden Globe Awards, picking up two for its original series Transparent, which beat out programs from HBO, the CW Network and Netflix to win best TV series, musical or comedy, Amazon announced director Woody Allen would create his first television series for the online retailer. 

--For the second time in less than three weeks, an Uber driver has been charged with sexually assaulting a passenger in Chicago. Uber has said it would roll out improved safety measures this year but has yet to do so.

--London’s population is set to hit a new record in the next few weeks, beyond the previous peak of 8.615m in 1939. The city faces major transportation challenges in the coming years as the population is expected to hit 10m by 2036. Housing is another issue.

--Due to a fierce winter Jetstream, those traveling recently between, say, New York and London have seen their trip reduced by about an hour as aircraft ride Jetstream winds of more than 200mph. One British Airways plane reached a ground speed of 745 mph, slightly less than the speed of sound. [The same winds produced some awful weather conditions this week in Britain and Ireland. Like try 113mph winds in Scotland that left thousands without power. My course at Lahinch in County Clare, Ireland, was hit hard.]

Of course the flipside of quick flights east is that flying west can be a problem.

--Stephen Hawking and Elon Musk are among the scientists and entrepreneurs warning that greater focus is needed on the field of artificial intelligence amid growing nervousness about the impact on jobs or even our long-term survival from machines smarter than Ohio State Coach Urban Meyer. [Gratuitous plug for my Ohio readers after THE Ohio State University’s win in the national championship over Oregon.]

In a letter from the Future of Life Institute, “There is now a broad consensus that AI research is progressing steadily, and that its impact on society is likely to increase. The potential benefits are huge, since everything that civilization has to offer is a product of human intelligence; we cannot predict what we might achieve when this intelligence is magnified by the tools AI may provide, but the eradication of disease and poverty are not unfathomable.”

Foreign Affairs

Iraq / Syria / ISIS: The United States announced it is sending 400 troops to train moderate Syrian rebels this spring; 100 in each of four locations (three countries). Including support troops, however, it could be 1,000.

The Wall Street Journal had an extensive story on the U.S.-led campaign against ISIS in Syria. As reported by Dion Nissenbaum:

“More than three months of U.S. airstrikes in Syria have failed to prevent Islamic State militants from expanding their control in that country, according to U.S. and independent assessments, raising new concerns about President Barack Obama’s military strategy in the Middle East.

“While U.S. bombing runs and missile strikes have put Islamic State forces on the defensive in Iraq, they haven’t had the same kind of impact in Syria. Instead, jihadist fighters have enlarged their hold in Syria since the U.S. started hitting the group’s strongholds there in September, according to the new estimates.”

Unbelievably, the administration is still considering whether to set up a buffer zone between Syria and Turkey, protected by American air power. 30 months after I (and the likes of Sen. John McCain) was screaming we needed to do this.

The U.S. has, at least, made some progress in Iraq and I maintain my prediction that Mosul will be retaken by the end of the year.

But in Syria, “nearly three-quarters of the U.S.-led airstrikes have centered on the fight in the Kurdish town of Kobani on Turkey’s border.”

This week ISIS launched a surprise attack against Kurdish forces in north Iraq, killing 26.

Separately, the Wall Street Journal reports that former Prime Minister Nouri al-Maliki is plotting a comeback, just five months after his departure. As Charlie Browndi would say, “Good grief.”

Iran: U.S. Secretary of State John Kerry and Iranian Foreign Minister Mohammad Jawad Zarif resumed talks on Tehran’s nuclear program on Wednesday, though there were no details after.

But there’s this....

Editorial / Wall Street Journal

“Nice timing, brothers. (Kerry and Zarif met Wednesday) to negotiate how much of Iran’s nuclear program it will be able to keep. Meanwhile, according to the Associated Press, Iran’s state news agency reported that a court in Tehran had indicted Washington Post reporter Jason Rezaian, who will stand trial on unspecified charges.

“The indictment, after months of detention, is embarrassing for Mr. Zarif, who wants the world to believe that Iran is a normal country that can be trusted with thousands of nuclear centrifuges and sites that can’t be inspected. But the real power over the nuclear program and everything else of consequence in Iran is wielded by the Islamic clergy and its military arm, the Revolutionary Guard Corps. ‘We will have to wait for the judiciary to move forward, but we will try to provide all the humanitarian assistance that we could,’ Mr. Zarif told journalists in Geneva, as if Iran’s judiciary is somehow independent of political control.

“Someone in Tehran may figure Iran can convict Mr. Rezaian then release him as a show of goodwill if Iran gets what it wants in the talks. The world would be wiser to see the indictment as the real measure of Iran’s best wishes.”

But on Friday, in a press conference with British Prime Minister David Cameron at the White House, President Obama vowed to veto any legislation approving new sanctions against Iran, which not only places him on a collision course with Republicans, but also key Democrats such as New Jersey Sen. Robert Menendez.

However, believe it or not, I might be on the president’s side on this one, in the short term. Both Obama and Cameron make the point that the enactment now of new financial penalties on Iran would most likely spell the end of the talks, even though the legislation would say the sanctions wouldn’t take effect unless the deal falls apart.

“I am asking Congress to hold off because our negotiators, our partners, those that are most intimately involved in this assess that it will jeopardize the possibility of providing a diplomatic solution,” said Obama.

Here’s where I agree with him. Ayatollah Khamenei and the hardliners would definitely torpedo the agreement at that point. A nuclear arms race in the region would then ensue. [Obama didn’t bring up this last bit on Friday, this is me.]

I do not agree with how this whole process has gone down, but we are where we are today.

If a deal isn’t reached, President Obama said he would ask Congress to pass additional sanctions.

Menendez said at a news conference on Friday, “It is counterintuitive to understand that somehow Iran will walk away because of some sanctions that would never take place if they strike a deal.”

I think he is wrong.

But regardless, the entire region and the West are going to be screwed one way or another.

I’ve said since day one, for literally years now, that all you needed to know was whether Iran would allow inspectors onto Parchin, the military base where we suspect they were conducting nuclear trigger tests.   Even after paving the site over, they still won’t let IAEA inspectors in.

But, again, we are where we are.

Israel: Hizbullah leader Hassan Nasrallah said in an interview with a Lebanese television station, “We have made all necessary preparations for a future war with Israel...

“We have military abilities that will deliver us the victory against Israel. The military capability of the resistance has not been damaged (by the war in Syria), and if Israel thinks differently, it is wrong.”

Earlier, Nasrallah warned Hizbullah has more types of weapons than Israel can imagine.

Lebanon: In a further example of how this nation is slowly being sucked into the Syrian war, the Nusra Front claimed responsibility for a twin suicide bombing in Lebanon’s second city of Tripoli last Saturday night that killed at least nine. The Lebanese Army had crushed Islamist militants in the city in October, but ISIS and Nusra Front are still holding 25 soldiers and policemen hostage.

The attack was as evil as they come. One suicide bomber detonated his vest outside a café and then after people rushed to the scene, a second man walking toward the crowd shouted “Allahu akbar” and blew himself up. [Daily Star]

Egypt: From David D. Kirkpatrick / New York Times:

“An appeals court on Tuesday overturned the conviction of former President Hosni Mubarak of Egypt on charges of corruption, removing the last legal judgment against him and ordering a retrial.

“Mr. Mubarak, 86, remains inside a military hospital for unspecified reasons, where he was moved from prison during his trials because of his health. But even before the new court ruling, Mr. Mubarak had already spent enough time in detention – more than the three-year sentence for corruption that was overturned on Tuesday – to allow his release for time served.

“His release, however, could pose an unprecedented challenge to Egypt’s new president, Abdel Fattah al-Sisi. It would be the first time in Egyptian history that a former president was allowed to live freely and speak openly. Previous presidents have either left the post in military custody or died in office.”

So Mubarak could rally his former loyalists, but I would guess not.

I have no problem also saying I’m a supporter of President Sisi. His recent remarks on Islam are posted on my “Hot Spots” link.

Like I said last week, yes, Sisi is an autocrat. Egypt is not a democracy. But all you need to know for now is Israel is happy with Sisi and that’s good enough for me during this tumultuous time. If Sisi lives, he’ll prove to be a transformative figure. Give him time.

Saudi Arabia: The kingdom publicly flogged a blogger sentenced to 1,000 lashes for insulting Islam, with Amnesty International condemning his punishment as a “vicious act of cruelty.” Raef Badawi was also sentenced to 10 years in prison.

The 30-year-old received his first installment of 50 lashes and is expected to have 20 weekly whipping sessions until the punishment is complete. [Agence France-Presse]

But this late word, the Saudi Supreme Court is looking at the case and Badawi’s scheduled second round of lashes for Friday were postponed.

Russia / Ukraine: Pro-Russian insurgents fired a long-range Grad rocket in eastern Ukraine that hit a bus, killing 10 civilians. Locals said the rocket went astray after being aimed at a government checkpoint.

Violence has been picking up again. Two were killed in the shelling of the separatist-held city of Donetsk on Tuesday. 

Ukraine’s Security and Defense Council recorded 84 separate attacks on its positions in the 24 hours up to Wednesday. 

The foreign ministers of Germany, France, Ukraine and Russia met in Berlin Monday and failed to reach agreement on how to resolve the conflict.

Late word on Friday is all hell has broken loose again in the east and there are reports of two-mile long lines of tanks entering the battle on the side of the separatists.

Finally, former Soviet President Mikhail Gorbachev warned that tensions between Russia and Europe over Ukraine could result in a major conflict or even nuclear war, in an interview last weekend with Germany’s Der Spiegel magazine.

“A war of this kind would unavoidably lead to a nuclear war. We won’t survive the coming years if someone loses their nerve in this overheated situation. This is not something I’m saying thoughtlessly. I am extremely concerned.”

China: Friday, the government announced a deputy head of the state intelligence agency was the latest to be detained for suspected corruption, or “serious violation of party disciplines and law,” the Central Commission for Discipline Inspection said in a statement. The South China Morning Post reported Ma Jian’s close relatives were also being investigated. This case might be about securities trades through a Peking University-owned technology conglomerate.

Many Chinese believe that this sweeping anti-graft campaign is nothing more than a way for President Xi Jinping to “sideline would-be enemies and consolidate power,” as Andrew Jacobs of the New York Times put it. Corruption will return when the investigations have run their course.

Fred Hiatt / Washington Post

“Through the wild swings of Chinese history since its Communist revolution in 1949, there has been one constant: Outsiders have rarely understood what was happening while it was happening.

“During the Great Leap Forward, from 1958 to 1961, 30 million people or more starved to death in a Mao-created famine. The West had little clue.

“During the Cultural Revolution, from 1966 to 1976, millions of people were tortured, internally exiled, unjustly imprisoned and otherwise abused in what Paul Hollander, in his invaluable book ‘Political Pilgrims,’ called ‘a destructive and bloody rampage.’ But at the time, most visitors to China had no understanding of what was taking place...

“Today we believe once again that we know what the Chinese leadership is up to: fighting corruption, tightening political controls in order to promote economic reform, gradually strengthening the rule of law while bolstering national defenses so China can take its rightful place as one of the world’s great powers.

“Might we be wrong again? Could President Xi Jinping’s anti-corruption crusade, for instance, be primarily a Stalinist purge of opposing factions in the Communist Party intended to strengthen his own hand?”

According to a report out of Freedom House by Sarah Cook that was published this week titled “The Politburo’s Predicament,” as Fred Hiatt writes:

“First, repression has increased markedly since Xi came to power two years ago.

“Second, a prominent feature of the clampdown is a return to Maoist methods of intimidation, indoctrination and thought control.

“But, third, the crackdown may not be working. ‘In spite of the heightened repression,’ the report concludes, ‘fear of the regime appears to be diminishing.’”

For example, “the clampdown on social media makes more people aware of censorship, they are more likely to question the party’s legitimacy – in turn increasing the need for more censorship. ‘Each act of repression generates the need for more repression,’ the report argues.

“The report does not pretend to know where this ‘volatile combination’ of repression and resentment may lead. ‘It could produce anything from a more radical dictatorship or violent upheaval to a successful popular movement for greater freedom,’ the report says.”

I’ll go with ‘violent upheaval’ for $200.

Separately, a Hong Kong-based quality control specialist revealed that nearly half of all food inspections it conducted in China last year failed. The specialist, AsiaInspection, found 48% of 100,000 inspections and audits did not meet acceptable standards.

The main reasons for failure are deliberate mislabeling of product ingredients and the falsifying of expiration dates. And then you have your basic rogue substances, such as heavy metals.

Lastly, China has been forced to send civilian militias to secure parts of its border with North Korea in the wake of two killings of Chinese citizens by North Koreans.

China reportedly lodged a protest with Pyongyang after media reported a North Korean army deserter killed four in a robbery in the Chinese border city of Helong. There was a similar incident nearby. Most of the infiltrators are looking for food.

Nigeria: Since I wrote last week that Boko Haram may have killed as many as 2,000 people in an attack on the northern Nigerian border town of Baga, near Chad, there have been a slew of different accounts...some confirming 2,000, others 150, but the bottom line is satellite imagery shows the town was totally razed and there are now thousands of refugees. The Associated Press wrote of the bodies, “Too many to count.”

Other reports note that Boko Haram “wiped out” another 16 towns outside of Baga, with “a large number reportedly (drowning) as they crossed Lake Chad,” according to the BBC.

Editorial / Washington Post

“While the world fixated on the murder of 12 people by Islamic terrorists in Paris last week, another slow and grisly massacre was taking place in Nigeria, at the hands of Islamist militants Boko Haram....

“The heinous butchery should be a wake-up call. It’s past time for Nigeria, West Africa and the West to recognize Boko Haram for what it has become: a complex terrorism threat on a scale comparable to the Islamic State, embedded in Africa’s largest economy and most populous nation. Since January 2014, more than 5,000 have been killed in the fighting it has triggered, a count that rivals civilian casualties in Iraq and Afghanistan. The horrific violence is only intensifying....

“(The) United States and other interested governments must step up pressure on Nigeria to address issues such as the systemic corruption and low morale in the military. Despite Nigeria’s massive security budget of $5 billion, a lack of equipment, tactical mistakes, human rights abuses and internal discord have severely hampered its army’s ability to contain, much less counter, Boko Haram’s increasingly sophisticated aggression....

“Some 200,000 people reportedly have fled Nigeria into Cameroon, Niger and Chad.”

As if Baga wasn’t bad enough, a bomb strapped to a girl said to be 10 years old exploded in a busy market in the city of Maiduguri last Saturday, killing at least 16. This is in the heart of Boko Haram country.

The next day, two more female suicide bombers struck in the same general area, killing at least four.

Cuba: It is now easier for Americans to travel to Cuba than it has for more than 50 years as a new set of regulations went into effect on Friday easing decades-old restrictions on travel, business and remittances, all part of the changes Obama announced as the United States resumes normal diplomatic relations with Havana.

Airlines and travel agents will be allowed to provide service to Cuba without special licenses, ditto individual Americans. Travelers will also be allowed to use credit cards and bring back up to $400 in souvenirs, including $100 in alcohol or cigars.

And Americans will be allowed to send more money to Cubans.

The administration claims it now has confirmation 53 political prisoners have been released in accordance with the agreement reached between Presidents Obama and Raul Castro.

But there are zero assurances the Cuban government will change its repressive ways.

Random Musings

--According to a Fox News national poll, 64% of voters think the threat from Islamic extremists is increasing and another 29% says it is holding steady.

At the same time, a 55-38 percent majority says Obama is not prepared to do ‘whatever it takes to defeat Islamic extremists,’ essentially unchanged since September.

On the broad question of whether the Obama administration has made the country safer, 43 percent of voters think it has “mostly succeeded,” down 12 points from the 55 percent who felt that way in June 2012.

On a different issue, 65 percent say Obama should sign the Keystone pipeline legislation, including 82 percent of Republicans and 60 percent of independents (52 percent of Democrats). Only 22 percent believe he should veto it.

--The House voted 236-191 to block President Obama’s executive actions on immigration and end an existing program that has deferred deportation for 500,000 young immigrants called “dreamers.” House Republicans attached the restrictions to a funding bill for the Department of Homeland Security.

The legislation’s prospects are not as certain in the Senate where some are leery of using DHS as leverage at this time of increased terror threats.

Democrats accused Republicans of being anti-immigrant, while Republicans said they are only trying to rein in presidential overreach.

Homeland Security Secretary Jeh Johnson has warned Congress not to turn his department into a “political football” at a time of high alert. [Funding for DHS expires on Feb. 27.]

--A 20-year-old Ohio man was arrested shortly after he allegedly bought two assault rifles and 600 rounds of ammunition on Wednesday, according to the FBI. Agents said the man was taking the final steps towards carrying out a planned attack on the U.S. Capitol.

According to the affidavit, Christopher Lee Cornell “specifically planned that he and [the informant] would build, plant and detonate pipe bombs at and near the U.S. Capitol, then use firearms to shoot and kill employees and officials in the U.S. Capitol.”

Cornell, who had been under surveillance, told the informant he wanted to carry out the attack in support of Islamic State.

--The Secret Service removed four of its most senior officials while a fifth has decided to retire after a string of security lapses that forced the resignation of its director in October.

Acting Director Joseph P. Clancy informed the four assistant directors who oversee the core missions of the Secret Service that they need to step down from their leadership posts.

“Change is necessary to gain a fresh perspective on how we conduct business,” Clancy said in a statement to the Washington Post.

Clancy, a former leader of President Obama’s security detail, took over when Julia Pierson resigned as director.

--Hackers claiming to be aligned with Islamic State took over the social media accounts of U.S. Central Command (Centcom) and released a few documents, some with the home addresses and email accounts of retired generals, though none of the information was classified and Centcom said its operation military networks were not compromised.

In a statement, the command said, “We are viewing this purely as a case of cybervandalism.”

But the fact is ISIS was able for a time to play around with images and photos of U.S. military personnel and Centcom’s insignia, including the posting of the message “i love you isis,” with the group’s signature black flag.

--A Malaysian defense contractor pleaded guilty “in a corruption scandal of epic proportions, admitting that he bribed ‘scores’ of U.S. Navy officials with $500,000 in cash, six figures’ worth of sex from prostitutes, lavish hotel stays, spa treatments, Cuban cigars, Kobe beef, Spanish suckling pigs and an array of other luxury goods.” [Craig Whitlock / Washington Post]

This has been a long-running investigation into a decade-long corruption scheme that turned into the biggest in U.S. Navy history, with Leonard Glenn Francis “admitting that he bilked the service out of tens of millions of dollars by overcharging for food, fuel and basic services. Five current and former navy officials have pleaded guilty so far, and prosecutors have made it clear they are targeting others.” [Whitlock]

Francis faces up to 25 years in prison. The Navy’s reputation suffered a bigger blow.

--Editorial / Wall Street Journal

“If Mitt Romney is the answer, what is the question? We can think of a few worthy possibilities, though one that doesn’t come immediately to mind is who would be the best Republican presidential nominee in 2016.

“Mr. Romney told donors last week he is mulling a third run for the White House, confirming cheering whispers from his coterie of advisers. The question the former Massachusetts Governor will have to answer is why he would be a better candidate than he was in 2012.

“The answer is not obvious. The logic offered by his admirers is that voters have a case of remorse about rejecting Mr. Romney in 2012, he can raise money and knows how to run a campaign, and even Ronald Reagan didn’t win until his third try....

“Mr. Romney is a man of admirable personal character, but his political profile is, well, protean. He made the cardinal mistake of pandering to conservatives rather than offering a vision that would attract them. He claimed to be ‘severely conservative’ and embraced ‘self-deportation’ for illegal immigrants, a political killer. But he refused to break from his RomneyCare record in Massachusetts even though it undermined his criticism of ObamaCare. A third campaign would resurrect all of that political baggage – and videotape....

“The GOP should have a strong chance in 2016, after two Democratic terms of trying to take the country sharply to the left. Democrats are already preparing to run a campaign focused on economic populism and government favors to the middle class. With his instinctive belief that ‘47%’ of America would never vote for him, and his inability to defend his Bain record, Mr. Romney would be the ideal foil for such a campaign.

“Republicans are likely to have a far better field in 2016, so voters won’t lack for plausible Presidents. It’s hard to see what advantages Mr. Romney brings that the many potential first-time candidates who have succeeded as governors do not.”

--Iowa’s state Republican Party announced last weekend that the Iowa Republican Straw Poll will be held as usual this August. Many thought it should be scrapped because, frankly, it’s a total sham. Remember, in 2011 it selected Michele Bachmann, who put all her money into TV ads, and a huge party, but then finished last in the caucuses.

--New Jersey Gov. Chris Christie has caught a lot of heat for his relationship with Cowboys owner Jerry Jones, attending their playoff games, though he is an avowed fan.

The problem is he reportedly accepted tens of thousands of dollars in private jet travel from Jones to fly his entire family to one of the games and that a firm Jones owns was awarded a lucrative Port Authority contract for the World Trade Center observatory.

Christie said this week that he did not meet Jones until September of 2013, and that he had only spoken to him on the phone prior to then. The contract was awarded in March of that year.

But this is a change in Christie’s story from just a weeks earlier when he told an interviewer, “I’ve become friends with Jerry over the last five years.”

Perhaps more importantly, according to a Fairleigh Dickinson University PublicMind Poll this week, only about one-in-five New Jersey residents, just 19%, said the Christie years have been good for the average Garden State citizen. The poll found that across the board, pluralities of respondents say little has changed, whether it is taxes (a majority believing taxes and spending have gone up), the transportation system, the overall economy...he just hasn’t made a difference.

Which is what I’ve been saying for the past few years. In certain circles, such as the national media, he is way overrated and he’ll get slaughtered in Republican primary debates as his opponents bring up his lousy record, vs. say that of Governors John Kasich and Scott Walker.

--As reported by the New York Times: “In a review of 153 applications of people the (New York City) Corrections Department recently hired, city investigators found that more than one-third had problems that either should have disqualified them or needed further scrutiny. Ten had been arrested more than once; 12 had previously been rejected by the New York Police Department, six of them for ‘psychological reasons’; and 79 had relatives or friends who were current or former inmates, a potential security threat, officials said.

“The investigation found hiring practices to be in disarray: There was no screening for gang affiliation; most of the application process was not computerized; and employment screeners did not monitor phone calls between inmates and applicants.”

The biggest problem involves Rikers Island, where over the past year, 23 staff members have been arrested or referred for discipline due to accusations of excessive force, smuggling or falsification of documents and evidence.

The investigation revealed the Correction Department’s system of screening applicants is grossly inferior to that of the Police Department, even though both have essentially the same starting salary, for one.

--Former NYPD commissioner Ray Kelly declared that Mayor Bill de Blasio should “apologize” for creating a tense environment between the NYPD and City Hall.

Kelly, in remarks to a local television program, stressed especially after the terror attacks in Paris, let alone the assassination of two NYPD officers, that the two sides must come together quickly.

Meanwhile, the NYPD slowdown is definitely easing with arrests for major crimes down 15% in the past week, which was far better than a 40% drop the prior one.

But numerous stories say the NYPD made zero...zero...arrests on New Year’s Eve. Man, that’s not good. Let’s move on, guys. The mayor is not a good man, but Gotham, and the nation, needs you.

One more...current Commissioner Bill Bratton on an issue that he first started with then NYC Mayor Rudy Giuliani.

“The whole thesis of broken windows is that if, over time, you don’t address an issue, over time it’s going to create a larger issue. The weed in the garden, eventually, if left uncut, is going to kill the tree. And similarly the first time somebody painted graffiti on a subway car, in 1965, and they didn’t clean it off, it took a few years, but pretty soon all 6,000 cars were covered inside and out.”

--The New York City clinic where Joan Rivers had her fateful medical procedure is losing its accreditation at the end of the month. The Centers for Medicare Services said, “Yorkville Endoscopy no longer meets the conditions for a supplier of ambulatory surgical center services. As such, Yorkville will no longer be eligible to receive government funds for services provided to Medicare and Medicaid beneficiaries.”

Yorkville said it will seek to have the decision reversed.

--In a new Pew Research Center survey, Americans were asked which policy issues they believe should be a top priority for the Obama administration and the new Republican Congress this year. 76% say terrorism should be a policy priority, 75% say the economy. 

Only 38% thought global warming should be one, but this is actually up 10 points from 2013.

--The University of Virginia reinstated the campus chapter of the Phi Kappa Psi fraternity, which was alleged to have been the setting for a gang rape of a student in 2012, the alleged incident having been detailed in the Nov. 19 issue of Rolling Stone magazine.

Rolling Stone has since been forced to admit there were discrepancies in “Jackie’s” tale. A Charlottesville, Va., police department investigation hasn’t revealed any evidence to confirm the initial allegations.

University of Virginia officials, having suspended Greek activities for the final few weeks of the fall semester, lifted the restrictions earlier this month.

What do I always say, boys and girls? Wait 24 hours...don’t rush to judgment. Sadly, many did at UVA, and around the nation. It sucks.

--In a speech at the Vatican, Pope Francis condemned religious fundamentalism.

“Religious fundamentalism, even before it eliminates human beings by perpetrating horrendous killings, eliminates God himself, turning him into a mere ideological pretext.”

The pontiff praised Albania, one of Europe’s poorest countries, where Muslims form a majority.

Having visited it last year, Pope Francis said Albania is “a nation full of young people who represent hope for the future,” noting the atmosphere of mutual trust and respect between Muslims, Catholics, and Orthodox Christians.

“This is an important sign that sincere faith in God makes one open to others, generates dialogue and works for the good, whereas violence is always the product of a falsification of religion...whose only goal is power over others,” he said.

--Talk about underwhelming...the release of the “Best Picture” nominations for the Academy Awards. Of course I really can’t talk, seeing as I haven’t been to a movie since 2001....as in “2001: A Space Odyssey,” or so it sometimes seems. [Oops, I did see “Gravity” in Hong Kong last year.]

Anyway, none of the eight pictures nominated were box office successes and controversy erupted when there was a lack of ethnic diversity among the Oscar nominees. As in the Academy Awards are without a person of color or a Hispanic in the acting categories for the first time since 1999.

So this will be the topic of many a lame joke or comment during the awards ceremony, of this you can be sure.

But it gives Rev. Al Sharpton another platform. On Thursday he said it was “appallingly insulting in the year of 2015” that the 20 Academy Awards acting nominations went only to white actors and actresses.

“In the time of Staten Island and Ferguson, to have one of the most shutout Oscar nights in recent memory is something that is incongruous.” [New York Daily News]

Sharpton said he’ll meet next week with allies and colleagues to discuss “potential actions” before or during the Feb. 22 telecast. Oh brother.

--By the way a new Quinnipiac University poll found only 29% of New York City voters view Sharpton favorably, while 53% give him a thumbs-down. It’s the first time a solid majority see him as a “mostly negative force” in the city.

NYPD union leader Patrick Lynch fared worse...18% viewing him positively, 39% negatively, with a majority saying it was wrong for the NYPD to turn their backs on Mayor de Blasio. At the same time, 71% of New Yorkers are pleased with the performance of cops in their neighborhoods, 25% weren’t. Police Commissioner Bratton has a 56% approval rating, 31% disapproving. 41% approve of de Blasio’s handling of the NYPD, 52% disapprove, but you can imagine this is split along racial lines, with 69% of blacks blaming the NYPD for the poor relations, only 19% blaming the mayor.

Overall, de Blasio has a 49% approval rating, up from 47% a month ago. [78% approval from black voters, 54% from Hispanics, 32% from whites.]

--The Supreme Court has agreed to decide whether all 50 states must allow gay and lesbian couples to marry. It is expected they will rule before its current term ends in June. The number of states allowing same-sex marriage has grown to 36. 

--The Wall Street Journal had a front page story this week by Katy Muldoon on the Japanese tsunami barge that washed up on the Oregon coast north of Newport back in 2012, the very barge I was one of the first to see when I was out there that summer attending the U.S. Olympic Trials.

I had seen a story in the local paper and had to walk miles to reach it but it was fascinating. So the reason why the Journal did a big story on it 2 ½ years later is scientists are still startled at how many species that clung to the barge survived the journey across the wicked Pacific, but Dr. John Chapman, the man in charge when the barge was first spotted, had a simple message for those working with him when they got to it.

“Kill them...Kill them all.”

All the species, that is. Potentially very invasive species, like North Pacific sea stars, Asian shore crabs and a little fish with the name of Striped Knifejaw. “2oo exotic and potentially dangerous species.”

Dr. Chapman of Oregon State University’s Hatfield Marine Science Center in Newport says, “It was like a spaceship landed on the beach. It was impossible except for one thing: It wasn’t.”

Well the species keep washing up on the Oregon coast...snails, barnacles attached to driftwood.

“About 30% of the 265 species identified so far had never been seen in Oregon.”

The Japanese government estimates the tsunami resulted in five million tons of debris being sucked out to sea, 70% of which probably sank.

--Despite the brutally cold winter in much of the U.S. last winter, 2014 has been ruled the hottest year on record, surpassing 2010, according to various scientific studies, including from NASA and the National Oceanic and Atmospheric Administration. Earlier, a Japanese agency’s preliminary data came up with the same conclusion.

The ocean surface, except around Antarctica, was unusually warm. I would have dipped my toe in except I’m scared of sharks and moray eels. 

--A new paper published in the journal Science by 18 researchers trying to gauge the breaking points in the natural world concludes the Earth in the coming decades could cease to be a “safe operating space” for human beings.

There are four “planetary boundaries”: the extinction rate; deforestation; the level of carbon dioxide in the atmosphere; and the flow of nitrogen and phosphorous (fertilizer) into the ocean.

It’s the last one, fertilizer, which concerns me the most. It’s what’s killing Australia’s Great Barrier Reef, for example. It’s also something the average human can understand. [Joel Achenbach / Washington Post]

---

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

God bless America.
---

Gold closed at $1276...up $60 on the week to the highest since 8/29/14.
Oil $48.69...barely breaks 7-week losing streak.

Returns for the week 1/12-1/16

Dow Jones -1.3% [17511]
S&P 500 -1.2% [2019]
S&P MidCap -0.7%
Russell 2000 -0.8%
Nasdaq -1.5% [4634]

Returns for the period 1/1/15-1/16/15

Dow Jones -1.8%
S&P 500 -1.9%
S&P MidCap -1.5%
Russell 2000 -2.3%
Nasdaq -2.2%

Bulls 48.0
Bears 16.3 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

 



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Week in Review

01/17/2015

For the week 1/12-1/16

[Posted 10:30 PM ET, Friday]

Edition 823

Washington and Wall Street

Starting off with some economic news, the World Bank issued its bi-annual outlook for global growth, 3% in 2015, 3.3% in 2016; down from June’s 3.4% and 3.5% estimates.

The WB lifted its U.S. outlook to 3.2% this year from 3.0%.

It slashed the eurozone forecast from 1.8% to 1.1% in 2015, with Russia contracting 2.9%, while it sees China growing 7.1% this year and Japan 1.2%.

[The IMF issues its latest outlook this coming week.]

In the U.S., on Wednesday, the government reported a shockingly poor retail sales number for December, down 0.9%, owing to falling fuel prices, but the core rate, ex-fuel sales and other stuff, still declined 0.4%.

In keeping with the decline in crude, the December figures on producer and consumer prices were also down.

The PPI fell 0.3%, though ex-food and energy was up 0.3%. For all of 2014, producer prices rose 1.1%, up 2.1% on core.

The CPI fell 0.4% for December, the biggest decline in six years, though unchanged ex-food and energy. For the year, consumer prices rose only 0.8%, 1.6% on core.

December industrial production fell 0.1%, basically in line with expectations.

The National Retail Federation released its final look at holiday sales for November and December and they came in up 4.0%, or a tick below its 4.1% initial estimate. I said I would go with the NRF’s number and 4% is not bad.

The Wall Street Journal’s survey of 66 economists revealed a consensus of 3.0% for GDP growth in 2015, while the New York Times’ Neil Irwin gave some reasons why he sees higher wages, as do I. There are far more job openings, according to the Labor Department’s figures; the National Federation of Independent Business says its latest survey shows the highest level of optimism among small businesses around the country since 2006; and then Mr. Irwin points out the example of Aetna, which announced it would raise pay for its minimum hourly workers 11%, hiking them to about $33,000 a year for a 40-hour week, while offering new health benefits for low-income workers that the company says could save employees up to $4,000.

CEO Mark Bertolini said, “It’s not just about paying people, it’s about the whole social compact.”

A note on the budget deficit...the government reported for all of 2014 it was $488 billion, $72 billion less than 2013 and only 2.8% of GDP, which is historically good. The fiscal 2014 deficit for the year ending 9/30/14 was $483 billion. But there’s a caveat.

Editorial / Wall Street Journal

“The Fed disclosed in preliminary unaudited results that its Reserve Banks turned over no less than $98.7 billion to the Treasury in 2014. Most of that is interest income from the Fed’s purchase of bonds under its various quantitative easing programs that have expanded its balance sheet to $4.5 trillion or so in assets....

“In the six years since 2009, the Fed has contributed a remarkable $468.8 billion to Treasury....

“For perspective, the entire federal budget deficit for fiscal 2014, which ended in September, was $483 billion. Without the Fed’s windfall, it would have been nearly $100 billion more. Corporate income tax revenue in 2014 was $321 billion, so the Fed turned over nearly 30% of the amount provided by every American corporation.

“Treasury is spending the Fed’s windfall, naturally, which means that when the QE (quantitative easing) boom ends the country will have to spend that much less or find the revenue somewhere else. The danger is that politicians are getting used to the money, which is one more reason for the Fed to begin winding down its balance sheet sooner rather than later.”

Finally, President Obama gives his State of the Union address on Tuesday and this week he met with Republican congressional leaders at the White House, promising to veto any legislation that tries to roll back his executive actions on immigration and authorization for the Keystone XL oil pipeline. Immediately GOP leaders, who believe they received a midterm-election mandate to negotiate with Democrats after years of inaction, were miffed.

“The president seems to think we should start only by presenting the ideas that he likes,” Rep. Tom Cole (R-Okla.), an ally of GOP leaders, said Tuesday. “He’s the president of the United States – he’s not the emperor of the universe.” [Washington Post]

Oil

The price of crude, as measured by West Texas Intermediate, continued to slide, trading under $45 a barrel before recovering some by week’s end to $48.69, up a smidge. U.S. drillers laid down 61 rigs for the week of 1/5, which was the most since 1991, but then another 74 for the week of 1/12. 44 of the 74 were in Texas.

This week’s reasons for the further decline in crude until late Friday came from the likes of the United Arab Emirates, whose oil minister said OPEC would stand firm on its decision to keep output unchanged.

Saudi billionaire Prince Alwaleed bin Talal said in an interview with Maria Bartiromo for USA TODAY that it’s about oversupply in the market and slowing growth around the world. “There’s less demand and there’s oversupply. And both are recipes for a crash in oil. And that’s what happened. It’s a no-brainer.” Prince Alwaleed then said “I’m sure we’re never going to see $100 anymore.”

Goldman Sachs said it expected U.S. crude to average $47.15 a barrel this year, down from a previous prediction of $73.75.

China actually imported 13% more crude oil in December than a year earlier but it didn’t matter.

AAA reported the price of a gallon of regular had declined to a national average of $2.08 on Friday vs. an April 28 peak of $3.70.

So the low prices at the pump have some politicians such as Tennessee Republican Sen. Bob Corker calling for a hike in the federal gas tax, currently 18.4 cents a gallon, a figure that has held steady since 1993! Corker wants to see the federal Highway Trust Fund replenished. It’s currently running at a huge annual deficit and road and bridge work is going wanting.

But others want to see any increase go to the states to let them distribute it for projects as they see fit. Or eliminate the federal gas tax altogether and let the states decide what kinds of fees to add.

This is going to be a big debate coming up in Congress because a temporary highway funding bill expires in May.

Europe and Asia

The Swiss National Bank early Thursday morning unexpectedly scrapped its cap on the franc vs. the euro, sending Swiss stocks plunging while the value of the franc vs. the euro soared an unprecedented 30%. The Swiss stock market fell 8.7%, or the equivalent of about 1,500 points on the Dow Jones.

Editorial / The Economist

“Currencies don’t normally move that far on a daily basis – 2 to 3% is a big shift. The exception is when a country on a fixed exchange rate suffers a devaluation; then a 20-30% fall is a possibility. But a 20-30% plus upward move is almost unprecedented. That, however, is what happened to the Swiss franc on January 15th, as Switzerland’s central bank abandoned its policy of capping the currency at Sfr1.20 to the euro. Only a month ago, the central bank said it would enforce the policy with the ‘utmost determination.’

“The minimum exchange rate was introduced during a period of exceptional overvaluation of the Swiss franc and an extremely high level of uncertainty on the financial markets. This exceptional and temporary measure protected the Swiss economy from serious harm. While the Swiss franc is still high, the overvaluation has decreased as a whole since the introduction of the minimum exchange rate. The economy was able to take advantage of this phase to adjust to the new situation.

“The move clearly came as a complete shock for the markets... The currency cap had been controversial, since it required the central bank to create unlimited amounts of francs in order to cap the exchange rate. Whenever the franc looked in danger of breaching the cap, the bank could simply sell the newly-created currency to drive it back down again. The effect was to push up the bank’s balance sheet to some 60% of Swiss GDP, and giving the bank an estimated $56 billion in foreign assets; it will be nursing a big loss on such assets as a result of today’s action....

“The effect of such a big currency move may be significant; Capital Economics, a consultancy, says that some 60% of Swiss exports go to the eurozone and the United States, and its exporters will be a lot less competitive after such a shift.”

Mark Gilbert / Bloomberg

“The Swiss National Bank’s shock move today to stop intervening in the foreign exchange market all but guarantees the European Central Bank will finally introduce quantitative easing when it meets Jan. 22. Switzerland is surrendering before a wave of post-QE money fleeing the euro threatens to make a mockery of its currency policy. It’s also capitulating as slumping oil brings global deflation ever closer.

“It’s an astonishing U-turn. Just two days ago SNB Vice President Jean-Pierre Danthine told Swiss broadcaster RTS that ‘we’re convinced that the cap on the franc must remain the pillar of our monetary policy.’ He added, though, that it was ‘very possible’ that QE would make defending the threshold more difficult. It seems highly probable that the ECB has winked about its policy intentions to its Swiss counterparts.

“The ensuing whipsaw in the currency market is unprecedented. The franc immediately appreciated almost 30 percent against the currencies of the Group of Ten industrialized nations, and surged to a record against the euro.

“The Swiss central bank has capped the franc’s value since September 2011, intervening to sell its own currency whenever it threatened to strengthen beyond 1.20 per euro. The policy was designed to protect the economy from safe-haven seeking investors propelling the currency higher, and trashing exports....

“The official explanation posted on the central bank’s website is that the Swiss economy ‘was able to take advantage of this phase to adjust to the new situation,’ and that the dollar’s surge has offset euro weakness. Swiss exporters aren’t convinced: Swatch Group AG Chief Executive Officer Nick Hayek immediately called it a ‘tsunami for the export industry and for tourism, and finally for the entire country.’ Exports of Rolexes and other watches account for more than 10 percent of the country’s exports.”

Editorial / Wall Street Journal

“The prediction that 2015 will be a year of currency turmoil is already coming true. Under pressure from the eurozone’s devaluation policy, Switzerland’s central bank on Thursday abruptly dropped its currency peg to the euro and sent global markets reeling. This won’t be the last currency shock as the world’s big central banks go their own way in frantic attempts to spur a slowing global economy....

“(The peg introduced in 2011) worked very well....

“The Swiss National Bank maintained the peg of 1.20 francs per euro by buying foreign currency, mainly euros, as needed. The peg helped the Swiss avoid deflation and protected its businesses from currency whiplash. More than half of Swiss exports go to European Union countries.

“The end of the peg is thus a net loss for stable money and perhaps for economic growth, though the Swiss were finding the peg harder to support as the European Central Bank continues to seek a lower euro. The SNB had to buy ever more euros to maintain the peg, and its cost was growing for the relatively small central bank.”

The SNB is taking a big loss on its euro holdings with the franc soaring against the euro, but the bankers figured future losses would be even greater when inevitably they’d have to break the peg.

WSJ:

“The immediate trigger is the European Central Bank’s widely anticipated plunge next week into full-fledged quantitative easing. Everyone seems to anticipate the ECB will buy the bonds of European governments, perhaps as much as $500 billion, in its latest attempt to revive the stagnant Continental economy.

“The euro fell again Thursday in anticipation of the ECB move to about 1.16 against the dollar, down from about 1.39 in May. Markets understand that European politicians want a weaker euro to boost European exports by riding on faster U.S. growth. The Swiss, as a small economy closely tied to Europe’s but outside the eurozone, had to move or get run over.”

Mohamed El-Erian / Financial Times

“You need only look at the immediate reaction of the foreign exchange markets to the Swiss National Bank’s announcement on Thursday that it was dismantling its one-sided currency peg against the euro to get a sense of the momentous and surprising nature of the decision....

“The implications of this historic policy turnaround extend well beyond a period of bumpy economic and financial adjustment for Switzerland itself. They risk destabilizing some other countries and decision-making in the neighboring eurozone will become even more complicated and contentious....

“In implementing its Sfr1.20 floor against the euro three years ago, the SNB aimed to protect Switzerland from excessive volatility occasioned by the eurozone’s debt crisis. The approach served the country well as the European Central Bank took steps to overcome the crisis.

“But the ECB’s successful crisis management phase did not hand off to a comprehensive European policy response that produced growth; and with other policy-making entities failing to step up fully to their responsibilities, it has again fallen to the ECB to lead the policy response – and to do so in the context of large and growing divergence between the eurozone and the U.S. when it comes to both economic performance and policy prospects....

“Then there are the consequences for a global economy which, in the absence of a comprehensive policy response in the advanced world, has ended up overly reliant on central bank interventions. Given that their tools cannot reach directly and sufficiently at what holds back growth and jobs, these central banks have been forced to use the partial channel of financial asset prices to influence real economic outcomes.

“To this end, central banks have sought to repress market volatility as a means of encouraging risk taking that would then boost asset prices and thus encourage greater household consumption (via the wealth effect) and corporate investment (via animal spirits).

“The SNB’s decision is further evidence that central banks are finding it harder to implement a policy of volatility repression that already was being challenged by the growing divergence in policy prospects between the eurozone and the U.S.”

As a result of the turmoil created in the SNB’s move, Deutsche Bank AG and Citigroup said they suffered about $150 million in losses, while Barclays PLC said its losses were below $100 million. A New Zealand foreign-exchange trading house collapsed. And a major U.S. currency broker, FXCM, warned its equity was wiped out but late Friday was saved by investment firm Leucadia National Corp., which is lending it $300 million to get back on its feet (at 10% interest). FXCM’s shares didn’t open all day on the New York Stock Exchange.

Further stories to follow in the coming days, no doubt.

But back to the European Central Bank, next Thursday, Jan. 22, the ECB better act...and act aggressively, or the markets will absolutely tank. Expectations are high. Sky high when one looks at eurozone bond yields in the likes of Italy and Spain, for example.

Earlier this week, the European Court of Justice ruled the ECB’s crisis-fighting plan to buy government bonds through its Outright Monetary Transactions (OMT) program was compatible with EU law and fell under the domain of monetary policy. This was an important hurdle for ECB President Mario Draghi and gives him the legal backing when some in Finland and Germany, for example, dissent. The German constitutional court had previously questioned the legality of the OMT and its “potentially unlimited” nature.

In an interview on Wednesday, Draghi said, “All members of the Governing Council of the ECB are determined to fulfill our mandate.” To boost prices, the ECB “has to keep interest rates low and work toward an expansive monetary policy. The risk of deflation is still low, but it is certainly bigger than a year ago.”

Friday, Draghi briefed German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble on how QE would actually take place; national central banks would buy bonds issued by their own country; which would be a way of avoiding a transfer of risk between eurozone member states.

[But the Financial Times reports Friday night that Draghi “bowed to German pressure to ensure that its taxpayers are not liable for any losses incurred on other countries’ debt.”]

As for the other big issue facing Europe and the eurozone, the Greek election of Jan. 25, I’ll have more on this next time but the polls haven’t really changed. The leftist Syriza Party of Alexis Tsipras has about a 3-point lead over ruling New Democracy, with Tsipras trying to reassure everyone he does not want to leave the euro bloc, but he does want to roll back some of the budget cuts and this is a big deal for the troika; the European Commission, ECB and IMF, which oversees the bailout. 

There is a timing issue in that the current aid agreement for Greece expires end of February, so any new government must act fast. [A separate IMF program will go beyond February for a spell.]

One player has emerged as a potential thorn for Greece and that is Finland, which has told its eurozone partners it will not support debt forgiveness, another goal of Tsipras and Syriza.

Finally, remember, as I’ve written the past few weeks, just because Syriza might win the vote, and the 50-seat bonus that goes along with being the leading vote-getter, that doesn’t mean they will be able to form a government. I don’t think it’s going to be easy.

There were some economic reports for the eurozone and its members this week.

Eurozone industrial production in November rose 0.2% over October, though it was down 0.4% year over year. That said there was a solid consumer goods growth reading as part of the report.

Individually, I noted last week that Germany’s industrial production fell 0.1% in November and I just wanted to add that France’s was down 0.3% over October, Spain’s was down 0.1%, and Italy’s rose 0.3% November over October.

Germany also reported its first balanced budget since 1969, a year ahead of schedule, though many in the eurozone ridicule this when growth is as putrid as it is throughout the continent. Germany’s government did report its economy grew 1.5% in 2014, the strongest figure in three years (a preliminary estimate), while the economy grew 0.4% in 2012 and just 0.1% in 2013. Exports rose 3.7% in 2014 vs. a 1.6% increase in 2013.

Italy reported bank loans to the private sector fell 1.6% in November, year over year. Not good.

And in the U.K., its inflation rate in December, up 0.5% annualized, was the lowest in 15 years.

So speaking of inflation, Eurostat reported the final inflation data for the eurozone in December, down 0.2% annualized, same as an earlier estimate. Prices were down 2.5% in Greece, 1.1% in Spain. They were up just 0.1% in both France and Germany. Down 0.1% in Italy.

There was a bit of good news on the car front, though. European auto sales rose for the first time in seven years in 2014, off a two-decade low. December sales were up 4.9% from a year earlier.

For 2014, Spain’s increased 18%, the U.K.’s 9.3%, Italy’s 4.2%, Germany’s 2.9% and France’s 0.3%.

Turning to Asia, China’s vehicle sales were forecast to rise 7% in 2015, the same pace as last year and just half that of 2013. (GM’s were up 12% in China last year, while Ford reported record sales).

December exports in China rose 9.7% year over year, better than expected. For the full year, exports were up 6.1%, lower than the 7.5% target.

Exports to the U.S. in December were up 9.9% yoy, but down to Japan for a fifth straight month.

China’s fourth quarter GDP figure is released Jan. 20.

In Japan, the government released a record budget, with GDP estimated to increase 1.5% for the fiscal year ending March 2016, according to the Cabinet Office. Prime Minister Abe desperately needs Japanese companies to pass on some of their cash to workers in the form of higher wages.

Debt-to-GDP is expected to rise to 245% in 2015, according to the IMF.

Europe and Radical Islam

Speaking to reporters flying with him to the Philippines, Pope Francis said of freedom of speech:

“If my good friend Doctor Gasparri [who organizes the Pope’s trips] speaks badly of my mother, he can expect to get punched,” he said, throwing a pretend punch at the doctor, who was standing beside him.

“You cannot provoke. You cannot insult the faith of others. You cannot make fun of the faith of others. There is a limit.”

While this was seen as controversial, the Pope was misconstrued and made it clear later he was not making an excuse for the terror attack on Charlie Hebdo in Paris.

But I don’t necessarily disagree with what Francis said. Here’s what struck me about the estimated 3-4 million marching in Paris last Sunday in unity against terrorism and fanaticism. You hope people become more aware and more willing to give up information and suspicions; most nations need more police resources; civil liberties, especially in Europe, ironically may be restricted some; but mostly you hope the world harbors this moment and that it is about more than showing up and displaying some banners.

Unity alone doesn’t deter attacks.

As for what we’ve learned since the Paris attacks, al-Qaeda in the Arabian Peninsula (AQAP) claimed responsibility for the attack on Charlie Hebdo.

Amedy Coulibaly, the gunman in the kosher supermarket attack, pledged allegiance to ISIS in a video, and we learned he had married Hayat Boumeddiene in a Muslim ceremony. Boumeddiene was seen on video at the airport in Istanbul clearing passport security and is in Syria.

We also learned of Lassana Bathily of Mali, the young Muslim employee at the supermarket who emerged as a real hero and saved lives by helping hide people in the cold storage room in the basement.

It is now estimated 1,000 French (3,000 Europeans overall) have gone to Syria and Iraq, with many now having returned.

For their part, the French dropped surveillance of the Kouachi brothers six months before the attacks as they were deemed a low risk.

It’s also clear there were other intelligence failures, including a warning the day before the attack from Algeria.

Said Kouachi had trained with AQAP in Yemen in 2011.
France deployed 10,000 troops across the country.

French Prime Minister Manuel Valls declared: “We are at war – not a war against a religion, not a war against a civilization, but to defend our values, which are universal. It’s a war against terrorism and radical Islamism, against everything that would break our solidarity, our liberty, our fraternity....

“Everyone must take responsibility – politicians and citizens alike.”

Some Muslims were angered all over again when Charlie Hebdo was “reborn”, as President Francois Hollande declared after the magazine sold out of its initial 3 million copies in hours. Turkish Prime Minister Davutoglu condemned the cover of a weeping Prophet Muhammad as an “open provocation.” At least four people were killed in violent protests Friday against French interests in Niger’s second city of Zinder. The French cultural center was among several buildings raided and torched.

Thursday, Belgian authorities launched a raid on a suspected terror cell in Verviers, killing two with no police hurt. As of this post, 17 others have been rounded up throughout the country. The jihadists had just returned from Syria. [Recall, in May last year, four people were killed inside the Jewish museum in Brussels. A Frenchman of Algerian descent is in custody over the attack.]

Other developments....

A quarter of Jews in Britain have considered leaving the country in the last two years and well over half feel they have no long term future in Europe, according to a survey published on Wednesday. [Jerusalem Post]

Chancellor Angela Merkel promised to protect Jews and Muslims living in Germany from prejudice. At the same time a poll conducted before the Paris attacks said 57% of non-Muslims in Germany felt threatened by Islam.

Israeli Prime Minister Benjamin Netanyahu caught heat for reaching out to Jews in France and throughout Europe.

“I want to tell the Jews of France and the Jews of Europe – the State of Israel is your home.”

The Jewish Agency said that about 7,000 of France’s estimated half a million Jews left for Israel in 2014, up from 3,300 in 2013. Before the terrorist attack, the organization was forecasting as many as 10,000 Jews from France would move to Israel in 2015. [Wall Street Journal]

Natan Sharansky warned Israeli leaders against remarks encouraging immigration. Tzipi Livni, who is running against Netanyahu in elections set for March 17, said on Sunday that Jews should come to Israel because of Zionist ideology, “not because it is a safe haven.” Livni said asking Jews to leave France won’t improve safety for European Jewry. [Wall Street Journal]

Charles Krauthammer / Washington Post

“On Sunday, at the great Paris rally, the whole world was Charlie. By Tuesday, the veneer of solidarity was exposed as tissue thin. It began dissolving as soon as the real, remaining Charlie Hebdo put out its post-massacre issue featuring a Muhammad cover that, as the New York Times put it, ‘reignited the debate pitting free speech against religious sensibilities.’

“Again? Already? Had not 4 million marchers and 44 foreign leaders just turned out on the streets of France to declare ‘No’ to intimidation, and pledging solidarity, indeed identification (‘Je suis Charlie’) with a satirical weekly specializing in the most outrageous and often tasteless portrayals of Muhammad? And yet, within 48 hours, the new Charlie Hebdo issue featuring the image of Muhammad – albeit a sorrowful, indeed sympathetic Muhammad – sparked new protests, denunciations and threats of violence, which in turn evinced another round of doubt and self-flagellation in the West about the propriety and limits of free expression. Hopeless.

“As for President Obama, he never was Charlie, not even for those 48 hours. From the day of the massacre, he has been practically invisible. At the interstices of various political rallies, he issued bits of muted, mealy-mouthed boilerplate. Followed by the now-famous absence of any high-ranking U.S. official at the Paris rally, an abdication of moral and political leadership for which the White House has already admitted error.

“But this was no mere error of judgment or optics or, most absurdly, communications in which we are supposed to believe that the president was not informed by staff about the magnitude, both actual and symbolic, of the demonstration he ignored. (He needed to be told?)

“On the contrary, the no-show, following the near silence, precisely reflected the president’s profound ambivalence about the very idea of the war on terror....

“(But) the war on terror 2015 is at a new phase with a new geography. At the core are parallel would-be caliphates: in Syria and Iraq, the Islamic State; in Sub-Saharan Africa, now spilling out of Nigeria into Cameroon, a near-sovereign Boko Haram; in the badlands of Yemen, AQAP, the most dangerous of all al-Qaeda affiliates. And beyond lie not just a cast of mini-caliphates embedded in the most ungovernable parts of the Third World from Libya to Somalia to the borderlands of Pakistan, but an archipelago of no-go Islamist islands embedded in the heart of Europe.

“This is serious. In both size and reach it is growing. Our president will not say it. Fine. But does he even see it?”
Rich Lowry / New York Post

“It’s settled: The Paris terror attacks had almost nothing to do with Islam.

“Consider that on the one hand, you have the chilling new tape of the Charlie Hebdo attackers declaring, ‘We have avenged the Prophet Muhammad,’ and on the other, you have the tortured assurances of White House spokesman Josh Earnest. Which are you going to believe?

“The Obama administration’s mind-bogglingly determined refusal to say that we are at war with ‘radical Islam,’ together with the left’s evasions about Islamic terrorism, means that there has been a haze of euphemism around what should be a galvanizing event in the West’s fight against terror....

“Asked why the administration won’t say we are at war with radical Islam, Earnest explained the administration’s first concern ‘is accuracy. We want to describe exactly what happened. These are individuals who carried out an act of terrorism, and they later tried to justify that act of terrorism by invoking the religion of Islam and their own deviant view of it’ (emphasis added)....

“It was in this spirit that State Department deputy spokesperson Marie Harf said that the militants of Boko Haram ‘claim to be active in the name of Islam’ (emphasis added).

“So add alleged insincerity to the list of offenses that can be attributed to the hideous group formally known as People Committed to the Propagation of the Prophet’s Teachings and Jihad....

“There is a broad war of ideas within Islam between the forces of reaction and violence and the forces of moderation and modernity. The threat of radical Islam won’t diminish until that war is won, no matter how much the U.S. government wants to obscure it with its verbal fog machine.”

Editorial / New York Daily News

“Displaying powerful symbolic unity, in fitting and proper testament to the defense of civilization, more than 40 world leaders linked arms to lead the mass march in Paris in resolve against Islamist terror.

“The United States of America, Barack Obama, President, was inexcusably absent from one of the most critical turning points in the war between radical Islam and the West since 9/11.

“No Obama. No Joe Biden. No John Kerry from State. No Chuck Hagel or Ashton Carter from Defense. Not even Eric Holder from Justice, who happened to have been in Paris.

“Yet there was British Prime Minister David Cameron, German Chancellor Angela Merkel, Russian Foreign Minister Sergei Lavrov, Turkish Prime Minister Ahmet Davutoglu, Jordan’s King Abdullah and so many others – most extraordinarily including Israeli Prime Minister Benjamin Netanyahu and Palestinian Authority President Mahmoud Abbas.

“All linked arms with French President Francois Hollande, leader of the country where terrorists killed 17 in a deliberate attack on democratic values, leader of one of America’s most stalwart allies in the war on terror.

“Still worse, Obama’s abdication of leadership reflects a larger presidential failure to convey the gravity of the Charlie Hebdo attack, even if the substance of his anti-terror policy remains strong.”

As for the far right in Europe, Marine Le Pen, leader of France’s National Front party, was excluded from Sunday’s march, which she said made a mockery of the concept of national unity and was itself a violation of “freedom of expression.” She also accused the political elite of “astounding cowardice” to isolate “the only political movement that has no responsibility in the current situation, nor do its millions of voters.”

Le Pen said her supporters would see her exclusion as a “tribute” to their power, saying, “They will have the opportunity if they wish to express their opinion at the ballot box.” [Sydney Morning Herald]

In an interview Monday with the Washington Post, Le Pen added there should be dramatic new steps in France to cope with homegrown terrorism – including a crackdown on the financing of “radical” mosques and Islamic associations. She also argued that French Jews are now best served by the National Front because her party is standing against anti-Semitism in France.

“For many years, the FN has been the only political party that has been ringing the alarm bells, and we have not been heard.”

A flash poll for YouGov showed that Nigel Farage’s United Kingdom Independence Party (UKIP) had picked up four points to 18 percent in four days.

In Dresden, Germany, the largest crowd yet, 25,000, turned out for the anti-Islamist Pegida organization’s rally on Monday, 7,000 more than a week earlier. In response, Chancellor Merkel attended an anti-Pegida rally on Tuesday in Berlin that also attracted 25,000.

An anti-euro party, the Alternative for Germany, has seen its support increase to 7% in recent polls.

Editorial / Washington Post

“(Responsible) leaders must try to prevent exploitation of the attacks by right-wing populists who seek to scapegoat the Muslim population, stigmatize Islam and promote an agenda of xenophobia. In France...Marine Le Pen leads mainstream conservatives in early polling for the 2017 presidential election. In Germany, weekly anti-Muslim marches have been gathering dangerous momentum. The worst result of this week’s events would be the acceleration of political polarization based on religion and national origin.”

Gideon Rachman / Financial Times

“Public moods are ephemeral. But there are grounds for hoping this weekend’s rallies will be a turning point and remind French citizens of what unites them rather than what divides them.

“Unfortunately, a realistic assessment must also acknowledge that it is just as likely that – over time – the terrorist attacks will lead to even more bitter polarization. The far-right National Front (FN), whose leaders were conspicuously not invited to the march on Sunday, is well placed to capitalize on the outrage....

“Ms. Le Pen is a very effective politician who has done a lot to soften the image of the FN. But it is still a deeply racist party. According to a recent Ifop poll, while 65 percent of French people agree that a Muslim is a French person ‘like any other,’ just 21 percent of FN sympathizers agree. Some 51 percent of FN supporters say they would not want a Jew to be president of France and 28 percent would not want to be treated by a Jewish doctor.

“The direction that France now takes matters hugely to the rest of the world. For all its troubles, the country remains one of the largest economic and military powers in the world and an indispensable member of the EU. A France revitalized by this weekend’s demonstration of unity would revitalize Europe. But if France, the country with the largest Muslim population in the EU, succumbs to inter-communal tensions and political extremism, the rest of Europe will draw a dismal lesson.”

Street Bytes

--Stocks fell a third straight week in highly volatile trading, with the Dow Jones losing 1.3% to 17511, while the S&P 500 lost 1.2% and Nasdaq fell 1.5%. As described below the earnings releases from the investment banks were lousy, but Alcoa and Intel were solid. The next two weeks see the real crush of reports.

Fourth-quarter earnings estimates have been coming down hard due to the coming bad news out of the energy companies.

And it needs to be noted that the strong dollar will eventually take more of a toll than it already has as 40% of the S&P 500’s profits are generated overseas.

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.48% 10-yr. 1.84% 30-yr. 2.45%

The yield on the 10-year got down to 1.70%, the lowest since May 2013, while the 30-year at one point hit an all-time record low yield of 2.35%.

Eurozone bond yields registered new lows. Germany’s 10-year hit 0.41% before finishing the week at 0.45%. France closed at 0.63%. Spain 1.49%, Italy 1.65%. Greece is at 9.01%.

--Schlumberger, the world’s largest oil services company, plans to cut 9,000 jobs due to falling oil prices. The company is reducing capital spending to $3 billion this year from $4bn in 2014, which actually isn’t as bad a cut as some were expecting.

--BP announced it was cutting an estimated 200 staff jobs and another 100 contracting jobs due to, you guessed it, falling oil prices.

--Royal Dutch Shell and UK-based Premier Oil announced they were scrapping or putting on hold major oil and petrochemicals projects. One abandoned plan by the two is a $6.5 billion petrochemical plant with Qatar Petroleum, with the Anglo-Dutch major blaming “the current economic climate prevailing in the energy industry.”

Premier said it was putting on hold a $2 billion project off the Falkland Islands until there was a recovery in prices.

--Canadian Natural Resources said it was reducing its capital expenditure forecast for this year from $8.5 billion to $6 billion. Suncor Energy, which operates largely in Canada’s oil sands, axed 1,000 workers.

--And Apache Corp. said it is laying off 250 employees this week as another major oil producer cuts back.

--George Will / Washington Post

“Not since the multiplication of the loaves and fishes near the Sea of Galilee has there been creativity as miraculous as that of the Keystone XL pipeline. It has not yet been built but already is perhaps the most constructive infrastructure project since the Interstate Highway System. It has accomplished an astonishing trifecta:

“It has made mincemeat of Barack Obama’s pose of thoughtfulness. It has demonstrated that he lacks even a rudimentary understanding of the most basic economic realities. It has dramatized environmentalism’s descent into infantilism.

“Obama entered the presidency trailing clouds of intellectual self-regard. His carefully cultivated persona was of a uniquely thoughtful, judicious, deliberative, evidence-driven man comfortable with complexity. The protracted consideration of Keystone supposedly displayed these virtues. Now, however, it is clear that his mind has always been as closed as an unshucked oyster.

“America built the Empire State Building, then the world’s tallest office building, in 410 days during the Depression. We built the Pentagon, still the world’s largest low-rise office building, in 16 months while waging a war across two oceans. Keystone has been studied for more than six years. And Obama considers this insufficient?....

“The United States has more than 2 million miles of natural gas pipelines and approximately 175,000 miles of pipelines carrying hazardous liquids, yet we are exhorted to be frightened about 1,179 miles of Keystone?”

--China’s Xiaomi announced it was aggressively going after Apple as it unveiled a new smartphone, the Mi Note, that the world’s third-biggest smartphone maker said is a direct challenge to the iPhone 6 Plus. At $371, the Mi Note will retail for almost two-thirds less than Apple’s model.

Xiaomi, all of three years old, was valued in December at $45 billion following a $1.1 billion round of fundraising.

The company has been accused of copying other tech companies, most notably Apple. But CEO Lei Jun counters, “In 10 years we will have tens of thousands of patents.”

Lei plans to connect Xiaomi’s smartphones with Xiaomi-branded home appliances, allowing phone users to remotely control washing machines, air purifiers and surveillance cameras.

Facebook has been rumored as a potential investor in Xiaomi, though a deal has not been finalized as yet. [South China Morning Post / Reuters]

--After reporting earnings that fell short of expectations due to a $990 million after-tax charge for legal expenses, JPMorgan CEO Jamie Dimon said investors should expect further legal expenses this year.

“Banks are under assault,” Dimon said, noting that JPM has to deal with “five to six regulators” for every aspect of its legal issues. 

JPMorgan’s total revenue fell 3% from a year ago, with fixed-income revenue down 23%. [The FT said 14%.]

Still, don’t cry for the bank as it earned $21.8 billion last year, up 21% from 2013.

--Citigroup fell short of expectations due to a sharper-than-expected drop in trading revenues, particularly in fixed income, down 14% for the fourth quarter.

--Bank of America was another hit by falling fixed income trading revenues, down 21%. BofA missed on both the top and bottom line, with revenue falling to $19bn from $21.7bn in the same period a year ago.

--Goldman Sachs saw its revenues fall 12%, with earnings slightly beating expectations when in the good old days, Goldman would slaughter them. Revenues in its fixed income area fell 29%, while sales from the equity trading side rose 15%.

--The world’s largest asset manager, BlackRock, reported flat revenue and net income that was less than the fourth quarter of 2013.

--Intel handily beat expectations on fourth quarter earnings and revenues, but the shares slipped on a first quarter sales forecast that was less than analysts had expected. Its full-year outlook remained in line with earlier comments by the company.

Over half of Intel’s sales still come from the PC market which has largely stabilized the past 18 months.

--Target Corp. announced it is shutting down its money-losing Canadian operation, after having spent $4 billion over the years in setting up 133 stores in the Great White North. The division has lost $2.5 billion over the past two years and the company didn’t see it turning profitable until 2021. Target employs 17,600 in Canada. New CEO Brian Cornell has moved aggressively to cut the cord.

Cornell’s initiatives in the U.S., however, appear to be bearing fruit as the company expects to report a 3% same-store sales increase in the U.S. over the holidays. The shares rose on the news of the Canadian decision, which is obviously a big blow to a Canadian workforce already facing a down cycle in its energy industry. Most Target employees will receive 16 weeks’ severance pay.

--Alcoa reported strong earnings and gave an upbeat outlook for this year based on demand in the aerospace and automotive sectors. Each $10 drop in the price of a barrel of oil also adds about $40 million to net income, due to cheaper energy to power two of its oil-fueled smelters, as well as lower transport costs.

Alcoa CEO Klaus Kleinfeld deserves major kudos for bringing his company back from the brink in a rapid turnaround.

--After the close on Friday, AT&T announced it was taking a pretax loss of $7.9 billion to account for changes in its pension and retiree benefit plans. It’s also including a $2.1 billion noncash charge for copper assets no longer needed as customer demand declines for older voice and data products.

But the pension charges are an annual event.

--Speaking of copper, prices hit a 5 ½-year low on Wednesday before bouncing back some. Copper has always been viewed as an economic barometer, more so than oil. Today, it’s largely about growth fears in China.

--Home sales in six-county Southern California rose 4.3% in December vs. year ago levels, according to CoreLogic DataQuick; just the second time in a year that volume has increased on an annual basis.

--Australia’s unemployment rate dropped to 6.1% in December from a revised 6.2% in November.

--Tiffany’s U.S. holiday same-store sales were off a surprising 1%, though some of this fourth-quarter weakness could be the result of fewer foreign tourists owing to the strong dollar.   Worldwide net sales also fell 1% for November-December. Sales in the Asia-Pacific region jumped 10%, but comp store sales in Japan fell 8%. Sales in Europe rose 9%.

Tiffany gave weak guidance for 2015, saying the company would be buffeted by the stronger U.S. dollar, which “negatively affects both the translation of results and sales to tourists in the U.S.,” said President Frederic Cumenal. The shares got slammed in response, though they were trading at a high multiple to begin with.

--According to Dow Jones VentureSource, U.S. venture capital fundraising soared last year to $33 billion across 332 funds.

--From Bloomberg News: “A Florida medical device firm that employs a man who inspired the character played by Jonah Hill in the movie ‘The Wolf of Wall Street’ was raided by federal agents.”

Boca Raton-based Med-Care Diabetic & Medical Supplies Inc. has been accused of participating in a scheme to defraud Medicare.

The figure, Daniel M. Porush (Donnie Azoff in the flick) is married to the co-owner of the device firm, Lisa Porush. I’m sure they make a lovely couple.

--Matt O’Brien / Washington Post

“If Bitcoin were a currency, it’d be the worst-performing one in the world, worse even than the Russian ruble.

“But Bitcoin isn’t a currency. It’s a Ponzi scheme for redistributing wealth from one libertarian to another. At least that’s all it is right now.....

“(That’s) not much of a consolation to anyone who bought anywhere near Bitcoin’s $1,100 top. Or near $1,000, or $900, or $800, or, well even yesterday’s prices. That’s because Bitcoin hasn’t just fallen 76% the past year. It’s fallen 36% the past two days, with a 24% decline the past 24 hours. [Ed. Friday it closed at about $207. It was $288 on Jan. 9. $177 Jan. 14.]

“What in the name of Satoshi Nakamoto is going on? Well, two things. First, Bitcoin’s big bubble has been slowly deflating for over a year now. It has no inherent value, after all, because despite companies trying to get free PR by saying they’ll accept it, almost nobody uses it to buy anything other than drugs. Second, though, is a problem that’s all too familiar to anyone who tried flipping condos in Miami ten years ago. Bitcoin miners, you see, borrowed money – and real money, as in dollars – that they could only pay back if Bitcoin prices kept rising, or at least didn’t fall this much.”

--Following Amazon.com’s success at the Golden Globe Awards, picking up two for its original series Transparent, which beat out programs from HBO, the CW Network and Netflix to win best TV series, musical or comedy, Amazon announced director Woody Allen would create his first television series for the online retailer. 

--For the second time in less than three weeks, an Uber driver has been charged with sexually assaulting a passenger in Chicago. Uber has said it would roll out improved safety measures this year but has yet to do so.

--London’s population is set to hit a new record in the next few weeks, beyond the previous peak of 8.615m in 1939. The city faces major transportation challenges in the coming years as the population is expected to hit 10m by 2036. Housing is another issue.

--Due to a fierce winter Jetstream, those traveling recently between, say, New York and London have seen their trip reduced by about an hour as aircraft ride Jetstream winds of more than 200mph. One British Airways plane reached a ground speed of 745 mph, slightly less than the speed of sound. [The same winds produced some awful weather conditions this week in Britain and Ireland. Like try 113mph winds in Scotland that left thousands without power. My course at Lahinch in County Clare, Ireland, was hit hard.]

Of course the flipside of quick flights east is that flying west can be a problem.

--Stephen Hawking and Elon Musk are among the scientists and entrepreneurs warning that greater focus is needed on the field of artificial intelligence amid growing nervousness about the impact on jobs or even our long-term survival from machines smarter than Ohio State Coach Urban Meyer. [Gratuitous plug for my Ohio readers after THE Ohio State University’s win in the national championship over Oregon.]

In a letter from the Future of Life Institute, “There is now a broad consensus that AI research is progressing steadily, and that its impact on society is likely to increase. The potential benefits are huge, since everything that civilization has to offer is a product of human intelligence; we cannot predict what we might achieve when this intelligence is magnified by the tools AI may provide, but the eradication of disease and poverty are not unfathomable.”

Foreign Affairs

Iraq / Syria / ISIS: The United States announced it is sending 400 troops to train moderate Syrian rebels this spring; 100 in each of four locations (three countries). Including support troops, however, it could be 1,000.

The Wall Street Journal had an extensive story on the U.S.-led campaign against ISIS in Syria. As reported by Dion Nissenbaum:

“More than three months of U.S. airstrikes in Syria have failed to prevent Islamic State militants from expanding their control in that country, according to U.S. and independent assessments, raising new concerns about President Barack Obama’s military strategy in the Middle East.

“While U.S. bombing runs and missile strikes have put Islamic State forces on the defensive in Iraq, they haven’t had the same kind of impact in Syria. Instead, jihadist fighters have enlarged their hold in Syria since the U.S. started hitting the group’s strongholds there in September, according to the new estimates.”

Unbelievably, the administration is still considering whether to set up a buffer zone between Syria and Turkey, protected by American air power. 30 months after I (and the likes of Sen. John McCain) was screaming we needed to do this.

The U.S. has, at least, made some progress in Iraq and I maintain my prediction that Mosul will be retaken by the end of the year.

But in Syria, “nearly three-quarters of the U.S.-led airstrikes have centered on the fight in the Kurdish town of Kobani on Turkey’s border.”

This week ISIS launched a surprise attack against Kurdish forces in north Iraq, killing 26.

Separately, the Wall Street Journal reports that former Prime Minister Nouri al-Maliki is plotting a comeback, just five months after his departure. As Charlie Browndi would say, “Good grief.”

Iran: U.S. Secretary of State John Kerry and Iranian Foreign Minister Mohammad Jawad Zarif resumed talks on Tehran’s nuclear program on Wednesday, though there were no details after.

But there’s this....

Editorial / Wall Street Journal

“Nice timing, brothers. (Kerry and Zarif met Wednesday) to negotiate how much of Iran’s nuclear program it will be able to keep. Meanwhile, according to the Associated Press, Iran’s state news agency reported that a court in Tehran had indicted Washington Post reporter Jason Rezaian, who will stand trial on unspecified charges.

“The indictment, after months of detention, is embarrassing for Mr. Zarif, who wants the world to believe that Iran is a normal country that can be trusted with thousands of nuclear centrifuges and sites that can’t be inspected. But the real power over the nuclear program and everything else of consequence in Iran is wielded by the Islamic clergy and its military arm, the Revolutionary Guard Corps. ‘We will have to wait for the judiciary to move forward, but we will try to provide all the humanitarian assistance that we could,’ Mr. Zarif told journalists in Geneva, as if Iran’s judiciary is somehow independent of political control.

“Someone in Tehran may figure Iran can convict Mr. Rezaian then release him as a show of goodwill if Iran gets what it wants in the talks. The world would be wiser to see the indictment as the real measure of Iran’s best wishes.”

But on Friday, in a press conference with British Prime Minister David Cameron at the White House, President Obama vowed to veto any legislation approving new sanctions against Iran, which not only places him on a collision course with Republicans, but also key Democrats such as New Jersey Sen. Robert Menendez.

However, believe it or not, I might be on the president’s side on this one, in the short term. Both Obama and Cameron make the point that the enactment now of new financial penalties on Iran would most likely spell the end of the talks, even though the legislation would say the sanctions wouldn’t take effect unless the deal falls apart.

“I am asking Congress to hold off because our negotiators, our partners, those that are most intimately involved in this assess that it will jeopardize the possibility of providing a diplomatic solution,” said Obama.

Here’s where I agree with him. Ayatollah Khamenei and the hardliners would definitely torpedo the agreement at that point. A nuclear arms race in the region would then ensue. [Obama didn’t bring up this last bit on Friday, this is me.]

I do not agree with how this whole process has gone down, but we are where we are today.

If a deal isn’t reached, President Obama said he would ask Congress to pass additional sanctions.

Menendez said at a news conference on Friday, “It is counterintuitive to understand that somehow Iran will walk away because of some sanctions that would never take place if they strike a deal.”

I think he is wrong.

But regardless, the entire region and the West are going to be screwed one way or another.

I’ve said since day one, for literally years now, that all you needed to know was whether Iran would allow inspectors onto Parchin, the military base where we suspect they were conducting nuclear trigger tests.   Even after paving the site over, they still won’t let IAEA inspectors in.

But, again, we are where we are.

Israel: Hizbullah leader Hassan Nasrallah said in an interview with a Lebanese television station, “We have made all necessary preparations for a future war with Israel...

“We have military abilities that will deliver us the victory against Israel. The military capability of the resistance has not been damaged (by the war in Syria), and if Israel thinks differently, it is wrong.”

Earlier, Nasrallah warned Hizbullah has more types of weapons than Israel can imagine.

Lebanon: In a further example of how this nation is slowly being sucked into the Syrian war, the Nusra Front claimed responsibility for a twin suicide bombing in Lebanon’s second city of Tripoli last Saturday night that killed at least nine. The Lebanese Army had crushed Islamist militants in the city in October, but ISIS and Nusra Front are still holding 25 soldiers and policemen hostage.

The attack was as evil as they come. One suicide bomber detonated his vest outside a café and then after people rushed to the scene, a second man walking toward the crowd shouted “Allahu akbar” and blew himself up. [Daily Star]

Egypt: From David D. Kirkpatrick / New York Times:

“An appeals court on Tuesday overturned the conviction of former President Hosni Mubarak of Egypt on charges of corruption, removing the last legal judgment against him and ordering a retrial.

“Mr. Mubarak, 86, remains inside a military hospital for unspecified reasons, where he was moved from prison during his trials because of his health. But even before the new court ruling, Mr. Mubarak had already spent enough time in detention – more than the three-year sentence for corruption that was overturned on Tuesday – to allow his release for time served.

“His release, however, could pose an unprecedented challenge to Egypt’s new president, Abdel Fattah al-Sisi. It would be the first time in Egyptian history that a former president was allowed to live freely and speak openly. Previous presidents have either left the post in military custody or died in office.”

So Mubarak could rally his former loyalists, but I would guess not.

I have no problem also saying I’m a supporter of President Sisi. His recent remarks on Islam are posted on my “Hot Spots” link.

Like I said last week, yes, Sisi is an autocrat. Egypt is not a democracy. But all you need to know for now is Israel is happy with Sisi and that’s good enough for me during this tumultuous time. If Sisi lives, he’ll prove to be a transformative figure. Give him time.

Saudi Arabia: The kingdom publicly flogged a blogger sentenced to 1,000 lashes for insulting Islam, with Amnesty International condemning his punishment as a “vicious act of cruelty.” Raef Badawi was also sentenced to 10 years in prison.

The 30-year-old received his first installment of 50 lashes and is expected to have 20 weekly whipping sessions until the punishment is complete. [Agence France-Presse]

But this late word, the Saudi Supreme Court is looking at the case and Badawi’s scheduled second round of lashes for Friday were postponed.

Russia / Ukraine: Pro-Russian insurgents fired a long-range Grad rocket in eastern Ukraine that hit a bus, killing 10 civilians. Locals said the rocket went astray after being aimed at a government checkpoint.

Violence has been picking up again. Two were killed in the shelling of the separatist-held city of Donetsk on Tuesday. 

Ukraine’s Security and Defense Council recorded 84 separate attacks on its positions in the 24 hours up to Wednesday. 

The foreign ministers of Germany, France, Ukraine and Russia met in Berlin Monday and failed to reach agreement on how to resolve the conflict.

Late word on Friday is all hell has broken loose again in the east and there are reports of two-mile long lines of tanks entering the battle on the side of the separatists.

Finally, former Soviet President Mikhail Gorbachev warned that tensions between Russia and Europe over Ukraine could result in a major conflict or even nuclear war, in an interview last weekend with Germany’s Der Spiegel magazine.

“A war of this kind would unavoidably lead to a nuclear war. We won’t survive the coming years if someone loses their nerve in this overheated situation. This is not something I’m saying thoughtlessly. I am extremely concerned.”

China: Friday, the government announced a deputy head of the state intelligence agency was the latest to be detained for suspected corruption, or “serious violation of party disciplines and law,” the Central Commission for Discipline Inspection said in a statement. The South China Morning Post reported Ma Jian’s close relatives were also being investigated. This case might be about securities trades through a Peking University-owned technology conglomerate.

Many Chinese believe that this sweeping anti-graft campaign is nothing more than a way for President Xi Jinping to “sideline would-be enemies and consolidate power,” as Andrew Jacobs of the New York Times put it. Corruption will return when the investigations have run their course.

Fred Hiatt / Washington Post

“Through the wild swings of Chinese history since its Communist revolution in 1949, there has been one constant: Outsiders have rarely understood what was happening while it was happening.

“During the Great Leap Forward, from 1958 to 1961, 30 million people or more starved to death in a Mao-created famine. The West had little clue.

“During the Cultural Revolution, from 1966 to 1976, millions of people were tortured, internally exiled, unjustly imprisoned and otherwise abused in what Paul Hollander, in his invaluable book ‘Political Pilgrims,’ called ‘a destructive and bloody rampage.’ But at the time, most visitors to China had no understanding of what was taking place...

“Today we believe once again that we know what the Chinese leadership is up to: fighting corruption, tightening political controls in order to promote economic reform, gradually strengthening the rule of law while bolstering national defenses so China can take its rightful place as one of the world’s great powers.

“Might we be wrong again? Could President Xi Jinping’s anti-corruption crusade, for instance, be primarily a Stalinist purge of opposing factions in the Communist Party intended to strengthen his own hand?”

According to a report out of Freedom House by Sarah Cook that was published this week titled “The Politburo’s Predicament,” as Fred Hiatt writes:

“First, repression has increased markedly since Xi came to power two years ago.

“Second, a prominent feature of the clampdown is a return to Maoist methods of intimidation, indoctrination and thought control.

“But, third, the crackdown may not be working. ‘In spite of the heightened repression,’ the report concludes, ‘fear of the regime appears to be diminishing.’”

For example, “the clampdown on social media makes more people aware of censorship, they are more likely to question the party’s legitimacy – in turn increasing the need for more censorship. ‘Each act of repression generates the need for more repression,’ the report argues.

“The report does not pretend to know where this ‘volatile combination’ of repression and resentment may lead. ‘It could produce anything from a more radical dictatorship or violent upheaval to a successful popular movement for greater freedom,’ the report says.”

I’ll go with ‘violent upheaval’ for $200.

Separately, a Hong Kong-based quality control specialist revealed that nearly half of all food inspections it conducted in China last year failed. The specialist, AsiaInspection, found 48% of 100,000 inspections and audits did not meet acceptable standards.

The main reasons for failure are deliberate mislabeling of product ingredients and the falsifying of expiration dates. And then you have your basic rogue substances, such as heavy metals.

Lastly, China has been forced to send civilian militias to secure parts of its border with North Korea in the wake of two killings of Chinese citizens by North Koreans.

China reportedly lodged a protest with Pyongyang after media reported a North Korean army deserter killed four in a robbery in the Chinese border city of Helong. There was a similar incident nearby. Most of the infiltrators are looking for food.

Nigeria: Since I wrote last week that Boko Haram may have killed as many as 2,000 people in an attack on the northern Nigerian border town of Baga, near Chad, there have been a slew of different accounts...some confirming 2,000, others 150, but the bottom line is satellite imagery shows the town was totally razed and there are now thousands of refugees. The Associated Press wrote of the bodies, “Too many to count.”

Other reports note that Boko Haram “wiped out” another 16 towns outside of Baga, with “a large number reportedly (drowning) as they crossed Lake Chad,” according to the BBC.

Editorial / Washington Post

“While the world fixated on the murder of 12 people by Islamic terrorists in Paris last week, another slow and grisly massacre was taking place in Nigeria, at the hands of Islamist militants Boko Haram....

“The heinous butchery should be a wake-up call. It’s past time for Nigeria, West Africa and the West to recognize Boko Haram for what it has become: a complex terrorism threat on a scale comparable to the Islamic State, embedded in Africa’s largest economy and most populous nation. Since January 2014, more than 5,000 have been killed in the fighting it has triggered, a count that rivals civilian casualties in Iraq and Afghanistan. The horrific violence is only intensifying....

“(The) United States and other interested governments must step up pressure on Nigeria to address issues such as the systemic corruption and low morale in the military. Despite Nigeria’s massive security budget of $5 billion, a lack of equipment, tactical mistakes, human rights abuses and internal discord have severely hampered its army’s ability to contain, much less counter, Boko Haram’s increasingly sophisticated aggression....

“Some 200,000 people reportedly have fled Nigeria into Cameroon, Niger and Chad.”

As if Baga wasn’t bad enough, a bomb strapped to a girl said to be 10 years old exploded in a busy market in the city of Maiduguri last Saturday, killing at least 16. This is in the heart of Boko Haram country.

The next day, two more female suicide bombers struck in the same general area, killing at least four.

Cuba: It is now easier for Americans to travel to Cuba than it has for more than 50 years as a new set of regulations went into effect on Friday easing decades-old restrictions on travel, business and remittances, all part of the changes Obama announced as the United States resumes normal diplomatic relations with Havana.

Airlines and travel agents will be allowed to provide service to Cuba without special licenses, ditto individual Americans. Travelers will also be allowed to use credit cards and bring back up to $400 in souvenirs, including $100 in alcohol or cigars.

And Americans will be allowed to send more money to Cubans.

The administration claims it now has confirmation 53 political prisoners have been released in accordance with the agreement reached between Presidents Obama and Raul Castro.

But there are zero assurances the Cuban government will change its repressive ways.

Random Musings

--According to a Fox News national poll, 64% of voters think the threat from Islamic extremists is increasing and another 29% says it is holding steady.

At the same time, a 55-38 percent majority says Obama is not prepared to do ‘whatever it takes to defeat Islamic extremists,’ essentially unchanged since September.

On the broad question of whether the Obama administration has made the country safer, 43 percent of voters think it has “mostly succeeded,” down 12 points from the 55 percent who felt that way in June 2012.

On a different issue, 65 percent say Obama should sign the Keystone pipeline legislation, including 82 percent of Republicans and 60 percent of independents (52 percent of Democrats). Only 22 percent believe he should veto it.

--The House voted 236-191 to block President Obama’s executive actions on immigration and end an existing program that has deferred deportation for 500,000 young immigrants called “dreamers.” House Republicans attached the restrictions to a funding bill for the Department of Homeland Security.

The legislation’s prospects are not as certain in the Senate where some are leery of using DHS as leverage at this time of increased terror threats.

Democrats accused Republicans of being anti-immigrant, while Republicans said they are only trying to rein in presidential overreach.

Homeland Security Secretary Jeh Johnson has warned Congress not to turn his department into a “political football” at a time of high alert. [Funding for DHS expires on Feb. 27.]

--A 20-year-old Ohio man was arrested shortly after he allegedly bought two assault rifles and 600 rounds of ammunition on Wednesday, according to the FBI. Agents said the man was taking the final steps towards carrying out a planned attack on the U.S. Capitol.

According to the affidavit, Christopher Lee Cornell “specifically planned that he and [the informant] would build, plant and detonate pipe bombs at and near the U.S. Capitol, then use firearms to shoot and kill employees and officials in the U.S. Capitol.”

Cornell, who had been under surveillance, told the informant he wanted to carry out the attack in support of Islamic State.

--The Secret Service removed four of its most senior officials while a fifth has decided to retire after a string of security lapses that forced the resignation of its director in October.

Acting Director Joseph P. Clancy informed the four assistant directors who oversee the core missions of the Secret Service that they need to step down from their leadership posts.

“Change is necessary to gain a fresh perspective on how we conduct business,” Clancy said in a statement to the Washington Post.

Clancy, a former leader of President Obama’s security detail, took over when Julia Pierson resigned as director.

--Hackers claiming to be aligned with Islamic State took over the social media accounts of U.S. Central Command (Centcom) and released a few documents, some with the home addresses and email accounts of retired generals, though none of the information was classified and Centcom said its operation military networks were not compromised.

In a statement, the command said, “We are viewing this purely as a case of cybervandalism.”

But the fact is ISIS was able for a time to play around with images and photos of U.S. military personnel and Centcom’s insignia, including the posting of the message “i love you isis,” with the group’s signature black flag.

--A Malaysian defense contractor pleaded guilty “in a corruption scandal of epic proportions, admitting that he bribed ‘scores’ of U.S. Navy officials with $500,000 in cash, six figures’ worth of sex from prostitutes, lavish hotel stays, spa treatments, Cuban cigars, Kobe beef, Spanish suckling pigs and an array of other luxury goods.” [Craig Whitlock / Washington Post]

This has been a long-running investigation into a decade-long corruption scheme that turned into the biggest in U.S. Navy history, with Leonard Glenn Francis “admitting that he bilked the service out of tens of millions of dollars by overcharging for food, fuel and basic services. Five current and former navy officials have pleaded guilty so far, and prosecutors have made it clear they are targeting others.” [Whitlock]

Francis faces up to 25 years in prison. The Navy’s reputation suffered a bigger blow.

--Editorial / Wall Street Journal

“If Mitt Romney is the answer, what is the question? We can think of a few worthy possibilities, though one that doesn’t come immediately to mind is who would be the best Republican presidential nominee in 2016.

“Mr. Romney told donors last week he is mulling a third run for the White House, confirming cheering whispers from his coterie of advisers. The question the former Massachusetts Governor will have to answer is why he would be a better candidate than he was in 2012.

“The answer is not obvious. The logic offered by his admirers is that voters have a case of remorse about rejecting Mr. Romney in 2012, he can raise money and knows how to run a campaign, and even Ronald Reagan didn’t win until his third try....

“Mr. Romney is a man of admirable personal character, but his political profile is, well, protean. He made the cardinal mistake of pandering to conservatives rather than offering a vision that would attract them. He claimed to be ‘severely conservative’ and embraced ‘self-deportation’ for illegal immigrants, a political killer. But he refused to break from his RomneyCare record in Massachusetts even though it undermined his criticism of ObamaCare. A third campaign would resurrect all of that political baggage – and videotape....

“The GOP should have a strong chance in 2016, after two Democratic terms of trying to take the country sharply to the left. Democrats are already preparing to run a campaign focused on economic populism and government favors to the middle class. With his instinctive belief that ‘47%’ of America would never vote for him, and his inability to defend his Bain record, Mr. Romney would be the ideal foil for such a campaign.

“Republicans are likely to have a far better field in 2016, so voters won’t lack for plausible Presidents. It’s hard to see what advantages Mr. Romney brings that the many potential first-time candidates who have succeeded as governors do not.”

--Iowa’s state Republican Party announced last weekend that the Iowa Republican Straw Poll will be held as usual this August. Many thought it should be scrapped because, frankly, it’s a total sham. Remember, in 2011 it selected Michele Bachmann, who put all her money into TV ads, and a huge party, but then finished last in the caucuses.

--New Jersey Gov. Chris Christie has caught a lot of heat for his relationship with Cowboys owner Jerry Jones, attending their playoff games, though he is an avowed fan.

The problem is he reportedly accepted tens of thousands of dollars in private jet travel from Jones to fly his entire family to one of the games and that a firm Jones owns was awarded a lucrative Port Authority contract for the World Trade Center observatory.

Christie said this week that he did not meet Jones until September of 2013, and that he had only spoken to him on the phone prior to then. The contract was awarded in March of that year.

But this is a change in Christie’s story from just a weeks earlier when he told an interviewer, “I’ve become friends with Jerry over the last five years.”

Perhaps more importantly, according to a Fairleigh Dickinson University PublicMind Poll this week, only about one-in-five New Jersey residents, just 19%, said the Christie years have been good for the average Garden State citizen. The poll found that across the board, pluralities of respondents say little has changed, whether it is taxes (a majority believing taxes and spending have gone up), the transportation system, the overall economy...he just hasn’t made a difference.

Which is what I’ve been saying for the past few years. In certain circles, such as the national media, he is way overrated and he’ll get slaughtered in Republican primary debates as his opponents bring up his lousy record, vs. say that of Governors John Kasich and Scott Walker.

--As reported by the New York Times: “In a review of 153 applications of people the (New York City) Corrections Department recently hired, city investigators found that more than one-third had problems that either should have disqualified them or needed further scrutiny. Ten had been arrested more than once; 12 had previously been rejected by the New York Police Department, six of them for ‘psychological reasons’; and 79 had relatives or friends who were current or former inmates, a potential security threat, officials said.

“The investigation found hiring practices to be in disarray: There was no screening for gang affiliation; most of the application process was not computerized; and employment screeners did not monitor phone calls between inmates and applicants.”

The biggest problem involves Rikers Island, where over the past year, 23 staff members have been arrested or referred for discipline due to accusations of excessive force, smuggling or falsification of documents and evidence.

The investigation revealed the Correction Department’s system of screening applicants is grossly inferior to that of the Police Department, even though both have essentially the same starting salary, for one.

--Former NYPD commissioner Ray Kelly declared that Mayor Bill de Blasio should “apologize” for creating a tense environment between the NYPD and City Hall.

Kelly, in remarks to a local television program, stressed especially after the terror attacks in Paris, let alone the assassination of two NYPD officers, that the two sides must come together quickly.

Meanwhile, the NYPD slowdown is definitely easing with arrests for major crimes down 15% in the past week, which was far better than a 40% drop the prior one.

But numerous stories say the NYPD made zero...zero...arrests on New Year’s Eve. Man, that’s not good. Let’s move on, guys. The mayor is not a good man, but Gotham, and the nation, needs you.

One more...current Commissioner Bill Bratton on an issue that he first started with then NYC Mayor Rudy Giuliani.

“The whole thesis of broken windows is that if, over time, you don’t address an issue, over time it’s going to create a larger issue. The weed in the garden, eventually, if left uncut, is going to kill the tree. And similarly the first time somebody painted graffiti on a subway car, in 1965, and they didn’t clean it off, it took a few years, but pretty soon all 6,000 cars were covered inside and out.”

--The New York City clinic where Joan Rivers had her fateful medical procedure is losing its accreditation at the end of the month. The Centers for Medicare Services said, “Yorkville Endoscopy no longer meets the conditions for a supplier of ambulatory surgical center services. As such, Yorkville will no longer be eligible to receive government funds for services provided to Medicare and Medicaid beneficiaries.”

Yorkville said it will seek to have the decision reversed.

--In a new Pew Research Center survey, Americans were asked which policy issues they believe should be a top priority for the Obama administration and the new Republican Congress this year. 76% say terrorism should be a policy priority, 75% say the economy. 

Only 38% thought global warming should be one, but this is actually up 10 points from 2013.

--The University of Virginia reinstated the campus chapter of the Phi Kappa Psi fraternity, which was alleged to have been the setting for a gang rape of a student in 2012, the alleged incident having been detailed in the Nov. 19 issue of Rolling Stone magazine.

Rolling Stone has since been forced to admit there were discrepancies in “Jackie’s” tale. A Charlottesville, Va., police department investigation hasn’t revealed any evidence to confirm the initial allegations.

University of Virginia officials, having suspended Greek activities for the final few weeks of the fall semester, lifted the restrictions earlier this month.

What do I always say, boys and girls? Wait 24 hours...don’t rush to judgment. Sadly, many did at UVA, and around the nation. It sucks.

--In a speech at the Vatican, Pope Francis condemned religious fundamentalism.

“Religious fundamentalism, even before it eliminates human beings by perpetrating horrendous killings, eliminates God himself, turning him into a mere ideological pretext.”

The pontiff praised Albania, one of Europe’s poorest countries, where Muslims form a majority.

Having visited it last year, Pope Francis said Albania is “a nation full of young people who represent hope for the future,” noting the atmosphere of mutual trust and respect between Muslims, Catholics, and Orthodox Christians.

“This is an important sign that sincere faith in God makes one open to others, generates dialogue and works for the good, whereas violence is always the product of a falsification of religion...whose only goal is power over others,” he said.

--Talk about underwhelming...the release of the “Best Picture” nominations for the Academy Awards. Of course I really can’t talk, seeing as I haven’t been to a movie since 2001....as in “2001: A Space Odyssey,” or so it sometimes seems. [Oops, I did see “Gravity” in Hong Kong last year.]

Anyway, none of the eight pictures nominated were box office successes and controversy erupted when there was a lack of ethnic diversity among the Oscar nominees. As in the Academy Awards are without a person of color or a Hispanic in the acting categories for the first time since 1999.

So this will be the topic of many a lame joke or comment during the awards ceremony, of this you can be sure.

But it gives Rev. Al Sharpton another platform. On Thursday he said it was “appallingly insulting in the year of 2015” that the 20 Academy Awards acting nominations went only to white actors and actresses.

“In the time of Staten Island and Ferguson, to have one of the most shutout Oscar nights in recent memory is something that is incongruous.” [New York Daily News]

Sharpton said he’ll meet next week with allies and colleagues to discuss “potential actions” before or during the Feb. 22 telecast. Oh brother.

--By the way a new Quinnipiac University poll found only 29% of New York City voters view Sharpton favorably, while 53% give him a thumbs-down. It’s the first time a solid majority see him as a “mostly negative force” in the city.

NYPD union leader Patrick Lynch fared worse...18% viewing him positively, 39% negatively, with a majority saying it was wrong for the NYPD to turn their backs on Mayor de Blasio. At the same time, 71% of New Yorkers are pleased with the performance of cops in their neighborhoods, 25% weren’t. Police Commissioner Bratton has a 56% approval rating, 31% disapproving. 41% approve of de Blasio’s handling of the NYPD, 52% disapprove, but you can imagine this is split along racial lines, with 69% of blacks blaming the NYPD for the poor relations, only 19% blaming the mayor.

Overall, de Blasio has a 49% approval rating, up from 47% a month ago. [78% approval from black voters, 54% from Hispanics, 32% from whites.]

--The Supreme Court has agreed to decide whether all 50 states must allow gay and lesbian couples to marry. It is expected they will rule before its current term ends in June. The number of states allowing same-sex marriage has grown to 36. 

--The Wall Street Journal had a front page story this week by Katy Muldoon on the Japanese tsunami barge that washed up on the Oregon coast north of Newport back in 2012, the very barge I was one of the first to see when I was out there that summer attending the U.S. Olympic Trials.

I had seen a story in the local paper and had to walk miles to reach it but it was fascinating. So the reason why the Journal did a big story on it 2 ½ years later is scientists are still startled at how many species that clung to the barge survived the journey across the wicked Pacific, but Dr. John Chapman, the man in charge when the barge was first spotted, had a simple message for those working with him when they got to it.

“Kill them...Kill them all.”

All the species, that is. Potentially very invasive species, like North Pacific sea stars, Asian shore crabs and a little fish with the name of Striped Knifejaw. “2oo exotic and potentially dangerous species.”

Dr. Chapman of Oregon State University’s Hatfield Marine Science Center in Newport says, “It was like a spaceship landed on the beach. It was impossible except for one thing: It wasn’t.”

Well the species keep washing up on the Oregon coast...snails, barnacles attached to driftwood.

“About 30% of the 265 species identified so far had never been seen in Oregon.”

The Japanese government estimates the tsunami resulted in five million tons of debris being sucked out to sea, 70% of which probably sank.

--Despite the brutally cold winter in much of the U.S. last winter, 2014 has been ruled the hottest year on record, surpassing 2010, according to various scientific studies, including from NASA and the National Oceanic and Atmospheric Administration. Earlier, a Japanese agency’s preliminary data came up with the same conclusion.

The ocean surface, except around Antarctica, was unusually warm. I would have dipped my toe in except I’m scared of sharks and moray eels. 

--A new paper published in the journal Science by 18 researchers trying to gauge the breaking points in the natural world concludes the Earth in the coming decades could cease to be a “safe operating space” for human beings.

There are four “planetary boundaries”: the extinction rate; deforestation; the level of carbon dioxide in the atmosphere; and the flow of nitrogen and phosphorous (fertilizer) into the ocean.

It’s the last one, fertilizer, which concerns me the most. It’s what’s killing Australia’s Great Barrier Reef, for example. It’s also something the average human can understand. [Joel Achenbach / Washington Post]

---

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

God bless America.
---

Gold closed at $1276...up $60 on the week to the highest since 8/29/14.
Oil $48.69...barely breaks 7-week losing streak.

Returns for the week 1/12-1/16

Dow Jones -1.3% [17511]
S&P 500 -1.2% [2019]
S&P MidCap -0.7%
Russell 2000 -0.8%
Nasdaq -1.5% [4634]

Returns for the period 1/1/15-1/16/15

Dow Jones -1.8%
S&P 500 -1.9%
S&P MidCap -1.5%
Russell 2000 -2.3%
Nasdaq -2.2%

Bulls 48.0
Bears 16.3 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore