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Week in Review

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10/24/2015

For the week 10/19-10/23

[Posted 11:00 PM ET, Friday]

Note: If you haven’t already done so, click on the gofundme link above, or send a check to PO Box 990, New Providence, NJ  07974.  I can’t expand without your support.

Special thanks this week to Paul C., Lim Z., and Emmanuel S.

Edition 863

Washington and Wall Street

A combination of strong earnings reports from some key tech bellwethers such as Alphabet (Google), Microsoft and Amazon, as well as a brighter picture from McDonald’s, coupled with more stimulus talk and/or action from the likes of the European Central Bank and China, helped fuel a fourth straight week of gains in U.S. stocks.  The S&P 500 is back into positive territory for the year.

The market soared on Thursday as the ECB said it would consider expanding its stimulus program in December, while China’s central bank cut its benchmark interest rates 25 basis points, Friday, amid an ongoing slump in their economy.

ECB president Mario Draghi said that aside from extending its $1.2 trillion bond purchase program, the ECB would consider other measures, such as further cutting one of its key interest rates.

But this coming week will see the Federal Reserve’s Open Market Committee meet and while no one is expecting it to do anything on rates, the accompanying statement could be telling in telegraphing any action at December’s confab.

On Monday, New York Fed President William Dudley was quoted as saying it was too early to consider an interest rate rise due to concerns about global economic growth.

Dudley told an Italian newspaper, “The situation changed over the last few months.  It’s true we thought we could raise interest rates by the end of 2015, but turbulence in financial markets, modest global growth, energy prices and macro-prudential imbalances are slowing this process down.”

Clearly the Fed is split; Chair Janet Yellen and others having previously said they expected a rate hike by the end of the year, Dudley being one of those supporting the idea, but now he is joining the other side, saying it would be a “big mistake” to ignore the fact that the global economy is growing only moderately.

Dudley also told the Italian paper (Corriere della Sera), “we need to see a bigger improvement in the U.S. labor market.”

It’s exasperating, these mixed messages.

Gavyn Davies / Financial Times

“This week has seen speculation about a mutiny from two members of the Federal Reserve’s board of governors against the leadership of Janet Yellen and Stanley Fischer, both of whom continue to say that they ‘expect’ U.S. rates to rise before the end of the year.  Although ‘mutiny’ is a strong term to describe differences of opinion in the contemplative corridors of the Fed, there is little doubt that the institution is now seriously split on the direction of monetary policy....

“This week’s ‘rebellion’ within the board was led by Lael Brainard, a rookie governor who was previously an undersecretary at the U.S. Treasury, working on international economics.  During the euro crisis, her frequent trips across the Atlantic won her respect, and marked her out as a clear thinking Keynesian who wanted emergency action from the European Central Bank long before Mario Draghi came to that view.

“It is therefore no surprise to see her emerging as the ‘uber dove’ on the board of governors....

“On the other side of the debate, however, the vice-chair of the board of governors, Mr. Fischer, has consistently staked out a position in favor of early ‘normalization’ of interest rates, now that the labor market seems to have returned almost to normal....

“So what will happen in December? The outcome looks increasingly uncertain.  Ms. Yellen herself still seems to believe that a rate rise is her central case but, this time, the ultimate decision really will be ‘data determined.’  The growth rate in U.S. economic activity has now dropped to only about 1-1.5 percent. That means that the onus of proof has now completely changed: there needs to be an improvement in the data to keep a rate rise on the table.”

Meanwhile, on Capitol Hill, as described further below, we should have a new House speaker by end of this coming week, Paul Ryan, but looming in the immediate future is a potential crisis on  the debt ceiling, with the Treasury Department saying it runs out of borrowing authority Nov. 3.

This week the House voted to approve a bill that would authorize Treasury to exceed the debt limit only to pay principal and interest on government bonds as well as to make Social Security payments, but nothing more, which all the Democrats voting, along with nine Republicans, opposed.

As does President Obama, with the White House saying in a memo to Congress, “Such an approach would be the equivalent of a family saying that it will choose to pay its mortgage but not its car payment, credit card or student loans, and expecting that its creditworthiness will not suffer.”

Senate Republicans prefer spending concessions on a debt-limit bill, though Majority Leader Mitch McConnell has vowed to avoid a government default.

Speaker John Boehner has threatened to advance a debt-limit bill with no conditions attached that would require Democratic support, but then he’d still need 30 Republican votes to pass it, Boehner not wanting to dump a crisis in Paul Ryan’s lap.

Lastly, two notes on the economy.  September housing starts came in better than expected, owing to an 18.3% surge in multifamily units, including apartments and condos, though single-family homes were up just 0.3% on the month; while existing home sales were up 4.7% in September to 5.55 million annualized, up 8.8% vs. year ago levels.

Europe and Asia

Greece is to receive the next 3 billion euro installment of its aid program, as announced by the European Economics Commissioner Pierre Moscovici, who told French radio on Thursday, “Greece has done a certain number of reforms, and we are going to give them money. And in the course of November, December, we will deal with the issue of the recapitalization of Greek banks and Greek debt.”

“The Greek situation is on track as long as everyone plays their part,” Moscovici added.

Some statistics on the eurozone government debt front, as reported by Eurostat.

For the EA19 the government deficit as a percentage of GDP fell from 3.0% in 2013 to 2.6% in 2014, while government debt to GDP increased from 91.1% to 92.2%.

However, Eurostat separately reported general government gross debt to GDP of 92.2% at the end of Q2 2015 as well.

The highest ratios of government debt to GDP at the end of the second quarter were recorded in Greece (167.8%), Italy (136.0%) and Portugal (128.7%).

Germany is at 72.5%, France 97.7%, Spain 97.8% and non-euro U.K. 89.0%.

Aside from Greece, the one that should stand out is Italy.  I know I’ve been saying this for years, and been largely wrong, but high-debt nations like Italy need real growth, not the 1% variety.  Yes, the ECB’s quantitative easing program has helped reduce yields to absurdly low levels; in the case of the Italian 10-year to 1.50% this week.

But QE isn’t working!  As in the U.S., it helped stabilize markets, and that’s a good thing, but nothing lasting is happening without true structural reform.  And that’s a memo....

Markit released its flash reading on the eurozone manufacturing and service sectors for October and the composite reading came in at 54.0 vs. 53.6 in September.  Manufacturing was at 52.0, same as September, while the services index is 54.2 vs. 53.7 last month.

The flash readings also look at Germany and France, individually, and Germany’s manufacturing PMI was 51.6, down from September’s 52.3, a 5-month low, while the reading in France was 52.4, up from 52.0 in September and a 19-month high.

Chris Williamson, Chief Economist at Markit said:

“The PMI brings welcome news that the eurozone economy picked up some momentum in October.  With new business growing at the fastest rate for six months, firms were encouraged to boost staffing levels again.

“However, the PMI remains at a level signaling a modest 0.4% quarterly rise in GDP, suggesting the region will struggle to attain more than 1.5% overall growth in 2015.”

Spain’s unemployment rate fell to 21.2% in the third quarter, down from 22.4% the previous one, according to the National Statistics Institute, but this is still outrageously high.  Spain holds a general election on Dec. 20 and Prime Minister Mariano Rajoy is trying to make job creation the centerpiece of his campaign.

Separately, Portugal’s president appointed conservative Prime Minister Pedro Passos Coelho to a second term despite his party’s lack of a majority and it remained uncertain whether his center-right government could survive its first test in November with a leftist-dominated parliament: gaining approval for a budget plan that must be submitted by early November.

The leftists have vowed to vote down Coelho’s program, saying his austerity agenda is misguided.

On the migration front, German Chancellor Angela Merkel renewed her call for a fair distribution of refugees across the European Union, citing the images of conflict as a flood of migrants wreaks havoc in the Balkan states of southeastern Europe.

“These pictures remind us of times when it wasn’t so peaceful in Europe – and they must be turned into pictures rather of Europe taking on its responsibility,” she told a meeting of IG Metall union members on Thursday. “And that means a fair distribution of the burden.”

Merkel said the wave of refugees is not one mass group, “but rather individual people” on whom Europe can’t turn its back.

But Merkel is meeting increased opposition in both Germany and elsewhere as other nations blame her for laying out the welcome mat, a message that spread quickly in the Middle East.

She also caught heat for her trip to Istanbul this week to seek an accord with the Turkish government on controlling the flow of refugees.  Her opponents don’t like that she seems to be bending over backwards to gain Turkey’s support and in return she is offering travel to the EU for Turks without visas while re-energizing Turkey’s bid to join the bloc, if Ankara can better police its borders and convince its two million refugees to stay put.

In the German city of Cologne, a leading mayoral candidate and ally of Merkel was stabbed in the neck by a man who was said to have “anti-foreigner motives.”  Henriette Reker, recovering from her injuries, then won Sunday’s election.

This week Slovenia announced it would allow only 2,500 migrants to cross its borders daily – half the number neighbor Croatia has asked for.  Most migrants are crossing Croatia and Slovenia to reach western Europe and now, with Hungary’s moves to close its borders with Serbia, Croatia and Slovenia at various times, there is a build-up of refugees on Croatia’s border with Serbia, as well as Slovenia.

Separately, there is growing anger in Sweden, with the far-right Sweden Democrats hammering away at authorities deemed too permissive in allowing a wave of migrants there.  Two Swedish schools that were being converted into shelters for asylum seekers burned down in what police said were suspected arson attacks.

Sweden is expected to bring in more than 150,000 asylum seekers this year to a country with a population of less than 10 million.  The total is nearly double that of last year.  10,000 a week are now streaming in, with the director of operations for the Migration Board telling the Washington Post, “When we were at 3,500 arrivals a week, our plans were stretching thin.  We’re well beyond planning now.”

In Switzerland, the ultraconservative Swiss People’s Party won a clear victory in elections after campaigning against “asylum chaos.”

And in France, French National Front leader Marine Le Pen appeared in court in Lyon, to answer charges of inciting racial hatred at a rally in the city in 2010, as her anti-immigration and anti-EU message continues to attract increasing support.  Key local elections are being held in December.

Turning to Asia, aside from the rate cut by China’s central bank, owing to the rapidly slowing economy, the government reported third-quarter GDP rose at a 6.9% clip, the worst pace since Q1 2009 and compared with 7.3% for all of 2014.  The government has a target of 7%, though Premier Li Keqiang, who is supposed to be in charge of the economy, has said 6.5% would be acceptable.

But no one believes the government’s number and it was in 2010 that Li himself, when he was a governor, admitted that some numbers were manipulated.  Most economists believe GDP is actually 1 or 2 points lower than the official figure.  Exports and imports, after all, have been declining, and industrial production has been weaker than expected.

Speaking of which, factory output for September rose 5.7% year-over-year, and fixed asset investment was up 10.3% for the first nine months of 2015, the slowest pace since 2000. 

September retail sales, though, rose 10.9% and that is pretty solid.

But when looking at the Big Picture, one of the more reliable data points is electricity output, which was down 1.3% yoy last month.

One more...China’s home prices rose in September in more than half of the 70 major cities monitored by the government for the first time in 17 months; up in 39, compared with 35 in August.

In Japan, a flash reading on manufacturing for October by Markit came in at 52.5 vs. 51.0 in September, the highest in over 1 ½ years.

Street Bytes

--Stocks rose a fourth straight week; for the S&P 500 and Dow Jones the longest winning streak since December.  The Dow was up 2.5% to 17646 and is now down only 1.0% for the year, while the S&P in rising 2.1% is up 0.8% for 2015.  Nasdaq rose 3.0% to increase its year-to-date gain to 6.25%.

The S&P is up 11% since its August low and with an 8.1% gain for October is looking at its best monthly return since 2011.

[Overseas, Germany’s DAX rose about 7% this week.]

But while there were some high-profile companies that beat earnings expectations, revenues remain a problem and the likes of Caterpillar and 3M continued to disappoint on this front, yet their share prices rose along with the others in the renewed easy money euphoria at week’s end.

I also can’t help but note that the trailing P/E on the S&P 500 is now 21.8, which is hardly cheap, sports fans.  [I hate ‘forward’ P/Es...it’s easy for analysts, and the press, to get lazy and fail to tell their readers or listeners just what it is and what it’s based on.]

--U.S. Treasury Yields

6-mo. 0.12%  2-yr. 0.64%  10-yr. 2.09%  30-yr. 2.90%

--Shares in Alphabet, the new holding company for Google, soared as the company announced the group’s first stock buyback; a signal Google is bowing to more of the financial disciplines of other mature companies.  Google also reported revenues and earnings that comfortably beat the Street’s expectations for the third quarter.

Total revenue climbed 13% to $18.7 billion, while the company earned $7.35 per share, with net income just under $4bn.

However, the average price for its adverts fell 16% as lower-priced mobile and video advertising diluted the more profitable desktop business.

--Shares in Amazon also soared as the company reported revenue rose 23% in the third quarter, up to $25 billion, with the strongest growth coming from Amazon Web Services, up 78% from the prior year.  The cloud computing service provider has generated revenues of $5.5bn during the first nine months of the year.

But, perhaps most importantly, Amazon actually reported a profit of $79m, or 17 cents a share.

International retail sales, however, were up only 7% from a year ago, due to the strong dollar.

Amazon’s CFO, Brian Olsavsky, said of the fourth quarter, “We are looking forward to a great holiday season.”  Earlier, rival Walmart cut its sales forecast.

Amazon also announced it is aiming to hire 25% more seasonal workers for its U.S. warehouses during the holidays, outpacing its rivals.  The company plans to hire 100,000, up from 80,000 last year. Amazon now has more than 50 U.S. warehouses and 20 package sorting centers.

--And Microsoft shares hit a 15-year high as it beat on revenues and earnings for Q3 and posted its first ever profit in search.  At $53.00, up $5 on Friday, the stock is at its highest level since 2000.

Revenues, though, were down 2% after adjusting for currency fluctuations, but just ahead of the Street’s forecasts, while earnings handily beat.  Net income was up 2% to $4.6bn.

Interestingly, Bing, its search unit, reached profitability for the first time on revenues that grew 29% to more than $1bn.

--IBM’s stock dropped to a five-year low after the company cuts its profit forecast.  The company posted a 14% decline in third-quarter revenue to $19.3 billion, short of the Street’s expectations and the 14th straight quarter of shrinking sales.

IBM said its strategic imperatives – cloud, analytics, engagement – have grown 20% year-to-date and the company has made a bet that the Watson data-analytics unit will help to drive growth, though the division, which sells what IBM has called cognitive computing tools, has yet to reach $1 billion in revenue.  [My friend Jimbo and I were musing this week about Watson...overhyped, essentially worthless.  Look, Bob Dylan walked away in disgust!]

Within the services division – IBM’s biggest – revenue fell 10%.  Revenue in the hardware division plunged 39%.  Overall revenues in China fell 17%, including foreign-exchange headwinds.

--Yahoo Inc. missed on earnings and revenue, though CEO Marissa Mayer said the company had signed a search advertising deal with Google, while its emerging businesses in mobile, video, native and social advertising saw revenue rise 43 percent to $422 million in the quarter.

But Yahoo warned investors of a revenue hit in the advertising-heavy holiday period as Mayer’s turnaround plan appears to have stalled, though she tried to convince investors otherwise.

“We see a unique moment and opportunity for Yahoo, as we move into 2016, to narrow our focus on fewer products with higher quality.  We need to work to improve our relevance to end users and how many times they come to us,” she said.

Someone tell Marissa a good start would be to stick Week in Review on Yahoo’s home page every Saturday morning.

--Shares in Facebook crossed the $100 mark for the first time on Friday.

--Shares in McDonald’s soared as the fast-food chain showed its first signs of a recovery in the U.S. market, with third-quarter sales rising here for the first time in two years, up 0.9%, helped by sales of new items on the menu, including the premium buttermilk crispy chicken deluxe sandwich.

Overall sales were hit by the strong dollar, however, down 5 percent.  But excluding the negative impact of foreign exchange, sales would have risen 7 percent.

New CEO Steve Easterbrook has instituted a turnaround plan, including the introduction of all-day breakfast, which will be reflected for the first time in the fourth quarter’s results.

I just may visit my local McDonald’s for the first time it what would be about two years.  Though I like Burger King’s two-for $5 sandwich offer., plus their workers (at least at the Madison, NJ location) have a great attitude, which is why I left McDonald’s.  Theirs (Berkeley Heights, NJ) was piss-poor last time I was there.

--Speaking of good attitudes, Richard H. and I agree that Enterprise Rent-A-Car does a great job in hiring good kids.  I finally got my car back after almost four weeks getting it repaired.  GEICO, on the other hand, the insurance company for the woman who hit me, sucks!

--Shares of Chipotle Mexican Grill tumbled nearly 6% Wednesday after the casual restaurant chain reported earnings that fell short of expectations, though the numbers are still very strong.  It’s just the shares were priced for perfection.

The company has opened 150 new restaurants so far this year and now has about 1,900 locations.

--Morgan Stanley announced third-quarter profits fell by nearly half and the bank’s shares declined 5% on the news.  Revenue from fixed income sales and trading in the quarter fell 40% compared with last year.  Overall revenue dropped to $7.8bn from $8.9bn...not good.

--Shares in Tesla Motors Inc. plunged the most in months after Consumer Reports said the Model S luxury electric car was removed from its recommended list because of below-average reliability.

Owners of the sedan, introduced in 2012, reported “an array of detailed and complicated maladies,” Consumer Reports said in a statement.  Among the issues are problems with the sun roof and the electric motor.

Back in August, the magazine lauded the car’s combination of performance, luxury and efficiency.

I’m beginning to think Tesla and IBM’s Watson belong together, both overhyped.  At least in Tesla’s case from a valuation standpoint. 

--Intel Corp. announced it will invest $5.5 billion in its plant in Dalian, China, to convert the factory to production of memory chips.

--Under Armour Inc. posted higher profits and a 28% jump in quarterly revenue as the sportswear company takes aim at Nike in the footwear market.

CEO Kevin Plank said his company will produce about 30 million pairs of shoes this year, but that the competition will make half a billion shoes over the same period.  “This demonstrates the miles of runway in front of us for growth in this one category alone,” he said.

Under Armour’s total revenue exceeded $1 billion for a first time, with footwear sales of $196 million and apparel sales of $865.5 million.  But gross margins fell slightly and the company’s shares declined as a result.

--3M Co., the maker of Scotch tape and Post-it notes, reported a 5 percent decline in third-quarter net sales and said it would cut about 1,500 jobs next year, citing a global economic slowdown.  But the shares rose.

--Western Digital Corp., the biggest maker of computer disk drives, on Wednesday disclosed a $29 billion deal for memory-chip maker SanDisk Corp., a key supplier of memory devices for smartphones that is charging into Western Digital’s traditional business supplying computer makers.  The deal makes Western Digital the broadest supplier of data-storage components.

--Boeing Co. raised its 2015 profit and revenue guidance, as the world’s largest aerospace company said it had a backlog of 5,700 jetliner orders.  Boeing reported a profit of $1.7 billion for the quarter, up 25% vs. a year ago, while revenue increased 8.7% to $25.8 billion.

--Coca-Cola Co. warned foreign-exchange headwinds will likely worsen next year as the strengthening dollar does a number on U.S. multinationals.  Net profit fell 31% to $1.45 billion, with foreign currencies having a negative impact of 12 percentage points.

Net revenue fell 4.6% to $11.43 billion, also weighed down by foreign exchange, though volume rose 3%.  Soda volumes rose 2%, while sales of packaged water were up 11% and sports drinks 5%.

--Yum Brands Inc. is cutting its China unit loose and by the end of next year, Yum China will become a separate, publicly traded franchisee of Yum Brands. While details weren’t released, the move is intended to insulate the company from the turbulence its China operations have been experiencing, including as a result of food-safety scares and stronger competition.  Yum China will pay its former parent a percentage of sales for the rights to brand KFC, Pizza Hut and Taco Bell, though this last one isn’t in China yet.

Yum operates 6,900 restaurants in China, including 4,900 KFCs, but last year, Yum’s China revenue was flat at $6.9 billion.

--Biogen is reducing its workforce by 11 percent as the pharmaceutical company is facing a slowdown in its best-selling multiple sclerosis treatment, Tecfidera.

--Another pharmaceutical company, Valeant, had one volatile week, with the shares falling 28 percent on Wednesday alone ($177 to $116 over the course of the week) after a scathing research note from a short seller questioning the company’s complex relationship with Philidor, a so-called specialty pharmacy that distributes its drugs.

--Procter & Gamble reported sales fell 12 percent in its fiscal first quarter, owing to the impact of the strong dollar, but the stock rallied as investors liked that P&G had improved margins thanks to its $10bn cost-cutting program. 

Taking out the impact of foreign exchange, “organic sales” declined 1 percent.

P&G, the world’s largest consumer goods company, is going through huge upheaval as it cuts costs and narrows its focus on 65 of its most profitable brands, while selling off about 100 others.

The company continues to struggle in emerging markets, with sales down 8% in China and 12% in Brazil.

--Denmark’s A.P. Moeller-Maersk A/S cut its full-year profit guidance saying global market conditions were weaker than expected.  The company now expects underlying earnings to come in at $3.4 billion this year, compared with its previous guidance of $4 billion.

Maersk’s shipping unit, the world’s biggest container-shipping operator, carried fewer containers than expected in the quarter, with lower average freight rates than a year ago.  I noted recently how the number of empty containers at west coast ports has been soaring.

--Ferrari priced its IPO at $52 on Tuesday, at the top of its marketed range, and the shares closed the first day at $55, after trading at $60 on the New York Stock Exchange.  [They finished the week at $56.40.]  The luxury carmaker and Formula One racing team carries the ticker symbol RACE and the IPO met with huge demand from both retail and institutional investors.

Ferrari was spun out of Fiat Chrysler in Chairman Sergio Marchionne’s latest step at reducing the parent’s debt burden while funding a $50bn investment program.

Ferrari has nine models including the 458 Italia and 488 Spider and shipped 7,255 cars last year with sales in excess of $3 billion.  The company is targeting annual production of 10,000 vehicles.

--Shares in Weight Watchers soared after Oprah Winfrey announced she has taken a 10 percent stake in the company.  The stock rose more than 100 percent on the hope Winfrey can help revive earnings from a 15-year low.

Weight Watchers has struggled with a fundamental shift in the business of weight loss and the perception diets lack nourishment.

CEO Jim Chambers said, “We are expanding our purpose from focusing on weight loss alone to more broadly helping people lead a healthier, happier life.”

--United Airlines named an acting CEO on Monday while Oscar Munoz recovers from a heart attack he suffered about 8 days ago.  Brett Hart, who is currently the airline’s executive vice president and general counsel, takes over.

Munoz had just been appointed Sept. 8, after the ouster of Jeff Smisek, which followed a corporate investigation.

--ESPN plans to lay off about 350 employees as it responds to shifting ways sports are consumed.  President John Skipper said, “The demand for sports remains undiminished, though the landscape we operate in has never been more complex.  No matter how many times we’ve adjusted course to lead the industry over the years, the decisions affecting our employees are never made lightly.”

ESPN has about 8,000 employees and previously laid off 300-400 two years ago.

--Preet Bharara, the United States attorney in Manhattan, was forced to dismiss the insider trading charges and convictions of seven people, including the 2013 conviction of Michael S. Steinberg – the highest-ranking employee at SAC Capital Advisors to stand trial for insider trading.

This comes after the U.S. Supreme Court declined to review a ruling by the U.S. Court of Appeals for the Second Circuit that tossed out two other insider trading convictions and made it harder for authorities to prosecute many such cases.

This is a huge blow to Bharara (and any ambitions he might have for higher office).  His insider trading record was perfect until last year, but now his conviction rate stands at roughly 85 percent.

--Denmark-based toy company Lego is warning demand has been significantly higher than their expectations and this has put a strain on the Lego Group’s manufacturing facilities globally.

Sales in the first half of 2015 increased by 18%, as Lego, based on this metric, has become the world’s largest toy company.

So will there be shortages this holiday season?  Better buy little Jimmy’s Christmas Legos now.

Me?  I always liked Sally Brown’s advice...$10s and $20s.

Foreign Affairs

Iran/Syria/ISIS/Russia/Iraq:

Syrian President Bashar al-Assad ventured outside his beleaguered nation for the first time since the civil war began in 2011, making a surprise visit to the Kremlin to meet Russian President Vladimir Putin.  It was a powerful signal of Russia’s growing support for the Assad government.

Russian warplanes have struck Syrian rebel targets throughout the country, allowing Assad’s forces to go on the offensive, while granting the regime a lifeline.

Anti-government rebels and activists maintain, however, that while Russia insists it is targeting ISIS, few of the airstrikes are hitting the jihadists.

Putin said at least 4,000 Islamist militants from the former Soviet Union are now fighting in Syria, and warned that they cannot be allowed to foment instability in Russia.  He also reiterated the need for a political settlement to end the war, while the West has demanded that Assad step down as part of any political transition.

Assad said, “I would like to express enormous gratitude to the whole leadership of the Russian Federation and to the Russian people for the help they are giving Syria.

“Thank you for standing up for the unity of Syria, and its independence,” he said, according to a transcript.

The White House strongly condemned the visit, saying Russia had put on a “red carpet welcome.”  But Secretary of State John Kerry is to meet with his Russian counterpart, Sergei Lavrov, in Vienna this weekend.

Meanwhile, Iranian Supreme Leader Ayatollah Ali Khamenei endorsed on Wednesday the Joint Comprehensive Plan of Action, paving the way for  Tehran’s implementation of the nuclear deal reached with the P5+1 last July.  Iran must now complete some specific tasks, including neutering its plutonium reactor and reducing its nuclear enrichment capacity and stockpile, while increasing transparency and access to its declared facilities.

Once these steps are completed, which is expected to take up to six months, Iran will begin to receive sanctions relief.

But in a letter to President Hassan Rohani on Wednesday, Khamenei said in part:

“Since the purpose of Iran’s consent to the nuclear negotiations was the lifting of ‘cruel economic and financial sanctions,’ and given the fact that the termination of the sanctions has been subjected to completion of Iran’s commitments, there needs to be ‘firm and sufficient guarantees’ to avert the other side’s breach, the Leader asserted.

“The U.S. president and the European Union must declare that the anti-Iran sanctions have been ‘fully lifted,’ the Leader noted.”  [Tehran Times]

Separately, according to the Syrian American Medical Society, which operates dozens of facilities throughout opposition-controlled parts of Syria, Russian airstrikes struck nine hospitals in Syria this month, killing and injuring tens of staff and civilians, as reported by the Wall Street Journal.

Charles Krauthammer / Washington Post

“Guess who just popped in the Kremlin?  Bashar al-Assad, Syrian dictator and destroyer, now Vladimir Putin’s newest pet.  After four years holed up in Damascus, Assad was summoned to Russia to bend a knee to Putin, show the world that today Middle East questions get settled not in Washington but in Moscow, and officially bless the Russian-led four-nation takeover of Syria now underway.

“Does the bewildered Obama administration finally understand what Russia is up to?

“President Obama says Russia is doomed to fail in the Syrian quagmire.  But Russia is not trying to reconquer the country for Assad.  It is consolidating a rump Syrian state in the roughly 20 percent of the country he now controls, the Alawite areas stretching north and west from Damascus through Latakia and encompassing the Russian naval base at Tartus.

“It’s a partition.  It will leave the Islamic State in control in the interior north and east.  Why is this doomed to failure?

“Putin’s larger strategy is also obvious.  He is not reconstructing the old Soviet empire.  That’s too large a task.  But he is rebuilding and reassuring Russia’s ability to project power beyond its borders.  Annexing Crimea restores to the motherland full control of the warm-water Black Sea port that Russia has coveted since Peter the Great.  Shoring up a rump Alawite state secures Russia’s naval and air bases in the eastern Mediterranean. Add to that Russia’s launching of advanced cruise missiles from warships in the Caspian Sea to strike Syrian rebels 900 miles away and you have the most impressive display of Russian military reach since the Cold War.

“For Obama, of course, these things don’t matter.  ‘In today’s world,’ he told the U.N. last month, ‘the measure of strength is no longer defined by the control of territory.’  That he clearly believes this fantasy was demonstrated by his total abandonment of Iraq, forfeiting U.S. bases from which we could have projected power in the region (most notably preventing, through control of Iraqi airspace, the Iranian rearming and reinforcement of Assad’s weakening regime)....

“What has happened since the signing of the deal in July?  Iran convicts an American journalist, contemptuously refusing to offer even the most minimal humanitarian gesture. Iran brazenly tests a nuclear-capable ballistic missile that our own U.N. ambassador said violates Security Council resolutions.  And now Iran’s most notorious Revolutionary Guard commander [Maj. Gen. Qasem Soleimani] takes control of a pan-Shiite army trying to decimate our remaining allies in the Syrian civil war.

“Obama’s response to all this? Nothing.  He has washed his hands of the region, still the center of world oil production and trade, and still the world’s most volatile region, seething with virulent jihadism ready for export.  When you call something a quagmire you have told the world that you’re out and staying out.  Russia and Iran will have their way.”

Benny Avni / New York Post

“The clock’s officially, if quietly, ticking toward implementation of the nuclear deal that world powers signed with Iran.  You may not have heard it over the louder sound of Tehran testing a precision guided, nuke-capable ballistic missile.

“On Sunday, President Obama cautiously celebrated the new stage in his crowning foreign-policy achievement.  Then on Wednesday, the Iranian top mullah, Ali Khamenei, gave his qualified support for the nuclear deal.  He also used the occasion to call Obama a liar.

“Dealing with Iran is tough.

“The next stage is ‘implementation day’: That’s when a global watchdog, the International Atomic Energy Agency, certifies that Iran has implemented its end of the deal.

“As the joint plan of action envisions the process, only once that ‘implementation’ is certified will America and other powers begin removing the various sanctions and restrictions that had been imposed on Iran. Until then, existing rules remain – rules like the Security Council resolutions that have banned any Iranian testing, stashing or developing ballistic missiles.

“Oops. As U.N. Ambassador Samantha Power said last week, ‘We can confirm that Iran launched on Oct. 10 a medium-range ballistic missile inherently capable of delivering a nuclear weapon.’  On Wednesday, Power, along with French, Brit and German colleagues, formally called on the council to take the ‘appropriate action’ to address the violation – but little, if any, is expected....

“Yes, most analysts claim Iran will refrain from violating the nuclear deal.  But ‘violation’ can be interpreted differently by different people, so Iran will continue to push the envelope as far as it can, testing our reaction.”

Editorial / Washington Post

“As they concluded the nuclear deal with Iran in July, President Obama and Secretary of State John F. Kerry repeatedly suggested that it could open the way to cooperation with Tehran in resolving regional conflicts, beginning with the civil war in Syria. They also promised the United States would push back if Iran instead stepped up its aggression.  Just three months later, Iran’s most notorious general is overseeing a new offensive by thousands of Iranian, Iraqi and Lebanese fighters aimed at recapturing the Syrian city of Aleppo from rebel forces, including some backed by the United States.  Mr. Obama shows no sign of responding.

“The Iranian-led offensive, which is supported by Russian air power, appears to be the most aggressive intervention yet by Iran in the Syrian war.  The Post reported that hundreds of troops from the elite Quds Force had been joined by thousands of Iraqi Shiite militiamen and forces from Lebanon’s Hizbullah, all under the command of Maj. Gen. Qasem Soleimani, who previously directed attacks on U.S. forces in Iraq.  Far from accepting appeals from Mr. Obama and Mr. Kerry to help broker a diplomatic settlement, Iran has joined with Russia to entrench the regime of Syrian President Bashar al-Assad and help it to recapture Aleppo and other parts of the country.

“The attack is one of several provocative steps Tehran has taken as the nuclear deal has begun to come into effect.  The same day the accord was debated by its parliament this month, the regime test-fired a nuclear-capable missile, violating a U.N. Security Council resolution.  The White House acknowledged the infraction but pointed out that it was outside the bounds of the nuclear agreement....

“(The) Syrian offensive is certainly more than message-sending.  If successful, it could eliminate the chance to construct a moderate, secular alternative to the Assad regime, and send hundreds of thousands more refugees across Syria’s borders.  It was just such aggression that Mr. Obama acknowledged might be a byproduct of the nuclear deal – and that he vowed to resist.  If he remains passive as Maj. Gen. Soleimani’s forces press forward, both Iranian and U.S. allies across the Middle East will conclude that there will be no U.S. check on an Iranian push for regional hegemony.”

Ah yes...Aug. 18, 2011.  Then-Secretary of State Hilary Clinton said, “The transition to democracy in Syria has begun and it’s time for Assad to get out of the way.”  President Obama said: “For the sake of the Syrian people, the time has come for President Assad to step aside.”

Bruce Jones of the Brookings Institution said of the call for Assad’s ouster, it “was a classic case of talking loudly and carrying a small stick.”  He calls it “a fundamental mistake of policy. If you call for Assad to go, you dramatically drive up the obstacles to a political settlement.  If you’re not insisting on him leaving there are more options.  If you say Assad must go as the outcome of a settlement he has the existential need to stop that settlement.”  [Steven Mufson / Washington Post]

Separately, U.S.-Iraqi forces rescued dozens of hostages held by Islamic State in Iraq after learning of their “imminent execution,” the Pentagon announced.

But a U.S. soldier wounded in the raid died of his injuries, the first killed in action since U.S. operations against IS began last year, and first since the U.S. largely left Iraq in 2011.

20 members of the Iraqi security forces were among the 70 rescued, but none of them were Kurds, contrary to initial reports.

The U.S. military was involved at the invitation of the Kurdistan regional government, but of course this contradicts previous commitments from President Obama that there would be no “boots on the ground.”  The Pentagon stressed the rescue was a “unique circumstance” and not a change in tactics.

On Friday, Defense Secretary Ash Carter said the raids the U.S. is participating in are not the same as the U.S. military “assuming a combat role.”

But then before he left the podium during a briefing, he offered the following for why he couldn’t reveal more details on the death of Master Sgt. Joshua Wheeler, the American Delta Force member who died.

“This is combat. Things are complicated.”  [Gayle Tzemach Lemmon / Defense One]

Meanwhile, there are still no tangible signs the United States is doing what is necessary to supply the Arab groups fighting ISIS and their efforts to confront Islamic State in their self-proclaimed capital of Raqqa.

Israel: The Palestinian attacks that have left Israelis on edge appeared to lighten some by week’s end as Israeli security forces tightened access to Arab areas of East Jerusalem.

But on Thursday, an Israeli soldier shot and killed a Jewish man he suspected was a Palestinian terrorist in Jerusalem.  Soldiers demanded the man show them his ID and when he refused, he scuffled with the soldiers and attempted to seize one of their weapons.  Last Sunday, an Eritrean migrant was killed when he was mistaken for an attacker, an Arab citizen of Israel who had opened fire at a bus station in southern Israel.

Ten Israelis have been killed over the last month, mainly in stabbing attacks.  About 50 Palestinians have been killed, 27 of them identified by Israel as attackers, the others killed in clashes with Israeli forces.

“This is not the Wild West,” Israeli opposition legislator Tzipi Livni told Israeli Army Radio.  “The suspicion there is now, the fear and the hate lead to brutal and very difficult results.”

Israelis have been buying pepper spray for self-defense and some government officials have called on civilians to arm themselves.

U.N. Secretary-General Ban Ki-moon met with Israeli and Palestinian leaders during a visit to the region this week and then offered the Security Council a grim assessment of prospects for defusing the violence.

But in a speech in Jerusalem Tuesday evening, out of nowhere Prime Minister Benjamin Netanyahu asserted that a Palestinian religious leader gave Adolf Hitler the idea to annihilate the Jews.  The prime minister was trying to explain the surge in violence in Israel and the West Bank by reaching for historical precedents, and said that Jews living in British Palestine back in the 1920s faced many attacks – all instigated by the grand mufti of Jerusalem, Haj Min al-Husseini, who allied himself with the Nazis during World War II.

Then Netanyahu said: “Hitler didn’t want to exterminate the Jews at the time; he wanted to expel the Jews. And Haj Amin al-Husseini went to Hitler and said, ‘If you expel them, they’ll all come here.’ ‘So what should I do with them?’ he asked.  He said, ‘Burn them.’”

Netanyahu said the mufti played “a central role in fomenting the Final Solution.”

Critics immediately pounced and said Netanyahu’s claims were outrageous enough to give cover to Holocaust deniers.

The next day, the prime minister was on a state visit to Germany, and the Germans told the Israeli leader that the Holocaust was their responsibility alone.

As William Booth of the Washington Post wrote: “(Netanyahu’s) remarks were intended to underline his contention that the root cause of Palestinian violence is not Israel’s 48-year-old military occupation of the West Bank, the building of Jewish settlements on lands that the Palestinians hope to make part of their future state, or the partial trade and travel blockade of the Gaza Strip, but old and intractable hatred of Jews.”

I am on record as saying Netanyahu, in terms of pure brain power, is the smartest leader in the world.

But, like many Israeli leaders, he is also hopelessly corrupt (as is his wife...yeesh, she’s a piece of work).  That said, I’ve felt he’s the right leader for the times.

And then he does this...his Kevin McCarthy moment.  I don’t understand it. 

China: Fan Changlong, one of the vice chairmen of the Central Military Commission which controls the Chinese armed forces and is headed by President Xi Jinping, told a high-level security forum that China had sought to avoid conflict.

“We will never recklessly resort to the use of force, even on issues of sovereignty, and have done our utmost to avoid unexpected conflicts,” Fan told his audience, mostly Southeast Asian defense ministers.

Fan said China’s islands “will not affect freedom of navigation in the South China Sea.”

The United States still plans on conducting freedom-of-navigation operations inside the 12-nautical-mile limits that China claims around islands built on reefs in the Spratly islands.  [South China Morning Post]

Meanwhile, a cybersecurity firm, Crowdstrike, which detects intrusions on computers, said Chinese hackers appeared to be pressing on with attempts at breaking into American corporations, despite a recent agreement between the two countries to stop the theft of intellectual property; focusing on the tech and pharmaceutical sectors.

On a different issue, government advisers are urging an end to China’s one-child policy, warning of a demographic crisis ahead. China’s top think tanks have urged Beijing to immediately relax restrictions on the number of children couples are allowed to have, as told to the South China Morning Post.  Some experts say it is already too late.

A 2013 relaxation of the policy, which allowed for a second child under certain conditions, has had limited impact so further measures are necessary to counter a low birth rate, greying population and dwindling workforce.

The authorities expected 20 million new births in 2014, but only 16.9 million babies were born.

The mainland’s birth rate is 1.18 children for every couple, compared with a global average of 2.5 and the 1.7 average in developed countries.  The replacement level is 2.1, but China has been well below this for 20 straight years, according to demographer Wang Feng.

Finally, the Communist Party has listed golf and gluttony as violations for the first time as it tightens its rules to prevent officials from engaging in “corrupt practices.” Which means one thing. Some very expensive golf courses are about to go bust.

Canada: The centrist Liberal Party decisively won the general election, ending nearly a decade of Conservative rule.  Canada’s new leader is Justin Trudeau, the 43-year-old son of the late Prime Minister Pierre Trudeau.  Conservative PM Stephen Harper announced he would step down as party leader.

While I noted last time the Liberals could pull out the win, no one foresaw the scale of the victory, as the party won 184 of  338 seats, a massive increase from the 36 it picked up after suffering their worst-ever loss in 2011.  So they actually have a majority.

The popular vote, however, was closer.

Liberal Party 39.5%
Conservative Party 31.9%
New Democratic Party 19.7%
Others 8.9%

Addressing supporters, Trudeau said Canadians had “sent a clear message tonight: It’s time for a change.”

“We beat fear with hope, we beat cynicism with hard work.  Most of all we defeated the idea that Canadians should be satisfied with less.  This is what positive politics can do.”

The Liberal Party has vowed to cut income taxes for middle-class Canadians while increasing them for the wealthy.  Run deficits for three years to pay for infrastructure spending.  Take in more Syrian refugees.  Pull out of bombing raids against Islamic State while bolstering training for Iraqi forces. Address environmental concerns over the Keystone oil pipeline.  And legalize marijuana.  [BBC News]

One nation that will miss Harper is Israel, who it was said wasn’t just a “close ally,” he was the best friend Israel had among the leaders of the world.

“You are a great friend of Israel and the Jewish people,” Netanyahu said to Harper when the Canadian premier came to visit in January 2014.  “I am not just saying that, I mean it deeply from the bottom of my heart, and I am speaking for all of the people of Israel.”  [Herb Keinon / Jerusalem Post]

South America: Argentinians go to the polls this weekend to begin the process of electing a new president (there will be a run-off in November), as the economy here craters, while Brazil is bracing for its worst recession in a quarter century and Venezuela continues to unravel. 

Venezuela’s central bank announced this week the country’s international reserves have sunk to a 12-year low of $15.35bn.  But less than $0.5bn are “liquid reserves,” according to Barclays, the rest being in gold and borrowings from the IMF.  And the state oil company, PDVSA, faces $5.1bn in maturing debt and interest payments over the next two months.

Random Musings

--On Tuesday, Rep. Paul Ryan (Wis.) told fellow Republicans that he would consider taking the job of House Speaker if he could be assured that the caucus, including the 40 or so members of the hard-right Freedom Caucus, would unite behind him.

“I hope it doesn’t sound conditional – but it is,” he said, according to members inside the room.  The meeting ended without specific commitments.

“This is not a job I’ve ever wanted, I’ve ever sought,” he said.  “I came to the conclusion that this is a very dire moment, not just for Congress, not just for the Republican Party, but for our country.”

So on Wednesday night, a strong majority of the Freedom Caucus voted to support Ryan and the way is now cleared for him to be affirmed in that position next Wednesday and Thursday.

--Vice President Joe Biden announced on Wednesday he would not run for president.  Flanked by his wife, Jill, and President Obama in the Rose Garden, Biden conceded that the time he needed to grieve the death of his son Beau forbid an attempt to run against Hillary because it was just too late to mount a viable campaign.

But whether you believe what Biden said is true or not, he gave a pure campaign speech, a very good one, too.

“I intend to speak out clearly and forcefully, to influence as much as I can where we stand as a party and where we need to go as a nation... I believe that President Obama has led this nation from crisis to recovery, and we’re now on the cusp of resurgence.  I’m proud to have played a part in that.  This party, our nation, will be making a tragic mistake if we walk away or attempt to undo the Obama legacy.  The American people have worked too hard, and we have come too far for that.  Democrats should not only defend this record and protect this record.  They should run on the record.”

So that was a slap at Hillary.  Don’t trash the president’s record.

But this passage was great.

“I believe that we have to end the divisive partisan politics that is ripping this country apart. And I think we can.  It’s mean spirited, it’s petty, and it’s gone on for much too long. I don’t believe, like some do, that it’s naïve to talk to Republicans.  I don’t think we should look at Republicans as our enemies.  They are our opposition.”

Of course Hillary has said Republicans are the enemy.

Separately, Biden on Tuesday offered an account of the decision to launch the raid that killed Osama bin Laden that differed from some of his prior retellings – and from Hillary Clinton’s.  At an event honoring former Vice President Walter Mondale, Biden said he had privately advised the president to pursue the raid on bin Laden’s compound after initially advising a more cautious approach at a Cabinet meeting.

“We walked out of the room and walked upstairs,” Biden said.  “I told him my opinion: I thought he should go, but to follow his own instincts.”

Back in January 2012, he told a Democratic retreat, “Mr. President, my suggestion is, ‘Don’t go.’”

Clinton has characterized Biden as having been openly skeptical in the meeting.  But now with Biden out of the race, this politically expedient flip-flop really doesn’t matter.

--John Podhoretz / New York Post

“After nine terrible months during which she made weekly gaffes and single-handedly elevated a gadfly socialist into a rival for the Democratic nomination, Hillary Clinton has had a fortnight any presidential candidate would relish.

“Thursday, after clobbering her rivals in a debate last week and thereby keeping Joe Biden out of the race, Clinton went before the committee investigating the deaths of four Americans in Benghazi in 2012 – and had an unmitigated triumph.

“I’m not talking about whether she was telling the truth, whether she was trimming, whether she was disingenuous.  Nor am I saying she’s out of the woods legally regarding questions about her handling of classified information, destruction of government property or general effort to obstruct justice.

“Those matters are in the hands of the Justice Department...

“It seems unlikely we’d see an indictment of the leading Democratic candidate emerge from a Democratic administration, but it’s not impossible.  And we don’t know whether any of her answers under oath might come into conflict with present and future evidence and place her in greater legal jeopardy.

“But simply as a matter of political theater, over the course of many hours of testimony, Clinton performed brilliantly. She assumed a calm, deliberate demeanor with her opening statement and never surrendered it.

“The more she sounded like a policy wonk, the less she seemed like what the Republicans clearly wanted her to seem like: a cynical political animal who viewed the Benghazi killings in the days that followed them not as an American foreign-policy crisis but as an electoral problem for President Obama to be solved by blaming the incident on a YouTube video....

“The GOP, damaged by Rep. Kevin McCarthy’s jaw-dropping gaffe about how the committee had done its work by making Hillary’s poll numbers fall, didn’t have much running room....

“She looked big.  They looked small.  She spoke like a person engaged with highly serious matters, and they mostly sounded as if they were niggling, fussing and poking ineffectually at her....

“She was also helped by the Democrats on the committee, who were likely asking her questions that Hillary’s team had drafted for them.  When a recess was called, reports Ruby Cramer of BuzzFeed, Clinton went up to Democratic members and said, ‘You’ve got my back and I’m so grateful you do.’

“She was saying, in effect, your job applications for high-ranking positions in the Hillary Clinton administration have been received.

“So much for fact-finding or getting at the truth.”

Editorial / Wall Street Journal

“The House Benghazi hearing Thursday with Hillary Clinton featured plenty of partisan brawling, but don’t believe those who say we learned nothing.  The hearing turned up new information that relates directly to the former Secretary of State’s political character and judgment as a potential Commander in Chief.

“The select committee led by Republican Trey Gowdy of South Carolina released hitherto undisclosed documents showing that Mrs. Clinton believed from the start that the attack was perpetrated by terrorists.

“At 11:12 p.m. on the night of the attack, Sept. 11, 2012, Mrs. Clinton emailed her daughter Chelsea that, ‘Two of our officers were killed in Benghazi by an Al-Qaeda-like group: The Ambassador, whom I handpicked and young communications officer on temporary duty w[with] a wife and two young children.  Very hard day and I fear more of the same tomorrow.’  Her empathy is admirable, but presumably she was telling her daughter what she really believed.

“The committee also released a State Department summary of Mrs. Clinton’s call the next day, Sept. 12, with Egypt’s Prime Minister.  ‘We know that the attack in Libya had nothing to do with the film.  It was a planned attack – not a protest,’ Mrs. Clinton said. The call summary then blocks out a comment by the Egyptian, to which Mrs. Clinton replies, ‘Your [sic] not kidding.  Based on the information we saw today we believe the group that claimed responsibility for this was affiliated with al Qaeda.’

“This matters because it precedes what became the Administration’s original story that the Benghazi attack had been motivated by an anti-Muslim Internet video (‘the film’ as Mrs. Clinton put it to the Egyptian).  The State Department issued a statement under Mrs. Clinton’s name on the night of the attack hinting at the video motivation:

“ ‘Some have sought to justify this vicious behavior as a response to inflammatory material posted on the internet.  The United States deplores any intentional effort to denigrate the religious beliefs of others.  Our commitment to religious tolerance goes back to the very beginning of our nation.  But let me be clear: There is never any justification for violent acts of this kind.’

“If Mrs. Clinton was telling people privately that it was a terror attack, why hint publicly at some other motivation?  Keep in mind that this was in the heat of an election campaign in which one of President Obama’s main themes was that al Qaeda was all but defeated.”

--As for the latest presidential polls....

In an ABC News/Washington Post national survey, Donald Trump receives 32% to Ben Carson’s 22% among Republicans and Republican-leaning independents. Then in third it’s Marco Rubio at just 10%, Jeb Bush 7%, Ted Cruz 6% and Carly Fiorina 5%.

[Back on May 31, Rand Paul and Scott Walker were leading at 11%, with Bush and Rubio at 10%.  Carson was at 8%, Trump 4%.  Walker is of course out of the race.  Paul receives just 2% today.]

Notably, even more, 42%, say they expect Trump to win the GOP nomination for president, with Carson next back at 15%.

In a new CNN/ORC nationwide poll, Trump leads with 27%, followed by Carson at 22%.  Bush and Rubio are tied for third with 8% each, Mike Huckabee and Rand Paul receive 5% apiece.  And Carly Fiorina, Chris Christie and Ted Cruz poll 4%.  John Kasich is at 3%.

Fiorina has lost 11 points in the last month.  She had Big-Mo on her side and somehow frittered it away.  She needs another strong performance in the next debate, CNBC’s, on Oct. 28 (Game 2 of the World Series for us Mets fans).

Among Democrats, Hillary Clinton gets 45%, with Bernie Sanders at 29%.  [Biden, though, was at 18%.]  So, if Biden is not in it, this poll shows Clinton leading 56-33.

In the new NBC News/Wall Street Journal national survey, Trump gets 25% to Carson’s 22%.  Rubio is in third at 13%.  Cruz 9%, Bush 8%, 7% for Fiorina.

In a Bloomberg Politics/Saint Anselm New Hampshire poll released Tuesday of Democratic primary voters, Bernie Sanders polled 41%, Hillary 36% and Biden 10%.  All polls show that without Biden, Hillary picks up the lion’s share of his support.

On the Republican side, Trump had 24%, Carson 17% and Bush was third with 10%.

A Suffolk University/Boston Globe poll of likely Democratic Granite State primary voters has Hillary at 37%, Sanders at 35%, but with Biden in the calculation; the VP receiving 11%.

But in Iowa, a new Quinnipiac University poll has Hillary, sans Biden, leading Bernie 51-40, after he led 41-40 in the previous survey.

On the Republican side, Quinnipiac has Ben Carson on top, leading Trump 28-20, with Rubio and Cruz at 13 and 10 percent, respectively.  In September, Trump led Carson 27-21.

A Des Moines Register/Bloomberg Politics poll of likely GOP caucusgoers in Iowa has Carson leading Trump 28-19, so some consistency in these last two.  Cruz is at 10% in this one, followed by Rubio at 9%.

How will The Donald handle his first real adversity?

--Mr. Trump caught major heat for the following statement on “Fox News Sunday” with host Chris Wallace, when Wallace asked what Trump would have done differently in response to an earlier suggestion that then-President George W. Bush was partially at fault for the attacks.  Trump insisted he is not blaming the former president for them.

“Jeb [Bush] said ‘We were safe with my brother.  We were safe.’  Well, the World Trade Center just went down.  Now, am I trying to blame him?  I’m not blaming anybody, but the World Trade Center came down, so when he said we were safe, we were not safe.  We lost 3,000 people. It was one of the greatest – probably the greatest catastrophe ever in this country,” he said.

Trump added: “I’m not blaming George Bush, but I don’t want Jeb Bush to say ‘My brother kept us safe,’ because Sept. 11 was one of the worst days in the history of this country.”

Well, Jeb Bush wasn’t happy...but I really don’t give a damn about Jeb Bush at this point, who is slashing campaign staff and payroll.  I’m just disgusted.  I also largely agree with the following take.

Peter Beinart / The Atlantic

“Donald Trump utters plenty of ugly untruths: that undocumented Mexican immigrants are ‘rapists,’ that Syrian refugees are committing ‘all sorts of attacks’ in Germany and represent a ‘Trojan Horse’ for ISIS.  But he tells ugly truths too: that ‘when you give [politicians money], they do whatever the hell you want them to do.’  And that ‘the Middle East would be safer’ if Saddam Hussein and Moammar Qaddafi were still in power.

“His latest ugly truth came during a Bloomberg TV interview last Friday, when he said George W. Bush deserves responsibility for the fact that ‘the World Trade Center came down during his time.’  Politicians and journalists erupted in indignation.  Jeb Bush called Trump’s comments ‘pathetic.’  Ben Carson dubbed them ‘ridiculous.’

“Former Bush flack Ari Fleischer called Trump a 9/11 ‘truther.’  Even Stephanie Ruhle, the Bloomberg anchor who asked the question, cried, ‘Hold on, you can’t blame George Bush for that.’

“Oh yes, you can.  There’s no way of knowing for sure if Bush could have stopped the September 11 attacks.  But that’s not the right question. The right question is: Did Bush do everything he could reasonably have to stop them, given what he knew at the time?  And he didn’t.  It’s not even close.

“When the Bush administration took office in January 2001, CIA Director George Tenet and National Security Council counterterrorism ‘czar’ Richard Clarke both warned its incoming officials that Al Qaeda represented a grave threat.  During a transition briefling early that month at Blair House, according to Bob Woodward’s Bush at War, Tenet and his deputy James Pavitt listed Osama Bin Laden as one of America’s three most serious national-security challenges. That same month, Clarke presented National Security Advisor Condoleezza Rice with a plan he had been working on since Al Qaeda’s attack on the USS Cole the previous October. It called for freezing the network’s assets, closing affiliated charities, funneling money to the governments of Uzbekistan, the Philippines and Yemen to fight Al Qaeda cells in their country, initiating air strikes and covert operations against Al Qaeda sites in Afghanistan, and dramatically increasing aid to the Northern Alliance, which was battling Al Qaeda and the Taliban there.

“Trump’s refusal to be respectable helps him spark debates that elites would rather avoid. And sometimes, those debates are important to have....

“On August 6, 2001, the CIA titled its Daily Brief: ‘Bin Laden Determined to Strike the U.S.’  It was the 36th time the CIA had raised Al Qaeda with President Bush since he took office....

“On the morning of September 11, 2001, Clarke’s anti-Al Qaeda plan was sitting on Bush’s desk, awaiting his signature.  It was the ninth National Security Presidential Directive of his presidency.

“Would the Bush administration have stopped the 9/11 attacks had it taken the threat more seriously?  Possibly.  On August 3, a Saudi named Mohamed al-Kahtani tried to enter the United States in Orlando, Florida, allegedly to participate in the 9/11 plot.  He was sent back home by a customs official whose only concern was that he might become an illegal immigrant.  On August 16, FBI and INS agents in Minnesota arrested another potential hijacker, Zacarias Moussaoui, after being tipped off by his flight instructor.  But despite numerous requests, they were denied permission to search his apartment or laptop.  These incidents ‘might have exposed the’ 9/11 plot, writes (former New York Times reporter Kurt) Eichenwald, ‘had the government been on high alert.’....

“Given that George W. Bush’s advisors still dominate the Republican foreign-policy establishment – an establishment that has not broken with his ideological legacy in any fundamental way – his record both before and after 9/11 remains relevant to the terrorism debate today.  For many years now, that foreign-policy establishment has insisted that questioning Bush’s failure to stop the September 11 attacks constitutes an outrageous slur. That’s why Fleischer is now calling Trump a ‘truther.’  He’s purposely blurring the line between accusing Bush of having orchestrated the attacks and accusing Bush of having been insufficiently vigilant in trying to stop them.  But Bush was insufficiently vigilant. The evidence is overwhelming.

“If Jeb’s loyalty to his brother makes it impossible for him to confront that, fine.  But he has no right to demand that the rest of the public avert its eyes.”

--Former Virginia Senator Jim Webb dropped out of the Democratic race on Tuesday.  He’s threatening to run as an independent.  I like the guy, and he has as good a background as anyone running, but no way would he pick up enough support as a third party candidate to get on a debate stage next fall.

--Lincoln Chafee dropped out!  I forgot...was he running as a Democrat or a Plutonian?

--According to a new Gallup poll, American support for legal marijuana is at an all-time high, nearly two years after the nation’s first recreational marijuana shop opened in Colorado.  58% now say that the use of marijuana should be legal, a seven-point year-over-year increase.

Only 32% of Boomers born between 1951 and 1965 supported legal marijuana back in 1985.  Now that is the same 58%.

Across the border in Canada, incoming Prime Minister Trudeau has promised to start working on legalizing marijuana “right away.”

--The American Cancer Society issued new guidelines on Tuesday recommending women with an average risk of breast cancer start having mammograms at 45 and continue once a year until 54, then every other year for as long as they are healthy and expected to live another 10 years.

“The organization also said it no longer recommended clinical breast exams, in which doctors or nurses feel for lumps, for women of any age who have had no symptoms of abnormality in the breasts.

“Previously, the society recommended mammograms and clinical breast exams every year, starting at 40.”  [New York Times]

The changes reflect increasing evidence mammography is imperfect.

The new guidelines were published on Tuesday in the Journal of the American Medical Association, for those wanting far more detail, including on the benefits and risks of screening.

--Federal regulators will now require recreational drone users to register their aircraft with the government.  Good!  But details to follow when it concerns the registration process and, as is the case with handguns, the chances of stopping someone bent on doing harm are nil.

--Over the years I’ve said more than once that if you are vacationing in the Caribbean, particularly if you’re renting a private home, to never let your guard down.  On Tuesday, a couple from Britain was found hacked to death in their home on the island of Tobago, the latest in a series of unsolved attacks by machete-wielding assailants against expatriates and tourists on the island, as reported by the Irish Independent.

--A New York City police officer was shot and killed while pursuing a suspect on a bicycle along a pedestrian overpass. Randolph Holder, 33, was shot in the head, the fourth New York officer killed in the past 11 months.

Tyrone Howard was arrested and we learned a Manhattan judge had pushed a sweetheart deal that allowed Howard to go to drug rehab instead of prison because he believed none of Howard’s numerous prior convictions involved violence.

The judge admitted he was unaware that Howard had been linked to a 2009 shooting that left three people wounded.  Prosecutors had wanted him to do six years behind bars after being nabbed yet again for peddling drugs last year.

There’s a lesson here for those advocating massive releases of prisoners to relieve overcrowding and to rectify parts of the criminal code that are simply bad law.  I am one of those favoring this.  But officials need to take their time...examine each case carefully and have all the facts.

---

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

We pray for the victims of that awful bus crash in France.  So sad.

God bless America.

---

Gold $1164
Oil $44.60

Returns for the week 10/19-10/23

Dow Jones  +2.5%  [17646]
S&P 500  +2.1%  [2075]
S&P MidCap  +0.4%
Russell 2000  +0.3%
Nasdaq  +3.0%  [5031]

Returns for the period 1/1/15-10/23/15

Dow Jones  -1.0%
S&P 500  +0.8%
S&P MidCap  -0.9%
Russell 2000  -3.2%
Nasdaq  +6.25%

Bulls 37.5
Bears  31.3  [Source: Investors Intelligence]

Have a great week.  I appreciate your support.

LET’S GO METS!

Brian Trumbore

 



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Week in Review

10/24/2015

For the week 10/19-10/23

[Posted 11:00 PM ET, Friday]

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Special thanks this week to Paul C., Lim Z., and Emmanuel S.

Edition 863

Washington and Wall Street

A combination of strong earnings reports from some key tech bellwethers such as Alphabet (Google), Microsoft and Amazon, as well as a brighter picture from McDonald’s, coupled with more stimulus talk and/or action from the likes of the European Central Bank and China, helped fuel a fourth straight week of gains in U.S. stocks.  The S&P 500 is back into positive territory for the year.

The market soared on Thursday as the ECB said it would consider expanding its stimulus program in December, while China’s central bank cut its benchmark interest rates 25 basis points, Friday, amid an ongoing slump in their economy.

ECB president Mario Draghi said that aside from extending its $1.2 trillion bond purchase program, the ECB would consider other measures, such as further cutting one of its key interest rates.

But this coming week will see the Federal Reserve’s Open Market Committee meet and while no one is expecting it to do anything on rates, the accompanying statement could be telling in telegraphing any action at December’s confab.

On Monday, New York Fed President William Dudley was quoted as saying it was too early to consider an interest rate rise due to concerns about global economic growth.

Dudley told an Italian newspaper, “The situation changed over the last few months.  It’s true we thought we could raise interest rates by the end of 2015, but turbulence in financial markets, modest global growth, energy prices and macro-prudential imbalances are slowing this process down.”

Clearly the Fed is split; Chair Janet Yellen and others having previously said they expected a rate hike by the end of the year, Dudley being one of those supporting the idea, but now he is joining the other side, saying it would be a “big mistake” to ignore the fact that the global economy is growing only moderately.

Dudley also told the Italian paper (Corriere della Sera), “we need to see a bigger improvement in the U.S. labor market.”

It’s exasperating, these mixed messages.

Gavyn Davies / Financial Times

“This week has seen speculation about a mutiny from two members of the Federal Reserve’s board of governors against the leadership of Janet Yellen and Stanley Fischer, both of whom continue to say that they ‘expect’ U.S. rates to rise before the end of the year.  Although ‘mutiny’ is a strong term to describe differences of opinion in the contemplative corridors of the Fed, there is little doubt that the institution is now seriously split on the direction of monetary policy....

“This week’s ‘rebellion’ within the board was led by Lael Brainard, a rookie governor who was previously an undersecretary at the U.S. Treasury, working on international economics.  During the euro crisis, her frequent trips across the Atlantic won her respect, and marked her out as a clear thinking Keynesian who wanted emergency action from the European Central Bank long before Mario Draghi came to that view.

“It is therefore no surprise to see her emerging as the ‘uber dove’ on the board of governors....

“On the other side of the debate, however, the vice-chair of the board of governors, Mr. Fischer, has consistently staked out a position in favor of early ‘normalization’ of interest rates, now that the labor market seems to have returned almost to normal....

“So what will happen in December? The outcome looks increasingly uncertain.  Ms. Yellen herself still seems to believe that a rate rise is her central case but, this time, the ultimate decision really will be ‘data determined.’  The growth rate in U.S. economic activity has now dropped to only about 1-1.5 percent. That means that the onus of proof has now completely changed: there needs to be an improvement in the data to keep a rate rise on the table.”

Meanwhile, on Capitol Hill, as described further below, we should have a new House speaker by end of this coming week, Paul Ryan, but looming in the immediate future is a potential crisis on  the debt ceiling, with the Treasury Department saying it runs out of borrowing authority Nov. 3.

This week the House voted to approve a bill that would authorize Treasury to exceed the debt limit only to pay principal and interest on government bonds as well as to make Social Security payments, but nothing more, which all the Democrats voting, along with nine Republicans, opposed.

As does President Obama, with the White House saying in a memo to Congress, “Such an approach would be the equivalent of a family saying that it will choose to pay its mortgage but not its car payment, credit card or student loans, and expecting that its creditworthiness will not suffer.”

Senate Republicans prefer spending concessions on a debt-limit bill, though Majority Leader Mitch McConnell has vowed to avoid a government default.

Speaker John Boehner has threatened to advance a debt-limit bill with no conditions attached that would require Democratic support, but then he’d still need 30 Republican votes to pass it, Boehner not wanting to dump a crisis in Paul Ryan’s lap.

Lastly, two notes on the economy.  September housing starts came in better than expected, owing to an 18.3% surge in multifamily units, including apartments and condos, though single-family homes were up just 0.3% on the month; while existing home sales were up 4.7% in September to 5.55 million annualized, up 8.8% vs. year ago levels.

Europe and Asia

Greece is to receive the next 3 billion euro installment of its aid program, as announced by the European Economics Commissioner Pierre Moscovici, who told French radio on Thursday, “Greece has done a certain number of reforms, and we are going to give them money. And in the course of November, December, we will deal with the issue of the recapitalization of Greek banks and Greek debt.”

“The Greek situation is on track as long as everyone plays their part,” Moscovici added.

Some statistics on the eurozone government debt front, as reported by Eurostat.

For the EA19 the government deficit as a percentage of GDP fell from 3.0% in 2013 to 2.6% in 2014, while government debt to GDP increased from 91.1% to 92.2%.

However, Eurostat separately reported general government gross debt to GDP of 92.2% at the end of Q2 2015 as well.

The highest ratios of government debt to GDP at the end of the second quarter were recorded in Greece (167.8%), Italy (136.0%) and Portugal (128.7%).

Germany is at 72.5%, France 97.7%, Spain 97.8% and non-euro U.K. 89.0%.

Aside from Greece, the one that should stand out is Italy.  I know I’ve been saying this for years, and been largely wrong, but high-debt nations like Italy need real growth, not the 1% variety.  Yes, the ECB’s quantitative easing program has helped reduce yields to absurdly low levels; in the case of the Italian 10-year to 1.50% this week.

But QE isn’t working!  As in the U.S., it helped stabilize markets, and that’s a good thing, but nothing lasting is happening without true structural reform.  And that’s a memo....

Markit released its flash reading on the eurozone manufacturing and service sectors for October and the composite reading came in at 54.0 vs. 53.6 in September.  Manufacturing was at 52.0, same as September, while the services index is 54.2 vs. 53.7 last month.

The flash readings also look at Germany and France, individually, and Germany’s manufacturing PMI was 51.6, down from September’s 52.3, a 5-month low, while the reading in France was 52.4, up from 52.0 in September and a 19-month high.

Chris Williamson, Chief Economist at Markit said:

“The PMI brings welcome news that the eurozone economy picked up some momentum in October.  With new business growing at the fastest rate for six months, firms were encouraged to boost staffing levels again.

“However, the PMI remains at a level signaling a modest 0.4% quarterly rise in GDP, suggesting the region will struggle to attain more than 1.5% overall growth in 2015.”

Spain’s unemployment rate fell to 21.2% in the third quarter, down from 22.4% the previous one, according to the National Statistics Institute, but this is still outrageously high.  Spain holds a general election on Dec. 20 and Prime Minister Mariano Rajoy is trying to make job creation the centerpiece of his campaign.

Separately, Portugal’s president appointed conservative Prime Minister Pedro Passos Coelho to a second term despite his party’s lack of a majority and it remained uncertain whether his center-right government could survive its first test in November with a leftist-dominated parliament: gaining approval for a budget plan that must be submitted by early November.

The leftists have vowed to vote down Coelho’s program, saying his austerity agenda is misguided.

On the migration front, German Chancellor Angela Merkel renewed her call for a fair distribution of refugees across the European Union, citing the images of conflict as a flood of migrants wreaks havoc in the Balkan states of southeastern Europe.

“These pictures remind us of times when it wasn’t so peaceful in Europe – and they must be turned into pictures rather of Europe taking on its responsibility,” she told a meeting of IG Metall union members on Thursday. “And that means a fair distribution of the burden.”

Merkel said the wave of refugees is not one mass group, “but rather individual people” on whom Europe can’t turn its back.

But Merkel is meeting increased opposition in both Germany and elsewhere as other nations blame her for laying out the welcome mat, a message that spread quickly in the Middle East.

She also caught heat for her trip to Istanbul this week to seek an accord with the Turkish government on controlling the flow of refugees.  Her opponents don’t like that she seems to be bending over backwards to gain Turkey’s support and in return she is offering travel to the EU for Turks without visas while re-energizing Turkey’s bid to join the bloc, if Ankara can better police its borders and convince its two million refugees to stay put.

In the German city of Cologne, a leading mayoral candidate and ally of Merkel was stabbed in the neck by a man who was said to have “anti-foreigner motives.”  Henriette Reker, recovering from her injuries, then won Sunday’s election.

This week Slovenia announced it would allow only 2,500 migrants to cross its borders daily – half the number neighbor Croatia has asked for.  Most migrants are crossing Croatia and Slovenia to reach western Europe and now, with Hungary’s moves to close its borders with Serbia, Croatia and Slovenia at various times, there is a build-up of refugees on Croatia’s border with Serbia, as well as Slovenia.

Separately, there is growing anger in Sweden, with the far-right Sweden Democrats hammering away at authorities deemed too permissive in allowing a wave of migrants there.  Two Swedish schools that were being converted into shelters for asylum seekers burned down in what police said were suspected arson attacks.

Sweden is expected to bring in more than 150,000 asylum seekers this year to a country with a population of less than 10 million.  The total is nearly double that of last year.  10,000 a week are now streaming in, with the director of operations for the Migration Board telling the Washington Post, “When we were at 3,500 arrivals a week, our plans were stretching thin.  We’re well beyond planning now.”

In Switzerland, the ultraconservative Swiss People’s Party won a clear victory in elections after campaigning against “asylum chaos.”

And in France, French National Front leader Marine Le Pen appeared in court in Lyon, to answer charges of inciting racial hatred at a rally in the city in 2010, as her anti-immigration and anti-EU message continues to attract increasing support.  Key local elections are being held in December.

Turning to Asia, aside from the rate cut by China’s central bank, owing to the rapidly slowing economy, the government reported third-quarter GDP rose at a 6.9% clip, the worst pace since Q1 2009 and compared with 7.3% for all of 2014.  The government has a target of 7%, though Premier Li Keqiang, who is supposed to be in charge of the economy, has said 6.5% would be acceptable.

But no one believes the government’s number and it was in 2010 that Li himself, when he was a governor, admitted that some numbers were manipulated.  Most economists believe GDP is actually 1 or 2 points lower than the official figure.  Exports and imports, after all, have been declining, and industrial production has been weaker than expected.

Speaking of which, factory output for September rose 5.7% year-over-year, and fixed asset investment was up 10.3% for the first nine months of 2015, the slowest pace since 2000. 

September retail sales, though, rose 10.9% and that is pretty solid.

But when looking at the Big Picture, one of the more reliable data points is electricity output, which was down 1.3% yoy last month.

One more...China’s home prices rose in September in more than half of the 70 major cities monitored by the government for the first time in 17 months; up in 39, compared with 35 in August.

In Japan, a flash reading on manufacturing for October by Markit came in at 52.5 vs. 51.0 in September, the highest in over 1 ½ years.

Street Bytes

--Stocks rose a fourth straight week; for the S&P 500 and Dow Jones the longest winning streak since December.  The Dow was up 2.5% to 17646 and is now down only 1.0% for the year, while the S&P in rising 2.1% is up 0.8% for 2015.  Nasdaq rose 3.0% to increase its year-to-date gain to 6.25%.

The S&P is up 11% since its August low and with an 8.1% gain for October is looking at its best monthly return since 2011.

[Overseas, Germany’s DAX rose about 7% this week.]

But while there were some high-profile companies that beat earnings expectations, revenues remain a problem and the likes of Caterpillar and 3M continued to disappoint on this front, yet their share prices rose along with the others in the renewed easy money euphoria at week’s end.

I also can’t help but note that the trailing P/E on the S&P 500 is now 21.8, which is hardly cheap, sports fans.  [I hate ‘forward’ P/Es...it’s easy for analysts, and the press, to get lazy and fail to tell their readers or listeners just what it is and what it’s based on.]

--U.S. Treasury Yields

6-mo. 0.12%  2-yr. 0.64%  10-yr. 2.09%  30-yr. 2.90%

--Shares in Alphabet, the new holding company for Google, soared as the company announced the group’s first stock buyback; a signal Google is bowing to more of the financial disciplines of other mature companies.  Google also reported revenues and earnings that comfortably beat the Street’s expectations for the third quarter.

Total revenue climbed 13% to $18.7 billion, while the company earned $7.35 per share, with net income just under $4bn.

However, the average price for its adverts fell 16% as lower-priced mobile and video advertising diluted the more profitable desktop business.

--Shares in Amazon also soared as the company reported revenue rose 23% in the third quarter, up to $25 billion, with the strongest growth coming from Amazon Web Services, up 78% from the prior year.  The cloud computing service provider has generated revenues of $5.5bn during the first nine months of the year.

But, perhaps most importantly, Amazon actually reported a profit of $79m, or 17 cents a share.

International retail sales, however, were up only 7% from a year ago, due to the strong dollar.

Amazon’s CFO, Brian Olsavsky, said of the fourth quarter, “We are looking forward to a great holiday season.”  Earlier, rival Walmart cut its sales forecast.

Amazon also announced it is aiming to hire 25% more seasonal workers for its U.S. warehouses during the holidays, outpacing its rivals.  The company plans to hire 100,000, up from 80,000 last year. Amazon now has more than 50 U.S. warehouses and 20 package sorting centers.

--And Microsoft shares hit a 15-year high as it beat on revenues and earnings for Q3 and posted its first ever profit in search.  At $53.00, up $5 on Friday, the stock is at its highest level since 2000.

Revenues, though, were down 2% after adjusting for currency fluctuations, but just ahead of the Street’s forecasts, while earnings handily beat.  Net income was up 2% to $4.6bn.

Interestingly, Bing, its search unit, reached profitability for the first time on revenues that grew 29% to more than $1bn.

--IBM’s stock dropped to a five-year low after the company cuts its profit forecast.  The company posted a 14% decline in third-quarter revenue to $19.3 billion, short of the Street’s expectations and the 14th straight quarter of shrinking sales.

IBM said its strategic imperatives – cloud, analytics, engagement – have grown 20% year-to-date and the company has made a bet that the Watson data-analytics unit will help to drive growth, though the division, which sells what IBM has called cognitive computing tools, has yet to reach $1 billion in revenue.  [My friend Jimbo and I were musing this week about Watson...overhyped, essentially worthless.  Look, Bob Dylan walked away in disgust!]

Within the services division – IBM’s biggest – revenue fell 10%.  Revenue in the hardware division plunged 39%.  Overall revenues in China fell 17%, including foreign-exchange headwinds.

--Yahoo Inc. missed on earnings and revenue, though CEO Marissa Mayer said the company had signed a search advertising deal with Google, while its emerging businesses in mobile, video, native and social advertising saw revenue rise 43 percent to $422 million in the quarter.

But Yahoo warned investors of a revenue hit in the advertising-heavy holiday period as Mayer’s turnaround plan appears to have stalled, though she tried to convince investors otherwise.

“We see a unique moment and opportunity for Yahoo, as we move into 2016, to narrow our focus on fewer products with higher quality.  We need to work to improve our relevance to end users and how many times they come to us,” she said.

Someone tell Marissa a good start would be to stick Week in Review on Yahoo’s home page every Saturday morning.

--Shares in Facebook crossed the $100 mark for the first time on Friday.

--Shares in McDonald’s soared as the fast-food chain showed its first signs of a recovery in the U.S. market, with third-quarter sales rising here for the first time in two years, up 0.9%, helped by sales of new items on the menu, including the premium buttermilk crispy chicken deluxe sandwich.

Overall sales were hit by the strong dollar, however, down 5 percent.  But excluding the negative impact of foreign exchange, sales would have risen 7 percent.

New CEO Steve Easterbrook has instituted a turnaround plan, including the introduction of all-day breakfast, which will be reflected for the first time in the fourth quarter’s results.

I just may visit my local McDonald’s for the first time it what would be about two years.  Though I like Burger King’s two-for $5 sandwich offer., plus their workers (at least at the Madison, NJ location) have a great attitude, which is why I left McDonald’s.  Theirs (Berkeley Heights, NJ) was piss-poor last time I was there.

--Speaking of good attitudes, Richard H. and I agree that Enterprise Rent-A-Car does a great job in hiring good kids.  I finally got my car back after almost four weeks getting it repaired.  GEICO, on the other hand, the insurance company for the woman who hit me, sucks!

--Shares of Chipotle Mexican Grill tumbled nearly 6% Wednesday after the casual restaurant chain reported earnings that fell short of expectations, though the numbers are still very strong.  It’s just the shares were priced for perfection.

The company has opened 150 new restaurants so far this year and now has about 1,900 locations.

--Morgan Stanley announced third-quarter profits fell by nearly half and the bank’s shares declined 5% on the news.  Revenue from fixed income sales and trading in the quarter fell 40% compared with last year.  Overall revenue dropped to $7.8bn from $8.9bn...not good.

--Shares in Tesla Motors Inc. plunged the most in months after Consumer Reports said the Model S luxury electric car was removed from its recommended list because of below-average reliability.

Owners of the sedan, introduced in 2012, reported “an array of detailed and complicated maladies,” Consumer Reports said in a statement.  Among the issues are problems with the sun roof and the electric motor.

Back in August, the magazine lauded the car’s combination of performance, luxury and efficiency.

I’m beginning to think Tesla and IBM’s Watson belong together, both overhyped.  At least in Tesla’s case from a valuation standpoint. 

--Intel Corp. announced it will invest $5.5 billion in its plant in Dalian, China, to convert the factory to production of memory chips.

--Under Armour Inc. posted higher profits and a 28% jump in quarterly revenue as the sportswear company takes aim at Nike in the footwear market.

CEO Kevin Plank said his company will produce about 30 million pairs of shoes this year, but that the competition will make half a billion shoes over the same period.  “This demonstrates the miles of runway in front of us for growth in this one category alone,” he said.

Under Armour’s total revenue exceeded $1 billion for a first time, with footwear sales of $196 million and apparel sales of $865.5 million.  But gross margins fell slightly and the company’s shares declined as a result.

--3M Co., the maker of Scotch tape and Post-it notes, reported a 5 percent decline in third-quarter net sales and said it would cut about 1,500 jobs next year, citing a global economic slowdown.  But the shares rose.

--Western Digital Corp., the biggest maker of computer disk drives, on Wednesday disclosed a $29 billion deal for memory-chip maker SanDisk Corp., a key supplier of memory devices for smartphones that is charging into Western Digital’s traditional business supplying computer makers.  The deal makes Western Digital the broadest supplier of data-storage components.

--Boeing Co. raised its 2015 profit and revenue guidance, as the world’s largest aerospace company said it had a backlog of 5,700 jetliner orders.  Boeing reported a profit of $1.7 billion for the quarter, up 25% vs. a year ago, while revenue increased 8.7% to $25.8 billion.

--Coca-Cola Co. warned foreign-exchange headwinds will likely worsen next year as the strengthening dollar does a number on U.S. multinationals.  Net profit fell 31% to $1.45 billion, with foreign currencies having a negative impact of 12 percentage points.

Net revenue fell 4.6% to $11.43 billion, also weighed down by foreign exchange, though volume rose 3%.  Soda volumes rose 2%, while sales of packaged water were up 11% and sports drinks 5%.

--Yum Brands Inc. is cutting its China unit loose and by the end of next year, Yum China will become a separate, publicly traded franchisee of Yum Brands. While details weren’t released, the move is intended to insulate the company from the turbulence its China operations have been experiencing, including as a result of food-safety scares and stronger competition.  Yum China will pay its former parent a percentage of sales for the rights to brand KFC, Pizza Hut and Taco Bell, though this last one isn’t in China yet.

Yum operates 6,900 restaurants in China, including 4,900 KFCs, but last year, Yum’s China revenue was flat at $6.9 billion.

--Biogen is reducing its workforce by 11 percent as the pharmaceutical company is facing a slowdown in its best-selling multiple sclerosis treatment, Tecfidera.

--Another pharmaceutical company, Valeant, had one volatile week, with the shares falling 28 percent on Wednesday alone ($177 to $116 over the course of the week) after a scathing research note from a short seller questioning the company’s complex relationship with Philidor, a so-called specialty pharmacy that distributes its drugs.

--Procter & Gamble reported sales fell 12 percent in its fiscal first quarter, owing to the impact of the strong dollar, but the stock rallied as investors liked that P&G had improved margins thanks to its $10bn cost-cutting program. 

Taking out the impact of foreign exchange, “organic sales” declined 1 percent.

P&G, the world’s largest consumer goods company, is going through huge upheaval as it cuts costs and narrows its focus on 65 of its most profitable brands, while selling off about 100 others.

The company continues to struggle in emerging markets, with sales down 8% in China and 12% in Brazil.

--Denmark’s A.P. Moeller-Maersk A/S cut its full-year profit guidance saying global market conditions were weaker than expected.  The company now expects underlying earnings to come in at $3.4 billion this year, compared with its previous guidance of $4 billion.

Maersk’s shipping unit, the world’s biggest container-shipping operator, carried fewer containers than expected in the quarter, with lower average freight rates than a year ago.  I noted recently how the number of empty containers at west coast ports has been soaring.

--Ferrari priced its IPO at $52 on Tuesday, at the top of its marketed range, and the shares closed the first day at $55, after trading at $60 on the New York Stock Exchange.  [They finished the week at $56.40.]  The luxury carmaker and Formula One racing team carries the ticker symbol RACE and the IPO met with huge demand from both retail and institutional investors.

Ferrari was spun out of Fiat Chrysler in Chairman Sergio Marchionne’s latest step at reducing the parent’s debt burden while funding a $50bn investment program.

Ferrari has nine models including the 458 Italia and 488 Spider and shipped 7,255 cars last year with sales in excess of $3 billion.  The company is targeting annual production of 10,000 vehicles.

--Shares in Weight Watchers soared after Oprah Winfrey announced she has taken a 10 percent stake in the company.  The stock rose more than 100 percent on the hope Winfrey can help revive earnings from a 15-year low.

Weight Watchers has struggled with a fundamental shift in the business of weight loss and the perception diets lack nourishment.

CEO Jim Chambers said, “We are expanding our purpose from focusing on weight loss alone to more broadly helping people lead a healthier, happier life.”

--United Airlines named an acting CEO on Monday while Oscar Munoz recovers from a heart attack he suffered about 8 days ago.  Brett Hart, who is currently the airline’s executive vice president and general counsel, takes over.

Munoz had just been appointed Sept. 8, after the ouster of Jeff Smisek, which followed a corporate investigation.

--ESPN plans to lay off about 350 employees as it responds to shifting ways sports are consumed.  President John Skipper said, “The demand for sports remains undiminished, though the landscape we operate in has never been more complex.  No matter how many times we’ve adjusted course to lead the industry over the years, the decisions affecting our employees are never made lightly.”

ESPN has about 8,000 employees and previously laid off 300-400 two years ago.

--Preet Bharara, the United States attorney in Manhattan, was forced to dismiss the insider trading charges and convictions of seven people, including the 2013 conviction of Michael S. Steinberg – the highest-ranking employee at SAC Capital Advisors to stand trial for insider trading.

This comes after the U.S. Supreme Court declined to review a ruling by the U.S. Court of Appeals for the Second Circuit that tossed out two other insider trading convictions and made it harder for authorities to prosecute many such cases.

This is a huge blow to Bharara (and any ambitions he might have for higher office).  His insider trading record was perfect until last year, but now his conviction rate stands at roughly 85 percent.

--Denmark-based toy company Lego is warning demand has been significantly higher than their expectations and this has put a strain on the Lego Group’s manufacturing facilities globally.

Sales in the first half of 2015 increased by 18%, as Lego, based on this metric, has become the world’s largest toy company.

So will there be shortages this holiday season?  Better buy little Jimmy’s Christmas Legos now.

Me?  I always liked Sally Brown’s advice...$10s and $20s.

Foreign Affairs

Iran/Syria/ISIS/Russia/Iraq:

Syrian President Bashar al-Assad ventured outside his beleaguered nation for the first time since the civil war began in 2011, making a surprise visit to the Kremlin to meet Russian President Vladimir Putin.  It was a powerful signal of Russia’s growing support for the Assad government.

Russian warplanes have struck Syrian rebel targets throughout the country, allowing Assad’s forces to go on the offensive, while granting the regime a lifeline.

Anti-government rebels and activists maintain, however, that while Russia insists it is targeting ISIS, few of the airstrikes are hitting the jihadists.

Putin said at least 4,000 Islamist militants from the former Soviet Union are now fighting in Syria, and warned that they cannot be allowed to foment instability in Russia.  He also reiterated the need for a political settlement to end the war, while the West has demanded that Assad step down as part of any political transition.

Assad said, “I would like to express enormous gratitude to the whole leadership of the Russian Federation and to the Russian people for the help they are giving Syria.

“Thank you for standing up for the unity of Syria, and its independence,” he said, according to a transcript.

The White House strongly condemned the visit, saying Russia had put on a “red carpet welcome.”  But Secretary of State John Kerry is to meet with his Russian counterpart, Sergei Lavrov, in Vienna this weekend.

Meanwhile, Iranian Supreme Leader Ayatollah Ali Khamenei endorsed on Wednesday the Joint Comprehensive Plan of Action, paving the way for  Tehran’s implementation of the nuclear deal reached with the P5+1 last July.  Iran must now complete some specific tasks, including neutering its plutonium reactor and reducing its nuclear enrichment capacity and stockpile, while increasing transparency and access to its declared facilities.

Once these steps are completed, which is expected to take up to six months, Iran will begin to receive sanctions relief.

But in a letter to President Hassan Rohani on Wednesday, Khamenei said in part:

“Since the purpose of Iran’s consent to the nuclear negotiations was the lifting of ‘cruel economic and financial sanctions,’ and given the fact that the termination of the sanctions has been subjected to completion of Iran’s commitments, there needs to be ‘firm and sufficient guarantees’ to avert the other side’s breach, the Leader asserted.

“The U.S. president and the European Union must declare that the anti-Iran sanctions have been ‘fully lifted,’ the Leader noted.”  [Tehran Times]

Separately, according to the Syrian American Medical Society, which operates dozens of facilities throughout opposition-controlled parts of Syria, Russian airstrikes struck nine hospitals in Syria this month, killing and injuring tens of staff and civilians, as reported by the Wall Street Journal.

Charles Krauthammer / Washington Post

“Guess who just popped in the Kremlin?  Bashar al-Assad, Syrian dictator and destroyer, now Vladimir Putin’s newest pet.  After four years holed up in Damascus, Assad was summoned to Russia to bend a knee to Putin, show the world that today Middle East questions get settled not in Washington but in Moscow, and officially bless the Russian-led four-nation takeover of Syria now underway.

“Does the bewildered Obama administration finally understand what Russia is up to?

“President Obama says Russia is doomed to fail in the Syrian quagmire.  But Russia is not trying to reconquer the country for Assad.  It is consolidating a rump Syrian state in the roughly 20 percent of the country he now controls, the Alawite areas stretching north and west from Damascus through Latakia and encompassing the Russian naval base at Tartus.

“It’s a partition.  It will leave the Islamic State in control in the interior north and east.  Why is this doomed to failure?

“Putin’s larger strategy is also obvious.  He is not reconstructing the old Soviet empire.  That’s too large a task.  But he is rebuilding and reassuring Russia’s ability to project power beyond its borders.  Annexing Crimea restores to the motherland full control of the warm-water Black Sea port that Russia has coveted since Peter the Great.  Shoring up a rump Alawite state secures Russia’s naval and air bases in the eastern Mediterranean. Add to that Russia’s launching of advanced cruise missiles from warships in the Caspian Sea to strike Syrian rebels 900 miles away and you have the most impressive display of Russian military reach since the Cold War.

“For Obama, of course, these things don’t matter.  ‘In today’s world,’ he told the U.N. last month, ‘the measure of strength is no longer defined by the control of territory.’  That he clearly believes this fantasy was demonstrated by his total abandonment of Iraq, forfeiting U.S. bases from which we could have projected power in the region (most notably preventing, through control of Iraqi airspace, the Iranian rearming and reinforcement of Assad’s weakening regime)....

“What has happened since the signing of the deal in July?  Iran convicts an American journalist, contemptuously refusing to offer even the most minimal humanitarian gesture. Iran brazenly tests a nuclear-capable ballistic missile that our own U.N. ambassador said violates Security Council resolutions.  And now Iran’s most notorious Revolutionary Guard commander [Maj. Gen. Qasem Soleimani] takes control of a pan-Shiite army trying to decimate our remaining allies in the Syrian civil war.

“Obama’s response to all this? Nothing.  He has washed his hands of the region, still the center of world oil production and trade, and still the world’s most volatile region, seething with virulent jihadism ready for export.  When you call something a quagmire you have told the world that you’re out and staying out.  Russia and Iran will have their way.”

Benny Avni / New York Post

“The clock’s officially, if quietly, ticking toward implementation of the nuclear deal that world powers signed with Iran.  You may not have heard it over the louder sound of Tehran testing a precision guided, nuke-capable ballistic missile.

“On Sunday, President Obama cautiously celebrated the new stage in his crowning foreign-policy achievement.  Then on Wednesday, the Iranian top mullah, Ali Khamenei, gave his qualified support for the nuclear deal.  He also used the occasion to call Obama a liar.

“Dealing with Iran is tough.

“The next stage is ‘implementation day’: That’s when a global watchdog, the International Atomic Energy Agency, certifies that Iran has implemented its end of the deal.

“As the joint plan of action envisions the process, only once that ‘implementation’ is certified will America and other powers begin removing the various sanctions and restrictions that had been imposed on Iran. Until then, existing rules remain – rules like the Security Council resolutions that have banned any Iranian testing, stashing or developing ballistic missiles.

“Oops. As U.N. Ambassador Samantha Power said last week, ‘We can confirm that Iran launched on Oct. 10 a medium-range ballistic missile inherently capable of delivering a nuclear weapon.’  On Wednesday, Power, along with French, Brit and German colleagues, formally called on the council to take the ‘appropriate action’ to address the violation – but little, if any, is expected....

“Yes, most analysts claim Iran will refrain from violating the nuclear deal.  But ‘violation’ can be interpreted differently by different people, so Iran will continue to push the envelope as far as it can, testing our reaction.”

Editorial / Washington Post

“As they concluded the nuclear deal with Iran in July, President Obama and Secretary of State John F. Kerry repeatedly suggested that it could open the way to cooperation with Tehran in resolving regional conflicts, beginning with the civil war in Syria. They also promised the United States would push back if Iran instead stepped up its aggression.  Just three months later, Iran’s most notorious general is overseeing a new offensive by thousands of Iranian, Iraqi and Lebanese fighters aimed at recapturing the Syrian city of Aleppo from rebel forces, including some backed by the United States.  Mr. Obama shows no sign of responding.

“The Iranian-led offensive, which is supported by Russian air power, appears to be the most aggressive intervention yet by Iran in the Syrian war.  The Post reported that hundreds of troops from the elite Quds Force had been joined by thousands of Iraqi Shiite militiamen and forces from Lebanon’s Hizbullah, all under the command of Maj. Gen. Qasem Soleimani, who previously directed attacks on U.S. forces in Iraq.  Far from accepting appeals from Mr. Obama and Mr. Kerry to help broker a diplomatic settlement, Iran has joined with Russia to entrench the regime of Syrian President Bashar al-Assad and help it to recapture Aleppo and other parts of the country.

“The attack is one of several provocative steps Tehran has taken as the nuclear deal has begun to come into effect.  The same day the accord was debated by its parliament this month, the regime test-fired a nuclear-capable missile, violating a U.N. Security Council resolution.  The White House acknowledged the infraction but pointed out that it was outside the bounds of the nuclear agreement....

“(The) Syrian offensive is certainly more than message-sending.  If successful, it could eliminate the chance to construct a moderate, secular alternative to the Assad regime, and send hundreds of thousands more refugees across Syria’s borders.  It was just such aggression that Mr. Obama acknowledged might be a byproduct of the nuclear deal – and that he vowed to resist.  If he remains passive as Maj. Gen. Soleimani’s forces press forward, both Iranian and U.S. allies across the Middle East will conclude that there will be no U.S. check on an Iranian push for regional hegemony.”

Ah yes...Aug. 18, 2011.  Then-Secretary of State Hilary Clinton said, “The transition to democracy in Syria has begun and it’s time for Assad to get out of the way.”  President Obama said: “For the sake of the Syrian people, the time has come for President Assad to step aside.”

Bruce Jones of the Brookings Institution said of the call for Assad’s ouster, it “was a classic case of talking loudly and carrying a small stick.”  He calls it “a fundamental mistake of policy. If you call for Assad to go, you dramatically drive up the obstacles to a political settlement.  If you’re not insisting on him leaving there are more options.  If you say Assad must go as the outcome of a settlement he has the existential need to stop that settlement.”  [Steven Mufson / Washington Post]

Separately, U.S.-Iraqi forces rescued dozens of hostages held by Islamic State in Iraq after learning of their “imminent execution,” the Pentagon announced.

But a U.S. soldier wounded in the raid died of his injuries, the first killed in action since U.S. operations against IS began last year, and first since the U.S. largely left Iraq in 2011.

20 members of the Iraqi security forces were among the 70 rescued, but none of them were Kurds, contrary to initial reports.

The U.S. military was involved at the invitation of the Kurdistan regional government, but of course this contradicts previous commitments from President Obama that there would be no “boots on the ground.”  The Pentagon stressed the rescue was a “unique circumstance” and not a change in tactics.

On Friday, Defense Secretary Ash Carter said the raids the U.S. is participating in are not the same as the U.S. military “assuming a combat role.”

But then before he left the podium during a briefing, he offered the following for why he couldn’t reveal more details on the death of Master Sgt. Joshua Wheeler, the American Delta Force member who died.

“This is combat. Things are complicated.”  [Gayle Tzemach Lemmon / Defense One]

Meanwhile, there are still no tangible signs the United States is doing what is necessary to supply the Arab groups fighting ISIS and their efforts to confront Islamic State in their self-proclaimed capital of Raqqa.

Israel: The Palestinian attacks that have left Israelis on edge appeared to lighten some by week’s end as Israeli security forces tightened access to Arab areas of East Jerusalem.

But on Thursday, an Israeli soldier shot and killed a Jewish man he suspected was a Palestinian terrorist in Jerusalem.  Soldiers demanded the man show them his ID and when he refused, he scuffled with the soldiers and attempted to seize one of their weapons.  Last Sunday, an Eritrean migrant was killed when he was mistaken for an attacker, an Arab citizen of Israel who had opened fire at a bus station in southern Israel.

Ten Israelis have been killed over the last month, mainly in stabbing attacks.  About 50 Palestinians have been killed, 27 of them identified by Israel as attackers, the others killed in clashes with Israeli forces.

“This is not the Wild West,” Israeli opposition legislator Tzipi Livni told Israeli Army Radio.  “The suspicion there is now, the fear and the hate lead to brutal and very difficult results.”

Israelis have been buying pepper spray for self-defense and some government officials have called on civilians to arm themselves.

U.N. Secretary-General Ban Ki-moon met with Israeli and Palestinian leaders during a visit to the region this week and then offered the Security Council a grim assessment of prospects for defusing the violence.

But in a speech in Jerusalem Tuesday evening, out of nowhere Prime Minister Benjamin Netanyahu asserted that a Palestinian religious leader gave Adolf Hitler the idea to annihilate the Jews.  The prime minister was trying to explain the surge in violence in Israel and the West Bank by reaching for historical precedents, and said that Jews living in British Palestine back in the 1920s faced many attacks – all instigated by the grand mufti of Jerusalem, Haj Min al-Husseini, who allied himself with the Nazis during World War II.

Then Netanyahu said: “Hitler didn’t want to exterminate the Jews at the time; he wanted to expel the Jews. And Haj Amin al-Husseini went to Hitler and said, ‘If you expel them, they’ll all come here.’ ‘So what should I do with them?’ he asked.  He said, ‘Burn them.’”

Netanyahu said the mufti played “a central role in fomenting the Final Solution.”

Critics immediately pounced and said Netanyahu’s claims were outrageous enough to give cover to Holocaust deniers.

The next day, the prime minister was on a state visit to Germany, and the Germans told the Israeli leader that the Holocaust was their responsibility alone.

As William Booth of the Washington Post wrote: “(Netanyahu’s) remarks were intended to underline his contention that the root cause of Palestinian violence is not Israel’s 48-year-old military occupation of the West Bank, the building of Jewish settlements on lands that the Palestinians hope to make part of their future state, or the partial trade and travel blockade of the Gaza Strip, but old and intractable hatred of Jews.”

I am on record as saying Netanyahu, in terms of pure brain power, is the smartest leader in the world.

But, like many Israeli leaders, he is also hopelessly corrupt (as is his wife...yeesh, she’s a piece of work).  That said, I’ve felt he’s the right leader for the times.

And then he does this...his Kevin McCarthy moment.  I don’t understand it. 

China: Fan Changlong, one of the vice chairmen of the Central Military Commission which controls the Chinese armed forces and is headed by President Xi Jinping, told a high-level security forum that China had sought to avoid conflict.

“We will never recklessly resort to the use of force, even on issues of sovereignty, and have done our utmost to avoid unexpected conflicts,” Fan told his audience, mostly Southeast Asian defense ministers.

Fan said China’s islands “will not affect freedom of navigation in the South China Sea.”

The United States still plans on conducting freedom-of-navigation operations inside the 12-nautical-mile limits that China claims around islands built on reefs in the Spratly islands.  [South China Morning Post]

Meanwhile, a cybersecurity firm, Crowdstrike, which detects intrusions on computers, said Chinese hackers appeared to be pressing on with attempts at breaking into American corporations, despite a recent agreement between the two countries to stop the theft of intellectual property; focusing on the tech and pharmaceutical sectors.

On a different issue, government advisers are urging an end to China’s one-child policy, warning of a demographic crisis ahead. China’s top think tanks have urged Beijing to immediately relax restrictions on the number of children couples are allowed to have, as told to the South China Morning Post.  Some experts say it is already too late.

A 2013 relaxation of the policy, which allowed for a second child under certain conditions, has had limited impact so further measures are necessary to counter a low birth rate, greying population and dwindling workforce.

The authorities expected 20 million new births in 2014, but only 16.9 million babies were born.

The mainland’s birth rate is 1.18 children for every couple, compared with a global average of 2.5 and the 1.7 average in developed countries.  The replacement level is 2.1, but China has been well below this for 20 straight years, according to demographer Wang Feng.

Finally, the Communist Party has listed golf and gluttony as violations for the first time as it tightens its rules to prevent officials from engaging in “corrupt practices.” Which means one thing. Some very expensive golf courses are about to go bust.

Canada: The centrist Liberal Party decisively won the general election, ending nearly a decade of Conservative rule.  Canada’s new leader is Justin Trudeau, the 43-year-old son of the late Prime Minister Pierre Trudeau.  Conservative PM Stephen Harper announced he would step down as party leader.

While I noted last time the Liberals could pull out the win, no one foresaw the scale of the victory, as the party won 184 of  338 seats, a massive increase from the 36 it picked up after suffering their worst-ever loss in 2011.  So they actually have a majority.

The popular vote, however, was closer.

Liberal Party 39.5%
Conservative Party 31.9%
New Democratic Party 19.7%
Others 8.9%

Addressing supporters, Trudeau said Canadians had “sent a clear message tonight: It’s time for a change.”

“We beat fear with hope, we beat cynicism with hard work.  Most of all we defeated the idea that Canadians should be satisfied with less.  This is what positive politics can do.”

The Liberal Party has vowed to cut income taxes for middle-class Canadians while increasing them for the wealthy.  Run deficits for three years to pay for infrastructure spending.  Take in more Syrian refugees.  Pull out of bombing raids against Islamic State while bolstering training for Iraqi forces. Address environmental concerns over the Keystone oil pipeline.  And legalize marijuana.  [BBC News]

One nation that will miss Harper is Israel, who it was said wasn’t just a “close ally,” he was the best friend Israel had among the leaders of the world.

“You are a great friend of Israel and the Jewish people,” Netanyahu said to Harper when the Canadian premier came to visit in January 2014.  “I am not just saying that, I mean it deeply from the bottom of my heart, and I am speaking for all of the people of Israel.”  [Herb Keinon / Jerusalem Post]

South America: Argentinians go to the polls this weekend to begin the process of electing a new president (there will be a run-off in November), as the economy here craters, while Brazil is bracing for its worst recession in a quarter century and Venezuela continues to unravel. 

Venezuela’s central bank announced this week the country’s international reserves have sunk to a 12-year low of $15.35bn.  But less than $0.5bn are “liquid reserves,” according to Barclays, the rest being in gold and borrowings from the IMF.  And the state oil company, PDVSA, faces $5.1bn in maturing debt and interest payments over the next two months.

Random Musings

--On Tuesday, Rep. Paul Ryan (Wis.) told fellow Republicans that he would consider taking the job of House Speaker if he could be assured that the caucus, including the 40 or so members of the hard-right Freedom Caucus, would unite behind him.

“I hope it doesn’t sound conditional – but it is,” he said, according to members inside the room.  The meeting ended without specific commitments.

“This is not a job I’ve ever wanted, I’ve ever sought,” he said.  “I came to the conclusion that this is a very dire moment, not just for Congress, not just for the Republican Party, but for our country.”

So on Wednesday night, a strong majority of the Freedom Caucus voted to support Ryan and the way is now cleared for him to be affirmed in that position next Wednesday and Thursday.

--Vice President Joe Biden announced on Wednesday he would not run for president.  Flanked by his wife, Jill, and President Obama in the Rose Garden, Biden conceded that the time he needed to grieve the death of his son Beau forbid an attempt to run against Hillary because it was just too late to mount a viable campaign.

But whether you believe what Biden said is true or not, he gave a pure campaign speech, a very good one, too.

“I intend to speak out clearly and forcefully, to influence as much as I can where we stand as a party and where we need to go as a nation... I believe that President Obama has led this nation from crisis to recovery, and we’re now on the cusp of resurgence.  I’m proud to have played a part in that.  This party, our nation, will be making a tragic mistake if we walk away or attempt to undo the Obama legacy.  The American people have worked too hard, and we have come too far for that.  Democrats should not only defend this record and protect this record.  They should run on the record.”

So that was a slap at Hillary.  Don’t trash the president’s record.

But this passage was great.

“I believe that we have to end the divisive partisan politics that is ripping this country apart. And I think we can.  It’s mean spirited, it’s petty, and it’s gone on for much too long. I don’t believe, like some do, that it’s naïve to talk to Republicans.  I don’t think we should look at Republicans as our enemies.  They are our opposition.”

Of course Hillary has said Republicans are the enemy.

Separately, Biden on Tuesday offered an account of the decision to launch the raid that killed Osama bin Laden that differed from some of his prior retellings – and from Hillary Clinton’s.  At an event honoring former Vice President Walter Mondale, Biden said he had privately advised the president to pursue the raid on bin Laden’s compound after initially advising a more cautious approach at a Cabinet meeting.

“We walked out of the room and walked upstairs,” Biden said.  “I told him my opinion: I thought he should go, but to follow his own instincts.”

Back in January 2012, he told a Democratic retreat, “Mr. President, my suggestion is, ‘Don’t go.’”

Clinton has characterized Biden as having been openly skeptical in the meeting.  But now with Biden out of the race, this politically expedient flip-flop really doesn’t matter.

--John Podhoretz / New York Post

“After nine terrible months during which she made weekly gaffes and single-handedly elevated a gadfly socialist into a rival for the Democratic nomination, Hillary Clinton has had a fortnight any presidential candidate would relish.

“Thursday, after clobbering her rivals in a debate last week and thereby keeping Joe Biden out of the race, Clinton went before the committee investigating the deaths of four Americans in Benghazi in 2012 – and had an unmitigated triumph.

“I’m not talking about whether she was telling the truth, whether she was trimming, whether she was disingenuous.  Nor am I saying she’s out of the woods legally regarding questions about her handling of classified information, destruction of government property or general effort to obstruct justice.

“Those matters are in the hands of the Justice Department...

“It seems unlikely we’d see an indictment of the leading Democratic candidate emerge from a Democratic administration, but it’s not impossible.  And we don’t know whether any of her answers under oath might come into conflict with present and future evidence and place her in greater legal jeopardy.

“But simply as a matter of political theater, over the course of many hours of testimony, Clinton performed brilliantly. She assumed a calm, deliberate demeanor with her opening statement and never surrendered it.

“The more she sounded like a policy wonk, the less she seemed like what the Republicans clearly wanted her to seem like: a cynical political animal who viewed the Benghazi killings in the days that followed them not as an American foreign-policy crisis but as an electoral problem for President Obama to be solved by blaming the incident on a YouTube video....

“The GOP, damaged by Rep. Kevin McCarthy’s jaw-dropping gaffe about how the committee had done its work by making Hillary’s poll numbers fall, didn’t have much running room....

“She looked big.  They looked small.  She spoke like a person engaged with highly serious matters, and they mostly sounded as if they were niggling, fussing and poking ineffectually at her....

“She was also helped by the Democrats on the committee, who were likely asking her questions that Hillary’s team had drafted for them.  When a recess was called, reports Ruby Cramer of BuzzFeed, Clinton went up to Democratic members and said, ‘You’ve got my back and I’m so grateful you do.’

“She was saying, in effect, your job applications for high-ranking positions in the Hillary Clinton administration have been received.

“So much for fact-finding or getting at the truth.”

Editorial / Wall Street Journal

“The House Benghazi hearing Thursday with Hillary Clinton featured plenty of partisan brawling, but don’t believe those who say we learned nothing.  The hearing turned up new information that relates directly to the former Secretary of State’s political character and judgment as a potential Commander in Chief.

“The select committee led by Republican Trey Gowdy of South Carolina released hitherto undisclosed documents showing that Mrs. Clinton believed from the start that the attack was perpetrated by terrorists.

“At 11:12 p.m. on the night of the attack, Sept. 11, 2012, Mrs. Clinton emailed her daughter Chelsea that, ‘Two of our officers were killed in Benghazi by an Al-Qaeda-like group: The Ambassador, whom I handpicked and young communications officer on temporary duty w[with] a wife and two young children.  Very hard day and I fear more of the same tomorrow.’  Her empathy is admirable, but presumably she was telling her daughter what she really believed.

“The committee also released a State Department summary of Mrs. Clinton’s call the next day, Sept. 12, with Egypt’s Prime Minister.  ‘We know that the attack in Libya had nothing to do with the film.  It was a planned attack – not a protest,’ Mrs. Clinton said. The call summary then blocks out a comment by the Egyptian, to which Mrs. Clinton replies, ‘Your [sic] not kidding.  Based on the information we saw today we believe the group that claimed responsibility for this was affiliated with al Qaeda.’

“This matters because it precedes what became the Administration’s original story that the Benghazi attack had been motivated by an anti-Muslim Internet video (‘the film’ as Mrs. Clinton put it to the Egyptian).  The State Department issued a statement under Mrs. Clinton’s name on the night of the attack hinting at the video motivation:

“ ‘Some have sought to justify this vicious behavior as a response to inflammatory material posted on the internet.  The United States deplores any intentional effort to denigrate the religious beliefs of others.  Our commitment to religious tolerance goes back to the very beginning of our nation.  But let me be clear: There is never any justification for violent acts of this kind.’

“If Mrs. Clinton was telling people privately that it was a terror attack, why hint publicly at some other motivation?  Keep in mind that this was in the heat of an election campaign in which one of President Obama’s main themes was that al Qaeda was all but defeated.”

--As for the latest presidential polls....

In an ABC News/Washington Post national survey, Donald Trump receives 32% to Ben Carson’s 22% among Republicans and Republican-leaning independents. Then in third it’s Marco Rubio at just 10%, Jeb Bush 7%, Ted Cruz 6% and Carly Fiorina 5%.

[Back on May 31, Rand Paul and Scott Walker were leading at 11%, with Bush and Rubio at 10%.  Carson was at 8%, Trump 4%.  Walker is of course out of the race.  Paul receives just 2% today.]

Notably, even more, 42%, say they expect Trump to win the GOP nomination for president, with Carson next back at 15%.

In a new CNN/ORC nationwide poll, Trump leads with 27%, followed by Carson at 22%.  Bush and Rubio are tied for third with 8% each, Mike Huckabee and Rand Paul receive 5% apiece.  And Carly Fiorina, Chris Christie and Ted Cruz poll 4%.  John Kasich is at 3%.

Fiorina has lost 11 points in the last month.  She had Big-Mo on her side and somehow frittered it away.  She needs another strong performance in the next debate, CNBC’s, on Oct. 28 (Game 2 of the World Series for us Mets fans).

Among Democrats, Hillary Clinton gets 45%, with Bernie Sanders at 29%.  [Biden, though, was at 18%.]  So, if Biden is not in it, this poll shows Clinton leading 56-33.

In the new NBC News/Wall Street Journal national survey, Trump gets 25% to Carson’s 22%.  Rubio is in third at 13%.  Cruz 9%, Bush 8%, 7% for Fiorina.

In a Bloomberg Politics/Saint Anselm New Hampshire poll released Tuesday of Democratic primary voters, Bernie Sanders polled 41%, Hillary 36% and Biden 10%.  All polls show that without Biden, Hillary picks up the lion’s share of his support.

On the Republican side, Trump had 24%, Carson 17% and Bush was third with 10%.

A Suffolk University/Boston Globe poll of likely Democratic Granite State primary voters has Hillary at 37%, Sanders at 35%, but with Biden in the calculation; the VP receiving 11%.

But in Iowa, a new Quinnipiac University poll has Hillary, sans Biden, leading Bernie 51-40, after he led 41-40 in the previous survey.

On the Republican side, Quinnipiac has Ben Carson on top, leading Trump 28-20, with Rubio and Cruz at 13 and 10 percent, respectively.  In September, Trump led Carson 27-21.

A Des Moines Register/Bloomberg Politics poll of likely GOP caucusgoers in Iowa has Carson leading Trump 28-19, so some consistency in these last two.  Cruz is at 10% in this one, followed by Rubio at 9%.

How will The Donald handle his first real adversity?

--Mr. Trump caught major heat for the following statement on “Fox News Sunday” with host Chris Wallace, when Wallace asked what Trump would have done differently in response to an earlier suggestion that then-President George W. Bush was partially at fault for the attacks.  Trump insisted he is not blaming the former president for them.

“Jeb [Bush] said ‘We were safe with my brother.  We were safe.’  Well, the World Trade Center just went down.  Now, am I trying to blame him?  I’m not blaming anybody, but the World Trade Center came down, so when he said we were safe, we were not safe.  We lost 3,000 people. It was one of the greatest – probably the greatest catastrophe ever in this country,” he said.

Trump added: “I’m not blaming George Bush, but I don’t want Jeb Bush to say ‘My brother kept us safe,’ because Sept. 11 was one of the worst days in the history of this country.”

Well, Jeb Bush wasn’t happy...but I really don’t give a damn about Jeb Bush at this point, who is slashing campaign staff and payroll.  I’m just disgusted.  I also largely agree with the following take.

Peter Beinart / The Atlantic

“Donald Trump utters plenty of ugly untruths: that undocumented Mexican immigrants are ‘rapists,’ that Syrian refugees are committing ‘all sorts of attacks’ in Germany and represent a ‘Trojan Horse’ for ISIS.  But he tells ugly truths too: that ‘when you give [politicians money], they do whatever the hell you want them to do.’  And that ‘the Middle East would be safer’ if Saddam Hussein and Moammar Qaddafi were still in power.

“His latest ugly truth came during a Bloomberg TV interview last Friday, when he said George W. Bush deserves responsibility for the fact that ‘the World Trade Center came down during his time.’  Politicians and journalists erupted in indignation.  Jeb Bush called Trump’s comments ‘pathetic.’  Ben Carson dubbed them ‘ridiculous.’

“Former Bush flack Ari Fleischer called Trump a 9/11 ‘truther.’  Even Stephanie Ruhle, the Bloomberg anchor who asked the question, cried, ‘Hold on, you can’t blame George Bush for that.’

“Oh yes, you can.  There’s no way of knowing for sure if Bush could have stopped the September 11 attacks.  But that’s not the right question. The right question is: Did Bush do everything he could reasonably have to stop them, given what he knew at the time?  And he didn’t.  It’s not even close.

“When the Bush administration took office in January 2001, CIA Director George Tenet and National Security Council counterterrorism ‘czar’ Richard Clarke both warned its incoming officials that Al Qaeda represented a grave threat.  During a transition briefling early that month at Blair House, according to Bob Woodward’s Bush at War, Tenet and his deputy James Pavitt listed Osama Bin Laden as one of America’s three most serious national-security challenges. That same month, Clarke presented National Security Advisor Condoleezza Rice with a plan he had been working on since Al Qaeda’s attack on the USS Cole the previous October. It called for freezing the network’s assets, closing affiliated charities, funneling money to the governments of Uzbekistan, the Philippines and Yemen to fight Al Qaeda cells in their country, initiating air strikes and covert operations against Al Qaeda sites in Afghanistan, and dramatically increasing aid to the Northern Alliance, which was battling Al Qaeda and the Taliban there.

“Trump’s refusal to be respectable helps him spark debates that elites would rather avoid. And sometimes, those debates are important to have....

“On August 6, 2001, the CIA titled its Daily Brief: ‘Bin Laden Determined to Strike the U.S.’  It was the 36th time the CIA had raised Al Qaeda with President Bush since he took office....

“On the morning of September 11, 2001, Clarke’s anti-Al Qaeda plan was sitting on Bush’s desk, awaiting his signature.  It was the ninth National Security Presidential Directive of his presidency.

“Would the Bush administration have stopped the 9/11 attacks had it taken the threat more seriously?  Possibly.  On August 3, a Saudi named Mohamed al-Kahtani tried to enter the United States in Orlando, Florida, allegedly to participate in the 9/11 plot.  He was sent back home by a customs official whose only concern was that he might become an illegal immigrant.  On August 16, FBI and INS agents in Minnesota arrested another potential hijacker, Zacarias Moussaoui, after being tipped off by his flight instructor.  But despite numerous requests, they were denied permission to search his apartment or laptop.  These incidents ‘might have exposed the’ 9/11 plot, writes (former New York Times reporter Kurt) Eichenwald, ‘had the government been on high alert.’....

“Given that George W. Bush’s advisors still dominate the Republican foreign-policy establishment – an establishment that has not broken with his ideological legacy in any fundamental way – his record both before and after 9/11 remains relevant to the terrorism debate today.  For many years now, that foreign-policy establishment has insisted that questioning Bush’s failure to stop the September 11 attacks constitutes an outrageous slur. That’s why Fleischer is now calling Trump a ‘truther.’  He’s purposely blurring the line between accusing Bush of having orchestrated the attacks and accusing Bush of having been insufficiently vigilant in trying to stop them.  But Bush was insufficiently vigilant. The evidence is overwhelming.

“If Jeb’s loyalty to his brother makes it impossible for him to confront that, fine.  But he has no right to demand that the rest of the public avert its eyes.”

--Former Virginia Senator Jim Webb dropped out of the Democratic race on Tuesday.  He’s threatening to run as an independent.  I like the guy, and he has as good a background as anyone running, but no way would he pick up enough support as a third party candidate to get on a debate stage next fall.

--Lincoln Chafee dropped out!  I forgot...was he running as a Democrat or a Plutonian?

--According to a new Gallup poll, American support for legal marijuana is at an all-time high, nearly two years after the nation’s first recreational marijuana shop opened in Colorado.  58% now say that the use of marijuana should be legal, a seven-point year-over-year increase.

Only 32% of Boomers born between 1951 and 1965 supported legal marijuana back in 1985.  Now that is the same 58%.

Across the border in Canada, incoming Prime Minister Trudeau has promised to start working on legalizing marijuana “right away.”

--The American Cancer Society issued new guidelines on Tuesday recommending women with an average risk of breast cancer start having mammograms at 45 and continue once a year until 54, then every other year for as long as they are healthy and expected to live another 10 years.

“The organization also said it no longer recommended clinical breast exams, in which doctors or nurses feel for lumps, for women of any age who have had no symptoms of abnormality in the breasts.

“Previously, the society recommended mammograms and clinical breast exams every year, starting at 40.”  [New York Times]

The changes reflect increasing evidence mammography is imperfect.

The new guidelines were published on Tuesday in the Journal of the American Medical Association, for those wanting far more detail, including on the benefits and risks of screening.

--Federal regulators will now require recreational drone users to register their aircraft with the government.  Good!  But details to follow when it concerns the registration process and, as is the case with handguns, the chances of stopping someone bent on doing harm are nil.

--Over the years I’ve said more than once that if you are vacationing in the Caribbean, particularly if you’re renting a private home, to never let your guard down.  On Tuesday, a couple from Britain was found hacked to death in their home on the island of Tobago, the latest in a series of unsolved attacks by machete-wielding assailants against expatriates and tourists on the island, as reported by the Irish Independent.

--A New York City police officer was shot and killed while pursuing a suspect on a bicycle along a pedestrian overpass. Randolph Holder, 33, was shot in the head, the fourth New York officer killed in the past 11 months.

Tyrone Howard was arrested and we learned a Manhattan judge had pushed a sweetheart deal that allowed Howard to go to drug rehab instead of prison because he believed none of Howard’s numerous prior convictions involved violence.

The judge admitted he was unaware that Howard had been linked to a 2009 shooting that left three people wounded.  Prosecutors had wanted him to do six years behind bars after being nabbed yet again for peddling drugs last year.

There’s a lesson here for those advocating massive releases of prisoners to relieve overcrowding and to rectify parts of the criminal code that are simply bad law.  I am one of those favoring this.  But officials need to take their time...examine each case carefully and have all the facts.

---

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

We pray for the victims of that awful bus crash in France.  So sad.

God bless America.

---

Gold $1164
Oil $44.60

Returns for the week 10/19-10/23

Dow Jones  +2.5%  [17646]
S&P 500  +2.1%  [2075]
S&P MidCap  +0.4%
Russell 2000  +0.3%
Nasdaq  +3.0%  [5031]

Returns for the period 1/1/15-10/23/15

Dow Jones  -1.0%
S&P 500  +0.8%
S&P MidCap  -0.9%
Russell 2000  -3.2%
Nasdaq  +6.25%

Bulls 37.5
Bears  31.3  [Source: Investors Intelligence]

Have a great week.  I appreciate your support.

LET’S GO METS!

Brian Trumbore