Week in Review

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Week in Review

01/31/2015

For the week 1/26-1/30

Edition 825

Washington and Wall Street

The first look at fourth-quarter GDP showed growth in the U.S. economy of 2.6% vs. expectations of 3.3%, though there are two more looks (revisions) in February and March. But using this preliminary number the economy grew 2.4% for all of 2014.

Q1... -2.1%
Q2... 4.6%
Q3... 5.0%
Q4... 2.6%

2012... 2.3%
2013... 2.2%
2014... 2.4%

That’s called a putrid recovery, sports fans, especially when taking into consideration there have been virtually zero wage gains, let alone the composition of jobs being added.

But there was some good news contained in the fourth-quarter numbers. Consumer spending was up 4.3%, the best pace since Q1 2006. For all of 2014, consumption was up 2.5%, also the most since ’06. Cheap gasoline at the pump helps, though MasterCard and Visa say their figures show Americans are socking the savings away, not spending it. [Speaking of gasoline, after 123 straight days of a decline in the nationwide average price at the pump, hitting $2.03, gas closed the week at $2.05.]

The Federal Reserve closely follows an index of employment costs, the ECI, for signs of wage pressure, and it came in at just 0.6% for the quarter, in line with Wall Street’s estimates.

In other economic news, durable goods orders for December (big ticket items) unexpectedly declined 3.4%, down 0.8% ex-transportation. Not good. A January reading on Chicago area manufacturing was better than forecast, 59.4.

In the housing sector, new-home sales for December were at an annualized pace of 481,000, up 11.6%, the most since June 2008. For all of 2014, 435,000 were sold, also the best since ‘08 but well below the 2005 bubble peak of 1.28 million. The low was 306,000 in 2011. The median sales price last month rose 8.2% to $298,100.

And we had the S&P/Case-Shiller home price index for November, up 4.3% year over year for the 20-city index, with all 20 showing yoy increases, led by San Francisco, up 8.9%, and Miami, up 8.6%.

But in terms of corporate earnings, the news wasn’t good for a slew of multinationals like Procter & Gamble, Caterpillar, United Technologies, Pfizer, DuPont and Microsoft, along with others, who generate over 50% of their sales overseas and are getting hit hard by the stronger dollar (U.S. goods thus being more expensive). Separately, the rising greenback is doing a number on overseas tourists coming to our shores since it’s more expensive here for them. 

Back to the Federal Reserve, it held an Open Market Committee meeting this week and maintained its new pledge to be “patient” on raising interest rates.

“Economic activity has been expanding at a solid pace,” the FOMC said in its accompanying statement. “Labor market conditions have improved further, with strong job gains and a lower unemployment rate.”

The Fed also acknowledged that it needs to take into account readings on “international developments” in deciding how long to keep rates at zero.

Bill Gross, in his monthly investment outlook for Janus Capital Group, said the Fed will raise interest rates this year to end distortions that six years of near-zero borrowing costs have brought. Gross said those playing in the financial markets need incentives to invest.

“Capitalism depends on hope – rational hope that an investor gets his or her money back with an attractive return. Without it, capitalism morphs and breaks down at the margin. The global economy in January of 2015 is at just that point with its zero percent interest rates.”

But in an interview with Bloomberg, Gross said the Fed “will be very slow. The curve suggests in February 2019, they will finally reach 2 percent in terms of the Fed funds rate.” Yeesh.

Previously, Gross said the Fed may not act at all this year.

“President Obama has declared the economic crisis over – and for the United States, maybe it seems that way. But for most other countries, not so much. Their recoveries are faltering. The obvious question is whether the global weakness will infect the U.S. expansion. This is a crucial footnote to Obama’s optimism.

“Two major reports – one from the World Bank, the other from its sister organization, the International Monetary Fund – recently lowered estimates for global economic growth in 2015. Said the IMF: ‘The United States is the only major economy for which growth projections have been raised.’

“Consider the bleak landscape. Japan is in recession. Unemployment in the eurozone is a scary 11.5%. [Ed. now 11.4%] Unhappily, the IMF expects only meager eurozone growth of 1.2% in 2015. Even this could be optimistic if the Greek election triggers a new debt crisis. Assuming the IMF forecast is reached, growth would still be a third of the predicted U.S. rate (3.6%).

“Led by China, emerging-market countries have disappointed. They were expected to replace the United States as the world economy’s main engine of growth. The theory was simple. The material wants of their burgeoning middle classes could be met with known products and technologies. So: Their appetite for raw materials (iron ore, copper, corn) and advanced technology goods would stimulate the broader global economy.

“It hasn’t worked as imagined. From 2005 to 2012, emerging-market economies averaged annual growth of 6.5%. Now, the IMF projects their growth in 2015 at 4.3%. Until recently, China’s growth averaged about 10% a year. In 2014, it was 7.4%, and the IMF predicts 6.3% for 2016. It might go lower....

“(So) we should hold the happy talk. The economic crisis is worldwide. It won’t be ‘over’ while its global nature – its near universality – persists. Until this changes, we’re exposed to foreign surprises, for good and ill.”

Europe and Asia

Before I get to the Greek election, some news on the eurozone economy.

The unemployment rate for December was 11.4%, down from 11.5% in November and 11.8% in December 2013.

Germany was at 4.8%, France 10.3%, Italy 12.9% (down from 13.3% and a boost to Prime Minister Renzi’s reform agenda), Spain 23.7%, and Greece 25.5% (Oct.). [For my Irish friends, its rate is down to 10.5% from 12.1% a year earlier.]

The youth unemployment rates in some countries remain abysmal. Italy 42.0%, Spain 51.4%, and Greece 50.6% (Oct. though down from December 2013’s 56.2%). But even here you see a huge difference between the two biggest eurozone economies, France and Germany. France has a youth unemployment rate of 25.2% (up from 23.6% a year ago), while Germany’s is just 7.2%.

Eurostat, which supplied the above data, also issued a flash reading on January inflation for the euro area, down 0.6%, which was as expected and compares to December’s annualized pace of -0.2%. It’s about falling energy prices, down 8.9% in January compared with -6.3% in December. Back in January 2014, the eurozone inflation rate was 0.8%.

So it goes back to the European Central Bank and whether or not it’s just announced quantitative easing program will really help. It has certainly helped euro stock and bond markets (save Greece), which was a goal of President Mario Draghi’s big initiative, but will it spur bank lending? Will corporations finally look to expand given what should be improved sentiment?

The eurozone needs to string together some respectable numbers to help with the latter, and from that should come the lending and investment. At least that’s what everyone hopes.

But it’s still all about politics, and Vladimir Putin, too. Clearly his actions in Ukraine aren’t helpful when it comes to sentiment and consumer confidence.

GDP in the U.K. rose 2.6% in 2014, the fastest pace since 2007. It was up 1.7% in 2013.

Spain’s national statistics folks issued a flash estimate for fourth-quarter GDP, up 0.7% over Q3, the sixth consecutive quarter of growth. GDP was up 1.4% for all of 2014. The government expects 2.0% growth this year.

In the wake of the Paris terror attacks and the government’s response, President Francois Hollande saw his approval rating jump from 19% to 40%, though now attention will return to the economy.

So on to Greece. You really only need to know one number to see what is transpiring there after the election...10-year bond yields.

Germany 0.30% [Friday’s close]
France 0.53%
Spain 1.41%
Italy 1.59%
Greece 10.79%...with shorter maturities much higher in yield

As for Sunday’s vote, heading into it Syriza, the leftist party headed by Alexis Tsipras, was generally 4-6 points ahead of New Democracy, the party headed by Prime Minister Antonis Samaras. It wasn’t a certainty that even if Tsipras won he’d then be able to cobble together a coalition government.

But then Syriza finished first with 36.3% to New Democracy’s 27.8%, with neo-Fascist Golden Dawn in third at 6.3%. It was indeed a populist backlash, an anti-austerity vote by a large percentage of the people, including for lesser, radical parties, and Syriza, after gaining the 50-seat bonus that goes to the winner, ended up with 149 seats; 151 needed to form a government.

Syriza then picked up a coalition partner, the center-right Independent Greeks who received 4.6% of the vote, though that was good enough for 13 seats and, voila! 162 seats...enough for a government and Tsipras did this within 24 hours of Sunday’s election, unheard of for this nation.

Immediately after, Tsipras said: “The new Greek government will be ready to cooperate and negotiate for the first time with our peers a just, mutually beneficial and viable solution....We don’t want to go to mutually assured destruction [with the eurozone] but we won’t continue being subservient.”

Tsipras wants to renegotiate the nation’s debt and bailout agreement.

Jeroen Dijsselbloem, president of the Eurogroup (the council of finance ministers), said: “There is very little support for a write-off in Europe.”

German government spokesman Steffan Seibert said, “A part of (ensuring the economic recovery continues) is Greece holding to its prior commitments and that the new government be tied in to the reform’s achievements.”

German Economy Minister Sigmar Gabriel said, “We want to keep Greece in the euro but it needs implementation of the agreed measures. If Greece wants to diverge from any of these measures then it must bear the economic consequences of this within its own borders.”

German Chancellor Angela Merkel worries that France, Italy and other southern European countries will use the Greek result to water down or dodge austerity and eurozone spending rules.

Greece owes around 40bn euro to France and 60bn to Germany.

Prime Minister David Cameron of Britain said, “The Greek election will increase economic uncertainty across Europe.”

Greece has about 320 billion euros of outstanding debt ($360bn). It has to refinance Treasury bills on Feb. 6 totaling 1 billion euros and another 1.4 billion euros on Feb. 13, according to Bloomberg. [BBC News says Greece needs to raise about 4.3bn euros to help pay its way in the first quarter.]

On Wednesday, Greek bank shares suffered their worst one-day loss on record with the country’s four biggest lenders seeing their stock prices plummet 25% on average, the third day of double-digit share slides for the banks.

Greek banks have been tapping the European Central Bank’s “emergency liquidity assistance” facility to replenish funds in the face of large withdrawals by depositors and foreign banks’ reluctance to lend. Greece’s banks won’t be able to continue to access this cheap liquidity unless Greece extends its bailout program, the deadline being Feb. 28.

For Greece to receive the final 7.2bn euro in aid per the bailout, Greece must implement further reforms demanded by the troika; the European Commission, ECB and IMF.

The private-sector deposit base was about $175 million in November, but declined an estimated $13 billion in December and that pace only picked up in January in a big way. There are legitimate concerns of a bank run. [I believe this will happen.]

Yanis Varoufakis, the new finance minister, said, “There won’t be a duel between us and the EU...There won’t be any threats.”

But then on Friday, in a meeting with Dijsselbloem, Varoufakis said Greece would not accept an extension of its EU bailout and that it will no longer cooperate with the troika. He wants direct talks with eurozone leaders to get them to cancel half the money Greece owes. Oh yeah, this is going to get interesting.

“The euro has become the prisoner of a playground game of ‘you-go-first.’ Everyone – almost – knows what needs to be done, even if some don’t like to admit it. The necessary ingredients are growth, competitiveness and sustainable debt and deficits. The missing glue is trust.

“Governments will act only if they are sure those on the other side of the creditor/debtor line will do the same. As in the school playground, each insists the other must jump first. The result is policy paralysis and the rise of populism.

“A sensible European policy maker would see the election success of Greece’s Syriza as a wake-up call rather than a nightmare. Not because the radical leftist government of Alexis Tsipras is correct in most of its prescriptions (though neither it is invariably wrong), but because its victory crystallizes the impasse that has crippled the eurozone....

“Resuscitating the euro is one thing; rejuvenating it is proving a lot tougher. The passing of the immediate crisis has sapped the will to act.   Mario Draghi...has been heroic in his efforts to buy time, most recently through pumping even more cheap money into the eurozone economy. In national capitals, though, resolve has curdled into mutual resentments. Syriza represents a collision between austerity and democracy....

“Greece’s problems, though, have always been as much political as economic. While others saw in the EU the opportunity to modernize, the ruling class in Athens simply pocketed the cash. Above all else, Greece needs half-honest government. The rest of the eurozone should be applauding Mr. Tsipras’ promise to stamp out corruption and to collect more of the taxes.

“Syriza goes wrong when it suggest that the route back to economic growth is to spend more on consumer subsidies and public sector workers. Clientelism and outright corruption has been the bane of Greek politics since the demise of colonels in 1974. Mr. Tsipras too often sounds as if the far left now wants nothing more than to take its turn at distributing the spoils of office....

“For its part, Greece must decide its future. Does it want to be a modern European democracy or would it prefer to rejoin the Balkans as another client of Vladimir Putin’s Russia? It is not yet clear where Syriza stands on this though its apparent closeness to the Kremlin is not encouraging.”

“Unfortunately, an explicit Greek debt write-off would cause more problems in Europe than it solved. Three main negative effects could be expected. First, it would cause a political backlash in northern Europe, which would strengthen far-right and nationalist parties. Second, far-left and anti-capitalist parties would gain credibility in southern Europe and would press for similar debt writedowns, as well as much expanded social spending – something that would lead to a collapse in market confidence. Third, the breakdown in trust between members of the EU that would follow a Greek default – even a negotiated default – would make it much harder to keep the EU together.

“The focus on the unforgiving stance of Germany raises emotional issues about the second world war – but obscures the fact that almost all of Greece’s European creditors take a similar view. It was very hard for politicians in countries such as Finland and the Netherlands to make the case for a bailout of Greece. Their skeptical citizens appeared to suspect that they might never be paid back. (Silly them!) If those fears are now vindicated, the nationalist parties that opposed the bailouts will benefit.”

Meanwhile European leaders from both the far right and left heralded Syriza’s victory. Marine Le Pen, leader of the far-right Front National in France, said, “I am delighted by the enormous, democratic slap in the face that the Greek people have delivered to the European Union.”

Nigel Farage, the leader of the anti-EU UKIP described the election results as “a desperate cry for help from the Greek people, millions of whom have been impoverished by the euro experiment.”

“An extraordinary game of poker will now begin between Greece and the German Chancellor Angela Merkel, with the ECB powerless to do much other than be an observer,” Farage said in a statement. [Wall Street Journal]

Podemos, a left-wing, anti-austerity party in Spain, also hailed Syriza’s triumph. A party leader said, “The unfair and inefficient budget cut policies have been defeated by Greek voters despite the fear campaign,” said Inigo Errjon. “Blackmail has not triumphed in Greece, meaning it will be more difficult for it to triumph in Spain.” [Daily Telegraph]

Podemos won 8% of the vote in May’s European elections, but the latest polls put it at 28%.

And on the issue of immigration, Anthony Faiola of the Washington Post reported:

“Globally – according to a new Gallup poll previewed at the World Economic Forum in Davos, Switzerland – Europeans are the most negative on immigration in a world where most other regions, including North America, show a significantly higher level of tolerance. Europe had the highest portion of respondents, 52.1 percent, calling for a decrease in immigration as well as the lowest number, 7.5 percent, voicing support for increasing it.”

But then there is Pegida, Germany’s Dresden-based anti-Islamist movement. It had been seeing rising crowds for its weekly Monday demonstrations, but on Wednesday five of its top leadership resigned; coming a week after former leader Lutz Bachmann quit after a picture of him posing as Hitler was posted on Facebook. Future demonstrations have been cancelled.

The movement’s press spokesperson, Kathrin Oertel, was one of those who resigned and she cited “huge hostility, threats and professional disadvantage” associated with supporting the movement as well as suffering “photographers and other strange characters creeping around her house.” [Financial Times]

The others said Bachmann insisted on staying on the executive committee and that was the reason for their resignations, to distance themselves personally from his statements.

Turning to Asia...in China, industrial profits fell 8% in December year on year, according to the National Bureau of Statistics.

In Japan, retail sales unexpectedly fell in December, down 0.3% from November for a third straight monthly decline. Sales increased 1.7% for all of 2014.

Exports, though, rose 12.9% last month vs. year ago levels, up 24% to the U.S., 6.8% to the EU and 4.3% to China. Cars led the way.

Street Bytes

--Stocks finished in the red for the month of January, with the Dow Jones losing 3.7% and the S&P 500 3.1%, their worst losses in a year. Nasdaq fell 2.1% in the month.

On the week, the Dow lost 2.9% to 17164, while the S&P lost 2.8% and Nasdaq 2.6%. January was marked by increased volatility and that trend should continue.

--U.S. Treasury Yields

6-mo. 0.05% 2-yr. 0.45% 10-yr. 1.64% 30-yr. 2.22%

President Obama is supposed to give a speech on his new budget Monday and so I’m holding off on commenting on the Congressional Budget Office’s latest estimates from this past week until next review.

--Apple Inc. posted record net profit of $18 billion for its fiscal first quarter ended Dec. 27, up 38% from a year earlier. “That is more than 435 of the companies in the S&P 500 index each made in total profits since 2009, according to S&P Capital IQ. [Daisuke Wakabayashi / Wall Street Journal]

Apple sold a “staggering” (CEO Tim Cook’s description) 74.5 million iPhones in the quarter, 46% above a year ago, while they were able to raise the average selling price $50. [The 74.5 million figure compares with full-year iPhone sales of 72.3 million in all of fiscal 2011, according to Bloomberg.]

The company also reported China sales (including Taiwan and Hong Kong) rose 70% in the quarter, with iPhone sales doubling in mainland China.

But iPad sales continued to slide, down 18% from a year earlier, while sales of its Mac PCs rose 14%.

Overall revenue increased 30% to $74.6 billion from $57.6 billion.

Apple did add its voice to other multinationals in calling recent currency moves “unprecedented,” in the words of the company’s finance chief, and the drag will be greater in the current quarter than the last one.

Now we await Apple Watch. [Apple shares hit an all-time high of $120 on Friday before closing at $117.30. They were $71 last Feb. 3rd.].

--Facebook reported fourth-quarter profits of $701 million, up 34% year on year. Advertising revenues grew 53% to $3.59 billion, with about 70% coming from mobile ad sales.

Facebook also saw its active user count grow to 1.39 billion each month, a 13% increase from a year ago, though the share of users who visit daily remained flat at 64% [I have to admit, I read a few different reports and saw different user figures so using my best judgment. Don’t have time to read individual company releases this week.]

For all of 2014, profits totaled $2.9bn. Give founder Mark Zuckerberg credit. He figured out the mobile game far faster than most expected.

But the shares finished down slightly by weeks’ end, mainly because total expenses jumped 87% to $2.7 billion, plus Friday’s sloppy market action didn’t help.

--Shares in Alibaba fell about 10% on Thursday following release of its earnings. Revenues rose 40% during the December quarter but the overall sales figure fell short of expectations.

Mobile accounted for 42% of Alibaba’s overall transactions, up from 36% in the September quarter. The number of active users on the company’s mobile platform rose from 217 million in the third quarter to 265 million in the fourth.

Ex-charges, earnings came in at 81 cents a share vs. the Street’s expectation of 75 cents.

But, earlier, China’s Ministry of Commerce said it will boost regulation of China’s e-commerce sector as it alleges Alibaba Group is selling fake goods through its subsidiary Taobao.com, including fake cigarettes and alcohol. What is known as the SAIC said only 19 of 51 samples sold via Taobao that it tested were authentic.

As reported by the South China Morning Post, “Last year, the ministry investigated more than 11,000 violations in the e-commerce industry and closed 3,400 websites.”

In a commentary for the People’s Daily, the Communist Party mouthpiece, the government is saying, “Fix the problems before it is too late....Don’t let down millions of consumers who support you.”

I said when Alibaba came public in September that I wouldn’t touch it because it was a China company. What you see above is but a hint of what can happen depending on the mood of those pulling the strings in Beijing. I also wouldn’t trust the numbers, though admittedly my view is tainted by personal experience.

--Meanwhile, Yahoo announced it would spin off its $40 billion stake in Alibaba, which it acquired way back in 2004 as part of a deal that included handing over control of Yahoo China to Alibaba.

--Google reported fourth-quarter revenue rose 17% from year ago levels to $14.5 billion, which was less than expected, while net income rose 41% to $4.8 billion, though earnings per share were also light vs. the Street’s projections. Google’s share of global mobile-ad revenue declined to 41% in 2014, from 47% in 2013, according to EMarketer Inc.

But the shares rose $25 to $535 after the stock had fallen 9% over the past year, partly on word revenues would have been $400 million higher were it not for the strong dollar.

--Amazon.com shares soared 15% after the company posted higher-than-expected net income of $241 million, 45 cents a share, when analysts had forecast just 17 cents. Sales, up 15%, were a little short but investors liked that at least for one quarter, CEO Jeff Bezos seemed to get the message that shareholders want to see profits, as well as growth.

In the fourth quarter, Amazon’s core North American market revenues rose 22%, while overseas was up just 3.2%.

The company doesn’t give specific numbers on Amazon Prime, the $99 annual membership program, but analysts believe there are about 40 million subscribers world-wide.

--Royal Dutch Shell Plc announced it was cutting capital spending $15 billion over the next three years with the crash in oil prices. The company said it would review spending on about 40 projects worldwide. Shell also said that if oil continued to remain around current levels, spending could be cut even further.

Occidental Petroleum said it would reduce spending by $2.9 billion this year and ConocoPhillips announced it would cut capital expenditures by about $5 billion. Then Friday, Chevron said it was cutting capex 13% from last year’s levels.

According to a tally by Bloomberg News, the oil industry has announced layoffs of 30,000 thus far.

Friday, oil-field services company Baker Hughes, in its weekly rig count report, said domestic drilling rigs in operation fell to the lowest level in three years. Crude rallied on the news. Some supply will be coming off the market. But you still have the demand side of the equation to deal with.

--The Senate passed legislation approving the Keystone XL pipeline by a 62-36 vote, with nine Democrats joining all the Republicans present. It now must be reconciled with the House version, which should be shortly, after which it goes to President Obama’s desk for an inevitable veto.

But seeing as it takes two-thirds of the House and Senate to override a veto, it seems doomed to fail. However, GOP leaders say they may attach it to a spending bill later in the year that the president would be forced to sign.

--The Obama administration proposed to restrict oil drilling in sensitive Arctic areas, which ticked off Alaska officials dependent on oil tax revenues to fuel the state’s budget, while the Interior Department is slated to allow drilling off the Atlantic coast, though actual plans to do so are way down the road.

That said, New Jersey Democratic Sens. Cory Booker and Robert Menendez issued a statement that read: “Opening up the Atlantic coast to drill for fossil fuel is unnecessary, poses a serious threat to coastal communities throughout the region, and is the wrong approach to energy development in this country.”

Oh, environmentalists weren’t happy the restrictions in the Arctic didn’t go far enough. 

--McDonald’s fired CEO Don Thompson (officially he is “retiring” at age 51) after a miserable 2 ½ years at the helm. He is being replaced by British-born Steve Easterbrook, the current chief brand officer. Thompson had been with the company 25 years in total.

Fourth-quarter earnings were down 21% from a year earlier to $1.1 billion and the company reported its fifth consecutive decline in sales, with sales in the U.S. down 4.1%. Shares in McDonald’s rose on the news.

--Ford Motor Co. took a $700 million charge related to its Venezuela operation, while global revenues declined $1.7 billion in the fourth quarter to $35.9 billion.

The North American operation saw profits of $1.55 billion, down from $1.8 billion the previous year, though the annual profits for the region of $6.9 billion mean union workers in the U.S. will receive a profit-sharing bonus of $6,900.

Ford’s losses in Europe were $443 million, slightly better than 2013’s $529 million for the quarter.

But South America’s losses rose to $187 million from $126 million. [Wall Street Journal]

--Samsung Electronics’ sales fell 11% year on year in the fourth quarter, with operating profit down 36%, in contrast to Apple.

For the full year, mobile revenue was down 19%, after years of double-digit sales increases. The company is being squeezed by Apple on the top end and competition from China in the low- to mid-end markets.

--Researchers at the Institut Pasteur in France say the Ebola virus has mutated and are trying to determine if it has become more contagious. More than 22,000 people have been infected with 8,795 having died in Guinea, Sierra Leone and Liberia as of Thursday, according to the World Health Organization.

Scientists have been analyzing hundreds of blood samples from patients in Guinea. [That’s scary just thinking of it....the handling part.]

But the good news is doctors at the Institut are developing two vaccines that they hope will be in human trials by the end of the year. One is a variation of a widely used measles vaccine, with signs it could be a joint vaccine protecting against both.

The WHO said the past week saw the fewest number of new Ebola cases in the three main countries since June, 99.

--Shares in Caterpillar Inc. were taken to the woodshed as the construction and mining machinery company forecast a 9% drop in sales and a 22% drop in per-share earnings for 2015.

CAT is getting slammed by falling oil and other commodity prices, as well as slowing growth in China, for one.

After peaking at $65.9 billion in 2012, sales in 2015 (at a projected $50bn) will be down for the third year in a row, the company said. The last time this happened was during the Great Depression.

And CEO Doug Oberhelman said the surging dollar “will not be good for U.S. manufacturing or the U.S. economy.”

--DuPont Co. gave a disappointing forecast for 2015, warning the strong dollar and weakness in its agricultural-seed business would hurt performance. The company forecasts full-year earnings of $4 to $4.20 a share when the Street was at $4.45.

--Bristol-Myers Squibb Co. forecast 2015 sales that are less than the Street expected owing to the strong dollar as the company gets half its sales outside the U.S. Sense a pattern?

--IAG, parent of British Airways and Spain’s Iberia, increased its takeover bid for Aer Lingus but there is no guarantee the deal will go through, even though it seems to make eminent sense to yours truly.

Rival Ryanair, the low-cost provider, has a 29.9% stake in Aer Lingus and it’s among the parties that would need to approve the deal.

--Speaking of the airline business, the Federal Aviation Administration issued a warning to commercial airlines that e-cigarettes may pose a hazard if they are put in checked baggage. As reported by Hugo Martin of the Los Angeles Times:

“The FAA warning cited an incident in August at Boston’s Logan Airport where an e-cigarette in luggage in the cargo hold of a plane caused a fire that spurred an airplane evacuation on the tarmac.

“This month an e-cigarette in a checked bag that had missed its flight from Los Angeles International Airport started a fire in the LAX baggage area, according to the FAA.”

Basically, “e-cigarettes can overheat and cause fires when the heating element is accidentally activated or left on,” the FAA said.

--The number of homes sold in the Hamptons last year jumped by 48%, with a median sales price of $975,000 in the fourth quarter, up 26.5%. [The average sales price was $2.06 million, up 31% over a year ago.] [Douglas Elliman and Miller Samuel Inc. / Crain’s New York Business]

--I can’t help but relate this story from Camilla Turner of the Daily Telegraph. Back in February 2009, a very big mistake was made and the British High Court has just rectified it.

“It was a 124-year-old Welsh family business which took five generations to build up, yet a blunder over a single letter was all that was needed to cause its collapse, leaving the British government with a ($13 million) legal bill.

“High Court ruling has found Companies House liable for the demise of Taylor & Sons Ltd, after they erroneously recorded that the Cardiff engineering firm had been wound up.

“In fact it was another, entirely unconnected, company – Taylor & Son Ltd – which had actually gone bust.

“By the time Companies House, an executive agency of the Department of Business, Innovation and Skills, tried to correct its mistake three days later, it was already too late for the Cardiff engineering firm.

“ ‘They [Companies House] had already sold the false information to the credit reference agencies,’ said Philip Davison-Sebry, 57, former managing director and co-owner of Taylor & Sons Ltd.

“ ‘We lost all our credibility as all our suppliers thought we were in liquidation. It was like a snowball effect.’

“Mr. Davison-Sebry...said that within just three weeks, all of its 3000 suppliers had been in touch to terminate orders and credit facilities were withdrawn....

“Despite desperate attempts to reassure customers and suppliers that there had been a mistake, the business, which was established in 1875 and had its roots in the 18th century, proved impossible to save.”

Among its best customers was Tata Steel, which provided it with a $600,000-a-month income. Gone.

Well, the company, which employed 250 people, was history, but at least the owners are now being compensated.

--Belarus dictator President Aleksandr Lukashenko, during a “seven-hour” press conference, made the comment that Belarus may consider “restructuring” its debt, which sent the country’s bonds tumbling 27%. An aide later passed him a note and Lukashenko clarified he meant “refinancing” and that investors should “calm down.” [Bloomberg]

--Shake Shack Inc. soared in its debut on the New York Stock Exchange, Friday. Priced at $21, the shares finished at $45.90 the first day. The burger chain, owned by restaurateur Danny Meyer, has 63 stores from Chicago to Dubai, with plans to open 10 new company-operated ones each year in the U.S. starting in 2015. I’m drooling....

--“American Sniper” crossed the $200 million mark in its second weekend, which is darn impressive.  Coming in second was “The Boy Next Door,” starring Jennifer Lopez as a high-school classics teacher. Ahem...ahem.... cough....

--Last week when I mentioned the death of longtime CEO Melvin Gordon of Tootsie Roll, David P. wrote that until recently Gordon lived in his area and was especially popular around Halloween. Wish I was there.

--It’s expected that Americans will order 12.5 million pizzas on Sunday, the biggest day of the year for takeout pies. With the messy weather looming in wide swaths of the country, you would think that figure would be higher. I’m having a store-bought pizza, myself, with fried shrimp as an appetizer and some domestic.

Domino’s, by the way, said some of its busiest sites take orders for as many as 200 pizzas an hour.

Foreign Affairs

Iraq / Syria / ISIS: Kurdish fighters pushed ISIS out of Kobane after a bloody, four-month campaign but there can be little joy. The city is destroyed. Tens of thousands were forced to flee into Turkey. 1,300 died, according to the Syrian Observatory for Human Rights, most of them ISIS fighters.

“U.S. officials are celebrating a modest victory in the war against the Islamic State in Syria – the apparently successful defense of the Kurdish town of Kobane... Under siege since early October, Kobane has little strategic value but came to be seen as a test of whether the United States and its allies could stop the expansion of the Islamic State and the humanitarian crimes that accompany it.

“With the help of Kurdish ground forces, the extremists were turned back. But perhaps the most significant fact about Kobane is that it consumed 75 percent of the nearly 1,000 airstrikes carried out by allied planes throughout Syria since September, according to The Post.

“That astonishing share reveals the absence of a U.S. military strategy for Syria outside of preventing the fall of a single border hamlet that attracted the attention of international media. In the rest of the Syrian territory it controls, including its capital of Raqqa, the Islamic State faces little pressure from Western airstrikes and is growing stronger rather than weaker....

“Kobane’s relief, while welcome, won’t alleviate the mounting catastrophe.”

Well the Washington Post editorial proved to be rather prophetic because two days later we learned ISIS had launched a surprise attack on Kirkuk, killing a senior Kurdish commander in the process. While most of the fighting was on the outskirts of the city, ISIS elements did enter the city center and attempted to storm a hotel before Kurdish forces beat them back.

ISIS launched other attacks across Iraq on Friday, lashing back after suffering some setbacks.

In an interview with the Washington Post, Turkish Prime Minister Ahmet Davutoglu addressed the differences between his country and the U.S. over the handling of the Syrian crisis and ISIS.

Lally Weymouth of the Post: About two years ago, your then Prime Minister (now President) Recep Tayyip Erdogan pushed the U.S. to create a no-fly zone. But it didn’t, and the Syrian opposition became weaker. Is Turkey now at odds with the U.S. administration? Isn’t the U.S. administration saying America’s priority is to fight ISIS, while Turkey says it is crucial to see Syrian President Bashar al-Assad fall?

Davutoglu: “In a potential crisis, if you don’t take necessary measures at the early stage, at a later stage you face much bigger problems. Yes, two years ago we were asking to have a no-fly zone...to allow the moderate Syrian opposition to have control in the north of Syria. If the opposition had been supported, there wouldn’t be the threat of ISIS.

“Since we didn’t protect civilians or help the opposition, there was a tactical cooperation between the Assad regime and ISIS. When the Assad regime attacked opposition positions, [rebel] forces had to leave those towns and cities. The ISIS forces then occupied these towns. There was no fighting between the regime and ISIS until last summer. The presence of ISIS helped Assad to stay in power because everyone said there was a terrorist threat – it helped Assad legitimize himself in the eyes of the international community.”

Yes, there I was, summer of 2012, saying the Obama administration should have worked together with Turkey on the no-fly zone. Among Obama’s countless foreign policy blunders, this is among the top three, if not first, depending on what happens in the Iran nuclear talks.

One more item from Iraq. A commercial jet carrying 154 passengers from Dubai was hit by gunfire as it landed at Baghdad International Airport on Monday. At least one passenger was slightly hurt but this incident is more than a bit disconcerting. It could have been a missile.

“(Issues) such as Syria’s war, Western normalization with Iran, and the viability of Islamist governments have immediate, even existential, importance for them, affecting their regional sway and domestic stability. Obama has not been personally engaged in addressing regional fears on all these issues, let alone defining a consistent U.S. policy toward them. He has navigated through a labyrinth of conflicting regional interests, but the American president has not reassured his allies or sought a way to resolve the contradictions.

“Can we expect change in Obama’s remaining two years in office? The president is not backed by majorities in the House and Senate, which can only handicap his foreign relations. But it is also true that his withdrawal from the Middle East has not been unpopular among many in Congress or the public. Indeed, Obama’s catastrophic negligence of the region is a consequence of the fact that there has been no price to pay for this at home.

“Nor is there any indication that the White House feels a need to act very differently today. But only a blind man or a fool would argue that the U.S. pays no price for the disintegration of the region. Obama intervened against ISIS on the assumption that something had to be done. The problem is that the president refuses to apply this logic in Syria, Libya and Yemen.

“The region has suffered, as has American credibility, while the framework of American power in the region has been overhauled. But such transformations must usually be conducted carefully. Obama has done so recklessly, amateurishly, creating a vacuum that has only exacerbated the traumas afflicting the region.”

Israel / Iran: It had been ten days since Israel launched an attack on Syria’s Golan that killed six Hizbullah fighters and six Iranian Revolutionary Guards and Israel was waiting for Hizbullah to retaliate. Wednesday it did, killing two Israeli soldiers in an ambush in Lebanon’s occupied Shebaa Farms region.

For now, both sides do not appear to want to escalate further.

Hizbullah said the Lebanese government’s policy statement, stating that “Lebanese people have the right to resist Israeli occupation, repel its aggression and reclaim occupied territories,” bestows legitimacy on its resistance operations.

Israeli Prime Minister Benjamin Netanyahu said: “The government of Lebanon and the Assad regime share responsibility for the consequences of attacks originating in their territory against the state of Israel.” [The Daily Star]

“At the heart of the increasingly deadly escalation on the northern border is an attempt by Hizbullah and Iran to set up a dangerous terrorist base in southern Syria. The base is meant to target the North with rockets, bombs and death squads.

“The air strike last week targeting key Hizbullah and Iranian figures...was a defensive step, designed to eliminate a developing threat to Israeli security that was engineered by Iran and built by its Lebanese servant, Hizbullah....

“Wednesday’s attack consisted of mortar fire from Syria and missile fire from Lebanon, showing how the Lebanese-Syria border has become irrelevant, and how the two areas have merged into one front. Israel will not sit by contently and watch the formation of a new Iranian base on the Syrian Golan, right on its doorstep.

“Now, Hizbullah and Israel are trading blows in the north in an increasingly deadly exchange that has already claimed the lives of two IDF soldiers protecting their country, as well as that of a UN peacekeeper from Spain.

“Wednesday’s events do not mean a full-scale war is inevitable, but it is now a few steps closer.”

“Lebanon-based Hizbullah and Iran, Assad’s backers, are aiming their guns at Syria’s southern neighbor. An all-out war involving Iran, Lebanon and Israel is emerging as a scary possibility.”

On the issue of the Iranian nuclear talks, Prime Minister Netanyahu said on Monday, the agreement that is emerging “is dangerous for Israel, the region and the world. It leaves Iran with the ability to produce the material needed to produce a nuclear bomb within a few months, and later, it could produce dozens of nuclear bombs....

“As prime minister I want to be very clear on this point. We will do everything to prevent Iran’s arms capacity and its ability to produce nuclear weapons.”

Netanyahu added: “This is the same Iran that has taken over Lebanon and Syria and is doing the same now in Yemen and Iraq. This is the same Iran that is preparing an active front against us on the Golan Heights as well as in southern Lebanon.” [Jerusalem Post]

As I go to post, Netanyahu is still slated to give a speech to Congress in March to urge American politicians to pass new legislation to increase sanctions against Iran.

“Here are five reasons Israeli Prime Minister Benjamin Netanyahu should politely decline House Speaker John Boehner’s invitation to address a joint session of Congress:

“It will damage Israel’s image in the United States....

“It is not good for the American debate over Iran....

“It fails the Churchill test. There was no greater friend of the United States than Winston Churchill and no better ally of the United States than Britain. Between 1939 and 1941, Churchill was desperate for deeper U.S. involvement in Britain’s life-and-death struggle with Nazi Germany. The British faced at least as dire a threat then as Israel faces today – arguably more dire. No one was inviting Churchill to speak to a joint session of Congress, of course, but would Churchill even have considered accepting such an invitation without the approval of President Franklin Roosevelt? When Churchill gave his famous ‘Iron Curtain’ speech in Fulton, Mo., in 1946, he did so as a private citizen – and, as it happened, he was escorted to the speech by President Harry Truman.

“U.S. congressional leaders probably should have given this invitation more thought. Although not a violation of the letter of the Constitution, it certainly seems to violate the idea that the nation speaks with one voice on foreign policy and that foreign leaders cannot choose whether they prefer to deal with Congress or the president. Will Republicans be happy when the shoe is on the other foot, and a Democratic Congress invites foreign leaders to joint sessions in defiance of a Republican president’s wishes?

“But whether the congressional leadership has thought this through or not, there is still time for the Israeli prime minister to do the right thing – and decline.”

“With their gutter sniping failing to stop Prime Minister Benjamin Netanyahu’s planned March speech before Congress, White House aides are unloading their full arsenal of bile.

“ ‘He spat in our face publicly, and that’s no way to behave,’ one Obama aide told an Israeli newspaper. ‘Netanyahu ought to remember that President Obama has a year and a half left to his presidency, and that there will be a price.’

“It is pointless to say petty threats do not become the Oval Office. Trying to instruct this White House on manners recalls what Mark Twain said about trying to teach a pig to sing: It wastes your time and annoys the pig.

“Still, the fury is telling. It reminds, as if we could forget, that everything is always about Obama.

“How dare Israel be more concerned with the existential threat of Iranian nukes than with Obama’s feelings? And what do members of Congress think they are, a separate branch of government or something?

“Yes, the presidency deserves respect, even when the president doesn’t. Although Obama routinely ignores lawmakers and their role in our constitutional system of checks and balances, there is an argument afoot that Congress should have taken the high road and consulted him before inviting Netanyahu.

“The argument has a point – but not a compelling one. To give Obama veto power over the visit would be to put protocol and his pride before the most important issue in the world.

“That is Iran’s march to nuclear weapons, and Obama’s foolish complicity. His claim at the State of the Union that ‘we’ve halted the progress of its nuclear program and reduced its stockpile of nuclear material’ would be laughable if it weren’t so dangerous.

“Outside the president’s yes-men circle, nobody believes the mad mullahs will voluntarily give up their quest for the bomb. International sanctions made life difficult for the regime, especially with oil prices cratering, but Obama relaxed restrictions with nothing to show for it except negotiations where he keeps bidding against himself.

“He is desperate for a deal, and the Iranians know it, so they want to keep talking. They are gaining concessions and buying time, which means a reversal of their weapons program becomes much harder to achieve.”

“Amid the ritual expressions of regret and the pledges of ‘never again’ on Tuesday’s 70th anniversary of the liberation of Auschwitz, a bitter irony was noted: Anti-Semitism has returned to Europe. With a vengeance....

“The hiatus is over. Jew-hatred is back, recapitulating the past with impressive zeal. Italians protesting Gaza handed out leaflets calling for a boycott of Jewish merchants. As in the 1930s. A widely popular French comedian has introduced a variant of the Nazi salute. In Berlin, Gaza brought out a mob chanting, ‘Jew, Jew, cowardly pig, come out and fight alone!’ Berlin, mind you.

“European anti-Semitism is not a Jewish problem, however. It’s a European problem, a stain, a disease of which Europe is congenitally unable to rid itself.

“From the Jewish point of view, European anti-Semitism is a sideshow. The story of European Jewry is over. It died at Auschwitz. Europe’s place as the center and fulcrum of the Jewish world has been inherited by Israel. Not only is it the first independent Jewish commonwealth in 2,000 years. It is, also for the first time in 2,000 years, the largest Jewish community on the planet.

“The threat to the Jewish future lies not in Europe but in the Muslim Middle East, today the heart of global anti-Semitism, a veritable factory of anti-Jewish literature, films, blood libels and calls for violence, indeed for another genocide....

“For America, Europe and the moderate Arabs, there are powerful reasons having nothing to do with Israel for trying to prevent an apocalyptic, fanatically anti-Western clerical regime in Tehran from getting the bomb: Iranian hegemony, nuclear proliferation (including to terror groups) and elemental national security.

“For Israel, however, the threat is of a different order. Direct, immediate and mortal....

“On the 70th anniversary of Auschwitz, mourning dead Jews is easy. And, forgive me, cheap. Want to truly honor the dead? Show solidarity with the living – Israel and its 6 million Jews. Make ‘never again’ more than an empty phrase. It took Nazi Germany seven years to kill 6 million Jews. It would take a nuclear Iran one day.”

Regarding the nuclear talks, I have to repeat one more time what I wrote on Jan. 17 in this space.

“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.

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

“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.

So the other day Bill O’Reilly, as part of his “Talking Points” memo, said the following: 

“Some estimates say Iran is within two months of being able to put together the key components of a nuclear weapon. 

“President Obama believes he is making progress in a nuke deal with Iran. 

“But the current negotiations have been going on for 14 months and have been extended twice. 

“The next deadline is the end of June. 

“Some in Congress want to impose sanctions right now. 

“Those sanctions would be dormant until June 30 and kick in only if Iran doesn’t seal the deal. 

“Talking Points has said that would be a mistake. 

“Yes, severe sanctions would have to be imposed if the deal fails and President Obama has said he would do that. 

“But the U.S. Congress should give Iran no excuse to walk away. 

“If there is no deal by the end of June, then Congress can unleash hell and President Obama will have no choice but to go along with it. 

“Again, we might get into a shooting war with Iran. That is possible and if it happens, the world has to know that America did everything possible to make a nuke deal. 

“So let’s put the saber rattling aside for five months, no antagonism.

This week, Sen. Menendez agreed to give the president a little more time, two months, before holding a vote on a new sanctions bill he has co-authored.  

Lebanon: Eight Lebanese soldiers were killed in a battle with ISIS militants on the border with Syria. More than 40 ISIS fighters were killed, according to the Daily Star. This battle, more than any other border incident of the past few years, unequivocally shows the Syrian war has come to Lebanon. 

Egypt: Militants struck more than a dozen army and police targets in the Sinai Peninsula on Thursday, including a car bomb and mortar rounds, killing at least 27, including civilians. It appeared to be the work of an ISIS affiliate that has launched several attacks against the police and the army in recent years. What is so disturbing about Thursday’s action is how coordinated it was. 

The areas where the attacks took place have been under a state of emergency since October when the militants killed dozens of soldiers at a checkpoint in Sinai, as the Egyptian government attempted to stop weapons smuggling to and from the Gaza Strip. 

Last weekend, at least 18 were killed in clashes between police and protesters across Egypt. The protests were staged to mark the fourth anniversary of Egypt’s 2011 uprising. 

Libya: Nine were killed, including an American, in an attack on a luxury hotel in the capital Tripoli on Tuesday. A group claiming affiliation with ISIS claimed responsibility. 

Saudi Arabia: In President Obama’s brief talks with new King Salman, the monarch reiterated his country’s stance that Iran must not get the bomb. Salman also expressed a message of continuity when it came to Saudi Arabia’s energy policy, though the two did not talk specifically about current oil prices. 

Afghanistan: Three American contractors working for U.S.-led forces were killed Thursday in an insider attack. The Taliban claimed responsibility. 

While there are 13,500 U.S. and allied troops in Afghanistan, there are 21,000 contractors carrying out training and other tasks. 

The same day a suicide bomber attacked a funeral procession, killing 16, while Taliban fighters attacked an anti-Taliban militia, killing 11. 

And at least 32 were killed in a highway collision between a truck and a bus on the highway between Kabul and Kandahar...all on Thursday. 

Russia: Mikhail Gorbachev warned Russia and the United States may be teetering on the brink of a “hot war” in comments to Interfax on Thursday. 

“If you call things by their proper names, [the United States] has already pulled us into a new ‘Cold War’ by trying to embody its general notion of triumphalism,” said Gorbachev. 

“What will happen next? Unfortunately, I can no longer say firmly that the ‘Cold War’ won’t turn into a hot one.” 

Gorbachev voiced approval of the annexation of Crimea, but has urged Moscow to refrain from involving itself in the Ukraine conflict. 

“If our country gets involved [in the fighting], it could spark a fire so strong the whole world won’t be able to put it out,” he said. [The Moscow Times] 

Regarding the Ukraine conflict, EU foreign ministers agreed to extend existing sanctions against Russia until September, but they did not agree on imposing new ones. [Sanction require unanimity among the 28 governments. The new Greek government, for one, advocates closer ties with Russia.] 

It was a week of intense fighting in eastern Ukraine, including the shelling of the strategic port city of Mariupol last weekend that killed at least 30 civilians; what can only be classified as a war crime. Ukraine blamed separatist-rebels for the attack and the damage was inflicted by Russian-made Grad rockets. 

Moscow continues to deny involvement but said some Russian “volunteers” are fighting alongside the rebels. The war has now claimed more than 5,000 lives, according to U.S. ambassador to the UN Samantha Power. NATO intelligence says hundreds of pieces of military equipment have crossed from Russia into Ukraine since the start of the year. 

Separately, Russian military planes flying off the coasts of Britain and Ireland caused “disruption to civil aviation” on Wednesday, according to the British Foreign Office. While Russian aircraft did not enter U.K. airspace, the maneuvers were “part of an increasing pattern of out-of-area operations” by Russia. 

The planes were escorted by RAF jets “throughout the time they were in the U.K. area of interest,” officials said. 

On Monday, the U.S. Attorney for Manhattan, Preet Bharaa, announced that a Russian bank employee and two Russian government officials had been charged with being part of a spy ring in New York City aimed at gathering intelligence on U.S. sanctions against Russia. The three were also accused of trying to recruit New York City residents, including women connected to a university in New York. 

The bank employee was arrested, the other two no longer live in the U.S. Disconcertingly they were also apparently gathering information on the operation of the New York Stock Exchange. 

Regarding Russia’s budget, it will raise spending on support for social programs and agriculture and exempt defense outlays from reductions, but most other expenditures are being cut 10% this year. Finance Minister Anton Siluanov told parliament on Wednesday, “There won’t be a fast recovery in oil prices like there was in 2008-09. This will be a long-term situation.” 

On Monday Standard & Poor’s downgraded Russia to BB+, one notch below investment grade. 

Then in a surprise move, the central bank cut its key interest rate from 17% to 15% saying it no longer felt tackling inflation was a top priority. The move sent the ruble tumbling to levels not seen since the rout last month. The move certainly doesn’t add to confidence in Russia’s banking authorities, who heretofore had a pretty good reputation. The central bank was under pressure from all sides, including the government, which is worried that the recession is deepening with the slide in oil prices. 

Inflation hit 11.4 percent in December. GDP is expected to decline 4-5 percent this year. 

Lastly, Bloomberg had a piece titled “The Chilly Fallout Between Putin and His Oligarch Pals.” That’s what I’ve been talking about for years. I was too early.   But I still believe he’ll be done in by them, though the article doesn’t mention the man who I think will lead the way. 

China: Some disturbing tidbits this week. 

“Chinese education authorities have pledged to redouble efforts to control the use of imported textbooks in Chinese universities to stem the influence of Western values on the younger generation. 

“The move marks the latest step in President Xi Jinping’s ideological campaign, which has seen the media and the Internet come under even tighter controls and is now being expanded to Chinese campuses.” [Andrea Chenandrea / South China Morning Post] 

Andrew Jacobs of the New York Times had an extensive piece on just how much the Chinese government is tightening the Internet, with Gmail almost impossible to use, while Beijing interferes with popular virtual private networks, or V.P.N.s. 

“Multinational companies are also alarmed by the growing online constraints,” writes Jacobs. “Especially worrisome they say, are new regulations that would force foreign technology and telecom companies to give the government ‘back doors’ to their hardware and software and require them to store data within China. 

“Like their Chinese counterparts, Western business owners have been complaining about their inability to gain access to many Google services since the summer. A few weeks ago, China cut off the ability to receive Gmail on smartphones through third-party email services like Apple Mail or Microsoft Outlook.... 

“For those who have (returned) to China and who crave membership in an increasingly globalized world, the prospect of making do with a circumscribed Internet is dispiriting. Coupled with the unrelenting air pollution and the crackdown on political dissent, a number of Chinese said the blocking of V.P.N.s could push them over the edge. 

“ ‘It’s as if we’re shutting down half our brains,’ said Chin-Chin Wu, an artist who spent almost a decade in Paris and who promotes her work online. ‘I think that the day that information from the outside world becomes completely inaccessible in China, a lot of people will choose to leave.’” 

China is also rapidly building five man-made islands in the South China Sea, which I’ve noted in this space before, but U.S. officials are increasingly concerned as one of the new islands is already nearly 2 miles long and several hundred yards wide...big enough for an airstrip in the remote Spratly Islands. [David Cloud / Los Angeles Times] 

And some China experts are looking ahead to September, when it is expected President Xi will hold his first grand military parade, to coincide with the anniversary of the end of the Second World War, that could have “significant political implications,” according to an opinion piece in the People’s Daily. It seems Xi wants to demonstrate to the world, especially Japan, that China will ensure Japan sticks to its post-war pacifist agreement, ergo, China could showcase its growing military might. 

Meanwhile, tourism to China continues to decline, down a third straight year in 2014, according to the China National Tourism Administration. Pollution, censorship and complex visa requirements are cited as the main causes for the drop-off. At the same time, Hong Kong, Taiwan, Japan and South Korea have seen rapid growth. 

India: President Obama deserves credit for pursuing the relationship with India as he had by all accounts a successful two-day trip there.
 

“India has gone from being a country, 30 years ago, that was reflexively anti-American to one that is increasingly pro-American. Indian society has long been attracted to America, but in recent years, the Indian government has been moving away from its encrusted ideology of ‘nonalignment’ to something far more practical. Its energetic new prime minister, Narendra Modi, has pushed his government in an unambiguously pro-American direction. 

“Bringing India closer to the United States could have broad benefits for Washington and the world. With more than 1.2 billion people, India is likely to become the next global goliath.... 

“The upsides of success are significant. If the United States can partner with India and Indonesia (in addition to its alliance with Japan), it is far more likely that Asia – and the world – will be characterized by free trade, multilateralism and rules-based systems. Stronger relations with Indonesia could have an impact on the broader debate about reform in the Muslim world. And a deeper set of ties between the United States, Mexico and Canada could create a North American economic and political union of sorts that would be more interconnected, vibrant and powerful than any regional bloc in the world.” 

Japan: China isn’t the only country questioning textbooks. Japanese Prime Minister Shinzo Abe criticized a U.S. textbook published by McGraw-Hill that he said inaccurately depicted Japan’s actions during World War II. 

Abe, speaking in Parliament on Thursday, vowed to step up efforts to fight mistaken views abroad. The textbook in question, for example, had a description of women forced to work in Japanese military brothels during the war, a contentious issue in the region. McGraw-Hill defended the book, saying its account is supported by the facts. 

Needless to say Japan’s ideas on WWII conflict with those of South Korea and China, for starters. 

As for the ISIS hostage crisis, David Piling / Financial Times 

“(The crisis) could cut both ways for Mr. Abe’s foreign policy ambitions. He will try to use the incident as evidence that Japan needs to stand up for itself more. Unlike many other nations, it has no commando unit ready to mount a rescue mission nor any constitutional leeway to take military action against foreign forces who seek to harm its nationals. 

“Yukio Okamoto, a defense expert and supporter of Mr. Abe’s diplomatic agenda, says the kidnapping has exposed the Japanese public to the world’s uncomfortable realities. ‘We can no longer hide behind camouflaged neutrality,’ he says. 

“Many in Japan will draw precisely the opposite conclusion. The incident, they will say, shows the perils of being sucked into foreign adventures. From the isolation and rarefied comfort of Japan, the rest of the world can seem like a blood-curdling place in which monotheistic religions vie for supremacy. Mr. Abe has been criticized in parliament for offering $200m in humanitarian support to opponents of ISIS. That, say critics, was like a red rag to the fundamentalist bull. 

“ ‘Many people are saying: ‘Why do we want to be America’s deputy sheriff? Do we really want to stick our necks out?’ says Jeff Kingston, a professor of international studies at Tokyo’s Temple University.... 

“The U.S. is seen by many in Tokyo as an undependable ally, unlikely, if push comes to shove, to spill American blood in Japan’s defense. Meanwhile, the Middle East, on whose oil Japan remains dependent, has gone up in ideological flames.  For Tokyo, the days of sitting on the fence are ending.” 

Philippines: At least 43 elite police officers were killed during a firefight with rebels on the restive island of Mindanao, as the police were seeking to capture one of Southeast Asia’s most wanted terrorists. It was the largest single loss of life by Philippine officers in recent history and it follows a yearlong cease-fire with Muslim rebels. Officials said the suspect, leader of the Moro Islamic Liberation Front, was likely killed. 

It appears there was supposed to be prior communication with the rebels and that it was meant to be an operation to target a single individual. 

This isn’t the first time Philippine police have botched something like this. I’m having déjà vu on a failed hostage rescue mission in Manila years ago...a bus incident. 

Nigeria: U.S. Gen. David Rodriguez, head of Africa Command and previously No. 2 in Afghanistan, said he believes to turn the tide against Boko Haram would require a full-scale counterinsurgency across four countries: Nigeria, Cameroon, Chad and Niger. 

The relationship between the U.S. and Nigeria is at a low, however, and Nigeria has cancelled exercises with U.S. forces. Next month, the nation holds presidential elections as President Goodluck Jonathan faces increasing criticism he isn’t up to the task of dealing with the Islamists. The election itself provides Boko Haram with a rather large array of targets, to say the least. 

Cuba: It would seem President Raul Castro believes normalization of relations with the United States is a one-way street. Speaking at a summit in Costa Rica, Castro warned Washington to cease interference in Cuba’s internal affairs. 

“Everything appears to indicate that the aim is to foment an artificial political opposition via economic, political and communicational means,” he said. 

“The main problem has not been resolved: the economic, commercial and financial blockade, which causes huge human and economic damage and is a violation of international rights. 

“The establishment of diplomatic relations is the beginning of a process toward the normalization of bilateral relations, but this won’t be possible as long as the blockade exists.” [Agence France-Presse, Reuters]

Random Musings

--The Obama administration is proposing an increase for the Pentagon that ignores existing spending caps by $34 billion in 2016 and $150 billion over the next five years. $5.3 billion is for ongoing operations against ISIS, as well as $42.5 billion for Afghanistan as roughly 10,000 troops could remain there, though the White House touts a lower figure.

Including $50.9 billion for the war funding account, the budget of $585 billion would be the highest since 2012 when defense spending topped $645 billion. [Defense One]

--The White House scrapped its proposal to raise taxes on college savings accounts – 529 plans. Obama had proposed doing away with these as part of a broad package of tax reform measures aimed at the wealthy, but Democrats as much as Republicans pushed back on this popular plan and the White House had to concede the issue had become “a distraction” and hurt the broader effort.

[I wrote up the following political items prior to learning of Mitt Romney’s announcement he would not be running for president, but have left them unchanged for the purposes of this column’s historical narrative.]

--New Jersey Gov. Chris Christie established a political-action committee, a necessary step in raising money for a potential presidential candidacy. He has fundraisers planned across at least ten states thus far.

Ken Langone, co-founder of Home Depot and a major Republican donor, is putting his considerable heft behind a Christie candidacy and working his network of fellow donors.

But Christie is going after the same business-friendly, “establishment” types within the Republican Party that will also be looking at Jeb Bush, let alone Mitt Romney should he run.

--Meanwhile, the Koch brothers, Charles and David, set an $889 million budget for 2016. As reported by Fredreka Schouten of USA TODAY, “The budget...pays for everything from advertising and data-gathering technology to grass-roots activism.”

The humongous figure dwarfs the $400 million the Republican National Committee raised and spent during the 2012 presidential cycle.

Charles Koch, speaking at the brothers’ annual meeting of Freedom Partners, said the group’s efforts have been “largely defensive to slow down a government that continues to swell and become more intrusive.”

The Koch network apparently spent $290 million on the 2014 election in successfully returning the Senate to Republican control.

--In his first major speech since announcing he was entering the presidential race, Jeb Bush said he would offer the country the “adult conversations” he said were lacking in Washington and focus on those being left out of the economic revival.

“Sixty percent of Americans believe that we’re still in a recession,” Bush said. “They’re not dumb. It’s because they are in a recession. They’re frustrated, and they see a small portion of the population on the economy’s up escalator. Portfolios are strong, but paychecks are weak. Millions of Americans want to move forward in their lives – they want to rise – but they’re losing hope.”

Speaking of both President Obama and the now Republican-controlled Congress, Bush said there were too many “academic and political hacks” with “hard-core ideology” who are running the country ineffectively.

“They’re basically Maytag repairmen,” he said. “Nothing gets done.” Bush added, it’s time “to open up economic opportunity for all.” 

“We have a history of allowing people to come in legally to embrace our values and pursue their dreams in a way that creates prosperity for all of us. No country can do this like America. Our national identity is not based on race or some kind of exclusionary belief. Historically, the unwritten contract has been, come legally to our country, embrace our values, learn English, work and you can be as American as anyone else.” [Philip Rucker / Washington Post]

--Donald Trump is once again teasing the public in hinting he may run for president. Speaking at a forum in Des Moines last weekend, he said Mitt Romney should be “disqualified” from running because “he choked” last time. “It’s like a golfer that can’t sink the three-foot putt on the last hole,” he said.

Regarding Jeb Bush, Trump said, “We’ve had enough Bushes, is the way I look at it.” [Geoff Earle / New York Post]

--Actually, with everyone that’s in the field, it’s going to be absurd come Iowa Caucus time...let alone what do you do with the debates and a gazillion candidates next fall vying for the Iowa, New Hampshire and South Carolina contests?

Imagine the competition to get on the Fox News shows each evening.

“(Sarah Palin is) back again. And – yet again – she’s assuming her default position of presidential tease. Yes, she’s ‘seriously interested’ in running for president. As evidence, she gave an utterly befuddling speech last weekend in Iowa, where other likely candidates were gathered.

“This time, Palin’s critics include Republicans. What the heck was she talking about, they wondered. What has happened to Palin, they ask?

“As if they shouldn’t know. Palin, though no longer viable in a national race, may deserve more sympathy than scorn. Her incoherence, though not new, has worsened, and she shows signs of someone desperate for relevance....

“Let’s be honest. Any man of Palin’s comparable deficits, no matter his winning ways, would have been eliminated from consideration within minutes of opening his mouth. Although Palin acquitted herself well enough in her vice presidential debate with then-Sen. Joe Biden, simultaneously winking at her fans and signaling ‘You betcha’ to her critics, the substance of her responses was flash-card deep....

“If Republican strategists had viewed Palin in 2008 as someone with talent who needed nurturing and support, she might have been ready for a national ticket by 2016...

“In the end, the story of Palin’s rise and fall is a tragedy. And the author wasn’t the media as accused by the Grand Old Party itself. Like worshipers o false gods throughout human history, Republicans handpicked the fair maiden Sarah and placed her on the altar of political expedience.

*In case you missed it, at the Iowa Freedom Summit, Palin launched into some nonsensical tirades such as:

“The man can only ride you when your back is bent. So strengthen it! Then the man can’t ride you, America won’t get taken for a ride, because so much is at stake.”

“Now the press asks, the press asks, ‘Can anyone stop Hillary?’ Again, this is to forego a conclusion, right? It’s to scare us off, to convince us that – a pantsuit can crush patriots.”

--So, with all the above, and now no Mitt, clearly Jeb Bush benefits big time and to a lesser extent Chris Christie.

“(Obama) has spent the past six years blaming Republicans when he wasn’t ignoring or dissing them, and despite some nice touches in the (State of the Union) speech, his essential disrespect for his political adversaries shone through.

“On the Republican side we see disrespect toward the president – and, more consequentially, toward the presidency – in the decision of GOP Hill leaders to invite, without conferring with the White House or the State Department, a foreign head of government, Israel’s Prime Minister Benjamin Netanyahu, to address a joint session of Congress next month.

“On hearing of this I got the same sinking feeling I did last week when Mr. Obama met with British Prime Minister David Cameron at the White House and, during their joint news conference, Mr. Cameron acknowledged to reporters that he’d personally lobbied U.S. senators to back Mr. Obama on Iran sanctions. Should a foreign leader be on the phone jawboning with members of the American Congress about what they should or should not do? Um, no. It’s breaching diplomatic form and tradition. You go run your country, we’ll run ours, and then, because we’re friends and allies and love each other, we’ll meet and talk and see if we can’t get into agreement.

“But the Netanyahu invitation seems to me worse. The Israeli newspaper Haaretz reports the idea was ‘cooked up’ behind the back of the American president, that the White House, the U.S. State Department and the U.S. Embassy in Israel ‘were totally excluded from these contacts,’ that they had been neither consulted nor informed before the invitation was issued by the Republican leadership. (Haaretz also noted that Mr. Netanyahu faces an election in two months.)....

“The United States has an elected president who serves a four-year term, and in that time he gets to conduct the nation’s formal diplomatic efforts and policy and to oversee its foreign-affairs apparatus and agencies.

“Does Mr. Obama deserve to be embarrassed in this way? Of course he does! In his long years in the presidency he has demonstrated no regard for the Republicans of Congress, and now they are showing no regard for him.

“But it is still a bad move, a damaging snub that makes divisions more dramatic, and not only between Congress and the president.”

--What a mess, the dud of a snowstorm this past week, specifically for New York City and New Jersey. For starters, I never saw a weather forecast deteriorate as it did on Sunday for our area. Each revision upped the snowfall totals, finally to 24-36 inches. I got my friends all in a tizzy and with my brother and sister-in-law due to fly back from Ireland on Monday, I thought no way their plane comes in. [It did.]

So Monday morning we wake up to a little snow in the Jersey suburbs, knowing the main event would hit Monday night, but then the brunt of the storm hit eastern Long Island and New England instead.

In the meantime, New York, New Jersey and Connecticut went on lockdown. Yes, given the forecast some of the precautions were understandable. But a few were not.

Understand on Monday, New Jersey Transit, the commuting lifeline for those working in New York City, announced it was shutting down until Thursday! This was so incredibly irresponsible. Why not announce we are shutting Tuesday and will reassess at that time? NJT did get back online Tuesday as the storm fizzled out.

The other was New York City shutting down the subway system. I understand the road shutdown, and closing schools for Tuesday, but the subways? C’mon.

Well the National Weather Service issued a rare apology for blowing the forecast.

“My deepest apologies to many key decision makers and so many members of the general public,” said Gary Szatkowski, the meteorologist-in-charge at the NWS in New Jersey. “You made a lot of tough decisions expecting us to get it right, and we didn’t. Once again, I’m sorry.”

The storm developed about 90 miles east of where it was forecast to. Now we await Sunday’s mess.

--New York State Assembly Speaker Sheldon Silver is resigning* on Monday. He was pressured by fellow Democrats to leave after being told he faced ejection if he tried to hang on.

Silver has been speaker for 21 years, but was arrested on massive corruption charges last week, $4 million worth in kickbacks and bribes, though he has vowed he would be vindicated.

In an example of what a dirtball Silver is, the New York Daily News found a letter dated July 5, 2005, where Silver promised $500,000 in public taxpayer money he was steering to a Columbia University doctor would go toward vital research on residents and workers at the site of the World Trade Center terror attacks who may have been exposed to asbestos.

Instead, the doctor was helping Silver pockets $millions in bogus “referral fees.”

*I heard conflicting reports on whether he was resigning from the Assembly overall when I went to post. As of early Sat. AM he is going to attempt to keep his seat.

--We note the passing of Joe Franklin, a local legend who pioneered the modern talk show as he had one on local New York television stations for over 40 years, from the 60s through the 90s.

But for all the odd-ball guests he would have, he also booked Elvis, Bing Crosby, John F. Kennedy, Woody Allen, Dustin Hoffman...he even had Bette Midler and Barry Manilow as in-house artists.

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

Gold closed at $1278
Oil $48.24...big rally Friday afternoon, but still fourth straight week under $50

Returns for the week 1/26-1/30

Dow Jones -2.9% [17164]
S&P 500 -2.8% [1994]
S&P MidCap -1.4%
Russell 2000 -2.0%
Nasdaq -2.6% [4635]

Returns for the period 1/1/15-1/30/15

Dow Jones -3.7%
S&P 500 -3.1%
S&P MidCap -1.2%
Russell 2000 -3.3%
Nasdaq -2.1%

Bulls 53.1
Bears 16.3 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Dr. Bortrum posted a new column.

Brian Trumbore

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