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01/24/2015

For the week 1/19-1/23

[Posted 11:15 PM ET, Friday]

Edition 824

Washington and Wall Street

One week after the World Bank gave its biannual forecast for global growth the IMF did the same, lowering its outlook to 3.5% in 2015, down 0.3% from its earlier estimate, and 3.7% in 2016. 

The IMF raised the U.S. 0.5% to 3.6% for this year, but cut the eurozone GDP projection to 1.2%. 

China was cut 0.3% to 6.8% for 2015 (the World Bank had come in at 7.1%), and just 6.3% for 2016, citing problems in the housing market.

Japan is forecast to grow just 0.6% in 2015, 0.8% in 2016.

IMF Managing Director Christine Lagarde said that while cheaper oil would help consumers in much of the world, the United States would likely be the only major economy to buck a trend of weakness in investment and consumption.

Lagarde, in a speech previewing the IMF’s outlook, said the eurozone and Japan remain at risk of settling into a long period of weak growth and dangerously-low inflation.  The specter of deflation remained a risk for Europe, she said.

Referring to the emerging markets and a slowing China, Lagarde said, “A shot in the arm (from lower oil prices) is good, but if the global economy is weak on its knees, it’s not going to help.”

In Barron’s annual roundtable discussion, Felix Zulauf noted when it comes to crude: “The oil-price slump will hurt the economy dramatically in terms of capital spending and employment, and a lot of oilfield jobs are high-paying jobs. Yes, lower oil prices will bring down the cost of energy, which is good for consumers, but the private sector is going to save this money, instead of spending it.”

On the other hand, Abby Cohen of Goldman Sachs said: “The transportation and utility industries are major consumers of energy, and will benefit from lower oil prices. Energy accounts for 17% to 18% of their total costs. Our U.S. strategy team believes that the decline in energy prices will boost S&P profits in 2015.”

Among the polls out this week, an NBC News / Wall Street Journal survey found that 45% of registered voters are satisfied with the state of the economy, 54% dissatisfied; though this is a big improvement from a year ago when the split was 28-71.

A Washington Post / ABC News poll was split 48-48 in terms of President Obama’s handling of the economy, also an improvement.

I’ll touch on the slew of earnings reports from the week down below, but they were far from good. 

There was also some data on the housing market. December housing starts were up an annualized rate of 4.4% to a better than expected 1.089 million pace, with the rate of single-family home construction (ex-apartments) at its best since March 2008. But then existing home sales for the month were less than expected, up 2.4% month over month to an annualized pace of 5.04 million and down 3.1% for all of 2014 vs. 2013.

Meanwhile, oil resumed its slide, $45.59 as measured by West Texas Intermediate, a six-year low, and the national price of a gallon of regular at the pump is down to $2.03 as of Friday.

Add it all up and, coupled with the move on the part of the European Central Bank to launch a massive quantitative easing program (QE) that I’ll detail in a bit, stocks were able to snap a 3-week losing streak and register solid gains, though they were cut some by a late swoon Friday afternoon.

But markets in the U.S. and Europe sloughed off a terrible week for Planet Earth and understand that much of the rest of the column jumps around a bit because there are so many cross-currents to deal with, as well as overlapping issues. For example, the collapse of the government in Yemen is also about Iran, let alone al-Qaeda; Israel’s attack on Syria’s Golan Heights was about both Hizbullah and Iran; ISIS was up to its usual brutality; Russian separatists seemingly scored a few gains in Ukraine as that war heated up again.

But then President Obama gave his State of the Union speech and you’d never know his foreign policy is in tatters. Or, as Ian Bremmer, president of Eurasia Group, put it in a tweet:

“The State of the Union & the State of the World are far from alignment.”

President Barack Obama, State of the Union, Jan. 20:

“America, for all that we’ve endured; for all the grit and hard work required to come back; for all the tasks that lie ahead, know this: The shadow of crisis has passed.”

Obama took a victory lap on the economy.

“At every step, we were told our goals were misguided or too ambitious, that we would crush jobs and explode deficits. Instead, we’ve seen the fastest economic growth in over a decade, our deficits cut by two-thirds, a stock market that has doubled, and health-care inflation at its lowest rate in 50 years.

“So the verdict is clear.”

Obama then tried to portray an optimistic view of both the nation’s future and its politics.

“A better politics isn’t one where Democrats abandon their agenda or Republicans simply embrace mine. A better politics is one where we appeal to each other’s basic decency instead of our basest fears.” [David Nakamura / Washington Post]

Oh brother.

Edward Luce / Financial Times

“When a Democratic president talks up ‘transgender’ rights in prime time, you can be sure he does not face reelection.

“In Barack Obama’s case, his second to last State of the Union address was delivered with an extra dose of mojo. Bill Clinton said the best test of a speech is to put on the mute button.

“To judge by Mr. Obama’s mien, Democrats may as well have romped to victory in last year’s midterm elections – as opposed to having lost control of Capitol Hill.

“Since then, Mr. Obama has acted as though the world’s weight is lifted from his shoulders. Gone are the formulaic exhortations to bipartisanship.

“Mr. Obama set out the case for a ‘middle class economics’ and ‘smarter leadership abroad.’ These are unapologetic liberal themes. The more sullen Republicans seemed during the speech, the greater the president’s swagger.

“Whatever else can be said of Mr. Obama’s address, his Kumbaya days are over....

“There was a lot of hubris in his speech. Events have a way of confounding bold assertions about the rest of the world.

“But it was not the address of someone who thinks of himself as a lame duck.

“The line of the night was not even in the script. Towards the end a group of Republicans started to applaud when Mr. Obama said he would never face reelection.

“ ‘I know,’ he quipped, ‘because I won both of them.’

“Having endured some of the bitterest partisanship in recent history, Mr. Obama is discovering the parts of the job he enjoys. That may no longer include trying to meet his opponents halfway.

“Tuesday night’s real message is that Mr. Obama’s priority in his last two years will be to secure another Clinton presidency.”

On foreign policy Obama said his approach was “making a difference.”

Sens. John McCain and Lindsey Graham issued a joint statement: “The president’s pronouncement of a ‘smarter kind of American leadership’ must be puzzling to any American who has watched the news in the past six years.”

Daniel Henninger / Wall Street Journal

“(Obama) said in the State of the Union that we are leading ‘a broad coalition’ against ISIS. We are? What coalition? Mainly it’s the Iraqi army and Kurds battling for survival alongside U.S. air support.

“The president said we are ‘supporting a moderate opposition in Syria.’   But twice in 2014 Mr. Obama derided the Syrian moderates as dentists, pharmacists and teachers. U.S. support for the moderates is de minimis.

“On Ukraine, Mr. Obama said, ‘We’re upholding the principle that bigger nations can’t bully the small.’ But bullying is exactly what Russia’s Vladimir Putin is doing to Ukraine because Mr. Obama refuses to give its army even basic defensive weapons.

“Then there’s the grandest foreign-policy self-delusion of the Obama presidency – the never-ending nuclear arms deal with Iran. Mr. Obama said we’ve ‘halted the progress of its nuclear program.’ Slowed perhaps but no one thinks we’ve ‘halted’ Iran’s multi-facility nuclear-weapon and ballistic-missile project. Only in the Obama fantasy is it halted.

“Sen. Robert Menendez, the New Jersey foreign-policy Democrat, who sat bolted to his seat during the speech, said the next day that the administration’s talking points on Iran now sound ‘straight out of Tehran.’”

Molly O’Toole / Defense One

“President Barack Obama promised to end his predecessor’s wars and foreign policy of force and staked his legacy to fulfilling that promise. But in his State of the Union address to Congress on Tuesday night, Obama promised that ‘the shadow of crisis has passed,’ even as conflicts continue to pop up across the globe.

“ ‘We are fifteen years into this new century. Fifteen years that dawned with terror touching our shores; that unfolded with a new generation fighting two long and costly wars,’ Obama began. ‘But tonight, we turn the page.’

“From the new U.S. role in Afghanistan to renewed tensions with Russia, from the rise of militant extremism in Iraq and Syria to the attacks on the streets of Paris, the threat of terrorism and global conflict is no shadow, but a grim and tangible reality facing Obama in the last two years of his presidency.

“ ‘Tonight, for the first time since 9/11, our combat mission in Afghanistan is over. Six years ago, nearly 180,000 American troops served in Iraq and Afghanistan,’ Obama said. ‘Today, fewer than 15,000 remain.’

“In a tacit acknowledgement of the fragility of Afghanistan’s transition, some 10,000 U.S. troops remain in the country, and Gen. John Campbell, the top U.S. commander in Afghanistan, said last week there is some indication the Islamic State is recruiting there.”

Karl Rove / Wall Street Journal

“On CBS’ ‘Face The Nation’ last Sunday, White House senior adviser Dan Pfeiffer said the administration would ‘double down on our efforts to deal with wage stagnation and declining economic mobility.’ The president has been in office six years and none of his efforts have made either problem better. A record number of Americans are in poverty and 15% more people receive food stamps today than when he took office. Much of this is thanks to a stagnant economy that Mr. Obama’s tax-and-spend policies have kept in the doldrums.

“It is hard to fathom why the president offered so many proposals that have zero chance of passing the Republican-run Congress. The most likely explanation is while he is uninterested in governing, he is intent on positioning Democrats for the 2016 presidential race. But while his class-warfare theme is timeless, his policy proposals are highly perishable....

“(It) could be that Mr. Obama is trying to become more relevant by making himself even more obnoxious to the Republican congressional majority and thereby provoke conflict.

“Republicans should decline the invitation, instead treating Mr. Obama’s proposals mostly with benign neglect. If he complains about obstructionism, Republicans should point to the failure of the White House and congressional Democrats to press his initiatives by drafting bills, seeking committee approval and offering them on the floor.”

Europe, the ECB and Asia

Europe puts its terror concerns behind it for a few days, at least stock and bond traders did, the Euro Stoxx 600 index (like the S&P 500) finishing up a whopping 5.1% on the week, its best performance since 2011.

And check out these 10-year bond yields across the continent, all finishing Friday at or near all-time record lows.

Germany 0.36%
France 0.54%
Spain 1.37%
Italy 1.52%
Portugal 2.43%
Greece 8.17% (though down from a high of 9.45% on Monday)

Britain 1.48%
Switzerland -0.32%

Yes, again, those are 10-year bond yields and, yes, Switzerland’s has a minus sign.

One more...the euro currency is at an 11-year low.

All the above is a result of the long-anticipated announcement by European Central Bank President Mario Draghi that he was launching a 1.1 trillion euro ($1.2 trillion) asset-buying program, quantitative easing (QE) that will commence in March and stay in place until September 2016, or until there has been a “sustained” improvement in consumer price inflation, which turned negative with the most recent report when the ECB’s target is 2%. Draghi left open the possibility of extending QE further if the impact is small.

The ECB will buy 60 billion euro of assets a month – including government bonds – and it’s the open-ended nature and overall size that surprised the markets, a strong commitment by what had been perceived to be a divided Council.

As for risk-sharing, a particularly contentious issue by the likes of Germany and Finland, each country will bear most of the losses if it defaults. The ECB is only on the hook itself for the nongovernment bonds it buys, which are supposed to be 20% of the total, and there will be risk-sharing largely on debt issued by European institutions bought by the national central banks.

Specifically, Draghi said: “With regard to sharing hypothetical losses, purchases of securities of European institutions, which will be 12% of additional purchases, will be subject to loss sharing. The ECB will hold 8% of additional asset purchases. That implies that 20% of additional purchases will be subject to a regime of risk sharing.”

Draghi said the ECB and national central banks would never buy more than one-third of a country’s debt issuance.

So as you can see the ECB will look to keep interest rates exceedingly low to encourage consumers to spend, companies to build and banks to lend. The ECB hopes this will stoke inflation.

At the same time the ECB’s policy will help to keep the euro currency weak to encourage exports outside the eurozone as European goods will be cheaper.

But there is no guarantee any of this will work. I suspect you will see some improvement in the numbers the first half of the year but unless confidence has truly improved by then the economy could roll back over.

As for Greece, which holds its big election on Sunday, it will not participate in the asset-buying until July, and only if it remains in a European Union monitored program and is sticking to the terms of its bailout.

Heading into Sunday, leftist Syriza was leading Prime Minister Antonis Samaras’ New Democracy by 4 to 5 points with 31-32 percent of the vote. Syriza leader Alexis Tsipras would then still have to form a government.

Finally, there is this little issue of a currency war. For one, as you see from the initial fourth-quarter earnings reports, many U.S. multinationals are getting slammed by the rising dollar. 

Ralph Atkins / Financial Times

“Will quantitative easing by the European Central Bank succeed? Here’s a tip: watch the euro. A weaker currency – the implicit objective of the ECB’s plans – could prove the most effective channel through which QE affects the real economy.

“A lower euro would boost exports and, crucially, lift inflation. If it looks as if the ECB has joined an increasingly hostile global currency war, there is a good reason: it has. Like the Bank of Japan, the ECB is using an important reserve currency as a policy weapon.

“Even ahead of Thursday’s policy meeting, there has been substantial collateral damage. The Swiss National Bank had attempted to cap the resulting Swiss franc appreciation but last week raised the white flag. The subsequent brutal rise in the Swiss currency threatens the country with a deep recession.

“Switzerland highlights the futility of currency wars. Others will counter the ECB’s moves. The BoJ is still struggling to convince investors it will achieve its inflation goal – and Japanese carmakers’ biggest exporting rivals are German. Bank of England hawks who wanted to raise interest rates are in retreat. Denmark and Canada have cut interest rates this week; India did last week.

“Further global monetary easing is being priced into fixed income markets. But rather than improving investor confidence, extraordinarily low borrowing costs raise questions about whether central banks are losing their grip and whether markets have become (even more) distorted.”

More on the topic next week.
---

There was a little economic news on the week. Euro-area manufacturing and services expanded at the fastest rate in five months according to Markit Economics’ flash reading of activity in January. The Purchasing Managers comp index came in at 52.2 from 51.4 in December, better than expected.

The service reading rose to 52.3 from 51.6. The manufacturing figure was 51.0 vs. 50.6 last month.

Chris Williamson, chief economist at Markit, said: “There’s good reason to believe the rate of expansion will continue to improve in coming months. The additional stimulus in the form of full-scale quantitative easing by the ECB should help to underpin a further improvement in confidence among households and businesses.”

Also, importantly when it comes to fears of deflation, Williamson noted: “(With) the January survey showing the largest rise in new orders for goods and services for five months, it seems that lower prices are resulting in higher consumer spending, rather than encouraging households to defer purchases in the hope of lower prices in the future.”

The flash report only looks at France and Germany, individually, and France’s comp index fell to 49.5 from 49.7 (50 being the dividing line between growth and contraction), though the manufacturing PMI rose to 49.5 from 47.5.

Germany’s comp was 52.6 vs. 52.0, with the flash manufacturing PMI at 51.0 vs. December’s 51.2.

Separately, Britain’s unemployment rate fell to 5.8% for the three months to November, as during this time wage growth rose 1.8% year on year, while inflation in December came in at an annualized rate of 0.5%. This is good. You want wages exceeding the inflation rate, sports fans. [The rate for November was 1.0%.]

And a note on Russia. The European Bank for Reconstruction and Development forecast the Russian economy would shrink a whopping 5% this year, while the average growth rate for eastern Europe and the former Soviet Union will turn negative for the first time since 2009. The EBRD also sees Ukraine’s GDP declining 5% in 2015, on top of a 7.5% hit last year.

The head of Russia’s largest bank, Sberbank, German Gref, offered a bleak picture for the country’s banking sector.

“It’s obvious that the banking crisis will be massive. The state will capitalize the banks and increase its stake in them, and the banks will buy industrial enterprises and become financial-industrial groups. All our economy will be state-run.”

Russia is of course suffering mightily from the decline in the oil price. With the death of King Abdullah of Saudi Arabia on Thursday (more below) it was felt that might lead to more volatility in the energy market but Abdullah’s successor Salman Bin Abdulaziz Al Saud, now King Salman, said the policy when it came to crude wasn’t going to change. The Saudis will not cut production to prop up prices and instead will seek to maintain market share. In addition, current oil minister, Ali al-Naimi, remains in place. So early gains in oil on the Abdullah news dribbled away.

Lastly, on the issue of the far right in Europe, a planned rally by Germany’s anti-Islamist Pegida group was called off after police received a threat against one of the organizers. Pegida said its regularly scheduled Monday rally had to be canceled to ensure protesters’ safety as the threat was credible.

But then two days later, the leader of Pegida, Lutz Bachmann, resigned after a photo of him apparently posing as Hitler emerged.

Prosecutors are investigating insulting comments about refugees attributed to him. Vice-Chancellor Sigmar Gabriel told the German newspaper Bild: “Anyone in politics who poses as Hitler is either a total idiot or a Nazi. Reasonable people do not follow idiots, and decent people don’t follow Nazis.”

We’ll see how this impacts the movement.

In Britain, Muslim groups accused the government of copying the language of the far right and of stoking Islamophobia.

In a letter to over 1,000 imams last Friday, Erick Pickles, the minister for local government and communities, asked them to explain to Muslims how Islam can be “part of British identity,” arguing they had to do more to fight extremism.

A representative of the Muslim Council of Britain told Sky News, “The letter has all the hallmarks of very poor judgment which feeds into an Islamophobic narrative, which feeds into a narrative of us and them.”

Another member of the Muslim Council said, “Is Mr. Pickles seriously suggesting, as do members of the far right, that Muslims and Islam are inherently apart from British society?”

Well, yeah....

Prime Minister David Cameron defended the letter. “Anyone frankly reading this letter who has a problem with it, I think really has a problem.” [Andrew Osborn / Reuters]

Meanwhile, Marine Le Pen, leader of France’s far-right National Front, continued her media blitz with an extensive interview with the Wall Street Journal. She comes across pretty well in the piece. As reported by Sohrab Ahmari:

“Her fixes for France’s troubles are simple: Exit the European Union and end the reign of ‘globalist’ economics – the free movement of goods, capital and labor – that she blames for the fact that France is ‘dying.’ Above all: ‘stop immigration,’ not just to discourage the potential Islamist threat, but for the overall health of the country. ‘There are 200,000 legal immigrants coming to France every year,’ Ms. Le Pen says. ‘They just add to the problems.’

“Ms. Le Pen doesn’t directly answer my question about what she proposes to do about the millions of Muslim immigrants whose only nationality is French. Instead, she turns her attention to immigrants with dual citizenship. ‘Do you know that there are 700,000 voters, Algerian and French, who voted in the recent Algerian elections?’ she asks. ‘These people can and should decide one way or the other. We have nothing against being a foreigner in France, but they have to decide.’ The message: Choose France or get out. Also: Those with dual citizenship who commit crimes in France should ‘be sent back.’”

In China, the government reported the economy grew at a 7.4% pace for all of 2014 after GDP grew 7.7% in each of 2012 and 2013. The 7.4% was the slowest since 1990. For the fourth-quarter the economy grew at a 7.3% annualized rate. Aside from the projections from the IMF and World Bank noted above, Fitch is calling for China’s growth rate to slow to 6.8% in 2015, 6.5% in 2016.

Andrew Colquhoun, Fitch’s head of the Asia-Pacific region, said: “China’s growth remains riskily reliant on the expansion of credit. It will likely take faster progress on structural reform to create space for a form of growth and job creation that does not add to China’s systemic vulnerabilities.”

National Bureau of Statistics chief Ma Jiantang said: “The 7.4% was a result of overcoming difficulties. It was a result of withstanding pressures...The 7.4% was also not a low level internationally.”

Most expect the annual growth target to be reduced to as low as 7% at the National People’s Congress meeting in March, though the official Xinhua news agency quoted an academic advisor to the central bank’s monetary policy committee as saying GDP could be as high as 7.3% this year as the sharp fall in commodities such as oil provides “a large bonus.” [Reuters]

Monday, Premier Li Keqiang said the economy was facing “relatively large” downside pressures, adding the government would push forward structural reforms to promote a medium to high rate of growth.

Ma highlighted two major risks that China faces in the near term – a correction in the property market and huge amounts of debt at the local level, though he said “positive changes” were evident in the real estate market, and local debt risks were “generally controllable.” [Victoria Ruan / South China Morning Post]

Speaking of housing, the statistics bureau said new-home prices in December fell in 65 of 70 major cities, though home sales rebounded in 23 of them.

Also the National Bureau of Statistics said fixed-asset investment growth for all of 2014 was 15.7% vs. 19.6% in 2013, property investment grew 10.5% vs. 19.8% the year before, industrial production rose 7.9% in December year on year from a 7.2% rise in November, and retail sales gained 11.9% in December vs. a 13.6% increase in December 2013.

And HSBC’s preliminary PMI manufacturing index for January was 49.8, up a smidge from December’s 49.6.

As for the Shanghai stock market, the main index fell 7.7% on Monday, the worst day since June 2008, as regulators sought to rein in record margin lending and thus prick the bubble that had been developing. China’s Shanghai Composite had risen 10 straight weeks through last week (the best stretch since May 2007) and was up 67% in 12 months. The market then recouped much of Monday’s losses on Tuesday and Wednesday and ended up the week down just 0.5%.

Turning to Japan, the yield on the 10-year bond fell to a record low 0.195% on Tuesday before closing the week at 0.22% as the Bank of Japan initiated another round of massive buying of government paper. The BoJ held the line on existing monetary policy (unprecedented easing remains in place, along with QE), and it lowered its core inflation projection to just 1.0% from 1.7% for fiscal 2016 (which begins April 1).

South Korea reported fourth quarter growth of 2.7% from a year ago, less than expected, and 3.3% for all of 2014, which was also disappointing. The central bank recently cut its 2015 outlook to 3.4% from an earlier projection of 3.9%.

India will be in the spotlight this weekend as President Obama takes a trip there amid warming relations between the two countries, with Prime Minister Modi increasingly wary of China’s movements in the region. Among Modi’s actions, an Indian company has submitted a bid for a deepwater port project that Bangladesh wants to develop when China was seen as having a lock on it.

[Not for nothing, but Obama’s trip here is really being buried. This is a big deal. I am glad the president is going...and it’s only India, which should make them feel even more special.]

Street Bytes

--As noted earlier, stocks broke a three-week losing streak with the Dow Jones gaining 0.9% to 17672. It’s still down 0.8% for January. The S&P 500 picked up 1.6% and Nasdaq rose 2.7% and is back in the black for the month (+0.5%)

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.49% 10-yr. 1.80% 30-yr. 2.37%

The 30-year is back down near its all-time low of 2.35%.

--The Bank of Canada cut its benchmark overnight rate by a quarter-point to 0.75%, the first reduction in the key rate since April 2009. You can guess why the central bank felt compelled to act. In a statement: “The oil price shock increases both downside risks to the inflation profile and financial stability risks.... The Bank’s policy action is intended to provide insurance against these risks, support the sectoral adjustment needed to strengthen investment and growth, and bring the Canadian economy back to full capacity and inflation to target within the projection horizon.”

--Halliburton Co. posted higher revenues and earnings in the December quarter but warned this year will be challenging as it not only deals with falling oil prices, but also its acquisition of rival Baker Hughes Inc.

Halliburton had previously announced it laid off 1,000 workers outside the U.S. and hinted at layoffs here, while Baker Hughes announced it was reducing its workforce a whopping 7,000, while cutting capital spending 20%.

--French energy giant Total announced plans to reduce capital spending by 10% this year, though is holding off on announcing any layoffs until the spring.

--GE CEO Jeff Immelt has focused on building the energy side of the business, including a large oil and gas operation, and that hurt him in the fourth quarter, with orders falling 10% in this segment, including a 72% decline in orders for some drilling equipment. Doink!

For the quarter, however, overall company revenue rose 4%. The stock, though, remains a dog. Ruff...ruff ruff.....

--IBM reported further declines in quarterly profit and revenue while issuing an anticipated profit forecast that fell short of Wall Street’s expectations.

Revenues declined an 11th straight quarter, down a whopping 12%, as the company struggles to focus on what CEO Virginia Rometty calls “strategic imperatives,” including cloud services, security and businesses related to mobile devices and social networks. While there has been progress in such areas, the company continues to struggle with the remainder of its operations. The rising dollar isn’t helping either.

--Shares in UPS were crushed on Friday as the company warned fourth-quarter and full-year 2014 earnings wouldn’t be as good as previously forecast. The culprit was the company spent way too much in trying to avoid a repeat of the 2013 Christmas season debacle and as a result extra expenses for training and overtime hit the bottom line.

The company did a good job of delivering packages on time, but there were also times when workers and trucks were idle.

--According to Indonesia’s transport minister, an examination of AirAsia flight QZ8501’s black boxes revealed the plane climbed too fast before stalling. The investigation notes the plane ascended at a speed of 6,000 feet per minute, a pace no passenger or fighter jet would attempt. The reason for the climb is almost certainly related to the weather in the flightpath, but further details have not been forthcoming.

--DreamWorks Animation announced it is laying off almost a quarter of its workforce following a string of box office flops. 500 positions will be cut in the restructuring and the company will reduce its productions from three films to two a year.

--Netflix Inc. said it added 1.9 million U.S. streaming subscribers in the fourth quarter, which was down vs. the rate of a year ago. Overall it added 4.3 million as foreign markets grew faster than expected.

The shares soared on the overseas growth as the company said it plans to expand to 200 countries by 2017, up from its current 50, while staying profitable.

But the expenses of expanding overseas are considerable and the segment’s loss widened to $79 million in the fourth quarter.

--Starbucks reported strong earnings and sales for the holiday quarter, with same-store sales increasing 5%. Overall, revenue was up 13% to $4.8 billion, and earnings up 16% over the same quarter last year; both records for the company.

--McDonald’s continues to struggle mightily. For all of 2014, global sales fell 3.6%, including a 4.1% drop in the U.S. Yuck.

For the fourth quarter, earnings declined 21% with revenue down 7.3%. Global same-store sales fell 0.9%, including 1.7% in the U.S., though December saw a 0.4% increase here in the States.

Personally, I go to Burger King anytime I see a 2-for-1 Whopper sale. They also have nice counter workers. My local McDonald’s doesn’t.

--Johnson & Johnson was hit by a stronger dollar, as 53% of its sales of drugs, medical devices and consumer products come from outside the U.S. Fourth-quarter sales were up 3.9%, but ended down 0.6% after a 4.5% currency hit. The company described Europe as challenging.

--Morgan Stanley’s results for the fourth quarter were below expectations, like every other major Wall Street investment bank reporting these days. Stripping out one-time items and adjustments, per-share earnings came in at 39 cents, down from 50 cents a year ago and below the Street’s estimate of 48 cents. Revenue for the quarter fell 1%, while revenue from fixed income, currencies and commodities trading fell 14%, which seemed to be the magic number for “FICC” with most of its competitors.

--Royal Bank of Canada acquired City National Bank for $5.4 billion. City National, out of Los Angeles, has always been known as the “bank to the stars.” It has 75 offices in five states, including New York, and will remain a separate brand under RBC.

The deal valued City National shares at a 26% premium above its price prior to the announcement.

--Bank of New York Mellon Corp. disappointed on the top and bottom line, though it eked out a 2% revenue gain for the quarter...it just wasn’t as good as analysts expected.

--EBay announced it is cutting 2,400 jobs in the first quarter, 7% of its workforce, amid plans to spin off its online PayPal business this year. The company agreed to give activist investor Carl Icahn a greater say in PayPal as well. Fourth-quarter revenues rose a solid 9%, but growth in the company’s marketplaces division was just 1.3%, the slowest growth of its auction sites in years. EBay’s outlook for the current quarter was less than the Street expected.

--American Express said it planned to cut 4,000 jobs in the coming months, while reporting better than expected results for the fourth quarter. Revenues climbed 7%, which is short of its long-term growth target of 8%, while earnings per share slightly exceeded Wall Street’s forecasts. CEO Kenneth Chenault warned of the negative effects of a strengthening U.S. dollar.

--What is the world’s largest law firm by attorney headcount after an announcement on Thursday? The combination of Dentons-Dacheng, the latter one of China’s biggest law firms.

6,600 lawyers in 120 offices in more than 50 countries. The new firm is to be known as Dentons outside of China and Dacheng inside China.

Dentons was the product of a merger of three global law firms back in 2012, including U.S.-based SNR Denton.

--Many of you no doubt saw footage of the horrific apartment complex fire on the New Jersey side of the Hudson River across from Manhattan in the town of Edgewater.

What’s distressing is that this fire exploded from a simple maintenance accident; a plumbing repair that somehow ignited a fire inside the walls of where the work was going on that then became a conflagration destroying 250 of 408 units.

The reason why it spread as it did was “lightweight” wood construction with a truss-style of roof, according to Edgewater Fire Chief Tom Jacobson.

“If it was made out of concrete and cinder block, we wouldn’t have this sort of problem,” he said.

So there’s your lesson. Be careful as to the construction material used in a complex you may be moving into. [If you’re already in one with such material, review your emergency procedures, especially if you smell smoke and/or hear alarms in the middle of the night. This fire started at 4:30 PM. No one died, incredibly, but had it been 4:30 AM the toll could have been considerable.]

--Ebola has killed 8,641 people, according to the latest World Health Organization figures, but it was also reported this week the virus has wiped out a third of the world’s chimpanzee and gorilla populations and could threaten the survival of the already endangered great apes, according to conservationists in an article for the Jane Goodall Institute.

The WWF estimates the Ebola mortality rate is 95% in gorillas and 77% in chimpanzees.

--Years ago on my first trip to Fujian province in China, I told you of the disgusting duck farms I saw along the road and how it wasn’t a surprise to me how bird flu could spread.

This week, officials in Fujian announced the deaths of two people there who died of the H7N9 strain. Apparently there have been 15 confirmed cases in Fujian since the start of the year. The concern has always been that the virus could mutate to become easily transmissible between people, though both Chinese officials and the World Health Organization said there is no evidence thus far of sustained human-to-human transmission.

Separately, Taiwan has been dealing with another strain of bird flu and has been culling tens of thousands of birds.

--New Jersey Gov. Chris Christie named an emergency manager to take over Atlantic City’s day-to-day operations, a surprise to elected officials in the struggling casino town. Among those tabbed to monitor the finances is Kevyn Orr, who guided Detroit through its bankruptcy.

Together with Kevin Lavin, a business-restructuring lawyer, they will effectively wield the powers now held by the mayor and City Council.

--We note the passing of SkyMall, the inflight catalogue, the parent of which declared bankruptcy this week.

--Melvin Gordon, CEO of Tootsie Roll Industries Inc. for over 50 years, died at the age of 95.

So the question is how many Tootsie Rolls are manufactured every day? 64 million. The company also makes Junior Mints, Charleston Chews and Tootsie Pops.

Gordon worked a full schedule until last month, the company said.

As reported by Carla K. Johnson of the Los Angeles Times, “Tootsie Rolls were invented in 1896 by New York City candy maker Leo Hirshfield, who named it for his 5-year-old daughter, Clara, his little tootsie.”

--“American Sniper” took in a startling $105.3 million last weekend in the U.S. and Canada, the largest opening ever for a drama or R-rated film. Nominated for “Best Picture,” the Academy Awards broadcast may do better than everyone first thought as “Sniper” fans tune in to see if their film wins.

Foreign Affairs

Iraq / Syria / ISIS: One of my predictions for 2015 was that the U.S. and Iraq would retake Mosul, which seemed rather far-fetched just weeks ago, I imagine some of you thought.

Well whaddya know?  A headline in Friday’s Wall Street Journal read: “U.S., Iraq Prepare Offensive to Retake Mosul From Islamic State.”

“Gen. Lloyd Austin, the head of the military’s Central Command, told The Wall Street Journal that the international campaign against Islamic State has inflicted significant damage. Opposing forces have reclaimed about 300 square miles of territory in Iraq and killed some 6,000 members of the Sunni radical group, eliminating about half its leadership.”

But U.S. officials conceded they don’t have a good estimate of the current size of IS forces and they still control large parts of northern and western Iraq.

[In a particularly barbaric act, even for ISIS, 13 teenage boys in Mosul were publicly executed for watching a soccer match between Iraq and Jordan (played in Brisbane, Australia), on television, which is prohibited under Sharia law. The boys were killed by a firing squad using machine guns with the “crime” announced over a loudspeaker. The bodies then remained lying in the open, according to activists. A few days earlier, a video was released of two men being thrown off a tower in Mosul because, according to an executioner on the video, they had engaged in homosexual activity.]

Recent U.S. coalition airstrikes have been focused on cutting supply lines to Mosul and Gen. Austin said a coalition of Kuridsh Peshmerga and U.S.-trained Sunni fighters would be ready for an assault on the city by summer.

As for the supposed body count, Defense Secretary Chuck Hagel said this week that such figures have never been a good measure of progress in Iraq.

Gideon Rachman / Financial Times

“The ‘global war on terror’ was shot down in a hail of ridicule. Sceptics scoffed that President George W. Bush’s GWOT was not global and it was not a war – since terrorism is a tactic, not an enemy. On taking office as U.S. president in 2009, Barack Obama quietly dropped the term.

“The GWOT may have been a clumsy phrase and an inexact idea but, sadly, linguistic quibbles have not removed the underlying issue. However you want to label it, the world has a problem with jihadi violence – and it is getting worse.

“There are two specific ways in which the threat from militant Islamism has worsened over the past five years. First, jihadi groups are operating in more parts of the world. Second, the frequency of attacks and number of deaths is increasing.

“The massacre of 148 people, mainly children, at a school in Peshawar on December 16 was the worst atrocity in Pakistan since 2007. It was followed, this month, by the murder of up to 2,000 people by Boko Haram in Nigeria, and the killing of 17 in two separate attacks in Paris.

“Three brutal attacks on three separate continents give the impression that the frequency of Islamist terror attacks is rising. That impression is confirmed by the data.

“A recent study by the Rand Corporation identified 49 Salafist-Jihadi groups operating around the world in 2013, compared with 28 in 2007. These groups staged 950 recorded attacks in 2013, up from 100 six years earlier. And that Rand report was published before a big surge in violence in Nigeria.”

The toll in the West has been falling, though, but this just ensures “the problem received only sporadic attention in the U.S. and Europe. But, in the rest of the world, the number of lawless areas in which jihadi militias can freely operate and train has increased....

“As Islamist militias have gained ground, so the conflict with them has come increasingly to resemble a conventional war. There are now several parts of the world where regular armies are battling jihadi groups for control of territory. American and European air-forces are bombing ISIS. The Nigerian army, aided by troops from Chad and Niger, is fighting Boko Haram – albeit not very effectively. The French army deployed in Mali to beat back a jihadi threat. The Pakistanis, goaded by the attacks on Peshawar, have renewed military action against the Taliban.

“Solving the problem of jihadi violence, over the long run, will be more about the battle of ideas than a battle of armies. But, in the meantime, there are military campaigns against Islamist movements under way in Africa, Asia and the Middle East. It turns out there may be a ‘war on terror’ after all.”

Iran: Editorial / Wall Street Journal

“President Obama is unhappy with House Speaker John Boehner for inviting Israel’s Prime Minister to address Congress without consulting the White House... What Mr. Obama should really worry about is that Members of Congress in both parties are showing a stunning lack of confidence in his Iran diplomacy....

“They can see that Mr. Obama is eager, and not far from desperate, to strike a deal with Tehran, and they’re worried he’ll give up the store....

“That includes Robert Menendez, the New Jersey Democrat, who squared off against the President over Iran at a recent meeting of Senate Democrats. Mr. Menendez is working with Republican Mark Kirk of Illinois on legislation that would ramp up sanctions on the mullahs if no deal is struck by the latest deadline in June....

“(In a Senate hearing this week, Menendez told an Administration official that) ‘I have to be honest with you, the more I hear from the Administration and its quotes, the more it sounds like talking points that come straight out of Tehran.’

“Perhaps he had in mind the President’s deliberately disingenuous comments in his State of the Union address that his interim agreements with Iran have ‘halted the progress of its nuclear program and reduced its stockpile of nuclear material.’ No one believes that. Iran continues to enrich uranium – lower grade than before, though it could be returned to higher grade quickly – and it continues to produce components for nuclear centrifuges that could enrich more. It also continues to block U.N. inspectors from military sites or talking to Iran’s nuclear scientists....

“Bob Corker (R., Tenn.), the new Senate Foreign Relations Chairman, is also pushing legislation to require the President to put any deal with Iran up for a vote of approval in Congress. Mr. Obama opposes such a vote, which could be considered a dodge of his responsibility to submit treaties for Senate ratification the way Ronald Reagan submitted the INF missile accord with the Soviets in his final year. Mr. Obama will call it something other than a treaty, naturally.

“Congress needs to assert itself on foreign policy because it may be the only barrier to a nuclear arms race in the Middle East.”

Laurent Fabius, Philip Hammond, Frank-Walter Steinmeier and Federica Mogherini...foreign ministers for France, Britain, Germany and the European Union, respectively, in an op-ed for the Washington Post:

“In November 2013, after many months of negotiations, the E3+3 (France, Germany and Britain, together with the United States, Russia and China, a partnership also referred to sometimes as the P5+1) and Iran reached an interim agreement on Iran’s nuclear program. This agreement has had three main benefits.

“First, it has stopped the progress of the most sensitive elements of Iran’s nuclear program. Under the Joint Plan of Action agreed to by Iran and the six partners in the talks...Iran has ceased production of its most highly enriched uranium, limited its production of new centrifuges for enriching uranium and refrained from installing additional centrifuges. Iran has also agreed to cease progress toward bringing on line the nuclear reactor at Arak. As a result, Iran today is further away from obtaining enough fissile material for a nuclear weapon than before the negotiations.

“At the same time, the international community has gained improved access to Iran’s nuclear facilities, allowing the world to verify whether Iran is living up to its commitments. Whereas previous inspections only occurred once every few weeks, the International Atomic Energy Agency is now able to conduct daily inspections of the Natanz and Fordow facilities, and the Arak reactor is now subject to monthly inspections.

“And last but not least, the interim agreement has given us time and space to try to negotiate a long-term settlement to the Iranian nuclear issue, which is critical for the future of international and regional security....

“To be sure, difficult challenges lie ahead, and critical differences between Iran and the international community must be addressed. That is why we extended the negotiating window until later this year.

“In this context, our responsibility is to make sure diplomacy is given the best possible chance to succeed. Maintaining pressure on Iran through our existing sanctions is essential. But introducing new hurdles at this critical stage of the negotiations, including through additional nuclear-related sanctions legislation on Iran, would jeopardize our efforts at a critical juncture. While many Iranians know how much they stand to gain by overcoming isolation and engaging with the world, there are also those in Tehran who oppose any nuclear deal. We should not give them new arguments. New sanctions at this moment might also fracture the international coalition that has made sanctions so effective so far. Rather than strengthening our negotiating position, new sanctions legislation at this point would set us back....

“We have a historic opportunity that might not come again. With the eyes of the world upon us, we must demonstrate our commitment to diplomacy to try to resolve the Iranian nuclear issue within the deadline we have set. That is the surest path to reaching a comprehensive, lasting solution that will make the world and the region safer.”

Charles Krauthammer / Washington Post

“While Iran’s march toward a nuclear bomb has provoked a major clash between the White House and Congress, Iran’s march toward conventional domination of the Arab world has been largely overlooked. In Washington, that is. The Arabs have noticed. And the pro-American ones, the Gulf Arabs in particular, are deeply worried.

“This week, Iranian-backed Houthi rebels seized control of the Yemeni government, heretofore pro-American. In September, they overran Sanaa, the capital. On Tuesday, they seized the presidential palace. On Thursday, they forced the president to resign....

“Why should we care about the coup? First, because we depend on Yemen’s government to support our drone war against another local menace, al-Qaeda in the Arabian Peninsula (AQAP). It’s not clear if we can even maintain our embassy in Yemen, let alone conduct operations against AQAP. And second, because growing Iranian hegemony is a mortal threat to our allies and interests in the entire Middle East.

“In Syria, Iran’s power is similarly rising. The mullahs rescued the reeling regime of Bashar al-Assad by sending in weapons, money and Iranian revolutionary guards, as well as by ordering their Lebanese proxy, Hizbullah, to join the fight. They succeeded. The moderate rebels are in disarray, even as Assad lives in de facto coexistence with the Islamic State, which controls a large part of his country.

“Iran’s domination of Syria was further illustrated by a strange occurrence last Sunday in the Golan Heights. An Israeli helicopter attacked a convoy on the Syrian side of the armistice line. Those killed were not Syrian, however, but five Hizbullah fighters from Lebanon and several Iranian officials, including a brigadier general.

“What were they doing in the Syrian Golan Heights? Giving ‘crucial advice,’ announced the Iranian government. On what? Well, three days earlier, Hizbullah’s leader had threatened an attack on Israel’s Galilee. Tehran appears to be using its control of Syria and Hizbullah to create its very own front against Israel.”

As Mr. Krauthammer concludes, all the above is a nightmare for Saudi Arabia and the other Gulf Arabs. It “would be hugely compounded by Iran going nuclear.”

As for yours truly, I have to repeat what I wrote last week.

“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 [Jan. 16], ‘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.” 

Arizona Republican Sen. Jeff Flake is one I admire and I agree with what he said the other day. “Isn’t the point of sanctions to get them to the table?” 

Yes, I just want the Senate to line up their wish list, quietly, in conference, and if by June 30 a deal isn’t reached, vote for the new sanctions that day. 

Remember, this isn’t the U.S. vs. Iran...it’s a negotiation with the G5+1...it includes Russia and China. I in no way agree with how long this has played out, but....you know what I would say next.

One side note on Syria. As the weather has improved after a harsh wintry spell, the death toll has been rising anew, with the number of killed daily back to the 100-plus level. According to the Syrian Observatory for Human Rights, between mid-Tuesday and mid-Wednesday, the regime carried out 211 airstrikes, including a barrel bomb attack on a livestock market that the Observatory said killed 43 civilians and wounded over 150 others. [Another activist group put the death toll in Hassakeh province at over 75.]

Of the 211 airstrikes, 123 were said to be barrel bombs dropped from helicopters. And the Obama administration no longer demands the ouster of Bashar Assad as a precondition for any eventual solution to the crisis.

Israel: As alluded to above, Prime Minister Benjamin Netanyahu has been invited by House Speaker John Boehner to address a joint session of Congress, with Boehner going over the head of the White House in doing so, while Netanyahu deals with rivals back home who are accusing him of fumbling the relationship with its most important ally. The White House said Israel had committed a breach of protocol in not informing the president before the news of his trip was made public.

The Israeli leader said he planned to “share with the joint session Israel’s vision for joint action to deal with the threats” of Islamic extremism and Iran’s nuclear program.

But the other issue is Netanyahu addressing Congress, where he no doubt will receive a rousing ovation or two, so close to Israel’s election. The latest polls have his Likud party running neck and neck with the Labor Party, though Likud stands a better chance of forming a coalition than Labor does.

Separately, as noted above, an Israeli air strike on Sunday killed six Hizbullah fighters in Syria, along with six Iranian Revolutionary Guards, including a general. Among the dead was also Jihad Mughniyeh, the son of former Hizbullah operations chief Imad Mughniyeh. Western intelligence sources told the Jerusalem Post that Jihad headed a large-scale terrorist cell that enjoyed direct Iranian sponsorship.

Iranian Foreign Minister Zarif called Israel’s attack in the Golan Heights “an act of terror.” Hizbullah was silent on its plans to retaliate. Northern Israeli towns on the border with Lebanon were in a state of fear, with Israeli forces placed on high alert.

And then there was the incident where a Palestinian man stabbed and wounded more than a dozen Israelis on a bus in central Tel Aviv, including at least one more victim as he fled. He was then shot and wounded by security forces. Prime Minister Netanyahu placed responsibility for the attack on the shoulders of Palestinian Authority President Mahmoud Abbas for incitement against Israel.

This comes a week after the two walked together in the front line of the Paris march against terrorism.

Hamas quickly praised the attack. Netanyahu said in a statement, “This is the same Hamas that has announced that it will file a petition against Israel at the International Criminal Court in the Hague. Abbas is responsible for both the incitement and the dangerous move at the ICC.” [Jerusalem Post]

Palestinian media celebrated the attack with a gruesome cartoon of a figure with a bloody knife. Another was of a smiling carton knife. At least both were removed from Twitter and Facebook.

Yemen: After the president and cabinet resigned on Thursday, Friday was a day of protest across the country. Some support the Shiite rebels who seized the capital, Sanaa (or San’a), while others want the south to secede. 

Editorial / Washington Post

“In devoting 250 of the 6,800 words of his State of the Union address to the fight against ‘violent extremism,’ President Obama offered a boilerplate description of his policy. ‘Instead of sending large ground forces overseas,’ he said, ‘we’re partnering with nations from South Asia to North Africa to deny safe haven to terrorists who threaten America.’ As he spoke, his strategy was crumbling in a nation he failed to mention: Yemen, home to the branch of al-Qaeda that claimed credit for the recent attacks in France and has repeatedly attempted to strike the U.S. homeland....

“The administration may be hoping that the Houthis will help defeat al-Qaeda, a Sunni organization the Houthis regard as an enemy. Predictably, however, Iran’s clients have denounced the U.S. presence in the country. They could force the shutdown of training and drone operations – or they may trigger a civil war that will make those operations impossible to maintain.

“The Yemen mess reveals the weaknesses of Mr. Obama’s ‘partners’ strategy, which has been too narrowly focused on drone strikes and training of specialized units, and not enough on providing security for the population, institution-building and support for moderate political forces. Unfortunately, the president’s cursory and formulaic description of his counterterrorism policies this week, following a year in which jihadist forces and terrorist attacks expanded across the world, suggested that he remains uninterested in correcting his mistakes.”

Saudi Arabia: With the death of King Abdullah at the age of 90 (one report I read said 91), 79-year-old Crown Prince Salman has been elevated and I would expect stability for the time being, but it’s with the next generation where there will be concern. Salman quickly named his own successor, Prince Muqrin, who is 69, as crown prince. But as I wrote a few weeks ago, it’s reported Salman has dementia.

Abdullah took the throne in 2005 upon the death of his elder brother Fahd, but had been effectively leader since 1995 following Fahd’s stroke.

Abdullah had named Prince Muqrin as second crown prince shortly before his death, though there was some dissension in the family at Muqrin’s nomination. The Allegiance Council did, however, quickly confirm him on Friday.

Of more intrigue is the man behind Muqrin, 55-year-old Prince Mohammed bin Nayef, the hardline Interior Minister who is the new deputy crown prince. This man doesn’t suffer fools gladly. 

Russia / Ukraine: Ukrainian forces appeared to abandon Donetsk airport to separatist forces after a months-long battle, a major blow for the Kiev government, especially in terms of symbolism. Social media in Ukraine had elevated the defenders of the airport to true superhero status. 

The airport has been reduced to a pile of rubble and is not operational. A Ukrainian military spokesman said the troops abandoned the airport terminals because there was nowhere to hide.

As many as 13 civilians were killed the same day when a bus came under fire in the separatist-held part of Donetsk.

Meanwhile, in Chechnya, hundreds of thousands turned out to rally against “offensive” cartoons of the prophet Muhammad published by Charlie Hebdo.

Ramzan Kadyrov, the Kremlin-appointed leader of the majority Muslim region and one of the most vile people on the planet, told the crowd, “We resolutely announce that we will never let anybody insult the name of the Prophet without punishment.”

Separately, from the Moscow Times:

“Russia’s parliament has given preliminary approval to a bill that would prohibit the activities of so-called ‘undesirable’ foreign companies and organizations in Russia, should they be deemed to pose a threat to the state.

“The bill, adopted in the first reading Monday, targets any foreign entity seen as ‘presenting a threat to the defense capability or security of the state, or to public order, or to the health of population,’ according to a text of the bill released by the State Duma.

“Those groups may be declared ‘undesirable on the territory of the Russian Federation,’ the bill says, adding that the purpose of the move would be to protect, among other aspects, the ‘morality’ of the nation.

“Observers have noted that the bill could provide grounds for the prohibition of any foreign company or organization that officials see as unfriendly.”

Lastly, as Karoun Demirijian of the Washington Post reported, Sochi has been doing well this winter, even amid the political crisis. With the tumbling ruble, European ski vacations became too expensive for many Russians, so they opted for cheaper vacations at home.

Nigeria: Chad has begun deploying troops to fight Boko Haram in neighboring Cameroon. There were reports Boko Haram had kidnapped dozens of people in raids in Cameroon, including children.

Nigeria is holding an election on Feb. 14 and a huge swath of the country won’t be able to vote because of all the territory under Boko Haram’s control.

China: Julie Makinen of the Los Angeles Times had a story on how it’s expected the birthrate in China will fall this year, the Chinese New Year that begins Feb. 19, because it’s the year of the sheep. I didn’t know there’s a saying, “Only 1 out of 10 sheep people can find happiness in their lives.” It seems many in China don’t want their children born under a bad sign. So they may wait several months to get pregnant, which is why some think there will be a baby boom starting Feb. 8, 2016, the year of the monkey.

North Korea: According to the New York Times’ David Sanger and Martin Fackler, the National Security Agency broke into North Korea’s computer systems way back in 2010, “Spurred by growing concern about North Korea’s maturing capabilities.”

So it was the evidence gathered by the “early warning radar” of software hidden to monitor North Korea’s activities that “proved critical in persuading President Obama to accuse the government of Kim Jong-un of ordering the Sony attack, according to the officials and experts, who spoke on the condition of anonymity about the classified N.S.A. operation.”

Well why didn’t the N.S.A. then warn Sony the North Koreans were poking around?

“Only in retrospect did investigators determine that the North had stolen the ‘credentials’ of a Sony systems administrator, which allowed the hackers to roam freely inside Sony’s systems.”

Argentina: The country is in a state of turmoil over the sudden death of a prosecutor who had accused President Cristina Kirchner of a cover-up in the probe looking into a 1994 bombing that killed 85.

The prosecutor, Alberto Nisman, was found dead with a bullet wound to his head a day before he was scheduled to testify in Congress.

At first, Kirchner said Nisman committed suicide. Then on Thursday she reversed herself.

“In Argentina, as in all places, not everything is what it appears to be, and vice versa. Why would he kill himself when he, as a prosecutor, and his family had an excellent quality of life?”

An Ipsos poll found 70% of Argentines believe Nisman was murdered.

But Kirchner has yet to appear before the people on the topic, choosing to issue her statement over Facebook and Twitter.

Going back to the 1994 bombing, Nisman concluded top Iranian officials had used Hizbullah to carry out the suicide bombing of an Israeli community center, which Iran has denied, even as the evidence is overwhelming they helped establish the Hizbullah cell.

The issue with the Kirchner government is that Nisman’s office claimed their involvement in the investigation was all about oil and Argentina’s need for it, while Iran needs Argentina’s agricultural products.

Nisman wrote in 2012 that Argentine representatives were trying to come up with a new enemy/culprit that could be blamed for the bombing. [Taos Turner / Wall Street Journal]

Cuba: In the Wall Street Journal/NBC News poll, President Obama’s recent decision to recognize Cuba is supported by a 60-30 majority. Talks between the two sides commenced in Havana this week.

Random Musings

--President Obama’s approval rating rose to 46% in the aforementioned Wall Street Journal / NBC News poll.

In the Washington Post / ABC News survey, his approval rating rose to 50%, 9 points higher than December.

--Jeb Bush met with Mitt Romney in Utah in what had been a previously scheduled get together prior to Romney’s surprise announcement he was considering another run for the White House. Now the two need to figure out how not to split the Republican establishment, according to the New York Times’ Jonathan Martin, but we all know that would be impossible.

The establishment wants Romney to make up his mind quickly, but he is acting like he’ll wait awhile before any formal announcement whether he’s going for it or not.

--George Will / Washington Post

“America does not have one presidential election every four years, it has 51 – in the states and the District of Columbia. A Romney candidacy, drawing on his network of financial supporters and other activists, might make sense if the GOP were anemic in the states. But Republicans as of this week control 31 governorships, including those in seven of the 10 most populous states (Florida, Texas, Illinois, Michigan, North Carolina, Georgia and Ohio – all but California, Pennsylvania and New York). Republicans control 68 of the 98 partisan state legislative chambers. (Nebraska’s unicameral legislature is chosen in nonpartisan elections.) In 23 states, with 251 electoral votes, Republicans control the governor’s office and the legislature. (Democrats have such control in only seven states.) Republicans have their most state legislative seats since the 1920s.

This mirrors Republican strength in Congress. The party holds more House seats than at any time since 1931. (Democrats, after winning the House in 20 consecutive elections from 1954 to 1992, have lost it in nine of the last 11.) Republicans are one Senate seat shy of equaling their highest total since the 1920s.

“In the six presidential elections beginning in 1992, Democratic candidates have averaged 327 electoral votes, Republicans just 211. Republicans have lost the popular vote in five of the last six and have not won a decisive popular-vote victory since 1988. And no candidate before Romney lost while winning 59% of the white vote, which was almost 90% of his support. George H.W. Bush won about that portion in 1988 but captured 426 electoral votes. Romney got just 206. The white portion of the vote has shrunk 15 points to 72% in the six presidential elections since 1992. With the fastest-growing ethnic group, Asian Americans, Romney did even worse (21%) than he did with Hispanics (27%).

“One more discouraging word about Romney 3.0: Massachusetts. Only two presidential candidates, James Polk in 1844 and Woodrow Wilson in 1916, have been elected while losing their home states.”

--A CBS News poll asked Republicans if they would like to see various candidates jump into the 2016 race. For example, 59% would like to see Romney enter the fray again, while only 26% believe he should stay out.

50% would like to see Jeb Bush run, while 27% do not.

When asked about New Jersey Gov. Chris Christie, though, only 29% said they want to see him launch a bid, while 44% say no.

Interestingly, 40% would like to see Mike Huckabee run, with just 29% urging him to stay out.

The split for and against for Sen. Rand Paul is 27-34. For Sen. Marco Rubio its 26-19. Sen. Ted Cruz...21% want him to run, 25% do not.

Dr. Ben Carson has a 21-17 split.

For the Democrats, 85% would like to see Hillary Clinton run, 11% want her to stay out.

40% want Joe Biden to give it a go, 38% want him to stay on the sideline.

23% say Sen. Elizabeth Warren should launch a bid, 20% disagree.

A Wall Street Journal / NBC News survey found that Hillary Clinton is viewed positively by 45% of all Americans, negatively by 37%. Mitt Romney is viewed positively by 27% and negatively by 40%, while Jeb Bush’s positives are 19%, negatives 32%.

Among Republicans alone, 52% view Romney positively, compared with just 37% who said the same about Bush.

I do not want Romney and am lukewarm on Bush. I had dinner with two conservative friends on Monday and I mentioned I liked John Kasich and it was funny how they both (a couple) shared my enthusiasm.

Alas, he might not run but he’d make for a solid running mate.

--Back to Gov. Christie, according to a new Quinnipiac University Poll of New Jersey voters, Hillary would annihilate Christie in a head to head match-up, 52-39. In my home state, Christie leads among Republicans with 24%, with Romney at 18% and Jeb Bush at 13%.

56% of in-state voters say the governor should not run for president.

57% say he would not make a good president.

Your editor yearns for former Gov. Tom Kean to replace Christie.

--Sheldon Silver, the Democratic speaker of the New York State Assembly, was arrested on federal corruption charges on Thursday, surrendering to FBI agents. The investigation focused on payments he received from a small law firm that specializes in seeking reductions from New York City real estate taxes. Nothing wrong with this, except Silver did not list the payments from the firm on his annual financial disclosure filings with the state.

Silver already worked with another outside law firm, Weitz & Luxenberg, a personal injury firm that advertises heavily in the New York City area, and in 2013 he earned at least $650,000 in income there vs. his $121,000 salary as speaker.

As the New York Times’ reported, “(What) he does to earn that income has long been a mystery in Albany and Mr. Silver has refused to provide details about his work.”

The complaint said that “there is probable cause to believe Silver received approximately $4 million in payments characterized as attorney referral fees solely through the corrupt use of his official position.”

The thing is, Silver was easily re-elected speaker this month despite the fact the investigation was made public long ago. He can continue to serve. It’s only upon conviction that he would have to step down.

Obviously this is not good for Dem. Gov. Andrew Cuomo, who abruptly shut down an anti-corruption commission he had created in 2013.

--More fallout on the attack against Charlie Hebdo... different opinions...

Mark Hemingway / The Weekly Standard

“After the recent massacre by Islamic terrorists...people around the world took to social media to declare “Je suis Charlie,” or “I am Charlie.” Solidarity is a nice sentiment, and journalists in particular are fond of uttering self-soothing words about their commitment to free speech at times like but. But “Je suis Charlie” is just another lie that the media tell themselves. Charlie Hebdo’s willingness to defend free speech only serves as a reminder that the magazine was a rare bastion of courage in an industry dominated by cowards.

“Indeed, many in the media are in such denial they insist their cowering is brave truth-telling aimed at silencing bigots. ‘I hereby apologize to Muslims for the wave of bigotry and simple nuttiness that has lately been directed at you. The venom on the airwaves, equating Muslims with terrorists, should embarrass us more than you,’ wrote New York Times columnist Nicholas Kristof in a column on September 18, 2010. ‘Muslims are one of the last minorities in the United States that it is still possible to demean openly, and I apologize for the slurs.’

“This simpering apologia was as unnecessary as it was untrue. It is not possible to demean Muslims openly. Among the many insulting things about Kristof’s column was its timing. On September 14, 2010 – four days before the column ran – the Seattle Weekly had announced that its cartoonist, Molly Norris, had ‘gone ghost.’ Earlier that year, Norris gained some prominence as the founder of Everybody Draw Muhammad Day, prompting none other than Yemeni-American cleric Anwar al-Awlaki to issue a fatwa calling for her murder. Norris is still in hiding more than four years later, and for good reason. After the hebdo massacre, many news outlets noted that one of the much-beloved, now-murdered cartoonists, Stephane Charbonnier, aka ‘Charb,’ was recently listed by the al-Qaeda magazine Inspire as ‘Wanted Dead or Alive for Crimes Against Islam.’ Also listed, at the bottom of the page, is Molly Norris.

“Few in the media have ever so much as noted that Norris was forced to disappear....

“We depend on a free press to check governments that would suppress speech, so the fact that the media have neutered themselves is harming free expression throughout the West. In Canada, journalists Mark Steyn and Ezra Levant have been dragged into legal proceedings and threatened with fines for criticizing Muslims. In the wake of a violent al-Qaeda attack on a U.S. embassy, the U.S. government jailed the filmmaker behind an obscure YouTube video mocking Muhammad. And President Obama himself told the United Nations, ‘The future must not belong to those who slander the prophet of Islam.’ Let us be clear, then, in our own response: Perhaps the future shouldn’t belong to those who slander Muhammad, but it damn well better belong to people who insist on the right to do so.”

Tim Stanley / The Daily Telegraph

 “Liberals hate the Pope now because he apparently said that free speech shouldn’t apply when it comes to religion.

“ ‘If my good friend...says a curse word against my mother,’ Francis joked, ‘he can expect a punch. It’s normal. You cannot provoke. You cannot insult the faith of others. You cannot make fun of the faith of others.’

“As per usual, His Holiness has been misunderstood. Willfully, the cynic might say. Pope Francis clearly stated that what happened in Paris was abhorrent, that free speech is a human right and that speaking one’s mind can be of benefit to the common good (I’d add that sometimes not saying something for fear of causing offense is a sin of omission). All he was pointing out is that when one says something in public, one does so expecting to be heard – and this can have consequences. Those consequences aren’t necessarily deserved: in the case of ‘Charlie Hebdo’ they were plainly evil. Nevertheless, if you say something that shocks someone to their very core don’t be surprised if they get a little upset. Insult my mother and, to quote the wordsmith and fellow Catholic William F. Buckley, ‘I’ll sock you right in your goddamn face and you’ll stay plastered.’ Given that the Pope was merely expressing something that ought to be blindingly obvious, why has it proved so controversial? Because contemporary Westerners struggle to understand the concept of blasphemy. Francis is pointing out that to some people God is emotionally equivalent to their father or mother – He is real, He matters, He is something you would be prepared to die for. He is open to rational inquiry and theological critique, but He isn’t necessarily open to insult....

“Blasphemy is when you ridicule the sacred, which means you ridicule the pinnacle of goodness.

“To translate it into secular talk: to parody Jesus is like parodying Martin Luther King Jr. or Nelson Mandela. And a society without heroes is a very sad society indeed. So all the Pope was doing was reminding us that, hey, some people believe in this whole God thing and you ought to be aware when insulting their deity that they take it more seriously than you might realize. Not that this justifies either a punch or a terrorist assault. On the contrary, the Bible tells Christians both to turn the other cheek and to suffer persecution as the inevitable consequence of being right. The Koran, likewise, shows that Muhammad took insults with a smile. The human instinct might be to land a punch, but the wise suffer fools gladly.”

Bob Schieffer / Face The Nation, 1/18/15:

“I am not a Catholic, and only God knows if I even qualify as a religious person, but I like the new pope.

“He reminds us that religion is about kindness, not imposing our will on others. So, in the wake of the Paris tragedy, when he told us that free speech has limits and that we should not make fun of the religions of others, I listened.

“There is no stronger defender of the First Amendment than me. As a reporter, I stand second to no one in defending the French magazine’s right to print their satirical cartoons. Certainly, though, they did not deserve to die.

“But defending the magazine’s right to print the cartoons is different than approving the cartoons. Long ago, our Supreme Court ruled free speech is not a license to put public safety at risk by shouting fire in a crowded theater. And good taste and sensitivity to the feelings of others dictates self-imposed limits on what we say every day. That too is a principle of civilized society.

“I think what the pope was saying was, there is a difference in having the right to do something and doing the right thing. I am glad he reminded us. That too should be a part of this conversation.”

Thomas G. Donlan / Barron’s

“More French people now have seen the fight up close. (President Francois) Hollande gave a speech last week on the aircraft carrier Charles de Gaulle, which is heading to the waters off Iraq to strengthen the struggle against the Islamic State. He sounded a lot like Bush a decade ago, as he said, ‘The fight in Iraq will be long. Many might think it is a fight far away from what we are going through, but no, it’s the same.’

“It’s easy to hold up a sentimental sign or fly a national flag after a terrorist attack. It’s harder to maintain determined pursuit of the criminals and their sponsors, even harder to hold firm in the long struggle to eradicate terrorism, and harder still to remain devoted to free speech for all.

“Unfortunately, France is not living up to all of the high standards of liberty. The authorities arrested people last week for being ‘apologists for terrorism.’ Among them was the nasty anti-Semitic comedian Dieudonne, who wrote on his Facebook page that he sympathized with one of the assassins of the Charlie Hebdo massacre.

“People who claim to be Charlie cannot fail to demand liberty for Dieudonne and others arrested or killed for words and thoughts around the world. Cartoons do not kill, and neither do comedians.

“Eradicate the killers by all means available, but don’t imitate or perpetuate their crimes. Above all, do not persecute those who speak and write and draw.”

--Maureen Dowd, in her Sunday op-ed for the New York Times, writes of her experience going to a theater to see “Selma.” Her description of “watching it in a theater full of black teenagers” is priceless.

But on a more serious note, Ms. Dowd writes of Director Ava DuVernay taking more than a few liberties with the truth when it comes to L.B.J. and his role in the Civil Rights Movement.

I know a fair amount about this topic, L.B.J.’s role, and because I’ve read how he’s treated in the film, I have zero reason to see it.

But I love Ms. Dowd’s take:

“Duvernay sets the tone for her portrayal of Lyndon Johnson as patronizing and skittish on civil rights in the first scene between the president and Dr. King. L.B.J. stands above a seated M.L.K., pats him on the shoulder, and tells him ‘this voting thing is just going to have to wait’ while he works on ‘the eradication of poverty.’

“Many of the teenagers by me bristled at the power dynamic between the men. It was clear that a generation of young moviegoers would now see L.B.J.’s role in civil rights through DuVernay’s lens.

“And that’s a shame. I loved the movie and find the Oscar snub of its dazzling actors repugnant. But the director’s talent makes her distortion of L.B.J. more egregious. Artful falsehood is more dangerous than artless falsehood, because fewer people see through it....

“Instead of painting L.B.J. and M.L.K. as allies, employing different tactics but complementing each other, the director made Johnson an obstacle.

“Top Johnson aide Jack Valenti told Michael Beschloss, the presidential historian, that L.B.J. aspired to pass a Voting Rights Act from his first night as president. Valenti said that his boss talked to him about it the night of J.F.K.’s assassination in the bedroom of Johnson’s house in D.C., The Elms, before the newly sworn-in president went to sleep.

“On the tape of a phone conversation between President Johnson and Dr. King the week of L.B.J.’s 1965 inauguration, the president said that he indicated the time was yet ripe to ask Congress for it, and he made it clear that they both needed to think of something that would move public opinion more than a presidential speech....

“In an interview with Gwen Ifill on P.B.S., DuVernay dismissed the criticism by Joseph Califano Jr. and other L.B.J. loyalists, who said that the president did not resist the Selma march or let J. Edgar Hoover send a sex tape of her husband to Mrs. King. (Bobby Kennedy, as J.F.K.’s attorney general, is the one who allowed Hoover to tape Dr. King.)

“ ‘This is art; this is a movie; this is a film,’ DuVernay said. ‘I’m not a historian. I’m not a documentarian.’

“The ‘Hey, it’s just a movie’ excuse doesn’t wash. Filmmakers love to talk about their artistic license to distort the truth, even as they bank on the authenticity of their films to boost them at awards season....

“There was no need for DuVernay to diminish L.B.J., given that the Civil Rights Movement would not have advanced without him. Vietnam is enough of a pox on his legacy....

“(The) truth is dramatic and fascinating enough. Why twist it? On matters of race – America’s original sin – there is an even higher responsibility to be accurate.

“DuVernay had plenty of vile white villains – including one who kicks a priest to death in the street – and they were no doubt shocking to the D.C. school kids. There was no need to create a faux one.”

--Richard Johnson / New York Post’s Page Six:

“Ever wonder how lowly paid lawmakers leave office filthy rich?

“Sen. Dianne Feinstein is showing how it’s done.

“The U.S. Postal Service plans to sell 56 buildings – so it can lease space more expensively – and the real estate company of the California senator’s husband, Richard Blum, is set to pocket about $1 billion in commissions.

“Blums’ company, CBRE, was selected in March 2011 as the sole real estate agent on sales expected to fetch $19 billion. Most voters didn’t notice that Blum is a member of CBRE’s board and served as chairman from 2001 to 2014.

“This feat of federal spousal support was ignored by the media after Feinstein’s office said the senator, whose wealth is pegged at $70 million, had nothing to do with the USPS decisions.”

--In another poll of New York City residents (registered voters), this one by Siena College, 48% of respondents said Mayor Bill de Blasio was making race relations worse in the city and only 18% said he was making them better.

57% said Rev. Al Sharpton was deepening the divide. 34% said PBA President Patrick Lynch was.

By a 65% to 28% margin, city residents disapprove of NYPD officers dissing de Blasio by turning their backs on him.

Some 74% of blacks and 65% of whites rated race relations as only “fair” or “poor.”

--When the final report on “Deflate-Gate” is issued, my guess is the equipment guys did it to help Tom Brady, knowing he would want them to, and, importantly, that he would give them a big tip come season end, which is what happens in professional sports with the clubhouse/locker room staff. In other instances, the locker room guys get the athletes to sign jerseys that they sell themselves for beer money. [Domestic, of course.]

---

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

God bless America.
---

Gold closed at $1292...up $106 in three weeks
Oil $45.59

Returns for the week 1/19-1/23

Dow Jones +0.9% [17672]
S&P 500 +1.6% [2051]
S&P MidCap +1.7%
Russell 2000 +1.0%
Nasdaq +2.7% [4757]

Returns for the period 1/1/15-1/23/15

Dow Jones -0.8%
S&P 500 -0.3%
S&P MidCap +0.2%
Russell 2000 -1.3%
Nasdaq +0.5%

Bulls 49.0
Bears 17.4 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore



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-01/24/2015-      
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Week in Review

01/24/2015

For the week 1/19-1/23

[Posted 11:15 PM ET, Friday]

Edition 824

Washington and Wall Street

One week after the World Bank gave its biannual forecast for global growth the IMF did the same, lowering its outlook to 3.5% in 2015, down 0.3% from its earlier estimate, and 3.7% in 2016. 

The IMF raised the U.S. 0.5% to 3.6% for this year, but cut the eurozone GDP projection to 1.2%. 

China was cut 0.3% to 6.8% for 2015 (the World Bank had come in at 7.1%), and just 6.3% for 2016, citing problems in the housing market.

Japan is forecast to grow just 0.6% in 2015, 0.8% in 2016.

IMF Managing Director Christine Lagarde said that while cheaper oil would help consumers in much of the world, the United States would likely be the only major economy to buck a trend of weakness in investment and consumption.

Lagarde, in a speech previewing the IMF’s outlook, said the eurozone and Japan remain at risk of settling into a long period of weak growth and dangerously-low inflation.  The specter of deflation remained a risk for Europe, she said.

Referring to the emerging markets and a slowing China, Lagarde said, “A shot in the arm (from lower oil prices) is good, but if the global economy is weak on its knees, it’s not going to help.”

In Barron’s annual roundtable discussion, Felix Zulauf noted when it comes to crude: “The oil-price slump will hurt the economy dramatically in terms of capital spending and employment, and a lot of oilfield jobs are high-paying jobs. Yes, lower oil prices will bring down the cost of energy, which is good for consumers, but the private sector is going to save this money, instead of spending it.”

On the other hand, Abby Cohen of Goldman Sachs said: “The transportation and utility industries are major consumers of energy, and will benefit from lower oil prices. Energy accounts for 17% to 18% of their total costs. Our U.S. strategy team believes that the decline in energy prices will boost S&P profits in 2015.”

Among the polls out this week, an NBC News / Wall Street Journal survey found that 45% of registered voters are satisfied with the state of the economy, 54% dissatisfied; though this is a big improvement from a year ago when the split was 28-71.

A Washington Post / ABC News poll was split 48-48 in terms of President Obama’s handling of the economy, also an improvement.

I’ll touch on the slew of earnings reports from the week down below, but they were far from good. 

There was also some data on the housing market. December housing starts were up an annualized rate of 4.4% to a better than expected 1.089 million pace, with the rate of single-family home construction (ex-apartments) at its best since March 2008. But then existing home sales for the month were less than expected, up 2.4% month over month to an annualized pace of 5.04 million and down 3.1% for all of 2014 vs. 2013.

Meanwhile, oil resumed its slide, $45.59 as measured by West Texas Intermediate, a six-year low, and the national price of a gallon of regular at the pump is down to $2.03 as of Friday.

Add it all up and, coupled with the move on the part of the European Central Bank to launch a massive quantitative easing program (QE) that I’ll detail in a bit, stocks were able to snap a 3-week losing streak and register solid gains, though they were cut some by a late swoon Friday afternoon.

But markets in the U.S. and Europe sloughed off a terrible week for Planet Earth and understand that much of the rest of the column jumps around a bit because there are so many cross-currents to deal with, as well as overlapping issues. For example, the collapse of the government in Yemen is also about Iran, let alone al-Qaeda; Israel’s attack on Syria’s Golan Heights was about both Hizbullah and Iran; ISIS was up to its usual brutality; Russian separatists seemingly scored a few gains in Ukraine as that war heated up again.

But then President Obama gave his State of the Union speech and you’d never know his foreign policy is in tatters. Or, as Ian Bremmer, president of Eurasia Group, put it in a tweet:

“The State of the Union & the State of the World are far from alignment.”

President Barack Obama, State of the Union, Jan. 20:

“America, for all that we’ve endured; for all the grit and hard work required to come back; for all the tasks that lie ahead, know this: The shadow of crisis has passed.”

Obama took a victory lap on the economy.

“At every step, we were told our goals were misguided or too ambitious, that we would crush jobs and explode deficits. Instead, we’ve seen the fastest economic growth in over a decade, our deficits cut by two-thirds, a stock market that has doubled, and health-care inflation at its lowest rate in 50 years.

“So the verdict is clear.”

Obama then tried to portray an optimistic view of both the nation’s future and its politics.

“A better politics isn’t one where Democrats abandon their agenda or Republicans simply embrace mine. A better politics is one where we appeal to each other’s basic decency instead of our basest fears.” [David Nakamura / Washington Post]

Oh brother.

Edward Luce / Financial Times

“When a Democratic president talks up ‘transgender’ rights in prime time, you can be sure he does not face reelection.

“In Barack Obama’s case, his second to last State of the Union address was delivered with an extra dose of mojo. Bill Clinton said the best test of a speech is to put on the mute button.

“To judge by Mr. Obama’s mien, Democrats may as well have romped to victory in last year’s midterm elections – as opposed to having lost control of Capitol Hill.

“Since then, Mr. Obama has acted as though the world’s weight is lifted from his shoulders. Gone are the formulaic exhortations to bipartisanship.

“Mr. Obama set out the case for a ‘middle class economics’ and ‘smarter leadership abroad.’ These are unapologetic liberal themes. The more sullen Republicans seemed during the speech, the greater the president’s swagger.

“Whatever else can be said of Mr. Obama’s address, his Kumbaya days are over....

“There was a lot of hubris in his speech. Events have a way of confounding bold assertions about the rest of the world.

“But it was not the address of someone who thinks of himself as a lame duck.

“The line of the night was not even in the script. Towards the end a group of Republicans started to applaud when Mr. Obama said he would never face reelection.

“ ‘I know,’ he quipped, ‘because I won both of them.’

“Having endured some of the bitterest partisanship in recent history, Mr. Obama is discovering the parts of the job he enjoys. That may no longer include trying to meet his opponents halfway.

“Tuesday night’s real message is that Mr. Obama’s priority in his last two years will be to secure another Clinton presidency.”

On foreign policy Obama said his approach was “making a difference.”

Sens. John McCain and Lindsey Graham issued a joint statement: “The president’s pronouncement of a ‘smarter kind of American leadership’ must be puzzling to any American who has watched the news in the past six years.”

Daniel Henninger / Wall Street Journal

“(Obama) said in the State of the Union that we are leading ‘a broad coalition’ against ISIS. We are? What coalition? Mainly it’s the Iraqi army and Kurds battling for survival alongside U.S. air support.

“The president said we are ‘supporting a moderate opposition in Syria.’   But twice in 2014 Mr. Obama derided the Syrian moderates as dentists, pharmacists and teachers. U.S. support for the moderates is de minimis.

“On Ukraine, Mr. Obama said, ‘We’re upholding the principle that bigger nations can’t bully the small.’ But bullying is exactly what Russia’s Vladimir Putin is doing to Ukraine because Mr. Obama refuses to give its army even basic defensive weapons.

“Then there’s the grandest foreign-policy self-delusion of the Obama presidency – the never-ending nuclear arms deal with Iran. Mr. Obama said we’ve ‘halted the progress of its nuclear program.’ Slowed perhaps but no one thinks we’ve ‘halted’ Iran’s multi-facility nuclear-weapon and ballistic-missile project. Only in the Obama fantasy is it halted.

“Sen. Robert Menendez, the New Jersey foreign-policy Democrat, who sat bolted to his seat during the speech, said the next day that the administration’s talking points on Iran now sound ‘straight out of Tehran.’”

Molly O’Toole / Defense One

“President Barack Obama promised to end his predecessor’s wars and foreign policy of force and staked his legacy to fulfilling that promise. But in his State of the Union address to Congress on Tuesday night, Obama promised that ‘the shadow of crisis has passed,’ even as conflicts continue to pop up across the globe.

“ ‘We are fifteen years into this new century. Fifteen years that dawned with terror touching our shores; that unfolded with a new generation fighting two long and costly wars,’ Obama began. ‘But tonight, we turn the page.’

“From the new U.S. role in Afghanistan to renewed tensions with Russia, from the rise of militant extremism in Iraq and Syria to the attacks on the streets of Paris, the threat of terrorism and global conflict is no shadow, but a grim and tangible reality facing Obama in the last two years of his presidency.

“ ‘Tonight, for the first time since 9/11, our combat mission in Afghanistan is over. Six years ago, nearly 180,000 American troops served in Iraq and Afghanistan,’ Obama said. ‘Today, fewer than 15,000 remain.’

“In a tacit acknowledgement of the fragility of Afghanistan’s transition, some 10,000 U.S. troops remain in the country, and Gen. John Campbell, the top U.S. commander in Afghanistan, said last week there is some indication the Islamic State is recruiting there.”

Karl Rove / Wall Street Journal

“On CBS’ ‘Face The Nation’ last Sunday, White House senior adviser Dan Pfeiffer said the administration would ‘double down on our efforts to deal with wage stagnation and declining economic mobility.’ The president has been in office six years and none of his efforts have made either problem better. A record number of Americans are in poverty and 15% more people receive food stamps today than when he took office. Much of this is thanks to a stagnant economy that Mr. Obama’s tax-and-spend policies have kept in the doldrums.

“It is hard to fathom why the president offered so many proposals that have zero chance of passing the Republican-run Congress. The most likely explanation is while he is uninterested in governing, he is intent on positioning Democrats for the 2016 presidential race. But while his class-warfare theme is timeless, his policy proposals are highly perishable....

“(It) could be that Mr. Obama is trying to become more relevant by making himself even more obnoxious to the Republican congressional majority and thereby provoke conflict.

“Republicans should decline the invitation, instead treating Mr. Obama’s proposals mostly with benign neglect. If he complains about obstructionism, Republicans should point to the failure of the White House and congressional Democrats to press his initiatives by drafting bills, seeking committee approval and offering them on the floor.”

Europe, the ECB and Asia

Europe puts its terror concerns behind it for a few days, at least stock and bond traders did, the Euro Stoxx 600 index (like the S&P 500) finishing up a whopping 5.1% on the week, its best performance since 2011.

And check out these 10-year bond yields across the continent, all finishing Friday at or near all-time record lows.

Germany 0.36%
France 0.54%
Spain 1.37%
Italy 1.52%
Portugal 2.43%
Greece 8.17% (though down from a high of 9.45% on Monday)

Britain 1.48%
Switzerland -0.32%

Yes, again, those are 10-year bond yields and, yes, Switzerland’s has a minus sign.

One more...the euro currency is at an 11-year low.

All the above is a result of the long-anticipated announcement by European Central Bank President Mario Draghi that he was launching a 1.1 trillion euro ($1.2 trillion) asset-buying program, quantitative easing (QE) that will commence in March and stay in place until September 2016, or until there has been a “sustained” improvement in consumer price inflation, which turned negative with the most recent report when the ECB’s target is 2%. Draghi left open the possibility of extending QE further if the impact is small.

The ECB will buy 60 billion euro of assets a month – including government bonds – and it’s the open-ended nature and overall size that surprised the markets, a strong commitment by what had been perceived to be a divided Council.

As for risk-sharing, a particularly contentious issue by the likes of Germany and Finland, each country will bear most of the losses if it defaults. The ECB is only on the hook itself for the nongovernment bonds it buys, which are supposed to be 20% of the total, and there will be risk-sharing largely on debt issued by European institutions bought by the national central banks.

Specifically, Draghi said: “With regard to sharing hypothetical losses, purchases of securities of European institutions, which will be 12% of additional purchases, will be subject to loss sharing. The ECB will hold 8% of additional asset purchases. That implies that 20% of additional purchases will be subject to a regime of risk sharing.”

Draghi said the ECB and national central banks would never buy more than one-third of a country’s debt issuance.

So as you can see the ECB will look to keep interest rates exceedingly low to encourage consumers to spend, companies to build and banks to lend. The ECB hopes this will stoke inflation.

At the same time the ECB’s policy will help to keep the euro currency weak to encourage exports outside the eurozone as European goods will be cheaper.

But there is no guarantee any of this will work. I suspect you will see some improvement in the numbers the first half of the year but unless confidence has truly improved by then the economy could roll back over.

As for Greece, which holds its big election on Sunday, it will not participate in the asset-buying until July, and only if it remains in a European Union monitored program and is sticking to the terms of its bailout.

Heading into Sunday, leftist Syriza was leading Prime Minister Antonis Samaras’ New Democracy by 4 to 5 points with 31-32 percent of the vote. Syriza leader Alexis Tsipras would then still have to form a government.

Finally, there is this little issue of a currency war. For one, as you see from the initial fourth-quarter earnings reports, many U.S. multinationals are getting slammed by the rising dollar. 

Ralph Atkins / Financial Times

“Will quantitative easing by the European Central Bank succeed? Here’s a tip: watch the euro. A weaker currency – the implicit objective of the ECB’s plans – could prove the most effective channel through which QE affects the real economy.

“A lower euro would boost exports and, crucially, lift inflation. If it looks as if the ECB has joined an increasingly hostile global currency war, there is a good reason: it has. Like the Bank of Japan, the ECB is using an important reserve currency as a policy weapon.

“Even ahead of Thursday’s policy meeting, there has been substantial collateral damage. The Swiss National Bank had attempted to cap the resulting Swiss franc appreciation but last week raised the white flag. The subsequent brutal rise in the Swiss currency threatens the country with a deep recession.

“Switzerland highlights the futility of currency wars. Others will counter the ECB’s moves. The BoJ is still struggling to convince investors it will achieve its inflation goal – and Japanese carmakers’ biggest exporting rivals are German. Bank of England hawks who wanted to raise interest rates are in retreat. Denmark and Canada have cut interest rates this week; India did last week.

“Further global monetary easing is being priced into fixed income markets. But rather than improving investor confidence, extraordinarily low borrowing costs raise questions about whether central banks are losing their grip and whether markets have become (even more) distorted.”

More on the topic next week.
---

There was a little economic news on the week. Euro-area manufacturing and services expanded at the fastest rate in five months according to Markit Economics’ flash reading of activity in January. The Purchasing Managers comp index came in at 52.2 from 51.4 in December, better than expected.

The service reading rose to 52.3 from 51.6. The manufacturing figure was 51.0 vs. 50.6 last month.

Chris Williamson, chief economist at Markit, said: “There’s good reason to believe the rate of expansion will continue to improve in coming months. The additional stimulus in the form of full-scale quantitative easing by the ECB should help to underpin a further improvement in confidence among households and businesses.”

Also, importantly when it comes to fears of deflation, Williamson noted: “(With) the January survey showing the largest rise in new orders for goods and services for five months, it seems that lower prices are resulting in higher consumer spending, rather than encouraging households to defer purchases in the hope of lower prices in the future.”

The flash report only looks at France and Germany, individually, and France’s comp index fell to 49.5 from 49.7 (50 being the dividing line between growth and contraction), though the manufacturing PMI rose to 49.5 from 47.5.

Germany’s comp was 52.6 vs. 52.0, with the flash manufacturing PMI at 51.0 vs. December’s 51.2.

Separately, Britain’s unemployment rate fell to 5.8% for the three months to November, as during this time wage growth rose 1.8% year on year, while inflation in December came in at an annualized rate of 0.5%. This is good. You want wages exceeding the inflation rate, sports fans. [The rate for November was 1.0%.]

And a note on Russia. The European Bank for Reconstruction and Development forecast the Russian economy would shrink a whopping 5% this year, while the average growth rate for eastern Europe and the former Soviet Union will turn negative for the first time since 2009. The EBRD also sees Ukraine’s GDP declining 5% in 2015, on top of a 7.5% hit last year.

The head of Russia’s largest bank, Sberbank, German Gref, offered a bleak picture for the country’s banking sector.

“It’s obvious that the banking crisis will be massive. The state will capitalize the banks and increase its stake in them, and the banks will buy industrial enterprises and become financial-industrial groups. All our economy will be state-run.”

Russia is of course suffering mightily from the decline in the oil price. With the death of King Abdullah of Saudi Arabia on Thursday (more below) it was felt that might lead to more volatility in the energy market but Abdullah’s successor Salman Bin Abdulaziz Al Saud, now King Salman, said the policy when it came to crude wasn’t going to change. The Saudis will not cut production to prop up prices and instead will seek to maintain market share. In addition, current oil minister, Ali al-Naimi, remains in place. So early gains in oil on the Abdullah news dribbled away.

Lastly, on the issue of the far right in Europe, a planned rally by Germany’s anti-Islamist Pegida group was called off after police received a threat against one of the organizers. Pegida said its regularly scheduled Monday rally had to be canceled to ensure protesters’ safety as the threat was credible.

But then two days later, the leader of Pegida, Lutz Bachmann, resigned after a photo of him apparently posing as Hitler emerged.

Prosecutors are investigating insulting comments about refugees attributed to him. Vice-Chancellor Sigmar Gabriel told the German newspaper Bild: “Anyone in politics who poses as Hitler is either a total idiot or a Nazi. Reasonable people do not follow idiots, and decent people don’t follow Nazis.”

We’ll see how this impacts the movement.

In Britain, Muslim groups accused the government of copying the language of the far right and of stoking Islamophobia.

In a letter to over 1,000 imams last Friday, Erick Pickles, the minister for local government and communities, asked them to explain to Muslims how Islam can be “part of British identity,” arguing they had to do more to fight extremism.

A representative of the Muslim Council of Britain told Sky News, “The letter has all the hallmarks of very poor judgment which feeds into an Islamophobic narrative, which feeds into a narrative of us and them.”

Another member of the Muslim Council said, “Is Mr. Pickles seriously suggesting, as do members of the far right, that Muslims and Islam are inherently apart from British society?”

Well, yeah....

Prime Minister David Cameron defended the letter. “Anyone frankly reading this letter who has a problem with it, I think really has a problem.” [Andrew Osborn / Reuters]

Meanwhile, Marine Le Pen, leader of France’s far-right National Front, continued her media blitz with an extensive interview with the Wall Street Journal. She comes across pretty well in the piece. As reported by Sohrab Ahmari:

“Her fixes for France’s troubles are simple: Exit the European Union and end the reign of ‘globalist’ economics – the free movement of goods, capital and labor – that she blames for the fact that France is ‘dying.’ Above all: ‘stop immigration,’ not just to discourage the potential Islamist threat, but for the overall health of the country. ‘There are 200,000 legal immigrants coming to France every year,’ Ms. Le Pen says. ‘They just add to the problems.’

“Ms. Le Pen doesn’t directly answer my question about what she proposes to do about the millions of Muslim immigrants whose only nationality is French. Instead, she turns her attention to immigrants with dual citizenship. ‘Do you know that there are 700,000 voters, Algerian and French, who voted in the recent Algerian elections?’ she asks. ‘These people can and should decide one way or the other. We have nothing against being a foreigner in France, but they have to decide.’ The message: Choose France or get out. Also: Those with dual citizenship who commit crimes in France should ‘be sent back.’”

In China, the government reported the economy grew at a 7.4% pace for all of 2014 after GDP grew 7.7% in each of 2012 and 2013. The 7.4% was the slowest since 1990. For the fourth-quarter the economy grew at a 7.3% annualized rate. Aside from the projections from the IMF and World Bank noted above, Fitch is calling for China’s growth rate to slow to 6.8% in 2015, 6.5% in 2016.

Andrew Colquhoun, Fitch’s head of the Asia-Pacific region, said: “China’s growth remains riskily reliant on the expansion of credit. It will likely take faster progress on structural reform to create space for a form of growth and job creation that does not add to China’s systemic vulnerabilities.”

National Bureau of Statistics chief Ma Jiantang said: “The 7.4% was a result of overcoming difficulties. It was a result of withstanding pressures...The 7.4% was also not a low level internationally.”

Most expect the annual growth target to be reduced to as low as 7% at the National People’s Congress meeting in March, though the official Xinhua news agency quoted an academic advisor to the central bank’s monetary policy committee as saying GDP could be as high as 7.3% this year as the sharp fall in commodities such as oil provides “a large bonus.” [Reuters]

Monday, Premier Li Keqiang said the economy was facing “relatively large” downside pressures, adding the government would push forward structural reforms to promote a medium to high rate of growth.

Ma highlighted two major risks that China faces in the near term – a correction in the property market and huge amounts of debt at the local level, though he said “positive changes” were evident in the real estate market, and local debt risks were “generally controllable.” [Victoria Ruan / South China Morning Post]

Speaking of housing, the statistics bureau said new-home prices in December fell in 65 of 70 major cities, though home sales rebounded in 23 of them.

Also the National Bureau of Statistics said fixed-asset investment growth for all of 2014 was 15.7% vs. 19.6% in 2013, property investment grew 10.5% vs. 19.8% the year before, industrial production rose 7.9% in December year on year from a 7.2% rise in November, and retail sales gained 11.9% in December vs. a 13.6% increase in December 2013.

And HSBC’s preliminary PMI manufacturing index for January was 49.8, up a smidge from December’s 49.6.

As for the Shanghai stock market, the main index fell 7.7% on Monday, the worst day since June 2008, as regulators sought to rein in record margin lending and thus prick the bubble that had been developing. China’s Shanghai Composite had risen 10 straight weeks through last week (the best stretch since May 2007) and was up 67% in 12 months. The market then recouped much of Monday’s losses on Tuesday and Wednesday and ended up the week down just 0.5%.

Turning to Japan, the yield on the 10-year bond fell to a record low 0.195% on Tuesday before closing the week at 0.22% as the Bank of Japan initiated another round of massive buying of government paper. The BoJ held the line on existing monetary policy (unprecedented easing remains in place, along with QE), and it lowered its core inflation projection to just 1.0% from 1.7% for fiscal 2016 (which begins April 1).

South Korea reported fourth quarter growth of 2.7% from a year ago, less than expected, and 3.3% for all of 2014, which was also disappointing. The central bank recently cut its 2015 outlook to 3.4% from an earlier projection of 3.9%.

India will be in the spotlight this weekend as President Obama takes a trip there amid warming relations between the two countries, with Prime Minister Modi increasingly wary of China’s movements in the region. Among Modi’s actions, an Indian company has submitted a bid for a deepwater port project that Bangladesh wants to develop when China was seen as having a lock on it.

[Not for nothing, but Obama’s trip here is really being buried. This is a big deal. I am glad the president is going...and it’s only India, which should make them feel even more special.]

Street Bytes

--As noted earlier, stocks broke a three-week losing streak with the Dow Jones gaining 0.9% to 17672. It’s still down 0.8% for January. The S&P 500 picked up 1.6% and Nasdaq rose 2.7% and is back in the black for the month (+0.5%)

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.49% 10-yr. 1.80% 30-yr. 2.37%

The 30-year is back down near its all-time low of 2.35%.

--The Bank of Canada cut its benchmark overnight rate by a quarter-point to 0.75%, the first reduction in the key rate since April 2009. You can guess why the central bank felt compelled to act. In a statement: “The oil price shock increases both downside risks to the inflation profile and financial stability risks.... The Bank’s policy action is intended to provide insurance against these risks, support the sectoral adjustment needed to strengthen investment and growth, and bring the Canadian economy back to full capacity and inflation to target within the projection horizon.”

--Halliburton Co. posted higher revenues and earnings in the December quarter but warned this year will be challenging as it not only deals with falling oil prices, but also its acquisition of rival Baker Hughes Inc.

Halliburton had previously announced it laid off 1,000 workers outside the U.S. and hinted at layoffs here, while Baker Hughes announced it was reducing its workforce a whopping 7,000, while cutting capital spending 20%.

--French energy giant Total announced plans to reduce capital spending by 10% this year, though is holding off on announcing any layoffs until the spring.

--GE CEO Jeff Immelt has focused on building the energy side of the business, including a large oil and gas operation, and that hurt him in the fourth quarter, with orders falling 10% in this segment, including a 72% decline in orders for some drilling equipment. Doink!

For the quarter, however, overall company revenue rose 4%. The stock, though, remains a dog. Ruff...ruff ruff.....

--IBM reported further declines in quarterly profit and revenue while issuing an anticipated profit forecast that fell short of Wall Street’s expectations.

Revenues declined an 11th straight quarter, down a whopping 12%, as the company struggles to focus on what CEO Virginia Rometty calls “strategic imperatives,” including cloud services, security and businesses related to mobile devices and social networks. While there has been progress in such areas, the company continues to struggle with the remainder of its operations. The rising dollar isn’t helping either.

--Shares in UPS were crushed on Friday as the company warned fourth-quarter and full-year 2014 earnings wouldn’t be as good as previously forecast. The culprit was the company spent way too much in trying to avoid a repeat of the 2013 Christmas season debacle and as a result extra expenses for training and overtime hit the bottom line.

The company did a good job of delivering packages on time, but there were also times when workers and trucks were idle.

--According to Indonesia’s transport minister, an examination of AirAsia flight QZ8501’s black boxes revealed the plane climbed too fast before stalling. The investigation notes the plane ascended at a speed of 6,000 feet per minute, a pace no passenger or fighter jet would attempt. The reason for the climb is almost certainly related to the weather in the flightpath, but further details have not been forthcoming.

--DreamWorks Animation announced it is laying off almost a quarter of its workforce following a string of box office flops. 500 positions will be cut in the restructuring and the company will reduce its productions from three films to two a year.

--Netflix Inc. said it added 1.9 million U.S. streaming subscribers in the fourth quarter, which was down vs. the rate of a year ago. Overall it added 4.3 million as foreign markets grew faster than expected.

The shares soared on the overseas growth as the company said it plans to expand to 200 countries by 2017, up from its current 50, while staying profitable.

But the expenses of expanding overseas are considerable and the segment’s loss widened to $79 million in the fourth quarter.

--Starbucks reported strong earnings and sales for the holiday quarter, with same-store sales increasing 5%. Overall, revenue was up 13% to $4.8 billion, and earnings up 16% over the same quarter last year; both records for the company.

--McDonald’s continues to struggle mightily. For all of 2014, global sales fell 3.6%, including a 4.1% drop in the U.S. Yuck.

For the fourth quarter, earnings declined 21% with revenue down 7.3%. Global same-store sales fell 0.9%, including 1.7% in the U.S., though December saw a 0.4% increase here in the States.

Personally, I go to Burger King anytime I see a 2-for-1 Whopper sale. They also have nice counter workers. My local McDonald’s doesn’t.

--Johnson & Johnson was hit by a stronger dollar, as 53% of its sales of drugs, medical devices and consumer products come from outside the U.S. Fourth-quarter sales were up 3.9%, but ended down 0.6% after a 4.5% currency hit. The company described Europe as challenging.

--Morgan Stanley’s results for the fourth quarter were below expectations, like every other major Wall Street investment bank reporting these days. Stripping out one-time items and adjustments, per-share earnings came in at 39 cents, down from 50 cents a year ago and below the Street’s estimate of 48 cents. Revenue for the quarter fell 1%, while revenue from fixed income, currencies and commodities trading fell 14%, which seemed to be the magic number for “FICC” with most of its competitors.

--Royal Bank of Canada acquired City National Bank for $5.4 billion. City National, out of Los Angeles, has always been known as the “bank to the stars.” It has 75 offices in five states, including New York, and will remain a separate brand under RBC.

The deal valued City National shares at a 26% premium above its price prior to the announcement.

--Bank of New York Mellon Corp. disappointed on the top and bottom line, though it eked out a 2% revenue gain for the quarter...it just wasn’t as good as analysts expected.

--EBay announced it is cutting 2,400 jobs in the first quarter, 7% of its workforce, amid plans to spin off its online PayPal business this year. The company agreed to give activist investor Carl Icahn a greater say in PayPal as well. Fourth-quarter revenues rose a solid 9%, but growth in the company’s marketplaces division was just 1.3%, the slowest growth of its auction sites in years. EBay’s outlook for the current quarter was less than the Street expected.

--American Express said it planned to cut 4,000 jobs in the coming months, while reporting better than expected results for the fourth quarter. Revenues climbed 7%, which is short of its long-term growth target of 8%, while earnings per share slightly exceeded Wall Street’s forecasts. CEO Kenneth Chenault warned of the negative effects of a strengthening U.S. dollar.

--What is the world’s largest law firm by attorney headcount after an announcement on Thursday? The combination of Dentons-Dacheng, the latter one of China’s biggest law firms.

6,600 lawyers in 120 offices in more than 50 countries. The new firm is to be known as Dentons outside of China and Dacheng inside China.

Dentons was the product of a merger of three global law firms back in 2012, including U.S.-based SNR Denton.

--Many of you no doubt saw footage of the horrific apartment complex fire on the New Jersey side of the Hudson River across from Manhattan in the town of Edgewater.

What’s distressing is that this fire exploded from a simple maintenance accident; a plumbing repair that somehow ignited a fire inside the walls of where the work was going on that then became a conflagration destroying 250 of 408 units.

The reason why it spread as it did was “lightweight” wood construction with a truss-style of roof, according to Edgewater Fire Chief Tom Jacobson.

“If it was made out of concrete and cinder block, we wouldn’t have this sort of problem,” he said.

So there’s your lesson. Be careful as to the construction material used in a complex you may be moving into. [If you’re already in one with such material, review your emergency procedures, especially if you smell smoke and/or hear alarms in the middle of the night. This fire started at 4:30 PM. No one died, incredibly, but had it been 4:30 AM the toll could have been considerable.]

--Ebola has killed 8,641 people, according to the latest World Health Organization figures, but it was also reported this week the virus has wiped out a third of the world’s chimpanzee and gorilla populations and could threaten the survival of the already endangered great apes, according to conservationists in an article for the Jane Goodall Institute.

The WWF estimates the Ebola mortality rate is 95% in gorillas and 77% in chimpanzees.

--Years ago on my first trip to Fujian province in China, I told you of the disgusting duck farms I saw along the road and how it wasn’t a surprise to me how bird flu could spread.

This week, officials in Fujian announced the deaths of two people there who died of the H7N9 strain. Apparently there have been 15 confirmed cases in Fujian since the start of the year. The concern has always been that the virus could mutate to become easily transmissible between people, though both Chinese officials and the World Health Organization said there is no evidence thus far of sustained human-to-human transmission.

Separately, Taiwan has been dealing with another strain of bird flu and has been culling tens of thousands of birds.

--New Jersey Gov. Chris Christie named an emergency manager to take over Atlantic City’s day-to-day operations, a surprise to elected officials in the struggling casino town. Among those tabbed to monitor the finances is Kevyn Orr, who guided Detroit through its bankruptcy.

Together with Kevin Lavin, a business-restructuring lawyer, they will effectively wield the powers now held by the mayor and City Council.

--We note the passing of SkyMall, the inflight catalogue, the parent of which declared bankruptcy this week.

--Melvin Gordon, CEO of Tootsie Roll Industries Inc. for over 50 years, died at the age of 95.

So the question is how many Tootsie Rolls are manufactured every day? 64 million. The company also makes Junior Mints, Charleston Chews and Tootsie Pops.

Gordon worked a full schedule until last month, the company said.

As reported by Carla K. Johnson of the Los Angeles Times, “Tootsie Rolls were invented in 1896 by New York City candy maker Leo Hirshfield, who named it for his 5-year-old daughter, Clara, his little tootsie.”

--“American Sniper” took in a startling $105.3 million last weekend in the U.S. and Canada, the largest opening ever for a drama or R-rated film. Nominated for “Best Picture,” the Academy Awards broadcast may do better than everyone first thought as “Sniper” fans tune in to see if their film wins.

Foreign Affairs

Iraq / Syria / ISIS: One of my predictions for 2015 was that the U.S. and Iraq would retake Mosul, which seemed rather far-fetched just weeks ago, I imagine some of you thought.

Well whaddya know?  A headline in Friday’s Wall Street Journal read: “U.S., Iraq Prepare Offensive to Retake Mosul From Islamic State.”

“Gen. Lloyd Austin, the head of the military’s Central Command, told The Wall Street Journal that the international campaign against Islamic State has inflicted significant damage. Opposing forces have reclaimed about 300 square miles of territory in Iraq and killed some 6,000 members of the Sunni radical group, eliminating about half its leadership.”

But U.S. officials conceded they don’t have a good estimate of the current size of IS forces and they still control large parts of northern and western Iraq.

[In a particularly barbaric act, even for ISIS, 13 teenage boys in Mosul were publicly executed for watching a soccer match between Iraq and Jordan (played in Brisbane, Australia), on television, which is prohibited under Sharia law. The boys were killed by a firing squad using machine guns with the “crime” announced over a loudspeaker. The bodies then remained lying in the open, according to activists. A few days earlier, a video was released of two men being thrown off a tower in Mosul because, according to an executioner on the video, they had engaged in homosexual activity.]

Recent U.S. coalition airstrikes have been focused on cutting supply lines to Mosul and Gen. Austin said a coalition of Kuridsh Peshmerga and U.S.-trained Sunni fighters would be ready for an assault on the city by summer.

As for the supposed body count, Defense Secretary Chuck Hagel said this week that such figures have never been a good measure of progress in Iraq.

Gideon Rachman / Financial Times

“The ‘global war on terror’ was shot down in a hail of ridicule. Sceptics scoffed that President George W. Bush’s GWOT was not global and it was not a war – since terrorism is a tactic, not an enemy. On taking office as U.S. president in 2009, Barack Obama quietly dropped the term.

“The GWOT may have been a clumsy phrase and an inexact idea but, sadly, linguistic quibbles have not removed the underlying issue. However you want to label it, the world has a problem with jihadi violence – and it is getting worse.

“There are two specific ways in which the threat from militant Islamism has worsened over the past five years. First, jihadi groups are operating in more parts of the world. Second, the frequency of attacks and number of deaths is increasing.

“The massacre of 148 people, mainly children, at a school in Peshawar on December 16 was the worst atrocity in Pakistan since 2007. It was followed, this month, by the murder of up to 2,000 people by Boko Haram in Nigeria, and the killing of 17 in two separate attacks in Paris.

“Three brutal attacks on three separate continents give the impression that the frequency of Islamist terror attacks is rising. That impression is confirmed by the data.

“A recent study by the Rand Corporation identified 49 Salafist-Jihadi groups operating around the world in 2013, compared with 28 in 2007. These groups staged 950 recorded attacks in 2013, up from 100 six years earlier. And that Rand report was published before a big surge in violence in Nigeria.”

The toll in the West has been falling, though, but this just ensures “the problem received only sporadic attention in the U.S. and Europe. But, in the rest of the world, the number of lawless areas in which jihadi militias can freely operate and train has increased....

“As Islamist militias have gained ground, so the conflict with them has come increasingly to resemble a conventional war. There are now several parts of the world where regular armies are battling jihadi groups for control of territory. American and European air-forces are bombing ISIS. The Nigerian army, aided by troops from Chad and Niger, is fighting Boko Haram – albeit not very effectively. The French army deployed in Mali to beat back a jihadi threat. The Pakistanis, goaded by the attacks on Peshawar, have renewed military action against the Taliban.

“Solving the problem of jihadi violence, over the long run, will be more about the battle of ideas than a battle of armies. But, in the meantime, there are military campaigns against Islamist movements under way in Africa, Asia and the Middle East. It turns out there may be a ‘war on terror’ after all.”

Iran: Editorial / Wall Street Journal

“President Obama is unhappy with House Speaker John Boehner for inviting Israel’s Prime Minister to address Congress without consulting the White House... What Mr. Obama should really worry about is that Members of Congress in both parties are showing a stunning lack of confidence in his Iran diplomacy....

“They can see that Mr. Obama is eager, and not far from desperate, to strike a deal with Tehran, and they’re worried he’ll give up the store....

“That includes Robert Menendez, the New Jersey Democrat, who squared off against the President over Iran at a recent meeting of Senate Democrats. Mr. Menendez is working with Republican Mark Kirk of Illinois on legislation that would ramp up sanctions on the mullahs if no deal is struck by the latest deadline in June....

“(In a Senate hearing this week, Menendez told an Administration official that) ‘I have to be honest with you, the more I hear from the Administration and its quotes, the more it sounds like talking points that come straight out of Tehran.’

“Perhaps he had in mind the President’s deliberately disingenuous comments in his State of the Union address that his interim agreements with Iran have ‘halted the progress of its nuclear program and reduced its stockpile of nuclear material.’ No one believes that. Iran continues to enrich uranium – lower grade than before, though it could be returned to higher grade quickly – and it continues to produce components for nuclear centrifuges that could enrich more. It also continues to block U.N. inspectors from military sites or talking to Iran’s nuclear scientists....

“Bob Corker (R., Tenn.), the new Senate Foreign Relations Chairman, is also pushing legislation to require the President to put any deal with Iran up for a vote of approval in Congress. Mr. Obama opposes such a vote, which could be considered a dodge of his responsibility to submit treaties for Senate ratification the way Ronald Reagan submitted the INF missile accord with the Soviets in his final year. Mr. Obama will call it something other than a treaty, naturally.

“Congress needs to assert itself on foreign policy because it may be the only barrier to a nuclear arms race in the Middle East.”

Laurent Fabius, Philip Hammond, Frank-Walter Steinmeier and Federica Mogherini...foreign ministers for France, Britain, Germany and the European Union, respectively, in an op-ed for the Washington Post:

“In November 2013, after many months of negotiations, the E3+3 (France, Germany and Britain, together with the United States, Russia and China, a partnership also referred to sometimes as the P5+1) and Iran reached an interim agreement on Iran’s nuclear program. This agreement has had three main benefits.

“First, it has stopped the progress of the most sensitive elements of Iran’s nuclear program. Under the Joint Plan of Action agreed to by Iran and the six partners in the talks...Iran has ceased production of its most highly enriched uranium, limited its production of new centrifuges for enriching uranium and refrained from installing additional centrifuges. Iran has also agreed to cease progress toward bringing on line the nuclear reactor at Arak. As a result, Iran today is further away from obtaining enough fissile material for a nuclear weapon than before the negotiations.

“At the same time, the international community has gained improved access to Iran’s nuclear facilities, allowing the world to verify whether Iran is living up to its commitments. Whereas previous inspections only occurred once every few weeks, the International Atomic Energy Agency is now able to conduct daily inspections of the Natanz and Fordow facilities, and the Arak reactor is now subject to monthly inspections.

“And last but not least, the interim agreement has given us time and space to try to negotiate a long-term settlement to the Iranian nuclear issue, which is critical for the future of international and regional security....

“To be sure, difficult challenges lie ahead, and critical differences between Iran and the international community must be addressed. That is why we extended the negotiating window until later this year.

“In this context, our responsibility is to make sure diplomacy is given the best possible chance to succeed. Maintaining pressure on Iran through our existing sanctions is essential. But introducing new hurdles at this critical stage of the negotiations, including through additional nuclear-related sanctions legislation on Iran, would jeopardize our efforts at a critical juncture. While many Iranians know how much they stand to gain by overcoming isolation and engaging with the world, there are also those in Tehran who oppose any nuclear deal. We should not give them new arguments. New sanctions at this moment might also fracture the international coalition that has made sanctions so effective so far. Rather than strengthening our negotiating position, new sanctions legislation at this point would set us back....

“We have a historic opportunity that might not come again. With the eyes of the world upon us, we must demonstrate our commitment to diplomacy to try to resolve the Iranian nuclear issue within the deadline we have set. That is the surest path to reaching a comprehensive, lasting solution that will make the world and the region safer.”

Charles Krauthammer / Washington Post

“While Iran’s march toward a nuclear bomb has provoked a major clash between the White House and Congress, Iran’s march toward conventional domination of the Arab world has been largely overlooked. In Washington, that is. The Arabs have noticed. And the pro-American ones, the Gulf Arabs in particular, are deeply worried.

“This week, Iranian-backed Houthi rebels seized control of the Yemeni government, heretofore pro-American. In September, they overran Sanaa, the capital. On Tuesday, they seized the presidential palace. On Thursday, they forced the president to resign....

“Why should we care about the coup? First, because we depend on Yemen’s government to support our drone war against another local menace, al-Qaeda in the Arabian Peninsula (AQAP). It’s not clear if we can even maintain our embassy in Yemen, let alone conduct operations against AQAP. And second, because growing Iranian hegemony is a mortal threat to our allies and interests in the entire Middle East.

“In Syria, Iran’s power is similarly rising. The mullahs rescued the reeling regime of Bashar al-Assad by sending in weapons, money and Iranian revolutionary guards, as well as by ordering their Lebanese proxy, Hizbullah, to join the fight. They succeeded. The moderate rebels are in disarray, even as Assad lives in de facto coexistence with the Islamic State, which controls a large part of his country.

“Iran’s domination of Syria was further illustrated by a strange occurrence last Sunday in the Golan Heights. An Israeli helicopter attacked a convoy on the Syrian side of the armistice line. Those killed were not Syrian, however, but five Hizbullah fighters from Lebanon and several Iranian officials, including a brigadier general.

“What were they doing in the Syrian Golan Heights? Giving ‘crucial advice,’ announced the Iranian government. On what? Well, three days earlier, Hizbullah’s leader had threatened an attack on Israel’s Galilee. Tehran appears to be using its control of Syria and Hizbullah to create its very own front against Israel.”

As Mr. Krauthammer concludes, all the above is a nightmare for Saudi Arabia and the other Gulf Arabs. It “would be hugely compounded by Iran going nuclear.”

As for yours truly, I have to repeat what I wrote last week.

“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 [Jan. 16], ‘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.” 

Arizona Republican Sen. Jeff Flake is one I admire and I agree with what he said the other day. “Isn’t the point of sanctions to get them to the table?” 

Yes, I just want the Senate to line up their wish list, quietly, in conference, and if by June 30 a deal isn’t reached, vote for the new sanctions that day. 

Remember, this isn’t the U.S. vs. Iran...it’s a negotiation with the G5+1...it includes Russia and China. I in no way agree with how long this has played out, but....you know what I would say next.

One side note on Syria. As the weather has improved after a harsh wintry spell, the death toll has been rising anew, with the number of killed daily back to the 100-plus level. According to the Syrian Observatory for Human Rights, between mid-Tuesday and mid-Wednesday, the regime carried out 211 airstrikes, including a barrel bomb attack on a livestock market that the Observatory said killed 43 civilians and wounded over 150 others. [Another activist group put the death toll in Hassakeh province at over 75.]

Of the 211 airstrikes, 123 were said to be barrel bombs dropped from helicopters. And the Obama administration no longer demands the ouster of Bashar Assad as a precondition for any eventual solution to the crisis.

Israel: As alluded to above, Prime Minister Benjamin Netanyahu has been invited by House Speaker John Boehner to address a joint session of Congress, with Boehner going over the head of the White House in doing so, while Netanyahu deals with rivals back home who are accusing him of fumbling the relationship with its most important ally. The White House said Israel had committed a breach of protocol in not informing the president before the news of his trip was made public.

The Israeli leader said he planned to “share with the joint session Israel’s vision for joint action to deal with the threats” of Islamic extremism and Iran’s nuclear program.

But the other issue is Netanyahu addressing Congress, where he no doubt will receive a rousing ovation or two, so close to Israel’s election. The latest polls have his Likud party running neck and neck with the Labor Party, though Likud stands a better chance of forming a coalition than Labor does.

Separately, as noted above, an Israeli air strike on Sunday killed six Hizbullah fighters in Syria, along with six Iranian Revolutionary Guards, including a general. Among the dead was also Jihad Mughniyeh, the son of former Hizbullah operations chief Imad Mughniyeh. Western intelligence sources told the Jerusalem Post that Jihad headed a large-scale terrorist cell that enjoyed direct Iranian sponsorship.

Iranian Foreign Minister Zarif called Israel’s attack in the Golan Heights “an act of terror.” Hizbullah was silent on its plans to retaliate. Northern Israeli towns on the border with Lebanon were in a state of fear, with Israeli forces placed on high alert.

And then there was the incident where a Palestinian man stabbed and wounded more than a dozen Israelis on a bus in central Tel Aviv, including at least one more victim as he fled. He was then shot and wounded by security forces. Prime Minister Netanyahu placed responsibility for the attack on the shoulders of Palestinian Authority President Mahmoud Abbas for incitement against Israel.

This comes a week after the two walked together in the front line of the Paris march against terrorism.

Hamas quickly praised the attack. Netanyahu said in a statement, “This is the same Hamas that has announced that it will file a petition against Israel at the International Criminal Court in the Hague. Abbas is responsible for both the incitement and the dangerous move at the ICC.” [Jerusalem Post]

Palestinian media celebrated the attack with a gruesome cartoon of a figure with a bloody knife. Another was of a smiling carton knife. At least both were removed from Twitter and Facebook.

Yemen: After the president and cabinet resigned on Thursday, Friday was a day of protest across the country. Some support the Shiite rebels who seized the capital, Sanaa (or San’a), while others want the south to secede. 

Editorial / Washington Post

“In devoting 250 of the 6,800 words of his State of the Union address to the fight against ‘violent extremism,’ President Obama offered a boilerplate description of his policy. ‘Instead of sending large ground forces overseas,’ he said, ‘we’re partnering with nations from South Asia to North Africa to deny safe haven to terrorists who threaten America.’ As he spoke, his strategy was crumbling in a nation he failed to mention: Yemen, home to the branch of al-Qaeda that claimed credit for the recent attacks in France and has repeatedly attempted to strike the U.S. homeland....

“The administration may be hoping that the Houthis will help defeat al-Qaeda, a Sunni organization the Houthis regard as an enemy. Predictably, however, Iran’s clients have denounced the U.S. presence in the country. They could force the shutdown of training and drone operations – or they may trigger a civil war that will make those operations impossible to maintain.

“The Yemen mess reveals the weaknesses of Mr. Obama’s ‘partners’ strategy, which has been too narrowly focused on drone strikes and training of specialized units, and not enough on providing security for the population, institution-building and support for moderate political forces. Unfortunately, the president’s cursory and formulaic description of his counterterrorism policies this week, following a year in which jihadist forces and terrorist attacks expanded across the world, suggested that he remains uninterested in correcting his mistakes.”

Saudi Arabia: With the death of King Abdullah at the age of 90 (one report I read said 91), 79-year-old Crown Prince Salman has been elevated and I would expect stability for the time being, but it’s with the next generation where there will be concern. Salman quickly named his own successor, Prince Muqrin, who is 69, as crown prince. But as I wrote a few weeks ago, it’s reported Salman has dementia.

Abdullah took the throne in 2005 upon the death of his elder brother Fahd, but had been effectively leader since 1995 following Fahd’s stroke.

Abdullah had named Prince Muqrin as second crown prince shortly before his death, though there was some dissension in the family at Muqrin’s nomination. The Allegiance Council did, however, quickly confirm him on Friday.

Of more intrigue is the man behind Muqrin, 55-year-old Prince Mohammed bin Nayef, the hardline Interior Minister who is the new deputy crown prince. This man doesn’t suffer fools gladly. 

Russia / Ukraine: Ukrainian forces appeared to abandon Donetsk airport to separatist forces after a months-long battle, a major blow for the Kiev government, especially in terms of symbolism. Social media in Ukraine had elevated the defenders of the airport to true superhero status. 

The airport has been reduced to a pile of rubble and is not operational. A Ukrainian military spokesman said the troops abandoned the airport terminals because there was nowhere to hide.

As many as 13 civilians were killed the same day when a bus came under fire in the separatist-held part of Donetsk.

Meanwhile, in Chechnya, hundreds of thousands turned out to rally against “offensive” cartoons of the prophet Muhammad published by Charlie Hebdo.

Ramzan Kadyrov, the Kremlin-appointed leader of the majority Muslim region and one of the most vile people on the planet, told the crowd, “We resolutely announce that we will never let anybody insult the name of the Prophet without punishment.”

Separately, from the Moscow Times:

“Russia’s parliament has given preliminary approval to a bill that would prohibit the activities of so-called ‘undesirable’ foreign companies and organizations in Russia, should they be deemed to pose a threat to the state.

“The bill, adopted in the first reading Monday, targets any foreign entity seen as ‘presenting a threat to the defense capability or security of the state, or to public order, or to the health of population,’ according to a text of the bill released by the State Duma.

“Those groups may be declared ‘undesirable on the territory of the Russian Federation,’ the bill says, adding that the purpose of the move would be to protect, among other aspects, the ‘morality’ of the nation.

“Observers have noted that the bill could provide grounds for the prohibition of any foreign company or organization that officials see as unfriendly.”

Lastly, as Karoun Demirijian of the Washington Post reported, Sochi has been doing well this winter, even amid the political crisis. With the tumbling ruble, European ski vacations became too expensive for many Russians, so they opted for cheaper vacations at home.

Nigeria: Chad has begun deploying troops to fight Boko Haram in neighboring Cameroon. There were reports Boko Haram had kidnapped dozens of people in raids in Cameroon, including children.

Nigeria is holding an election on Feb. 14 and a huge swath of the country won’t be able to vote because of all the territory under Boko Haram’s control.

China: Julie Makinen of the Los Angeles Times had a story on how it’s expected the birthrate in China will fall this year, the Chinese New Year that begins Feb. 19, because it’s the year of the sheep. I didn’t know there’s a saying, “Only 1 out of 10 sheep people can find happiness in their lives.” It seems many in China don’t want their children born under a bad sign. So they may wait several months to get pregnant, which is why some think there will be a baby boom starting Feb. 8, 2016, the year of the monkey.

North Korea: According to the New York Times’ David Sanger and Martin Fackler, the National Security Agency broke into North Korea’s computer systems way back in 2010, “Spurred by growing concern about North Korea’s maturing capabilities.”

So it was the evidence gathered by the “early warning radar” of software hidden to monitor North Korea’s activities that “proved critical in persuading President Obama to accuse the government of Kim Jong-un of ordering the Sony attack, according to the officials and experts, who spoke on the condition of anonymity about the classified N.S.A. operation.”

Well why didn’t the N.S.A. then warn Sony the North Koreans were poking around?

“Only in retrospect did investigators determine that the North had stolen the ‘credentials’ of a Sony systems administrator, which allowed the hackers to roam freely inside Sony’s systems.”

Argentina: The country is in a state of turmoil over the sudden death of a prosecutor who had accused President Cristina Kirchner of a cover-up in the probe looking into a 1994 bombing that killed 85.

The prosecutor, Alberto Nisman, was found dead with a bullet wound to his head a day before he was scheduled to testify in Congress.

At first, Kirchner said Nisman committed suicide. Then on Thursday she reversed herself.

“In Argentina, as in all places, not everything is what it appears to be, and vice versa. Why would he kill himself when he, as a prosecutor, and his family had an excellent quality of life?”

An Ipsos poll found 70% of Argentines believe Nisman was murdered.

But Kirchner has yet to appear before the people on the topic, choosing to issue her statement over Facebook and Twitter.

Going back to the 1994 bombing, Nisman concluded top Iranian officials had used Hizbullah to carry out the suicide bombing of an Israeli community center, which Iran has denied, even as the evidence is overwhelming they helped establish the Hizbullah cell.

The issue with the Kirchner government is that Nisman’s office claimed their involvement in the investigation was all about oil and Argentina’s need for it, while Iran needs Argentina’s agricultural products.

Nisman wrote in 2012 that Argentine representatives were trying to come up with a new enemy/culprit that could be blamed for the bombing. [Taos Turner / Wall Street Journal]

Cuba: In the Wall Street Journal/NBC News poll, President Obama’s recent decision to recognize Cuba is supported by a 60-30 majority. Talks between the two sides commenced in Havana this week.

Random Musings

--President Obama’s approval rating rose to 46% in the aforementioned Wall Street Journal / NBC News poll.

In the Washington Post / ABC News survey, his approval rating rose to 50%, 9 points higher than December.

--Jeb Bush met with Mitt Romney in Utah in what had been a previously scheduled get together prior to Romney’s surprise announcement he was considering another run for the White House. Now the two need to figure out how not to split the Republican establishment, according to the New York Times’ Jonathan Martin, but we all know that would be impossible.

The establishment wants Romney to make up his mind quickly, but he is acting like he’ll wait awhile before any formal announcement whether he’s going for it or not.

--George Will / Washington Post

“America does not have one presidential election every four years, it has 51 – in the states and the District of Columbia. A Romney candidacy, drawing on his network of financial supporters and other activists, might make sense if the GOP were anemic in the states. But Republicans as of this week control 31 governorships, including those in seven of the 10 most populous states (Florida, Texas, Illinois, Michigan, North Carolina, Georgia and Ohio – all but California, Pennsylvania and New York). Republicans control 68 of the 98 partisan state legislative chambers. (Nebraska’s unicameral legislature is chosen in nonpartisan elections.) In 23 states, with 251 electoral votes, Republicans control the governor’s office and the legislature. (Democrats have such control in only seven states.) Republicans have their most state legislative seats since the 1920s.

This mirrors Republican strength in Congress. The party holds more House seats than at any time since 1931. (Democrats, after winning the House in 20 consecutive elections from 1954 to 1992, have lost it in nine of the last 11.) Republicans are one Senate seat shy of equaling their highest total since the 1920s.

“In the six presidential elections beginning in 1992, Democratic candidates have averaged 327 electoral votes, Republicans just 211. Republicans have lost the popular vote in five of the last six and have not won a decisive popular-vote victory since 1988. And no candidate before Romney lost while winning 59% of the white vote, which was almost 90% of his support. George H.W. Bush won about that portion in 1988 but captured 426 electoral votes. Romney got just 206. The white portion of the vote has shrunk 15 points to 72% in the six presidential elections since 1992. With the fastest-growing ethnic group, Asian Americans, Romney did even worse (21%) than he did with Hispanics (27%).

“One more discouraging word about Romney 3.0: Massachusetts. Only two presidential candidates, James Polk in 1844 and Woodrow Wilson in 1916, have been elected while losing their home states.”

--A CBS News poll asked Republicans if they would like to see various candidates jump into the 2016 race. For example, 59% would like to see Romney enter the fray again, while only 26% believe he should stay out.

50% would like to see Jeb Bush run, while 27% do not.

When asked about New Jersey Gov. Chris Christie, though, only 29% said they want to see him launch a bid, while 44% say no.

Interestingly, 40% would like to see Mike Huckabee run, with just 29% urging him to stay out.

The split for and against for Sen. Rand Paul is 27-34. For Sen. Marco Rubio its 26-19. Sen. Ted Cruz...21% want him to run, 25% do not.

Dr. Ben Carson has a 21-17 split.

For the Democrats, 85% would like to see Hillary Clinton run, 11% want her to stay out.

40% want Joe Biden to give it a go, 38% want him to stay on the sideline.

23% say Sen. Elizabeth Warren should launch a bid, 20% disagree.

A Wall Street Journal / NBC News survey found that Hillary Clinton is viewed positively by 45% of all Americans, negatively by 37%. Mitt Romney is viewed positively by 27% and negatively by 40%, while Jeb Bush’s positives are 19%, negatives 32%.

Among Republicans alone, 52% view Romney positively, compared with just 37% who said the same about Bush.

I do not want Romney and am lukewarm on Bush. I had dinner with two conservative friends on Monday and I mentioned I liked John Kasich and it was funny how they both (a couple) shared my enthusiasm.

Alas, he might not run but he’d make for a solid running mate.

--Back to Gov. Christie, according to a new Quinnipiac University Poll of New Jersey voters, Hillary would annihilate Christie in a head to head match-up, 52-39. In my home state, Christie leads among Republicans with 24%, with Romney at 18% and Jeb Bush at 13%.

56% of in-state voters say the governor should not run for president.

57% say he would not make a good president.

Your editor yearns for former Gov. Tom Kean to replace Christie.

--Sheldon Silver, the Democratic speaker of the New York State Assembly, was arrested on federal corruption charges on Thursday, surrendering to FBI agents. The investigation focused on payments he received from a small law firm that specializes in seeking reductions from New York City real estate taxes. Nothing wrong with this, except Silver did not list the payments from the firm on his annual financial disclosure filings with the state.

Silver already worked with another outside law firm, Weitz & Luxenberg, a personal injury firm that advertises heavily in the New York City area, and in 2013 he earned at least $650,000 in income there vs. his $121,000 salary as speaker.

As the New York Times’ reported, “(What) he does to earn that income has long been a mystery in Albany and Mr. Silver has refused to provide details about his work.”

The complaint said that “there is probable cause to believe Silver received approximately $4 million in payments characterized as attorney referral fees solely through the corrupt use of his official position.”

The thing is, Silver was easily re-elected speaker this month despite the fact the investigation was made public long ago. He can continue to serve. It’s only upon conviction that he would have to step down.

Obviously this is not good for Dem. Gov. Andrew Cuomo, who abruptly shut down an anti-corruption commission he had created in 2013.

--More fallout on the attack against Charlie Hebdo... different opinions...

Mark Hemingway / The Weekly Standard

“After the recent massacre by Islamic terrorists...people around the world took to social media to declare “Je suis Charlie,” or “I am Charlie.” Solidarity is a nice sentiment, and journalists in particular are fond of uttering self-soothing words about their commitment to free speech at times like but. But “Je suis Charlie” is just another lie that the media tell themselves. Charlie Hebdo’s willingness to defend free speech only serves as a reminder that the magazine was a rare bastion of courage in an industry dominated by cowards.

“Indeed, many in the media are in such denial they insist their cowering is brave truth-telling aimed at silencing bigots. ‘I hereby apologize to Muslims for the wave of bigotry and simple nuttiness that has lately been directed at you. The venom on the airwaves, equating Muslims with terrorists, should embarrass us more than you,’ wrote New York Times columnist Nicholas Kristof in a column on September 18, 2010. ‘Muslims are one of the last minorities in the United States that it is still possible to demean openly, and I apologize for the slurs.’

“This simpering apologia was as unnecessary as it was untrue. It is not possible to demean Muslims openly. Among the many insulting things about Kristof’s column was its timing. On September 14, 2010 – four days before the column ran – the Seattle Weekly had announced that its cartoonist, Molly Norris, had ‘gone ghost.’ Earlier that year, Norris gained some prominence as the founder of Everybody Draw Muhammad Day, prompting none other than Yemeni-American cleric Anwar al-Awlaki to issue a fatwa calling for her murder. Norris is still in hiding more than four years later, and for good reason. After the hebdo massacre, many news outlets noted that one of the much-beloved, now-murdered cartoonists, Stephane Charbonnier, aka ‘Charb,’ was recently listed by the al-Qaeda magazine Inspire as ‘Wanted Dead or Alive for Crimes Against Islam.’ Also listed, at the bottom of the page, is Molly Norris.

“Few in the media have ever so much as noted that Norris was forced to disappear....

“We depend on a free press to check governments that would suppress speech, so the fact that the media have neutered themselves is harming free expression throughout the West. In Canada, journalists Mark Steyn and Ezra Levant have been dragged into legal proceedings and threatened with fines for criticizing Muslims. In the wake of a violent al-Qaeda attack on a U.S. embassy, the U.S. government jailed the filmmaker behind an obscure YouTube video mocking Muhammad. And President Obama himself told the United Nations, ‘The future must not belong to those who slander the prophet of Islam.’ Let us be clear, then, in our own response: Perhaps the future shouldn’t belong to those who slander Muhammad, but it damn well better belong to people who insist on the right to do so.”

Tim Stanley / The Daily Telegraph

 “Liberals hate the Pope now because he apparently said that free speech shouldn’t apply when it comes to religion.

“ ‘If my good friend...says a curse word against my mother,’ Francis joked, ‘he can expect a punch. It’s normal. You cannot provoke. You cannot insult the faith of others. You cannot make fun of the faith of others.’

“As per usual, His Holiness has been misunderstood. Willfully, the cynic might say. Pope Francis clearly stated that what happened in Paris was abhorrent, that free speech is a human right and that speaking one’s mind can be of benefit to the common good (I’d add that sometimes not saying something for fear of causing offense is a sin of omission). All he was pointing out is that when one says something in public, one does so expecting to be heard – and this can have consequences. Those consequences aren’t necessarily deserved: in the case of ‘Charlie Hebdo’ they were plainly evil. Nevertheless, if you say something that shocks someone to their very core don’t be surprised if they get a little upset. Insult my mother and, to quote the wordsmith and fellow Catholic William F. Buckley, ‘I’ll sock you right in your goddamn face and you’ll stay plastered.’ Given that the Pope was merely expressing something that ought to be blindingly obvious, why has it proved so controversial? Because contemporary Westerners struggle to understand the concept of blasphemy. Francis is pointing out that to some people God is emotionally equivalent to their father or mother – He is real, He matters, He is something you would be prepared to die for. He is open to rational inquiry and theological critique, but He isn’t necessarily open to insult....

“Blasphemy is when you ridicule the sacred, which means you ridicule the pinnacle of goodness.

“To translate it into secular talk: to parody Jesus is like parodying Martin Luther King Jr. or Nelson Mandela. And a society without heroes is a very sad society indeed. So all the Pope was doing was reminding us that, hey, some people believe in this whole God thing and you ought to be aware when insulting their deity that they take it more seriously than you might realize. Not that this justifies either a punch or a terrorist assault. On the contrary, the Bible tells Christians both to turn the other cheek and to suffer persecution as the inevitable consequence of being right. The Koran, likewise, shows that Muhammad took insults with a smile. The human instinct might be to land a punch, but the wise suffer fools gladly.”

Bob Schieffer / Face The Nation, 1/18/15:

“I am not a Catholic, and only God knows if I even qualify as a religious person, but I like the new pope.

“He reminds us that religion is about kindness, not imposing our will on others. So, in the wake of the Paris tragedy, when he told us that free speech has limits and that we should not make fun of the religions of others, I listened.

“There is no stronger defender of the First Amendment than me. As a reporter, I stand second to no one in defending the French magazine’s right to print their satirical cartoons. Certainly, though, they did not deserve to die.

“But defending the magazine’s right to print the cartoons is different than approving the cartoons. Long ago, our Supreme Court ruled free speech is not a license to put public safety at risk by shouting fire in a crowded theater. And good taste and sensitivity to the feelings of others dictates self-imposed limits on what we say every day. That too is a principle of civilized society.

“I think what the pope was saying was, there is a difference in having the right to do something and doing the right thing. I am glad he reminded us. That too should be a part of this conversation.”

Thomas G. Donlan / Barron’s

“More French people now have seen the fight up close. (President Francois) Hollande gave a speech last week on the aircraft carrier Charles de Gaulle, which is heading to the waters off Iraq to strengthen the struggle against the Islamic State. He sounded a lot like Bush a decade ago, as he said, ‘The fight in Iraq will be long. Many might think it is a fight far away from what we are going through, but no, it’s the same.’

“It’s easy to hold up a sentimental sign or fly a national flag after a terrorist attack. It’s harder to maintain determined pursuit of the criminals and their sponsors, even harder to hold firm in the long struggle to eradicate terrorism, and harder still to remain devoted to free speech for all.

“Unfortunately, France is not living up to all of the high standards of liberty. The authorities arrested people last week for being ‘apologists for terrorism.’ Among them was the nasty anti-Semitic comedian Dieudonne, who wrote on his Facebook page that he sympathized with one of the assassins of the Charlie Hebdo massacre.

“People who claim to be Charlie cannot fail to demand liberty for Dieudonne and others arrested or killed for words and thoughts around the world. Cartoons do not kill, and neither do comedians.

“Eradicate the killers by all means available, but don’t imitate or perpetuate their crimes. Above all, do not persecute those who speak and write and draw.”

--Maureen Dowd, in her Sunday op-ed for the New York Times, writes of her experience going to a theater to see “Selma.” Her description of “watching it in a theater full of black teenagers” is priceless.

But on a more serious note, Ms. Dowd writes of Director Ava DuVernay taking more than a few liberties with the truth when it comes to L.B.J. and his role in the Civil Rights Movement.

I know a fair amount about this topic, L.B.J.’s role, and because I’ve read how he’s treated in the film, I have zero reason to see it.

But I love Ms. Dowd’s take:

“Duvernay sets the tone for her portrayal of Lyndon Johnson as patronizing and skittish on civil rights in the first scene between the president and Dr. King. L.B.J. stands above a seated M.L.K., pats him on the shoulder, and tells him ‘this voting thing is just going to have to wait’ while he works on ‘the eradication of poverty.’

“Many of the teenagers by me bristled at the power dynamic between the men. It was clear that a generation of young moviegoers would now see L.B.J.’s role in civil rights through DuVernay’s lens.

“And that’s a shame. I loved the movie and find the Oscar snub of its dazzling actors repugnant. But the director’s talent makes her distortion of L.B.J. more egregious. Artful falsehood is more dangerous than artless falsehood, because fewer people see through it....

“Instead of painting L.B.J. and M.L.K. as allies, employing different tactics but complementing each other, the director made Johnson an obstacle.

“Top Johnson aide Jack Valenti told Michael Beschloss, the presidential historian, that L.B.J. aspired to pass a Voting Rights Act from his first night as president. Valenti said that his boss talked to him about it the night of J.F.K.’s assassination in the bedroom of Johnson’s house in D.C., The Elms, before the newly sworn-in president went to sleep.

“On the tape of a phone conversation between President Johnson and Dr. King the week of L.B.J.’s 1965 inauguration, the president said that he indicated the time was yet ripe to ask Congress for it, and he made it clear that they both needed to think of something that would move public opinion more than a presidential speech....

“In an interview with Gwen Ifill on P.B.S., DuVernay dismissed the criticism by Joseph Califano Jr. and other L.B.J. loyalists, who said that the president did not resist the Selma march or let J. Edgar Hoover send a sex tape of her husband to Mrs. King. (Bobby Kennedy, as J.F.K.’s attorney general, is the one who allowed Hoover to tape Dr. King.)

“ ‘This is art; this is a movie; this is a film,’ DuVernay said. ‘I’m not a historian. I’m not a documentarian.’

“The ‘Hey, it’s just a movie’ excuse doesn’t wash. Filmmakers love to talk about their artistic license to distort the truth, even as they bank on the authenticity of their films to boost them at awards season....

“There was no need for DuVernay to diminish L.B.J., given that the Civil Rights Movement would not have advanced without him. Vietnam is enough of a pox on his legacy....

“(The) truth is dramatic and fascinating enough. Why twist it? On matters of race – America’s original sin – there is an even higher responsibility to be accurate.

“DuVernay had plenty of vile white villains – including one who kicks a priest to death in the street – and they were no doubt shocking to the D.C. school kids. There was no need to create a faux one.”

--Richard Johnson / New York Post’s Page Six:

“Ever wonder how lowly paid lawmakers leave office filthy rich?

“Sen. Dianne Feinstein is showing how it’s done.

“The U.S. Postal Service plans to sell 56 buildings – so it can lease space more expensively – and the real estate company of the California senator’s husband, Richard Blum, is set to pocket about $1 billion in commissions.

“Blums’ company, CBRE, was selected in March 2011 as the sole real estate agent on sales expected to fetch $19 billion. Most voters didn’t notice that Blum is a member of CBRE’s board and served as chairman from 2001 to 2014.

“This feat of federal spousal support was ignored by the media after Feinstein’s office said the senator, whose wealth is pegged at $70 million, had nothing to do with the USPS decisions.”

--In another poll of New York City residents (registered voters), this one by Siena College, 48% of respondents said Mayor Bill de Blasio was making race relations worse in the city and only 18% said he was making them better.

57% said Rev. Al Sharpton was deepening the divide. 34% said PBA President Patrick Lynch was.

By a 65% to 28% margin, city residents disapprove of NYPD officers dissing de Blasio by turning their backs on him.

Some 74% of blacks and 65% of whites rated race relations as only “fair” or “poor.”

--When the final report on “Deflate-Gate” is issued, my guess is the equipment guys did it to help Tom Brady, knowing he would want them to, and, importantly, that he would give them a big tip come season end, which is what happens in professional sports with the clubhouse/locker room staff. In other instances, the locker room guys get the athletes to sign jerseys that they sell themselves for beer money. [Domestic, of course.]

---

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

God bless America.
---

Gold closed at $1292...up $106 in three weeks
Oil $45.59

Returns for the week 1/19-1/23

Dow Jones +0.9% [17672]
S&P 500 +1.6% [2051]
S&P MidCap +1.7%
Russell 2000 +1.0%
Nasdaq +2.7% [4757]

Returns for the period 1/1/15-1/23/15

Dow Jones -0.8%
S&P 500 -0.3%
S&P MidCap +0.2%
Russell 2000 -1.3%
Nasdaq +0.5%

Bulls 49.0
Bears 17.4 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore