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11/07/2015

For the week 11/2-11/6

[Posted 11:00 PM ET, Friday]

Note: If you haven’t already done so, please click on the gofundme link above, or send a check to PO Box 990, New Providence, NJ  07974.

*Special thanks this week to Thomas D. and Jeff Be-- (had to distinguish Jeff from long-time supporter Jeff B).

Edition 865

Washington and Wall Street

On Wednesday, Federal Reserve Chair Janet Yellen appeared before a House committee on banking regulation but the discussion, as was inevitable, turned to monetary policy and Yellen was prepared with written remarks.

She said the U.S. economy was performing well and that the “downside risks” from global economic and financial developments had diminished since September, adding spare capacity in the jobs market had fallen “significantly” since earlier in the year.

So in light of this, Yellen said there was a “live possibility” for an increase in interest rates at the Fed’s Dec. 15-16 meeting.  Granted, “no decision at all has been made” but the Fed would be examining the data in the interim.

Yellen noted she was very aware that a sharp rise in mortgage rates could have a negative effect on housing, but, “We do have a recovering economy where employment is going up, income is going up.”  She also tried to reassure us that the pace of any rate increases was going to be “gradual and measured,” a constant refrain this year.

Dennis Lockhart, the president of the Federal Reserve Bank of Atlanta, said later: “I think the case for liftoff will continue to firm up.”  Speaking in Switzerland, Lockhart said his assessment was the U.S. economy was in an above-potential growth phase, with labor markets continuing to improve.

Both Lockhart and Yellen were speaking before Friday’s jobs report and after its release, there seems little doubt, barring something unforeseen on the geopolitical side that crushes confidence, the Federal Reserve will indeed hike interest rates, just 25 basis points, 0.25%, on Dec. 16.

The U.S. economy in the month of October created 271,000 jobs, far above expectations, with August being revised up to 153,000 and September revised slightly down to 137,000, with the unemployment rate ticking down to 5.0%, the lowest since April 2008, or exactly half the October 2009 peak of 10.0%.  The private sector created a strong 268,000 jobs, equally good, while U6, the measure of ‘underemployment,’ fell to 9.8%, the lowest since May 2008.

But perhaps most importantly, average hourly earnings for the month rose 0.4% and are now running at a solid 2.5% for the past 12 months, the fastest pace since July 2009, which should be enough to push any doubters on the Fed’s Open Market Committee into hiking rates.  The Fed, after all, has been complaining it needs to see not just wage growth but inflation, and by many measures inflation is running at or near the Fed’s 2% target already.

Wall Street took the strong employment news and a rise in yields on Treasuries in stride, tacking on gains in stocks for a sixth straight week.  It’s good news for average folks.  Not so good for multinationals if the dollar soars anew and their earnings are hit further.  But we’ll now see just how far bond yields rise.

In other economic news, the ISM manufacturing PMI came in at just 50.0 for October, 50 being the dividing line between growth and contraction, the slowest pace in two years, but a new-orders sub-index was a healthy 52.9.  September factory orders fell 1.0%, the 11th month in 14 it declined.  But it’s the jobs data that trumps all and there is one more such report in December before the Fed gathers for some Christmas cheer.

On the political front, former House Speaker John Boehner said he wanted to clean the barn before Paul Ryan took the gavel, and as much as Boehner was able to he did so, leaving Ryan with pretty much a clean slate, though it is still possible there could be a government shutdown along the way, albeit this seems highly unlikely.

Congress passed a two-year bipartisan budget plan that avoids a default on the U.S. federal debt by extending borrowing authority until March 2017, but it still must agree on a government spending plan before current funds run out Dec. 11.

That said, Speaker Ryan gained his first major victory when the House passed a long-term U.S. highway funding plan Thursday, paving the way for the first multi-year transportation bill since 2012.

The vote was 363-64 and included a provision to revive the U.S. Export-Import Bank, whose charter expired June 30.

Ryan said at a news conference after the vote: “It cuts waste, it prioritizes good infrastructure, and it will help create good-paying jobs.  And it is the result of a more open process.  It’s a good start.  It’s a glimpse of how we should be doing the people’s business.”

The Senate had already passed its own version so the two will resolve any differences in conference.  It then goes to the White House, where President Obama has said that while it’s a step in the right direction, the legislation “maintains funding at current levels, which are widely acknowledged to be below the level needed to maintain this country’s surface transportation infrastructure,” according to an administration statement.

Ex-Im has been a controversial topic for years now, with the 81-year-old institution designed to help American companies such as Caterpillar, Boeing and General Electric sell big-ticket items to overseas buyers.  But some, including Ryan, say it helps big companies that shouldn’t require such assistance.

The White House finally released details on the 12-nation Pacific Rim trade pact, the Trans-Pacific Partnership, or TPP, which would lower tariffs on thousands of goods and services, including beef, pork dairy and automobiles.

This now begins a long and bruising fight.  Once the president notifies Congress of his intent to sign the accord, Congress has 90 days to debate it, after which Obama sends it to Capitol Hill under the terms of “fast-track” trade legislation already approved by Congress.

The fight will be enhanced by the presidential election cycle as both Hillary Clinton and Bernie Sanders are against TPP, while Donald Trump has publicly opposed it as well.

Some companies, such as Ford Motor, are also unhappy that the terms governing currency manipulation don’t have any teeth.  Ford said in a statement: “The currency forum does nothing to change the status quo...and it fails to include dispute settlement mechanisms to ensure global rules prohibiting currency manipulation are enforced.”  [David Nakamura / Washington Post]

Lastly, early in the week, TransCanada, the Canadian company behind the proposed Keystone XL pipeline, made a request to the U.S. State Department to suspend its review of the Alberta-to-Texas pipeline, and then denied there was a political motivation behind the request, namely that it wanted to delay any decision until after the next U.S. president takes office in 2017, hopefully a more supportive Republican.

But it was long anticipated President Obama would reject the project and so the White House said after hearing TransCanada’s request for a delay that Obama intended to make a decision about the pipeline before leaving office.

Well that came Friday morning, as Obama, flanked by Secretary of State John Kerry and Vice President Joe Biden, announced he was formally rejecting Keystone, ending seven years of controversy over a project whose opponents said would worsen climate change against supporters touting the economic benefits.

“After extensive public outreach and consultation with other cabinet agencies, the state department has decided that the Keystone XL pipeline would not serve the national interests of the United States.  I agree with that decision,” said Obama.

Obama said he spoke with Justin Trudeau, Canada’s newly elected prime minister who had been a proponent of Keystone.

House Speaker Ryan condemned the president’s action: “This decision isn’t surprising, but it is sickening.  By rejecting this pipeline, the president is rejecting tens of thousands of good-paying jobs.  He is rejecting our largest trading partner and energy supplier.  He is rejecting the will of the American people and a bipartisan majority of the Congress.”

Europe and Asia

Lots of economic data for the eurozone.  As reported by Markit, the final composite PMI for the EA-19 was 53.9 in October vs. 53.6 in September.  Services were at 54.1 vs. 53.7, while manufacturing came in at 52.3 vs. 52.0.

On the manufacturing side, Germany was at 52.1, Spain 51.3 (22-month low), France 50.6, and Greece 47.3 (5-month high).

Put it all together and Chris Williamson, Chief Economist at Markit, said:

“The final PMI data confirm the steady but still somewhat lackluster economic growth recorded in the euro area at the start of the fourth quarter. The survey suggests that the region’s quarterly growth rate remains constrained at around 0.4%....

“Of the four largest euro nations, Spain continues to record the strongest pace of expansion, with the PMI signaling a 0.7% rate of expansion at the start of the fourth quarter*.  The survey data meanwhile suggest that Germany continues to grow at a rate of around 0.4% with Italy close behind at 0.3%.  France remains the laggard, with the PMI showing promising signs of lifting higher but still consistent with just 0.2% growth.”  [Ed. quarter over quarter.]

*Spain is benefiting from record tourism, which isn’t reflected in the data I have for the country above.

Germany had some separate sour readings with industrial production in September down 1.1% over August, and factory orders down 1.7%, the third consecutive decrease for both as the economy is grappling with the slowdown in China and other emerging markets.

Data in non-euro U.K. was solid.  The manufacturing PMI last month was 55.5 vs. 51.8 in September, far better than expected, while the services sector came in at 54.9 vs. 53.3, both of which indicate faster growth in the fourth quarter over the third.  The Bank of England, though, is expected to keep interest rates at a record low 0.5% for a while yet.

Well if growth is still largely sluggish, it’s no wonder that European Central Bank President Mario Draghi said in a newspaper interview last weekend that the ECB will continue to do what it takes to keep its medium-term inflation target on course.  The target is 2% and consumer prices in the 19-country eurozone fell by 0.1% annualized in September.  Draghi is confident inflation will rise from mid-2016 on, owing “to the delayed effect of the depreciation in the exchange rate,” which boosts exports.  [The euro has depreciated 6% against the dollar in just the past six days.]

But while Draghi’s version of quantitative easing is designed to keep euro bond yields artificially low, rates rose all week, including on Friday following the strong U.S. jobs number.  For example, the yield on the 10-year German bund rose from 0.52% to 0.69% in one week, while the yield on Italy’s 10-year bond rose from 1.48% to 1.79%.

A note on Greece.  The ECB said its troubled banks need more than 14bn euro in fresh capital to survive and that they need to come up with a recapitalization plan by January 1 when tough EU rules come into force on creditor losses at bailed-out financial institutions.  The four major banks in question have been relying on emergency loans from the ECB since February.

Finally, on the migration front, the rift is growing within German Chancellor Angela Merkel’s ruling coalition.  The Bavarian sister party of Merkel’s conservatives is demanding tougher measures to reduce the flow of new arrivals, virtually all of them coming through Bavaria at first.  Vice Chancellor Sigmar Gabriel wants to set up transit zones on the country’s borders to filter out migrants who have little chance of gaining asylum.

Norway’s immigration authorities have launched an advertising campaign to deter refugees from seeking asylum in the country.  The Norwegian Directorate of Immigration sent out a message on Twitter warning Afghans planning to cross Norway’s border with Russia that they risked forced repatriation.

Stefan Lofven, Sweden’s prime minister, rebuked some central and eastern European governments for what he terms their selfish approach to the refugee crisis, but many in Sweden don’t want to open their doors to Muslim refugees from the Syrian civil war and other conflicts in the region either.  Sweden is taking in the largest per capita inflow for any EU country with an anticipated arrival of 190,000 by year end vs. a population of 9.6 million.

As the New York Times’ Rod Nordland noted in an extensive piece over the weekend, the migration crisis is only going to get worse, especially if ISIS isn’t stopped.  Ditto the Taliban in Afghanistan, where at least a quarter of residents want to leave, according to a Gallup Poll.  [That same poll found that 40% of Nigerians would like to emigrate to the West.]

Turning to Asia, the economic data out of China was mixed, with the private Caixin manufacturing PMI for October coming in at 48.3 vs. 47.2 the prior month, an improvement but still contraction.  The services index, though, was 52.0 vs. 50.5 in September, as new-order growth picked up.

The official government PMI for manufacturing, as published by the National Statistics Bureau, was 49.8, the third straight month below 50, while the non-manufacturing (services) index fell to 53.1 from 53.4, the weakest since Dec. 2008.

All in all, the data shows that the economy may be stabilizing.  A senior statistician at the Bureau of Statistics said that big companies are outperforming smaller ones, the latter “facing a financial strain considerably higher than that of bigger companies.”

Meanwhile, President Xi Jinping set a growth floor of 6.5% for the next five years, acknowledging the economy faces many domestic and global uncertainties, but 6.5% is needed to realize the government’s goal of doubling people’s average income and the size of the economy by 2020 over 2010 levels, according to China’s official Xinhua News Agency.

The actual range for the next five years is set in March by the rubber-stamp parliament.

Separately, the IMF has warned China’s debt level has grown far faster than debt did in Japan, South Korea and the U.S. before they all tumbled into recession.

As for the veracity of China’s numbers, some of the component figures are believable, but the big one, GDP, simply isn’t.  Most economists believe the real rate of growth is closer to 5% than 7%.

Meanwhile the Chinese stock market, as measured by the Shanghai Composite Index, is up about 22% since its Aug. 26 low.  Since the start of the bear market in the spring, China has cut interest rates three times and lowered the reserve requirements for its banks.

In Japan, the manufacturing PMI for October was a solid 52.4 vs. 51.0 in September, with the services reading at 52.2 vs. 51.4, according to Markit.  [Other regional manufacturing PMIs for last month...South Korea 49.1 vs. 49.2; Taiwan 47.8 vs. 46.9; Russia 50.2 vs. 49.1.]

The big economic story for Japan, however, was the triple initial public offering of Japan Post and its banking and insurance units, which all surged on their debut.  The IPO raised $12bn and was the biggest in the world this year and the largest since Alibaba’s record $25bn deal in 2014.

Japan Post, a 144-year-old institution, is the country’s biggest bank, insurer and one-time political football (Japan Post Holdings).

About 10% of each company was sold to the public in the largest privatization of a state-owned firm since Nippon Telegraph and Telephone in 1987.  The government plans to use the funds to help reconstruct areas hit by the 2011 earthquake and tsunami.

The listing is part of Prime Minister Shinzo Abe’s plans to boost the economy by encouraging consumers to invest in the stock market.  [More shares will be parceled out on a periodic basis.]

Street Bytes

--As noted above stocks rose a sixth straight week and the Dow Jones is now back in positive territory for the year, +0.5%, after a 1.4% gain to 17910.  The S&P 500 added nearly 1% to 2099 (31 points shy of its all-time high), while Nasdaq gained 1.9%. 

Financial stocks surged on Friday with the jobs data...rising interest rates allowing the banks to earn more income from lending.

--U.S. Treasury Yields

6-mo. 0.31%  2-yr. 0.89%  10-yr. 2.33%  30-yr. 3.09%

The yield on the two-year is at its highest level since May 2010 in anticipation of the Fed hiking rates for the first time since 2006.  The yield on the 10-year rose 19 basis points and is back over the 12/31/14 figure of 2.17%.

--Soros Fund Management, the firm overseeing George Soros’ wealth, pulled almost $500 million from an account run by Bill Gross, money it invested last year after the bond manager left PIMCO to run a new fund at Janus Capital Group Inc.  Needless to say a big setback for Gross, whose Global Unconstrained Bond Fund has trailed about 70% of similar funds this year, according to Bloomberg.

--Facebook reported strong results Wednesday and within a day its market cap exceeded $300 billion, placing its value ahead of General Electric, the seventh most valuable company in the S&P 500.

The social media giant was boosted by 72% year-on-year growth in advertising on smartphones and tablets to $3.3 billion.

Mobile advertising now makes up more than three-quarters of the total revenue, up from two-thirds a year ago.

Monthly active mobile users rose 23% to 1.39bn.  Monthly active users overall exceeded 1.5bn for the first time, up 14% from year ago levels.

The company also added 1,000 employees to bring its total staff to 12,000.

Net profit for the September quarter was up 11% to $896 million.

Around the time of its initial public offering in 2012, Facebook shares suffered as investors fretted about its longevity.  But with the shares initially being sold for $38, they finished the week at $108.

Granted, the company is trading at an outrageous multiple, but it’s growing roughly 30% a year and generated net income of $2.8 billion on revenue of nearly $16bn the past 12 months.

Founder and CEO Mark Zuckerberg’s stake, by the way, has grown to around $46 billion.

--Walt Disney Co. reported fiscal fourth-quarter earnings Thursday that exceeded Wall Street’s expectations, though revenue fell short.

Overall, revenue was nonetheless up a solid 9% from year ago levels, while profit grew 7% to $1.6 billion.

Profit at Disney’s media network’s business, which includes ESPN and ABC, rose 27%, thanks to improved results at ESPN in particular, while the movie and TV studio business posted flat revenues, though profits more than doubled due to greater TV and streaming distribution revenue for its content.

Investors have been worried about cord-cutting – abandoning traditional cable subscriptions in favor of lower-cost options, with ESPN slashing costs and shuttering its Grantland online magazine.

--Shares in Time Warner fell sharply after the company cut its profit expectations for 2016.  The company, which owns Turner networks, HBO and Warner Bros. film studios, reduced its outlook, citing the effects of foreign exchange rates as well as increased spending on content and technology.

CEO Jeff Bewkes emphasized the company is preparing for long-term growth rather than short-term profits.

“Now is the time for us to press our advantages, and I’m confident these investments in content, capabilities and the consumer experience will position us for continued strong growth in the years to come,” he said in a conference call.

Time Warner has been investing aggressively in brands that will resonate with viewers across a variety of platforms, including HBO’s recent deals with Jon Stewart, Bill Simmons and “Sesame Street,” as well as its expanded relationship with media company Vice, which will have a news program on HBO.

--The share of U.S. homes sold to first-time buyers this year declined to its lowest level in almost three decades, according to the National Association of Realtors.  Only 32% of all purchasers were first-time buyers in 2015, the lowest percentage since 1987.  The historical average is 40%.

Overall, the housing market is on track for its best year since 2007, but without first-time buyers, current owners will find it more difficult to trade up.

A big problem is home prices have been rising sharply, up 6.1% in September from a year earlier, according to the NAR.

--Auto makers in the U.S. reported strong sales gains in October, aided by the calendar (five weekends) and continued robust demand with low gasoline prices.

Sales reached their highest October volume since 2001 and topped 18 million vehicles on a seasonally adjusted annualized selling rate, the fastest pace in 10 years.  [Sales for September and October were at the best back-to-back month levels since February 2000.]

Most analysts are expecting full-year U.S. light vehicle sales to reach about 17.5 million units, which would exceed the industry’s record sales of 17.4 million set in 2000.

General Motors Co. had a 15.9% jump over a year earlier, surpassing estimates, including a 19th consecutive month of gains in truck sales, up 13%.  Fiat Chrysler recorded a 14.7% leap, propelled by a 33% gain for its Jeep brand.   Ford Motor Co. registered a 13.4% gain.

Toyota posted its best-ever sales for the month on a 13% year-over-year increase, Honda also broke its October record with sales up 8.6%, and Nissan’s rose 12.5%.

Volkswagen’s sales of its namesake brand, however, were flat for the month, the first full sales month after its emissions cheating scandal broke.  So with the sales gains registered by its competitors, that means a big drop in market share.

[VW’s stock price has lost about a third of its value since news of the scandal broke, including a renewed hit this week after the automaker revealed new “irregularities” in emissions certification of its vehicles.  Some Porsche brands have now been dragged into the mess.]

--Tesla Motors Inc. posted a wider loss in the third quarter of $229.9 million, the 10th-consecutive quarter of red ink.  But investors celebrated the results because the company stuck to its sales-targets for the year.

Revenue rose 10% to $936.8 million, but development costs offset the growth in volume.

Tesla predicted it would deliver 17,000 to 19,000 vehicles in the fourth quarter, while it believes it will ramp up by the end of the first quarter of 2016 to a pace that would enable it to deliver around 90,000 vehicles a year.

Deliveries rose 49% to 11,600 in the third quarter.

--New York Attorney General Eric Schneiderman sent a subpoena to ExxonMobil as part of an investigation into whether the company misled investors and the public about climate change risks.

Schneiderman is inquiring into whether ExxonMobil made adequate disclosures to investors about the risks related to the push to limit the use of fossil fuels.  Exxon is also being investigated for consumer fraud related to marketing, advertising and communications regarding climate change.

Exxon confirmed it had received a subpoena and rejected allegations it suppressed climate change research.

Schneiderman’s inquiry could broaden to include other oil and energy companies, one already being Peabody Energy, one of the largest global coal producers.

--Britain faces an energy supply crunch over the next 15 years so it is granting hundreds of millions of pounds in subsidies for highly polluting diesel generators.  According to the International Energy Agency, diesel electricity production emits only slightly less carbon than burning coal.

--Shares in BHP Billiton Ltd., the world’s biggest mining company, fell sharply on Friday after a dam burst at a Brazilian iron-ore operation it jointly owns caused massive damage, aside from killing as many as 16 people in the resultant flooding.  Television pictures from Brazil showed homes awash in red mud; discarded minerals from the nearby mine.

The affected mine, Samarco, is one of Brazil’s biggest deposits of the steelmaking commodity and aside from the costs to clean up the area impacted by the flooding, and all the resultant lawsuits, the mine itself could be shut down for some time.

--The newly merged Kraft Heinz Co. said it was closing seven manufacturing facilities in North America over the next two years, resulting in the loss of 2,600 jobs.  Production will shift to other plants in North America.

--I noted the other week the difficulties the world’s biggest container-ship operator, Maersk, was having and this week the Danish conglomerate announced it would cut 4,000 jobs from its land-based staff of 23,000, as well as cancel options to buy six Triple-E vessels, which are the world’s largest container ships as the company deals with the worst downturn in the industry since the financial crisis of 2009.

Maersk already ordered 27 vessels this year, including 11 Triple-Es, which can carry in excess of 19,000 containers! The ships are built at South Korean yard Daewoo Shipbuilding & Marine Engineering Co. 

Analysts estimate the container shipping industry suffers from overcapacity of about 30%, but new ships still coming online will boost this even further.  [Wall Street Journal]

--Japanese telecom and Internet giant SoftBank Group Corp. said it plans to cut thousands of jobs at Sprint Corp., the wireless carrier it acquired in 2013.

--So as you know I live directly across the street from what had been a massive Merck campus, which is now officially Celgene after the latter acquired it all.  What got me at the time, as I wrote in this space, was that Celgene was already expanding its existing facility at the other end of town and I’ve been questioning just what their plans are to fill both.  Lots of acquisitions, I assume.

On Thursday, the company reported earnings that were basically inline, with sales up 18% amid rising demand for its cancer and psoriasis drugs, though the shares got whacked.

So we’ll see.  The place across the way has been a beehive of activity and you know there is some semblance of normalcy returning with the emergence of the ‘smokers’ out front.

--The European Commission said Ireland’s economy will expand by 6 percent this year, almost double last spring’s estimate and far outstripping the EU average of 1.9 percent.  Ireland is benefiting from strong consumer spending, investment and exports.

Unemployment in Ireland is expected to fall to 7.9 % in 2017 vs. a euro area rate of 10.3%.

Tourism in Ireland is at record levels this year and 2016 is expected to offer more of the same. For U.S. travelers, Aer Lingus is expanding in a big way, including five weekly flights between Dublin and Los Angeles, as well as new daily flights to Newark and Hartford, Conn.

--European banks have been announcing sweeping job cuts, with Standard Chartered Plc the latest. The London-based firm said it would eliminate 15,000 jobs, or 17 percent of its workforce, as soaring bad loans in the emerging markets hurt earnings.  That brings the total announced reductions in two weeks to 30,000, including cuts at Deutsche Bank* and Credit Suisse Group AG.

*Not including further cuts through asset sales.

Additionally, Milan-based UniCredit SpA is considering as many as 12,000 layoffs.

--Gambling revenue in the Chinese territory of Macau fell 28.4 percent in October vs. a year ago; the 17th consecutive month of decline following the launching of China’s drive against conspicuous spending by public officials, the erstwhile “VIPs” that Macau so relies on.

Revenue in October was however greater than September.

--Kellogg Co. reported a decline in profit for the sixth straight quarter, though the company sees signs of a bottom.  Revenue decreased 8.5% to $3.33 billion as the world’s leading cereal company continues to face pressure with the movement away from sugary breakfast cereals and snacks.  But Kellogg did say its top six brands combined gained half a percentage point of market share.

--Shake Shack Inc. continues to roll, with the company raising its revenue outlook for the year yet again.  The burger chain is now expecting sales at existing restaurants to be up 11% to 12%.  [Compare that with McDonald’s recent stagnant U.S. growth.]

Revenue surged 67% to $53.3 million.  Restaurants open at least 24 months actually saw their sales rise 17.1% in the quarter, when the Street was expecting 9.6%.

For 2016, however, the company expects its same-store sales growth to be more like 3%.

--Bloomberg estimates that Taco Bell’s promotion of one free egg-sausage-quesadilla for “all of America” promotion during the World Series cost the company about $10 million.  All that was required was for either the Mets or Royals to steal a base and Kansas City’s Lorenzo Cain did so in the first game.  I forgot what day the giveaway was supposed to be and missed this.

--I have a Wendy’s nearby that I must say I haven’t been to in a while and didn’t know they had a “4 for $4” deal, which includes a Jr. Bacon Cheeseburger, chicken nuggets, fries and drink.  That ain’t too shabby.  The company issued third-quarter earnings that beat expectations and cited this value meal as a major reason for guiding higher for all of 2015.

Wendy’s has been struggling like others in its space to find the right price points.  McDonald’s Dollar Menu didn’t resonate and now it’s considering a 2 for $2 alternative.

Wendy’s said same-store sales at its North American locations rose 3.1% in the quarter.

--Shares in Chipotle Mexican Grill Inc. took a hit after the chain was linked to an E. coli outbreak in Washington and Oregon.  The company shut down 43 restaurants in two areas after six of them were connected to the illness, which has sickened at least 40 people, last I saw.

The E. coli scare comes after a salmonella outbreak in Minnesota in September, when Chipotle restaurants were linked to dozens of infections.  And there was one Chipotle location in California this past summer that was linked to an outbreak of norovirus, which sickened about 80 customers.

So much for simple, unprocessed ingredients.  Give me artificial ingredients and processed foods!

--Amazon.com is adding paternity leave; six weeks for those who have worked for the company at least a year, marking the first time Amazon has offered paid time off for fathers.  Birth mothers are entitled to a total of 20 weeks of paid maternity leave, including four weeks of paid leave before the baby’s arrival.

--The California drought will be over by May...that’s my prediction and I’m sticking to it.  Yeah, I know that despite the forecasts for a Godzilla El Nino, with tons of rain and snow in the Sierras, that this isn’t supposed to do the trick, but it will.  The other day a heavy snowfall hit the Sierra Nevada range, with Mammoth Mountain saying it received up to 30 inches, and it’s but a sneak preview of things to come.

Last spring researchers found that the amount of water contained in the snow in the Sierras on April 1 was 5% of the average snow water equivalent since monitoring began.  [Joseph Serna / Los Angeles Times]

I’ll also predict that the entire winter in the Northeast, Midwest and South will be much warmer than normal.  Heck, we’re hitting record highs today, Friday, in the New York area, with more above-average temperatures slated for next week.  It’s going to be like 2012, when you could golf all winter long.

Oh, there will be one or two monster snowstorms, but no Polar Vortex, sports fans.  Book it.

Of course this will be awful for ski operators in the region, and retailers will be stuck with stacks of winter clothes, but we’ll use our energy savings to go out to dinner more, see more movies, etc.

And that’s a memo.....

Foreign Affairs

Russia/Syria/ISIS/Iran/Iraq: UK investigators believe a bomb was put in the cargo hold of Metrojet Airbus A321, flying from Sharm el-Sheikh to St. Petersburg, which came down in the Sinai on Saturday, killing all 224 people on board, most of the victims being Russian.   [U.S. officials, including President Obama, suspect a bomb but no specificity as yet.]

President Vladimir Putin has been largely silent since the crash, issuing a press release and making brief comments during a meeting with the Transport Minister, describing it as “an enormous tragedy” and saying his thoughts were with the families of the dead.  He’s not good at this kind of stuff.

But then on Friday he suspended all flights from Russia to Egypt, the most popular tourist destination for Russians, until the cause has been established.

Putin’s director of the Federal Security Service recommended the move, after both Russia and Egypt had played down the possibility of terrorism.

Whether this proves to be a mechanical issue or a bomb, either way, Putin is in an embarrassing situation, forced to explain the sad state of Russian aviation or to justify his actions in Syria.  But a Kremlin spokesman on Friday said Putin’s decision did not mean that the crash was caused by a terrorist act. 

Russia has 45,000 citizens already in Egypt, including Sharm el Sheikh. It also had some 25 flights a day to the country, in what is obviously a huge blow to the Egyptian economy and its reputation.

For their part, the British government, which is trying to bring roughly 20,000 of its citizens home from Egypt, banned checked luggage on all flights from Sharm el Sheikh.  Friday, Turkish Airlines canceled flights to and from the resort city.

Shashank Joshi / Financial Times

“If British and American intelligence agencies are correct in their suspicion that a bomb on board brought down the Russian plane that crashed in Egypt’s Sinai peninsula last week, it would mark an important moment for the rapidly evolving jihadist threat.

“For one thing, it would be the first such attack since Chechen bombers destroyed a pair of Russian aircraft in 2004.  While attention has been on possible missile attacks, like that which brought down Malaysia Airlines Flight 17 over Ukraine in 2014, al-Qaeda’s branch in Yemen (AQAP) has been making technological strides in the development of undetectable, non-metallic bombs.  AQAP attempted two failed attacks using an underwear bomb and even a rectal bomb in 2009 and smuggled explosives aboard U.S.-bound cargo planes in 2010.  A Saudi double agent inside AQAP even retrieved one such device in 2012, but the group boasted of a new design last December....

“(But) if ISIS was responsible, there is of course every chance that such an attack succeeded because of lax security procedures rather than any novel bomb design.”

It’s all related to Syria.

Robert B. Zoellick / Wall Street Journal

“Secretary of State John Kerry’s new diplomatic process for dealing with Syria’s harrowing civil war involves convening a series of talks in Vienna.  The effort is probably well-intentioned.  But I cannot conceive of what he expects to accomplish.

“Does anyone really believe that Syria can be put back together again and then revived through democratic elections?  The danger is that the all-purpose diplomatic resort to ‘process’ will lead the United States to ignore realities and even make them worse.

“America faces two interconnected perils in the region: the expansion of Islamic State and the breakdown of the Middle East’s century-old security order. The Obama administration’s fear of involvement and denial of the fundamental struggle for dominance in the region increases the risks for the U.S., Europe, Africa and Asia.  The conference in Vienna last week – involving at least a dozen interested parties, including Iran, Saudi Arabia and Russia – was escapism, not a serious strategy....

“The old state borders and authorities of the Middle East, established during and after World War I, are disintegrating.  The Arab lands are now the scene of a terrible contest for power.  As former U.S. Army Gen. David Petraeus explained to Congress in September, ‘almost every Middle Eastern country is now a battleground or a combatant in one or more wars.’....

“The Russian and Iranian interventions in Syria further darken this bleak picture.  Bashar Assad has killed about a quarter-million of his own people and depopulated half the country.  More civilians have died at his hands than by ISIS violence.”

David Ignatius / Washington Post

“President Obama said he doesn’t want to turn the Syria conflict into a proxy war.  Unfortunately, that’s already happening, as combatants join the battle against the Islamic State with radically differing agendas that could collide.

“Let’s look at the confusing order of battle: The United States has decided that its strongest partner against the Islamic State is a Syrian Kurdish force known as the YPG. But Turkey, nominally our NATO ally, says the YPG has links with what it claims is a Kurdish terrorist group.  How’s that going to work out?  No answers yet.

“Russia, meanwhile, contends that it is fighting the Islamic State, alongside forces loyal to Syrian President Bashar al-Assad. But Russian warplanes have been bombing Islamist rebel groups that are covertly supported by the United States, Turkey and Jordan – and these brigades are fighting back hard.  The rebels are posting videos bragging about their success with U.S. anti-tank missiles.  The battle looks eerily like Russia’s war in Afghanistan, in embryo. Where’s it heading?  No answers there, either.

“Saudi Arabia and Iran have been fighting by proxy in Syria for nearly four years. This may be the most toxic conflict of all, because it feeds the Sunni-Shiite sectarian inferno that is immolating the Middle East....

“With so many powerful military forces gathering in the same area, the danger for accidents and miscalculations is large....

“What’s over the hill, if the outside powers don’t find a path toward de-escalation?  Here’s one grim hint: I had visits over the past several weeks from leaders of Kurdish political movements in Iran and Syria who envision the day when a greater Kurdistan dissolves the borders of those nations, as well as Turkey and Iraq.

“If Russia, Iran, Turkey and the other proxy fighters don’t help put the pin back in this grenade, a more devastating, regionwide explosion lies ahead.”

Edward Luce / Financial Times

“There is no substitute for a strategy.  Until now, Mr. Obama’s Syria policy has been driven by a lawyer’s mindset, taking each turn of events on a case-by-case basis.

“The problem with lawyers is that they sometimes miss the big picture.  Two years ago Mr. Obama set a red line on Syria’s use of chemical weapons that he failed to enforce after it was breached.

“The impact of his prevarication continues to influence the actions of others from Moscow to Riyadh.  Mr. Obama’s bluff was called and he wobbled.  It is hard to overstate how much damage that did to America’s reputation.

“It was Mr. Putin who saved Mr. Obama in 2013 by persuading Bashar al-Assad’s regime to hand over its stockpile of chemical weapons.  Ironically, it is in reaction to Mr. Putin’s moves today that Mr. Obama is dipping his toe into the Syrian quagmire.

“Each U.S. move has been late, halfhearted, and mis-sold as a solution in itself.

“It was that same spirit of reactive incrementalism that prompted Mr. Obama last year to unveil a $500m training program for ‘moderate’ Syrian forces.  Ditto for his decision to call for Mr. Assad’s removal.  Much like Mr. Obama’s chemical red line, both stances looked hollow....

“Each of Mr. Obama’s options has downsides.  If he steps up U.S. involvement, he will risk entering a morass.

“The most obvious step would be to carve out a safe zone inside Syria along the border with Turkey.  Hillary Clinton...supports such a move. The benefit is that it would give displaced Syrians a protected space by creating a no-go area for ISIS and Damascus.

“But it would involve a huge risk.  It would need a U.S.-enforced no-fly zone that would be off-limits to Russian and Syrian planes. Mr. Putin would be sure to test Mr. Obama’s mettle.  It would also require a lot of troops on the ground to police the safe zone’s borders.  Even assuming Mr. Obama could persuade Arab allies, such as Jordan and Saudi Arabia, to put up the numbers, it would still require a drastically stepped up U.S. military presence.

“The other option is to continue doing the least possible, which is Mr. Obama’s enduring instinct....

“Joseph Dunford, the chairman of the joint chiefs of staff, took up his job a day after Russia began its air strikes.  ‘If [any] nation poses an existential threat to the United States, I’d have to point to Russia,’ he said.

“America’s generals have been deft at bouncing Mr. Obama into putting more troops into Afghanistan, Iraq – and now Syria. They will probably try to do so again.

“History suggests Mr. Obama will find it hard to say no. As the saying goes, ‘plan beats no plan.’  It is time for Mr. Obama to come up with one of his own.”

Meanwhile, in Tehran, thousands of protesters gathered to shout “Death to America” in an annual ritual to mark the anniversary of the siege of the U.S. embassy more than three decades ago.  But as opposed to the relatively tame demonstrations of the past two years, this week’s protests showed the depth of support for Iran’s hardliners opposed to any rapprochement between Iran and the U.S.

The day before the protest, Supreme Leader Ayatollah Ali Khamenei said the slogan “Death to America” had deep roots in the Iranian nation and was against “American policies and arrogance,” but not the people.

But Mohammad-Ali Jafari, commander of the Revolutionary Guards, said the U.S. was trying to influence the Islamic regime and was pursuing a policy of “sedition” during the post-nuclear deal period.

A number of Iranian journalists and activists have been arrested in recent weeks on suspicion of “collaborating with hostile western governments.” The hardliners are clearly trying to undermine the efforts by moderates to increase trade after their success in negotiating the nuclear accord and Ayatollah Khamenei has warned of “unbridled imports, especially imports of any American consumer goods after the lifting of sanctions.”

Editorial / Wall Street Journal

“So much for the Tehran thaw.  In September liberal hopes ran high that the nuclear deal with Iran and the lifting of economic sanctions would lead to an era of good feeling with the mullahs, complete with new openings for Western businesses and diplomatic cooperation over regional crises....

“(But) in recent days Tehran has arrested two U.S. citizens, bringing to five the number of Americans known to be under Iranian lock and key.  They include Washington Post reporter Jason Rezaian, who has spent nearly 500 days in prison....

“The latest arrests are especially chilling – and revealing.  Nizar Zakka is a Lebanese-American who lives in Washington and was visiting Tehran for a conference at the invitation of the Iranian government.  He disappeared Sept. 18 only to resurface this week in the regime’s custody.

“Siamak Mazai is an Iranian-born American businessman who was taken from his mother’s house in Tehran in mid-October.  Mr. Namazi has long been an outspoken advocate of closer U.S.-Iranian ties and even worked in the Iranian Housing Ministry in the mid-1990s during the presidency of Akbar Hashemi Rafsanjani, now considered a relative moderate but known then as a hardliner.....

“The arrests come as Supreme Leader Ali Khamenei has publicly reaffirmed his regime’s commitment to its ‘Death to America’ slogan and set new conditions on the nuclear deal that amount to a unilateral renegotiation....

“Some speculate that the arrests are part of Mr. Khamenei’s effort to underscore his regime’s ideological purity and beat back domestic calls for reform. But the Islamic Republic has been in the business of taking hostages since its beginning, no matter whether the president is a reputed moderate like current leader Hasan Rohani, or a firebrand like predecessor Mahmoud Ahmadinejad.

“When it comes to the Islamic Republic, international goodwill is invariably met with contempt and cruelty. In the wake of the nuclear deal, this is a lesson the West will have to learn all over again.”

---

In other developments in the region, according to a new report by Amnesty International, the Syrian regime has forcibly disappeared more than 65,000 people under cover of war, with abductions carried out as “part of an organized attack against the civilian population” amounting to a crime against humanity, as noted by AI.

“Pulled from offices in the daytime or homes in the night, the disappeared are cut off from the outside world, and packed into prisons where torture is routine and death is commonplace.  Families can spend years without news of a relative’s whereabouts,” as reported by the Daily Telegraph.

Finally, we note the passing of Ahmed Chalabi, 71, who died of a heart attack.  Chalabi was the Iraqi politician who encouraged the George W. Bush administration to launch its invasion of Iraq; Chalabi becoming a trusted confidant of senior figures like Donald Rumsfeld and Richard Perle.

It was originally thought that Chalabi would take charge of a new Iraq though he soon lost favor in Washington, amid accusations he was passing military information to Iran in 2004.  But he continued to occupy positions of influence in Iraqi politics, just not at the top.

China: On Thursday, U.S. Defense Secretary Ashton Carter visited the U.S. aircraft carrier Teddy Roosevelt to deliver a warning to China.  Speaking from the deck, Carter said there was “a lot of concern about China in the region.”

“Many countries in the region are coming to the United States and asking us to do more with them so that we can keep the peace out here,” he said, warning of “extravagant claims and the militarization, principally by China” in the South China Sea.

The USS Theodore Roosevelt was about 150 nautical miles south of the contested Spratly Islands when Carter spoke after 10 days of high-stakes diplomatic activity by the U.S. in the region, moves designed to reassure nervous allies.

Last week the U.S. sent the USS Lassen, a destroyer, within 12 miles of one of the artificial islands built by China in the South China Sea, an appearance that Beijing bitterly opposed.

China says the presence of U.S. warships is threatening stability, while the U.S. is saying China is militarizing the region through its artificial islands.

The Chinese ambassador to the U.S., Cui Tiankai, told CNN: “I think what the United States is doing is a very serious provocation politically and militarily. It is a clear attempt to escalate the situation and to militarize the region.”

On a separate and truly historic issue, China’s Xi Jinping and Taiwan’s Ma Ying-jeou are meeting in Singapore Saturday, the first such summit between leaders from across the Taiwan Strait since the end of the Chinese civil war in 1949.

Ma’s Kuomintang party is expected to lose its hold on the presidency in the Taiwanese elections in January, which makes the meeting even more of a surprise, but it’s assumed it will still set a tone for future relations between the two.

As one analyst told the South China Morning Post: “It is a breakthrough in relations as it marks Beijing’s recognition of Taiwanese government.”

Lin Chong-pin added: “With the summit, Beijing has tacitly recognized Taipei as a sovereign government and Ma Ying-jeou as Taiwan’s leader.”

Escalating tensions in the South China Sea are said to be behind Xi Jinping’s move.

The summit would help Beijing press its case for closer relations with Taiwan in order to gain Taipei’s help in dealing with territorial disputes, seeing as Taiwan possesses crucial historic evidence linked to territorial claims.

Apparently there will be no agreements signed or joint statements issued.

As to Taiwan’s opposition party, the DPP, it has benefited from public sentiment turning against closer relations with the mainland.

Also this week, leaders of China, Japan and South Korea held their first three-way summit since 2012 on Sunday, with Chinese Premier Li Keqiang, Japanese Prime Minister Shinzo Abe and South Korean President Park Geun-hye agreeing to accelerate talks for a trilateral free-trade agreement.  The three also agreed to push to resume stalled talks with the U.S., Russia and North Korea on Pyongyang’s nuclear program.

But none of the leaders mentioned tensions in the South China Sea.

Turkey: President Recep Tayyip Erdogan’s Justice and Development Party, or AKP, scored a huge election victory on Sunday, the re-vote of June’s election that led to a hung parliament, with AKP winning a majority that returns Erdogan to one-party rule.

The president said the results showed voters’ desire to build a “new Turkey” and its rejection of terrorism.

Erdogan became Turkey’s first directly elected president last year after 12 years as prime minister and now he is calling for a new constitution to shift the parliament’s executive powers to his office, creating an American-style presidency and preserving his role as the dominant figure.

Erdogan also vowed to annihilate Kurdish separatists.

“We will continue this fight until the terrorist organization lays down weapons, buries them in the ground, and pours concrete over them – until all its members surrender or are eliminated.  The period ahead of us is not one of talks and discussions; it’s a period to achieve results,” he said in his first major speech following the vote. [Wall Street Journal]

Russia: The new head of the U.S. Navy, Admiral John Richardson, told the Financial Times that the navy was reassessing its global posture in the face of significantly increased naval activity by Russia in Europe.

“Their submarine force and their navy are as active as they have been in a long time, 20 years or so,” Adm. Richardson said in the interview. 

U.S. officials are particularly alarmed by signs Russian submarines are monitoring critical telecommunications cables on the Atlantic seabed, as noted last week.

Romania: Prime Minister Victor Ponta was forced to resign a day after some 20,000 people took to the streets to protest the nightclub fire I wrote of last time that left 32 people dead.

Demonstrators complained of government corruption and poor safety supervision.  Ponta is already facing trial on corruption charges.

Random Musings

--I’ve said this on more than one occasion but it cracks me up when people talk about how long our political campaigns are.  Good!  You don’t have to follow them, but it often takes a long time until we fully know our candidates...and even then we still make massive mistakes.

I can’t help but bring this up with this week’s controversy over Ben Carson’s credibility.  We’ll see how it plays out.

--Polls....

In the latest Fox News national poll, Donald Trump polls 26% to Ben Carson’s 23%.  Then you have Ted Cruz and Marco Rubio with 11% each.  But from there it’s down to Jeb Bush, Mike Huckabee, John Kasich and Rand Paul, all receiving 4% each.  Carly Fiorina is at 3%, Chris Christie 2%.

In a Quinnipiac University national poll released Wednesday, Trump leads Carson 24% to 23%, with Rubio at 14%, followed by Cruz at 13%, and Bush way back at 4%.  No other candidate tops 3%.

In an Ipsos/Reuters national poll, Trump leads Carson 31-18.  Rubio is tied for third with Bush at 10%.

But in a new NBC/Wall Street Journal national survey, Carson leads Trump 29-22, then down to Rubio at 11%, Cruz 10% and Bush 8%.

In hypothetical matchups, Clinton is tied with Carson, 47-47, but leads Trump (50-42), Rubio (47-44) and Bush (47-43).

In a Monmouth University poll of New Hampshire voters, Trump continues to lead Carson 26-16, though Rubio moved into third at 13%, followed by Kasich 11%, Cruz 9%, Bush 7%, and Fiorina and Christie at 5% each.

And in a new CNN/ORC poll of Iowa caucusgoers, Trump leads Carson 25-23 (after leading 22-14 in August), with Rubio third at 13%, Cruz at 11% and Bush at 5%.

On the Democratic side....

In the Fox News national poll, Hillary Clinton leads Bernie Sanders by a 56-31 margin.

In the Quinnipiac national poll, Clinton receives 53% to Sanders’ 35%.

But Carson leads a hypothetical matchup against Clinton, 50-40, with women going for Clinton by a 45-44 margin (men backing Carson 55-35).

Clinton tops Trump 46-43, while Rubio tops Clinton 46-41.  Even Ted Cruz tops Clinton 46-43.  [Sanders’ numbers are similar to Hillary’s.]

In the NBC/WSJ survey, Clinton cleans Sanders’ clock, 62-31.  55% of all voters rate her highly for possessing the knowledge and experience to be president, compared with 26% who don’t.  But more Americans view her negatively than positively, 47% to 40%.

In the Monmouth N.H. poll, Clinton leads Sanders 48% to 45%.  In September, Sanders led 43-36, but that was with Joe Biden in the poll.  Sanders leads Clinton among men, 54-37, while Clinton leads among women in the Granite State, 56-37.

The next Republican debate is on Tuesday and Chris Christie and Mike Huckabee have been booted to the cocktail hour, a big blow to both.

--Some Election Day notes....

Tea Party Republican Matt Bevin pulled off a big upset in the Kentucky governor’s race, becoming just the second Republican to govern the Bluegrass State in four decades in defeating Democrat Jack Conway.

Democrats failed to take Virginia’s state senate in a big blow to Gov. Terry McAuliffe.  Democrats needed just one seat and Republicans kept all of theirs.

But Republican Gov. Chris Christie suffered a big blow in New Jersey as at least three (possibly four) Republicans lost in the state Assembly.  Democrats currently hold 48 of 80 seats and Republicans had hopes of cutting into this margin, not lose more ground.

Ohio rejected marijuana legalization by a two-to-one margin.

The San Francisco sheriff who steadfastly defended the city’s “sanctuary city” policy went down to defeat.

--Writing in his Wall Street Journal op-ed, Karl Rove talks of the possibility of a multi-ballot Republican National Convention.  If you believe there are five serious candidates who have the money, organization and poll numbers to survive well into March – Trump, Carson, Rubio, Cruz and Bush:

“What complicates the picture is the GOP’s rule requiring the 28 jurisdictions (states, territories and the District of Columbia) that vote before March 15 to award their delegates proportionally.  The exception is South Carolina, whose winner-take-all primary was grandfathered in. Add in the eight states voting on or after March 15 that also award their delegates proportionally, and some 60% of the convention’s likely total of 2,470 will be allotted that way.

“Of these delegates awarded on a proportional basis, some states require a candidate to hit a floor – say, 20% or 15% of the vote.  Others have lower thresholds or none at all.  For example, Iowa’s 30 delegates will be divvied up proportionately with no minimum, meaning candidates win a delegate for each 3.3% of the vote they receive.  The upshot is that by mid-March the top three or four candidates may be separated by only a small number of delegates, giving the leader a plurality, not a majority.

“Then comes the Ides of March, when winner-take-all contests kick off.  On March 15 five states and one territory, awarding 361 delegates, will vote.  Of these, 292 will be winner-take-all.  This day could play a critical role in culling the field.  The four final March contests that follow could cut the contenders to two.”

April through early June you then have scattered contests, including Pennsylvania, New Jersey and California.  But even with many of the bigger ones being winner-take-all, the total still may be splintered enough that no candidate has a majority, plus 8% of the delegates arriving at the convention are “unbound, free to vote for their choice of candidate.”

But wait...there’s more!

GOP rules allow for the creation of “superdelegates,” such as state party chairman and national committeeman/woman automatic delegates that could number up to 210 in all.

So there is a chance we could have some exciting television viewing next summer.

--Paul Singer, a billionaire New York investor, is throwing his support to Marco Rubio, when it was assumed he would support Jeb Bush (with others seeking Singer’s blessing).

Singer sent a letter to fellow donors that was obtained by the New York Times wherein he touts Rubio as the only candidate who can “navigate this complex primary process, and still be in a position to defeat” Hillary Clinton.

Singer added: “He is accustomed to thinking about American foreign policy as a responsible policy maker.  He is ready to be an informed and assertive decision-maker.”

Singer gave more money to Republican candidates and causes last year than any donor in the country, according to the Center for Responsive Politics.

--And as if Jeb Bush didn’t already have enough problems, along comes his father’s new biography, where he harshly criticizes those around George W. Bush, such as Donald Rumsfeld and Dick Cheney, both of whom Bush 41 calls “iron-ass,” with Rumsfeld being an “arrogant fellow” full of “swagger” and Cheney being “very hard line” and too eager to “use force to get our way.”

The comments are included in Jon Meacham’s “Destiny and Power: The American Odyssey of George Herbert Walker Bush,” to be published by Random House next week.

Rumsfeld said on Thursday, “Bush 41 is getting up in years and misjudges Bush 43,” while George W. defended his advisers.  “I am proud to have served with Dick Cheney and Don Rumsfeld.”

For his part, Cheney viewed “iron-ass” as a compliment.

In the middle of the family tussle over legacy is Jeb, who wants voters to believe he is his own man, one that just happens to have the Bush name.

--Charles Krauthammer / Washington Post

“Where do Republicans get that special talent for turning gold to dross? They score an electoral ‘massacre’ (the Economist) in 2014 and, a year later, what do they have to show for it other than another threat to shut down the government?  Hillary Clinton is caught in e-mail flagrante and Benghazi mendacity and yet, with one Kevin McCarthy gaffe and a singularly ineffective 11-hour Benghazi hearing, Republicans render her sanitized.

“And now their latest feat.  They win a stunning victory over their perennial nemesis, the mainstream media – a slam-dunk rim-rattling exposure of the media bias they have been complaining about for a half-century – and within a week they so overplayed their hand as to dissipate whatever sympathetic advantage they gained.

“The CNBC debate was a gift for the GOP, so unadorned a demonstration of liberal condescension, hostility and arrogance that the rest of the media – their ideological cover exposed – were forced to denounce and ridicule their ham-handed colleagues.  What happened then?  Instead of quitting while they were ahead, the Republicans plunged into a week of meetings and statements, whining and complaining, bouncing around a series of demands, including control of the kind of questions that may or may not be asked at future debates.

“Who’s the genius who thought up that one? First, it instantly allowed the liberal media to turn the tables and play defenders of journalistic independence against GOP bullies.

“Second, it made the Republicans look small....

“Third, this continues the season-long GPO diversion from what should be its real target – the wreckage wrought by seven years of Barack Obama.”

--I noted the other week that former Democratic Sen. Jim Webb, who dropped out of the Democratic presidential field, was considering an attempt as a third-party candidate.  I said at the time that while I like and admire Webb’s vast experience, if we were to have a viable third-party candidate, it’s just not him.  If I had to guess today, I can’t see him getting more than 3% nationally.

But over the weekend, Webb wrote an opinion piece in the Washington Post laying out why he is considering such a run, and I liked this passage concerning our many foreign policy challenges.

“Republicans try to outdo one another over who would be the quickest to use military force in an era that increasingly resembles the Cold War in our need for both strength and strategic patience.  Our almost-certain Democratic nominee has failed every major foreign policy test of the past 13 years.  She voted in favor of the Iraq war, one of the greatest strategic blunders in our history. She has touted her role as a principal architect of the predictably disastrous intervention in Libya.  She supports the nuclear agreement with Iran, which has further destabilized the balance of power among Iran, Saudi Arabia and Israel and encouraged Russia’s greater role in the region.

“The miscalculations of the Arab Spring unleashed regional chaos and created power vacuums soon filled by the likes of the Islamic State.  Combined with the Iraq invasion, these have taken the United States’ focus away from other strategic priorities and caused our leaders to ignore serious obligations here at home.  Since 2001, we have spent $109 billion on reconstruction projects in Afghanistan alone, as our country has slid downward in addressing the needs of everyday citizens for high-quality public education; a modernized infrastructure of roads, bridges, airports and water systems; and forward-looking energy policies.”

Well, good luck, Senator....should you choose to give it a go.

--In a new WSJ-NBC4 New York-Marist poll, New York City Mayor Bill de Blasio’s approval rating among registered voters is down to 38%, six points lower than May and his lowest yet.  Nearly half...49%...said he doesn’t deserve re-election, while 42% said he does.

But former Mayor Michael Bloomberg was at 40% at the same time of his first term, while Rudy Giuliani was just at 35%, according to Marist.  De Blasio has also fared better in other recent polls, including a 45% approval rating in a Quinnipiac survey.

Separately, only 32% of white voters approve of his performance, the same as this spring, but his approval rating among blacks is down to 50% from 59%.

55% of New Yorkers think the city is headed in the wrong direction.

--Ted Koppel / Washington Post

“To begin, a conclusion: The Internet, whatever its many virtues, is also a weapon of mass destruction.

“We have been distracted from focusing on that potential by a succession of high-profile cyberattacks, including China vacuuming up more than 22 million federal employee records, North Korea’s humiliating shot across the bow of Sony Pictures Entertainment and a barrage of cyberlarceny directed at the U.S. and businesses, much of which has originated in Russia and Ukraine.  Each of these targets was protected by firewalls and other defenses.  But the Internet is inherently vulnerable.  It was never intended to keep intruders out.  It was designed to facilitate the unimpeded exchange of information, giving attackers a built-in advantage over defenders.  If that constitutes an ongoing threat to commerce (and it does), it also represents a potentially catastrophic threat to our national security – and not just in the area of intelligence-gathering.  The United States’ physical infrastructure is vulnerable.  Our electric power grids, in particular, are highly susceptible to cyberattacks, the consequences of which would be both devastating and long-lasting....

“When I asked former secretary of homeland security Janet Napolitano what the chances are that an aggressor could knock out one of our power grids with a cyberattack, she replied, ‘Very high – 80 percent, 90 percent.’  Yet she acknowledged that there is no specific plan to respond to a disaster of that magnitude.  Jeh Johnson, the current homeland security secretary, was unable or unwilling to provide even the outline of a plan to deal with the aftermath of such an attack.  When asked if he was aware that such a plan even exists and why it wouldn’t make sense to share it with the public, Johnson gestured in the direction of several white binders on a shelf in his office, indicating that there was probably something in one of them.  He kept returning to the importance of having a battery-powered radio.

“The military would be expected to provide support and security in the event of longer-lasting disasters.  Nothing has been done, however, to prepare the greater public.  FEMA’s recommendations entail having a two- to three-day supply of food and water, prescribed medicines, an unspecified amount of cash, flashlights, extra batteries and – as Johnson stressed – a portable radio. Beyond that there is the prudent recommendation that families agree on a pre-determined emergency meeting place and the phone number of an out-of-state friend or relative as a common point of contact.

“It is difficult to imagine what counsel Homeland Security will broadcast after the fact that it is unable to share now.  The first man to head that agency, Tom Ridge, summarized the problem.   ‘We are not a preemptive democracy,’ he told me.  ‘We are a reactive one.  Rare are the occasions on which we act in anticipation of a potential problem.’”

I’m sure many of you have seen Koppel as he promotes his book, “Lights Out: A Cyberattack, a Nation Unprepared, Surviving the Aftermath,” and this topic is nothing new, as I’ve pointed out countless times in this space, but Koppel’s noting of Jeh Johnson’s response to his inquiry is more than disturbing.

We all know we’re screwed.  But it’s time for Congress to hold President Obama’s feet to the fire, note Johnson’s indifference, and fire the jerk.

I also can’t help but note that Koppel, who has as much credibility as anyone in his profession, is readily telling everyone he has purchased months’ worth of freeze-dried food and water for his loved ones, including his grandkids.  Me?  I’m going to become a hobo and ride the rails.....

Oops...you need power and energy for that.  I’m heading to the Koppels.

--Arizona Sens. John McCain and Jeff Flake released a joint oversight report this week that showed taxpayers have been footing the bill for the military tributes seen in sports stadiums; paid advertisements by the U.S. Department of Defense you and I pay for.

Roughly $6.8 million in taxpayer-funded marketing contracts with professional sports teams since 2012 have included “paid patriotism” events.

“Unsuspecting audience members became the subjects of paid marketing campaigns rather than simply bearing witness to teams’ authentic, voluntary shows of support for the brave men and women who wear our nation’s uniform,” the two stated in the introduction to the report.  “It is hard to understand how  a team accepting taxpayer funds to sponsor a military appreciation game, or to recognize wounded warriors or returning troops, can be construed as anything other than paid patriotism.”

For example, the Milwaukee Brewers received $49,000 for the Wisconsin Army National Guard to sponsor each Sunday performance of “God Bless America” during home games with announcement and logo recognition on the video board.

Three NFL teams were the biggest beneficiaries: the Atlanta Falcons ($879,000), New England Patriots ($700,000) and Buffalo Bills ($650,000).

The Defense Department argues the contracts are used for recruitment purposes, but DoD can’t prove a return on their investment, the report found. 

NFL Commissioner Roger Goodell said the league will give back any proceeds from paid patriotism.  [Tim Baysinger / Adweek]

--We note the passing of former U.S. senator and actor, Fred Thompson, 73.

What a great life he had, moving back and forth from Hollywood to national politics.  In 2008 he ran for president and initially was seen as a frontrunner, but he flamed out.  He played an authoritative character in his television and movie roles, but he often seemed ambivalent as a politico.  He will forever be known, however, not only for the preceding but for his critical role in the Watergate hearings where he served as Republican counsel on the Senate Watergate Committee...Thompson’s mentor, Sen. Howard Baker Jr., having selected him over more experienced lawyers.

It was Thompson’s questioning of Alexander Butterfield, a former aide to Richard Nixon, that led to the revelation of recording devices in the Oval Office.

I liked Fred Thompson, a lot.  It’s in these columns, somewhere, how I thought he would make for a good president.   But he once was selected to give the Republican response to a State of the Union speech and some of you will remember the heavy breathing as he was doing so, because he was improperly mic’d; at the time that was a killer. [Worse than Marco Rubio’s water bottle while performing in the same role years later.]

--There’s a good reason why I don’t comment on every ‘national’ story, such as the supposed murder of Lt. Gliniewicz of Fox Lake, Illinois.  It’s not always germane to this column and often we have zero facts.

But now we’ve learned this guy and members of his family were true dirtballs.  And for that he deserves to have his name on the Net forever.

My sympathies to the Fox Lake community for having to put up with this whole debacle.

--In an extraordinary development the Vatican arrested two members of a papal reform commission on suspicion of leaking classified information.  As of this writing, one of the two remains under guard.  This was part of a months-long investigation carried out by the Vatican gendarmerie* and is part of the big rift between Pope Francis and his allies against his opponents who want to squelch his reform agenda.

A book by the author of 2012’s “Vatileaks,” the scandal that rocked the papacy of Pope Benedict XVI, is going to reveal fresh allegations of fraud and mismanagement, as well as challenges to Francis’ push for change.  [Anthony Faiola / Washington Post]

*The Vatican gendarmes control security, law enforcement and firefighting coordination in the city-state, while the Swiss Guard is responsible for the pope’s direct protection.  Can’t say I knew this distinction until reading Faiola’s piece.

--According to a new Pew Research Center survey, the share of U.S. adults who say they believe in God slipped to 89% in 2014 from 92% in 2007, while the proportion of Americans who say they are “absolutely certain” God exists fell even more, to 63% in ’14 from 71% in ’07.

Only half of Millennials are absolutely certain of their belief in God, compared to 71% of the “silent generation,” or those born from 1928 to 1945.

Younger people are also less likely to pray daily and attend religious services.

I think God is going to have to break down and appear on Fallon for that resultant viral video impact. 

---

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

God bless America.

---

Gold $1089...lowest weekly close since 7/24
Oil $44.29...lowest weekly close since 8/21

Returns for the week 11/2-11/6

Dow Jones  +1.4%  [17910]
S&P 500  +0.95% [2099]
S&P MidCap  +1.3%
Russell 2000  +3.3%
Nasdaq  +1.85%  [5147]

Returns for the period 1/1/15-11/6/15

Dow Jones  +0.5%
S&P 500  +2.0%
S&P MidCap  +0.8%
Russell 2000  -0.4%
Nasdaq  +8.7%

Bulls 46.9
Bears 28.1 [Source: Investors Intelligence...Bull figure was 24.7 on 9/29...report released Wednesdays, using data as of Tuesday...and this was the cycle low in the S&P...exactly as this contrarian indicator is supposed to work.  The S&P closed at 1867 on 8/25 but that was but a blip.  I have this data going back to 1990!  But it’s in crayon so don’t ask for it.]

Dr. Bortrum posted a new column.

Have a great week.  I appreciate your support.

Brian Trumbore



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Week in Review

11/07/2015

For the week 11/2-11/6

[Posted 11:00 PM ET, Friday]

Note: If you haven’t already done so, please click on the gofundme link above, or send a check to PO Box 990, New Providence, NJ  07974.

*Special thanks this week to Thomas D. and Jeff Be-- (had to distinguish Jeff from long-time supporter Jeff B).

Edition 865

Washington and Wall Street

On Wednesday, Federal Reserve Chair Janet Yellen appeared before a House committee on banking regulation but the discussion, as was inevitable, turned to monetary policy and Yellen was prepared with written remarks.

She said the U.S. economy was performing well and that the “downside risks” from global economic and financial developments had diminished since September, adding spare capacity in the jobs market had fallen “significantly” since earlier in the year.

So in light of this, Yellen said there was a “live possibility” for an increase in interest rates at the Fed’s Dec. 15-16 meeting.  Granted, “no decision at all has been made” but the Fed would be examining the data in the interim.

Yellen noted she was very aware that a sharp rise in mortgage rates could have a negative effect on housing, but, “We do have a recovering economy where employment is going up, income is going up.”  She also tried to reassure us that the pace of any rate increases was going to be “gradual and measured,” a constant refrain this year.

Dennis Lockhart, the president of the Federal Reserve Bank of Atlanta, said later: “I think the case for liftoff will continue to firm up.”  Speaking in Switzerland, Lockhart said his assessment was the U.S. economy was in an above-potential growth phase, with labor markets continuing to improve.

Both Lockhart and Yellen were speaking before Friday’s jobs report and after its release, there seems little doubt, barring something unforeseen on the geopolitical side that crushes confidence, the Federal Reserve will indeed hike interest rates, just 25 basis points, 0.25%, on Dec. 16.

The U.S. economy in the month of October created 271,000 jobs, far above expectations, with August being revised up to 153,000 and September revised slightly down to 137,000, with the unemployment rate ticking down to 5.0%, the lowest since April 2008, or exactly half the October 2009 peak of 10.0%.  The private sector created a strong 268,000 jobs, equally good, while U6, the measure of ‘underemployment,’ fell to 9.8%, the lowest since May 2008.

But perhaps most importantly, average hourly earnings for the month rose 0.4% and are now running at a solid 2.5% for the past 12 months, the fastest pace since July 2009, which should be enough to push any doubters on the Fed’s Open Market Committee into hiking rates.  The Fed, after all, has been complaining it needs to see not just wage growth but inflation, and by many measures inflation is running at or near the Fed’s 2% target already.

Wall Street took the strong employment news and a rise in yields on Treasuries in stride, tacking on gains in stocks for a sixth straight week.  It’s good news for average folks.  Not so good for multinationals if the dollar soars anew and their earnings are hit further.  But we’ll now see just how far bond yields rise.

In other economic news, the ISM manufacturing PMI came in at just 50.0 for October, 50 being the dividing line between growth and contraction, the slowest pace in two years, but a new-orders sub-index was a healthy 52.9.  September factory orders fell 1.0%, the 11th month in 14 it declined.  But it’s the jobs data that trumps all and there is one more such report in December before the Fed gathers for some Christmas cheer.

On the political front, former House Speaker John Boehner said he wanted to clean the barn before Paul Ryan took the gavel, and as much as Boehner was able to he did so, leaving Ryan with pretty much a clean slate, though it is still possible there could be a government shutdown along the way, albeit this seems highly unlikely.

Congress passed a two-year bipartisan budget plan that avoids a default on the U.S. federal debt by extending borrowing authority until March 2017, but it still must agree on a government spending plan before current funds run out Dec. 11.

That said, Speaker Ryan gained his first major victory when the House passed a long-term U.S. highway funding plan Thursday, paving the way for the first multi-year transportation bill since 2012.

The vote was 363-64 and included a provision to revive the U.S. Export-Import Bank, whose charter expired June 30.

Ryan said at a news conference after the vote: “It cuts waste, it prioritizes good infrastructure, and it will help create good-paying jobs.  And it is the result of a more open process.  It’s a good start.  It’s a glimpse of how we should be doing the people’s business.”

The Senate had already passed its own version so the two will resolve any differences in conference.  It then goes to the White House, where President Obama has said that while it’s a step in the right direction, the legislation “maintains funding at current levels, which are widely acknowledged to be below the level needed to maintain this country’s surface transportation infrastructure,” according to an administration statement.

Ex-Im has been a controversial topic for years now, with the 81-year-old institution designed to help American companies such as Caterpillar, Boeing and General Electric sell big-ticket items to overseas buyers.  But some, including Ryan, say it helps big companies that shouldn’t require such assistance.

The White House finally released details on the 12-nation Pacific Rim trade pact, the Trans-Pacific Partnership, or TPP, which would lower tariffs on thousands of goods and services, including beef, pork dairy and automobiles.

This now begins a long and bruising fight.  Once the president notifies Congress of his intent to sign the accord, Congress has 90 days to debate it, after which Obama sends it to Capitol Hill under the terms of “fast-track” trade legislation already approved by Congress.

The fight will be enhanced by the presidential election cycle as both Hillary Clinton and Bernie Sanders are against TPP, while Donald Trump has publicly opposed it as well.

Some companies, such as Ford Motor, are also unhappy that the terms governing currency manipulation don’t have any teeth.  Ford said in a statement: “The currency forum does nothing to change the status quo...and it fails to include dispute settlement mechanisms to ensure global rules prohibiting currency manipulation are enforced.”  [David Nakamura / Washington Post]

Lastly, early in the week, TransCanada, the Canadian company behind the proposed Keystone XL pipeline, made a request to the U.S. State Department to suspend its review of the Alberta-to-Texas pipeline, and then denied there was a political motivation behind the request, namely that it wanted to delay any decision until after the next U.S. president takes office in 2017, hopefully a more supportive Republican.

But it was long anticipated President Obama would reject the project and so the White House said after hearing TransCanada’s request for a delay that Obama intended to make a decision about the pipeline before leaving office.

Well that came Friday morning, as Obama, flanked by Secretary of State John Kerry and Vice President Joe Biden, announced he was formally rejecting Keystone, ending seven years of controversy over a project whose opponents said would worsen climate change against supporters touting the economic benefits.

“After extensive public outreach and consultation with other cabinet agencies, the state department has decided that the Keystone XL pipeline would not serve the national interests of the United States.  I agree with that decision,” said Obama.

Obama said he spoke with Justin Trudeau, Canada’s newly elected prime minister who had been a proponent of Keystone.

House Speaker Ryan condemned the president’s action: “This decision isn’t surprising, but it is sickening.  By rejecting this pipeline, the president is rejecting tens of thousands of good-paying jobs.  He is rejecting our largest trading partner and energy supplier.  He is rejecting the will of the American people and a bipartisan majority of the Congress.”

Europe and Asia

Lots of economic data for the eurozone.  As reported by Markit, the final composite PMI for the EA-19 was 53.9 in October vs. 53.6 in September.  Services were at 54.1 vs. 53.7, while manufacturing came in at 52.3 vs. 52.0.

On the manufacturing side, Germany was at 52.1, Spain 51.3 (22-month low), France 50.6, and Greece 47.3 (5-month high).

Put it all together and Chris Williamson, Chief Economist at Markit, said:

“The final PMI data confirm the steady but still somewhat lackluster economic growth recorded in the euro area at the start of the fourth quarter. The survey suggests that the region’s quarterly growth rate remains constrained at around 0.4%....

“Of the four largest euro nations, Spain continues to record the strongest pace of expansion, with the PMI signaling a 0.7% rate of expansion at the start of the fourth quarter*.  The survey data meanwhile suggest that Germany continues to grow at a rate of around 0.4% with Italy close behind at 0.3%.  France remains the laggard, with the PMI showing promising signs of lifting higher but still consistent with just 0.2% growth.”  [Ed. quarter over quarter.]

*Spain is benefiting from record tourism, which isn’t reflected in the data I have for the country above.

Germany had some separate sour readings with industrial production in September down 1.1% over August, and factory orders down 1.7%, the third consecutive decrease for both as the economy is grappling with the slowdown in China and other emerging markets.

Data in non-euro U.K. was solid.  The manufacturing PMI last month was 55.5 vs. 51.8 in September, far better than expected, while the services sector came in at 54.9 vs. 53.3, both of which indicate faster growth in the fourth quarter over the third.  The Bank of England, though, is expected to keep interest rates at a record low 0.5% for a while yet.

Well if growth is still largely sluggish, it’s no wonder that European Central Bank President Mario Draghi said in a newspaper interview last weekend that the ECB will continue to do what it takes to keep its medium-term inflation target on course.  The target is 2% and consumer prices in the 19-country eurozone fell by 0.1% annualized in September.  Draghi is confident inflation will rise from mid-2016 on, owing “to the delayed effect of the depreciation in the exchange rate,” which boosts exports.  [The euro has depreciated 6% against the dollar in just the past six days.]

But while Draghi’s version of quantitative easing is designed to keep euro bond yields artificially low, rates rose all week, including on Friday following the strong U.S. jobs number.  For example, the yield on the 10-year German bund rose from 0.52% to 0.69% in one week, while the yield on Italy’s 10-year bond rose from 1.48% to 1.79%.

A note on Greece.  The ECB said its troubled banks need more than 14bn euro in fresh capital to survive and that they need to come up with a recapitalization plan by January 1 when tough EU rules come into force on creditor losses at bailed-out financial institutions.  The four major banks in question have been relying on emergency loans from the ECB since February.

Finally, on the migration front, the rift is growing within German Chancellor Angela Merkel’s ruling coalition.  The Bavarian sister party of Merkel’s conservatives is demanding tougher measures to reduce the flow of new arrivals, virtually all of them coming through Bavaria at first.  Vice Chancellor Sigmar Gabriel wants to set up transit zones on the country’s borders to filter out migrants who have little chance of gaining asylum.

Norway’s immigration authorities have launched an advertising campaign to deter refugees from seeking asylum in the country.  The Norwegian Directorate of Immigration sent out a message on Twitter warning Afghans planning to cross Norway’s border with Russia that they risked forced repatriation.

Stefan Lofven, Sweden’s prime minister, rebuked some central and eastern European governments for what he terms their selfish approach to the refugee crisis, but many in Sweden don’t want to open their doors to Muslim refugees from the Syrian civil war and other conflicts in the region either.  Sweden is taking in the largest per capita inflow for any EU country with an anticipated arrival of 190,000 by year end vs. a population of 9.6 million.

As the New York Times’ Rod Nordland noted in an extensive piece over the weekend, the migration crisis is only going to get worse, especially if ISIS isn’t stopped.  Ditto the Taliban in Afghanistan, where at least a quarter of residents want to leave, according to a Gallup Poll.  [That same poll found that 40% of Nigerians would like to emigrate to the West.]

Turning to Asia, the economic data out of China was mixed, with the private Caixin manufacturing PMI for October coming in at 48.3 vs. 47.2 the prior month, an improvement but still contraction.  The services index, though, was 52.0 vs. 50.5 in September, as new-order growth picked up.

The official government PMI for manufacturing, as published by the National Statistics Bureau, was 49.8, the third straight month below 50, while the non-manufacturing (services) index fell to 53.1 from 53.4, the weakest since Dec. 2008.

All in all, the data shows that the economy may be stabilizing.  A senior statistician at the Bureau of Statistics said that big companies are outperforming smaller ones, the latter “facing a financial strain considerably higher than that of bigger companies.”

Meanwhile, President Xi Jinping set a growth floor of 6.5% for the next five years, acknowledging the economy faces many domestic and global uncertainties, but 6.5% is needed to realize the government’s goal of doubling people’s average income and the size of the economy by 2020 over 2010 levels, according to China’s official Xinhua News Agency.

The actual range for the next five years is set in March by the rubber-stamp parliament.

Separately, the IMF has warned China’s debt level has grown far faster than debt did in Japan, South Korea and the U.S. before they all tumbled into recession.

As for the veracity of China’s numbers, some of the component figures are believable, but the big one, GDP, simply isn’t.  Most economists believe the real rate of growth is closer to 5% than 7%.

Meanwhile the Chinese stock market, as measured by the Shanghai Composite Index, is up about 22% since its Aug. 26 low.  Since the start of the bear market in the spring, China has cut interest rates three times and lowered the reserve requirements for its banks.

In Japan, the manufacturing PMI for October was a solid 52.4 vs. 51.0 in September, with the services reading at 52.2 vs. 51.4, according to Markit.  [Other regional manufacturing PMIs for last month...South Korea 49.1 vs. 49.2; Taiwan 47.8 vs. 46.9; Russia 50.2 vs. 49.1.]

The big economic story for Japan, however, was the triple initial public offering of Japan Post and its banking and insurance units, which all surged on their debut.  The IPO raised $12bn and was the biggest in the world this year and the largest since Alibaba’s record $25bn deal in 2014.

Japan Post, a 144-year-old institution, is the country’s biggest bank, insurer and one-time political football (Japan Post Holdings).

About 10% of each company was sold to the public in the largest privatization of a state-owned firm since Nippon Telegraph and Telephone in 1987.  The government plans to use the funds to help reconstruct areas hit by the 2011 earthquake and tsunami.

The listing is part of Prime Minister Shinzo Abe’s plans to boost the economy by encouraging consumers to invest in the stock market.  [More shares will be parceled out on a periodic basis.]

Street Bytes

--As noted above stocks rose a sixth straight week and the Dow Jones is now back in positive territory for the year, +0.5%, after a 1.4% gain to 17910.  The S&P 500 added nearly 1% to 2099 (31 points shy of its all-time high), while Nasdaq gained 1.9%. 

Financial stocks surged on Friday with the jobs data...rising interest rates allowing the banks to earn more income from lending.

--U.S. Treasury Yields

6-mo. 0.31%  2-yr. 0.89%  10-yr. 2.33%  30-yr. 3.09%

The yield on the two-year is at its highest level since May 2010 in anticipation of the Fed hiking rates for the first time since 2006.  The yield on the 10-year rose 19 basis points and is back over the 12/31/14 figure of 2.17%.

--Soros Fund Management, the firm overseeing George Soros’ wealth, pulled almost $500 million from an account run by Bill Gross, money it invested last year after the bond manager left PIMCO to run a new fund at Janus Capital Group Inc.  Needless to say a big setback for Gross, whose Global Unconstrained Bond Fund has trailed about 70% of similar funds this year, according to Bloomberg.

--Facebook reported strong results Wednesday and within a day its market cap exceeded $300 billion, placing its value ahead of General Electric, the seventh most valuable company in the S&P 500.

The social media giant was boosted by 72% year-on-year growth in advertising on smartphones and tablets to $3.3 billion.

Mobile advertising now makes up more than three-quarters of the total revenue, up from two-thirds a year ago.

Monthly active mobile users rose 23% to 1.39bn.  Monthly active users overall exceeded 1.5bn for the first time, up 14% from year ago levels.

The company also added 1,000 employees to bring its total staff to 12,000.

Net profit for the September quarter was up 11% to $896 million.

Around the time of its initial public offering in 2012, Facebook shares suffered as investors fretted about its longevity.  But with the shares initially being sold for $38, they finished the week at $108.

Granted, the company is trading at an outrageous multiple, but it’s growing roughly 30% a year and generated net income of $2.8 billion on revenue of nearly $16bn the past 12 months.

Founder and CEO Mark Zuckerberg’s stake, by the way, has grown to around $46 billion.

--Walt Disney Co. reported fiscal fourth-quarter earnings Thursday that exceeded Wall Street’s expectations, though revenue fell short.

Overall, revenue was nonetheless up a solid 9% from year ago levels, while profit grew 7% to $1.6 billion.

Profit at Disney’s media network’s business, which includes ESPN and ABC, rose 27%, thanks to improved results at ESPN in particular, while the movie and TV studio business posted flat revenues, though profits more than doubled due to greater TV and streaming distribution revenue for its content.

Investors have been worried about cord-cutting – abandoning traditional cable subscriptions in favor of lower-cost options, with ESPN slashing costs and shuttering its Grantland online magazine.

--Shares in Time Warner fell sharply after the company cut its profit expectations for 2016.  The company, which owns Turner networks, HBO and Warner Bros. film studios, reduced its outlook, citing the effects of foreign exchange rates as well as increased spending on content and technology.

CEO Jeff Bewkes emphasized the company is preparing for long-term growth rather than short-term profits.

“Now is the time for us to press our advantages, and I’m confident these investments in content, capabilities and the consumer experience will position us for continued strong growth in the years to come,” he said in a conference call.

Time Warner has been investing aggressively in brands that will resonate with viewers across a variety of platforms, including HBO’s recent deals with Jon Stewart, Bill Simmons and “Sesame Street,” as well as its expanded relationship with media company Vice, which will have a news program on HBO.

--The share of U.S. homes sold to first-time buyers this year declined to its lowest level in almost three decades, according to the National Association of Realtors.  Only 32% of all purchasers were first-time buyers in 2015, the lowest percentage since 1987.  The historical average is 40%.

Overall, the housing market is on track for its best year since 2007, but without first-time buyers, current owners will find it more difficult to trade up.

A big problem is home prices have been rising sharply, up 6.1% in September from a year earlier, according to the NAR.

--Auto makers in the U.S. reported strong sales gains in October, aided by the calendar (five weekends) and continued robust demand with low gasoline prices.

Sales reached their highest October volume since 2001 and topped 18 million vehicles on a seasonally adjusted annualized selling rate, the fastest pace in 10 years.  [Sales for September and October were at the best back-to-back month levels since February 2000.]

Most analysts are expecting full-year U.S. light vehicle sales to reach about 17.5 million units, which would exceed the industry’s record sales of 17.4 million set in 2000.

General Motors Co. had a 15.9% jump over a year earlier, surpassing estimates, including a 19th consecutive month of gains in truck sales, up 13%.  Fiat Chrysler recorded a 14.7% leap, propelled by a 33% gain for its Jeep brand.   Ford Motor Co. registered a 13.4% gain.

Toyota posted its best-ever sales for the month on a 13% year-over-year increase, Honda also broke its October record with sales up 8.6%, and Nissan’s rose 12.5%.

Volkswagen’s sales of its namesake brand, however, were flat for the month, the first full sales month after its emissions cheating scandal broke.  So with the sales gains registered by its competitors, that means a big drop in market share.

[VW’s stock price has lost about a third of its value since news of the scandal broke, including a renewed hit this week after the automaker revealed new “irregularities” in emissions certification of its vehicles.  Some Porsche brands have now been dragged into the mess.]

--Tesla Motors Inc. posted a wider loss in the third quarter of $229.9 million, the 10th-consecutive quarter of red ink.  But investors celebrated the results because the company stuck to its sales-targets for the year.

Revenue rose 10% to $936.8 million, but development costs offset the growth in volume.

Tesla predicted it would deliver 17,000 to 19,000 vehicles in the fourth quarter, while it believes it will ramp up by the end of the first quarter of 2016 to a pace that would enable it to deliver around 90,000 vehicles a year.

Deliveries rose 49% to 11,600 in the third quarter.

--New York Attorney General Eric Schneiderman sent a subpoena to ExxonMobil as part of an investigation into whether the company misled investors and the public about climate change risks.

Schneiderman is inquiring into whether ExxonMobil made adequate disclosures to investors about the risks related to the push to limit the use of fossil fuels.  Exxon is also being investigated for consumer fraud related to marketing, advertising and communications regarding climate change.

Exxon confirmed it had received a subpoena and rejected allegations it suppressed climate change research.

Schneiderman’s inquiry could broaden to include other oil and energy companies, one already being Peabody Energy, one of the largest global coal producers.

--Britain faces an energy supply crunch over the next 15 years so it is granting hundreds of millions of pounds in subsidies for highly polluting diesel generators.  According to the International Energy Agency, diesel electricity production emits only slightly less carbon than burning coal.

--Shares in BHP Billiton Ltd., the world’s biggest mining company, fell sharply on Friday after a dam burst at a Brazilian iron-ore operation it jointly owns caused massive damage, aside from killing as many as 16 people in the resultant flooding.  Television pictures from Brazil showed homes awash in red mud; discarded minerals from the nearby mine.

The affected mine, Samarco, is one of Brazil’s biggest deposits of the steelmaking commodity and aside from the costs to clean up the area impacted by the flooding, and all the resultant lawsuits, the mine itself could be shut down for some time.

--The newly merged Kraft Heinz Co. said it was closing seven manufacturing facilities in North America over the next two years, resulting in the loss of 2,600 jobs.  Production will shift to other plants in North America.

--I noted the other week the difficulties the world’s biggest container-ship operator, Maersk, was having and this week the Danish conglomerate announced it would cut 4,000 jobs from its land-based staff of 23,000, as well as cancel options to buy six Triple-E vessels, which are the world’s largest container ships as the company deals with the worst downturn in the industry since the financial crisis of 2009.

Maersk already ordered 27 vessels this year, including 11 Triple-Es, which can carry in excess of 19,000 containers! The ships are built at South Korean yard Daewoo Shipbuilding & Marine Engineering Co. 

Analysts estimate the container shipping industry suffers from overcapacity of about 30%, but new ships still coming online will boost this even further.  [Wall Street Journal]

--Japanese telecom and Internet giant SoftBank Group Corp. said it plans to cut thousands of jobs at Sprint Corp., the wireless carrier it acquired in 2013.

--So as you know I live directly across the street from what had been a massive Merck campus, which is now officially Celgene after the latter acquired it all.  What got me at the time, as I wrote in this space, was that Celgene was already expanding its existing facility at the other end of town and I’ve been questioning just what their plans are to fill both.  Lots of acquisitions, I assume.

On Thursday, the company reported earnings that were basically inline, with sales up 18% amid rising demand for its cancer and psoriasis drugs, though the shares got whacked.

So we’ll see.  The place across the way has been a beehive of activity and you know there is some semblance of normalcy returning with the emergence of the ‘smokers’ out front.

--The European Commission said Ireland’s economy will expand by 6 percent this year, almost double last spring’s estimate and far outstripping the EU average of 1.9 percent.  Ireland is benefiting from strong consumer spending, investment and exports.

Unemployment in Ireland is expected to fall to 7.9 % in 2017 vs. a euro area rate of 10.3%.

Tourism in Ireland is at record levels this year and 2016 is expected to offer more of the same. For U.S. travelers, Aer Lingus is expanding in a big way, including five weekly flights between Dublin and Los Angeles, as well as new daily flights to Newark and Hartford, Conn.

--European banks have been announcing sweeping job cuts, with Standard Chartered Plc the latest. The London-based firm said it would eliminate 15,000 jobs, or 17 percent of its workforce, as soaring bad loans in the emerging markets hurt earnings.  That brings the total announced reductions in two weeks to 30,000, including cuts at Deutsche Bank* and Credit Suisse Group AG.

*Not including further cuts through asset sales.

Additionally, Milan-based UniCredit SpA is considering as many as 12,000 layoffs.

--Gambling revenue in the Chinese territory of Macau fell 28.4 percent in October vs. a year ago; the 17th consecutive month of decline following the launching of China’s drive against conspicuous spending by public officials, the erstwhile “VIPs” that Macau so relies on.

Revenue in October was however greater than September.

--Kellogg Co. reported a decline in profit for the sixth straight quarter, though the company sees signs of a bottom.  Revenue decreased 8.5% to $3.33 billion as the world’s leading cereal company continues to face pressure with the movement away from sugary breakfast cereals and snacks.  But Kellogg did say its top six brands combined gained half a percentage point of market share.

--Shake Shack Inc. continues to roll, with the company raising its revenue outlook for the year yet again.  The burger chain is now expecting sales at existing restaurants to be up 11% to 12%.  [Compare that with McDonald’s recent stagnant U.S. growth.]

Revenue surged 67% to $53.3 million.  Restaurants open at least 24 months actually saw their sales rise 17.1% in the quarter, when the Street was expecting 9.6%.

For 2016, however, the company expects its same-store sales growth to be more like 3%.

--Bloomberg estimates that Taco Bell’s promotion of one free egg-sausage-quesadilla for “all of America” promotion during the World Series cost the company about $10 million.  All that was required was for either the Mets or Royals to steal a base and Kansas City’s Lorenzo Cain did so in the first game.  I forgot what day the giveaway was supposed to be and missed this.

--I have a Wendy’s nearby that I must say I haven’t been to in a while and didn’t know they had a “4 for $4” deal, which includes a Jr. Bacon Cheeseburger, chicken nuggets, fries and drink.  That ain’t too shabby.  The company issued third-quarter earnings that beat expectations and cited this value meal as a major reason for guiding higher for all of 2015.

Wendy’s has been struggling like others in its space to find the right price points.  McDonald’s Dollar Menu didn’t resonate and now it’s considering a 2 for $2 alternative.

Wendy’s said same-store sales at its North American locations rose 3.1% in the quarter.

--Shares in Chipotle Mexican Grill Inc. took a hit after the chain was linked to an E. coli outbreak in Washington and Oregon.  The company shut down 43 restaurants in two areas after six of them were connected to the illness, which has sickened at least 40 people, last I saw.

The E. coli scare comes after a salmonella outbreak in Minnesota in September, when Chipotle restaurants were linked to dozens of infections.  And there was one Chipotle location in California this past summer that was linked to an outbreak of norovirus, which sickened about 80 customers.

So much for simple, unprocessed ingredients.  Give me artificial ingredients and processed foods!

--Amazon.com is adding paternity leave; six weeks for those who have worked for the company at least a year, marking the first time Amazon has offered paid time off for fathers.  Birth mothers are entitled to a total of 20 weeks of paid maternity leave, including four weeks of paid leave before the baby’s arrival.

--The California drought will be over by May...that’s my prediction and I’m sticking to it.  Yeah, I know that despite the forecasts for a Godzilla El Nino, with tons of rain and snow in the Sierras, that this isn’t supposed to do the trick, but it will.  The other day a heavy snowfall hit the Sierra Nevada range, with Mammoth Mountain saying it received up to 30 inches, and it’s but a sneak preview of things to come.

Last spring researchers found that the amount of water contained in the snow in the Sierras on April 1 was 5% of the average snow water equivalent since monitoring began.  [Joseph Serna / Los Angeles Times]

I’ll also predict that the entire winter in the Northeast, Midwest and South will be much warmer than normal.  Heck, we’re hitting record highs today, Friday, in the New York area, with more above-average temperatures slated for next week.  It’s going to be like 2012, when you could golf all winter long.

Oh, there will be one or two monster snowstorms, but no Polar Vortex, sports fans.  Book it.

Of course this will be awful for ski operators in the region, and retailers will be stuck with stacks of winter clothes, but we’ll use our energy savings to go out to dinner more, see more movies, etc.

And that’s a memo.....

Foreign Affairs

Russia/Syria/ISIS/Iran/Iraq: UK investigators believe a bomb was put in the cargo hold of Metrojet Airbus A321, flying from Sharm el-Sheikh to St. Petersburg, which came down in the Sinai on Saturday, killing all 224 people on board, most of the victims being Russian.   [U.S. officials, including President Obama, suspect a bomb but no specificity as yet.]

President Vladimir Putin has been largely silent since the crash, issuing a press release and making brief comments during a meeting with the Transport Minister, describing it as “an enormous tragedy” and saying his thoughts were with the families of the dead.  He’s not good at this kind of stuff.

But then on Friday he suspended all flights from Russia to Egypt, the most popular tourist destination for Russians, until the cause has been established.

Putin’s director of the Federal Security Service recommended the move, after both Russia and Egypt had played down the possibility of terrorism.

Whether this proves to be a mechanical issue or a bomb, either way, Putin is in an embarrassing situation, forced to explain the sad state of Russian aviation or to justify his actions in Syria.  But a Kremlin spokesman on Friday said Putin’s decision did not mean that the crash was caused by a terrorist act. 

Russia has 45,000 citizens already in Egypt, including Sharm el Sheikh. It also had some 25 flights a day to the country, in what is obviously a huge blow to the Egyptian economy and its reputation.

For their part, the British government, which is trying to bring roughly 20,000 of its citizens home from Egypt, banned checked luggage on all flights from Sharm el Sheikh.  Friday, Turkish Airlines canceled flights to and from the resort city.

Shashank Joshi / Financial Times

“If British and American intelligence agencies are correct in their suspicion that a bomb on board brought down the Russian plane that crashed in Egypt’s Sinai peninsula last week, it would mark an important moment for the rapidly evolving jihadist threat.

“For one thing, it would be the first such attack since Chechen bombers destroyed a pair of Russian aircraft in 2004.  While attention has been on possible missile attacks, like that which brought down Malaysia Airlines Flight 17 over Ukraine in 2014, al-Qaeda’s branch in Yemen (AQAP) has been making technological strides in the development of undetectable, non-metallic bombs.  AQAP attempted two failed attacks using an underwear bomb and even a rectal bomb in 2009 and smuggled explosives aboard U.S.-bound cargo planes in 2010.  A Saudi double agent inside AQAP even retrieved one such device in 2012, but the group boasted of a new design last December....

“(But) if ISIS was responsible, there is of course every chance that such an attack succeeded because of lax security procedures rather than any novel bomb design.”

It’s all related to Syria.

Robert B. Zoellick / Wall Street Journal

“Secretary of State John Kerry’s new diplomatic process for dealing with Syria’s harrowing civil war involves convening a series of talks in Vienna.  The effort is probably well-intentioned.  But I cannot conceive of what he expects to accomplish.

“Does anyone really believe that Syria can be put back together again and then revived through democratic elections?  The danger is that the all-purpose diplomatic resort to ‘process’ will lead the United States to ignore realities and even make them worse.

“America faces two interconnected perils in the region: the expansion of Islamic State and the breakdown of the Middle East’s century-old security order. The Obama administration’s fear of involvement and denial of the fundamental struggle for dominance in the region increases the risks for the U.S., Europe, Africa and Asia.  The conference in Vienna last week – involving at least a dozen interested parties, including Iran, Saudi Arabia and Russia – was escapism, not a serious strategy....

“The old state borders and authorities of the Middle East, established during and after World War I, are disintegrating.  The Arab lands are now the scene of a terrible contest for power.  As former U.S. Army Gen. David Petraeus explained to Congress in September, ‘almost every Middle Eastern country is now a battleground or a combatant in one or more wars.’....

“The Russian and Iranian interventions in Syria further darken this bleak picture.  Bashar Assad has killed about a quarter-million of his own people and depopulated half the country.  More civilians have died at his hands than by ISIS violence.”

David Ignatius / Washington Post

“President Obama said he doesn’t want to turn the Syria conflict into a proxy war.  Unfortunately, that’s already happening, as combatants join the battle against the Islamic State with radically differing agendas that could collide.

“Let’s look at the confusing order of battle: The United States has decided that its strongest partner against the Islamic State is a Syrian Kurdish force known as the YPG. But Turkey, nominally our NATO ally, says the YPG has links with what it claims is a Kurdish terrorist group.  How’s that going to work out?  No answers yet.

“Russia, meanwhile, contends that it is fighting the Islamic State, alongside forces loyal to Syrian President Bashar al-Assad. But Russian warplanes have been bombing Islamist rebel groups that are covertly supported by the United States, Turkey and Jordan – and these brigades are fighting back hard.  The rebels are posting videos bragging about their success with U.S. anti-tank missiles.  The battle looks eerily like Russia’s war in Afghanistan, in embryo. Where’s it heading?  No answers there, either.

“Saudi Arabia and Iran have been fighting by proxy in Syria for nearly four years. This may be the most toxic conflict of all, because it feeds the Sunni-Shiite sectarian inferno that is immolating the Middle East....

“With so many powerful military forces gathering in the same area, the danger for accidents and miscalculations is large....

“What’s over the hill, if the outside powers don’t find a path toward de-escalation?  Here’s one grim hint: I had visits over the past several weeks from leaders of Kurdish political movements in Iran and Syria who envision the day when a greater Kurdistan dissolves the borders of those nations, as well as Turkey and Iraq.

“If Russia, Iran, Turkey and the other proxy fighters don’t help put the pin back in this grenade, a more devastating, regionwide explosion lies ahead.”

Edward Luce / Financial Times

“There is no substitute for a strategy.  Until now, Mr. Obama’s Syria policy has been driven by a lawyer’s mindset, taking each turn of events on a case-by-case basis.

“The problem with lawyers is that they sometimes miss the big picture.  Two years ago Mr. Obama set a red line on Syria’s use of chemical weapons that he failed to enforce after it was breached.

“The impact of his prevarication continues to influence the actions of others from Moscow to Riyadh.  Mr. Obama’s bluff was called and he wobbled.  It is hard to overstate how much damage that did to America’s reputation.

“It was Mr. Putin who saved Mr. Obama in 2013 by persuading Bashar al-Assad’s regime to hand over its stockpile of chemical weapons.  Ironically, it is in reaction to Mr. Putin’s moves today that Mr. Obama is dipping his toe into the Syrian quagmire.

“Each U.S. move has been late, halfhearted, and mis-sold as a solution in itself.

“It was that same spirit of reactive incrementalism that prompted Mr. Obama last year to unveil a $500m training program for ‘moderate’ Syrian forces.  Ditto for his decision to call for Mr. Assad’s removal.  Much like Mr. Obama’s chemical red line, both stances looked hollow....

“Each of Mr. Obama’s options has downsides.  If he steps up U.S. involvement, he will risk entering a morass.

“The most obvious step would be to carve out a safe zone inside Syria along the border with Turkey.  Hillary Clinton...supports such a move. The benefit is that it would give displaced Syrians a protected space by creating a no-go area for ISIS and Damascus.

“But it would involve a huge risk.  It would need a U.S.-enforced no-fly zone that would be off-limits to Russian and Syrian planes. Mr. Putin would be sure to test Mr. Obama’s mettle.  It would also require a lot of troops on the ground to police the safe zone’s borders.  Even assuming Mr. Obama could persuade Arab allies, such as Jordan and Saudi Arabia, to put up the numbers, it would still require a drastically stepped up U.S. military presence.

“The other option is to continue doing the least possible, which is Mr. Obama’s enduring instinct....

“Joseph Dunford, the chairman of the joint chiefs of staff, took up his job a day after Russia began its air strikes.  ‘If [any] nation poses an existential threat to the United States, I’d have to point to Russia,’ he said.

“America’s generals have been deft at bouncing Mr. Obama into putting more troops into Afghanistan, Iraq – and now Syria. They will probably try to do so again.

“History suggests Mr. Obama will find it hard to say no. As the saying goes, ‘plan beats no plan.’  It is time for Mr. Obama to come up with one of his own.”

Meanwhile, in Tehran, thousands of protesters gathered to shout “Death to America” in an annual ritual to mark the anniversary of the siege of the U.S. embassy more than three decades ago.  But as opposed to the relatively tame demonstrations of the past two years, this week’s protests showed the depth of support for Iran’s hardliners opposed to any rapprochement between Iran and the U.S.

The day before the protest, Supreme Leader Ayatollah Ali Khamenei said the slogan “Death to America” had deep roots in the Iranian nation and was against “American policies and arrogance,” but not the people.

But Mohammad-Ali Jafari, commander of the Revolutionary Guards, said the U.S. was trying to influence the Islamic regime and was pursuing a policy of “sedition” during the post-nuclear deal period.

A number of Iranian journalists and activists have been arrested in recent weeks on suspicion of “collaborating with hostile western governments.” The hardliners are clearly trying to undermine the efforts by moderates to increase trade after their success in negotiating the nuclear accord and Ayatollah Khamenei has warned of “unbridled imports, especially imports of any American consumer goods after the lifting of sanctions.”

Editorial / Wall Street Journal

“So much for the Tehran thaw.  In September liberal hopes ran high that the nuclear deal with Iran and the lifting of economic sanctions would lead to an era of good feeling with the mullahs, complete with new openings for Western businesses and diplomatic cooperation over regional crises....

“(But) in recent days Tehran has arrested two U.S. citizens, bringing to five the number of Americans known to be under Iranian lock and key.  They include Washington Post reporter Jason Rezaian, who has spent nearly 500 days in prison....

“The latest arrests are especially chilling – and revealing.  Nizar Zakka is a Lebanese-American who lives in Washington and was visiting Tehran for a conference at the invitation of the Iranian government.  He disappeared Sept. 18 only to resurface this week in the regime’s custody.

“Siamak Mazai is an Iranian-born American businessman who was taken from his mother’s house in Tehran in mid-October.  Mr. Namazi has long been an outspoken advocate of closer U.S.-Iranian ties and even worked in the Iranian Housing Ministry in the mid-1990s during the presidency of Akbar Hashemi Rafsanjani, now considered a relative moderate but known then as a hardliner.....

“The arrests come as Supreme Leader Ali Khamenei has publicly reaffirmed his regime’s commitment to its ‘Death to America’ slogan and set new conditions on the nuclear deal that amount to a unilateral renegotiation....

“Some speculate that the arrests are part of Mr. Khamenei’s effort to underscore his regime’s ideological purity and beat back domestic calls for reform. But the Islamic Republic has been in the business of taking hostages since its beginning, no matter whether the president is a reputed moderate like current leader Hasan Rohani, or a firebrand like predecessor Mahmoud Ahmadinejad.

“When it comes to the Islamic Republic, international goodwill is invariably met with contempt and cruelty. In the wake of the nuclear deal, this is a lesson the West will have to learn all over again.”

---

In other developments in the region, according to a new report by Amnesty International, the Syrian regime has forcibly disappeared more than 65,000 people under cover of war, with abductions carried out as “part of an organized attack against the civilian population” amounting to a crime against humanity, as noted by AI.

“Pulled from offices in the daytime or homes in the night, the disappeared are cut off from the outside world, and packed into prisons where torture is routine and death is commonplace.  Families can spend years without news of a relative’s whereabouts,” as reported by the Daily Telegraph.

Finally, we note the passing of Ahmed Chalabi, 71, who died of a heart attack.  Chalabi was the Iraqi politician who encouraged the George W. Bush administration to launch its invasion of Iraq; Chalabi becoming a trusted confidant of senior figures like Donald Rumsfeld and Richard Perle.

It was originally thought that Chalabi would take charge of a new Iraq though he soon lost favor in Washington, amid accusations he was passing military information to Iran in 2004.  But he continued to occupy positions of influence in Iraqi politics, just not at the top.

China: On Thursday, U.S. Defense Secretary Ashton Carter visited the U.S. aircraft carrier Teddy Roosevelt to deliver a warning to China.  Speaking from the deck, Carter said there was “a lot of concern about China in the region.”

“Many countries in the region are coming to the United States and asking us to do more with them so that we can keep the peace out here,” he said, warning of “extravagant claims and the militarization, principally by China” in the South China Sea.

The USS Theodore Roosevelt was about 150 nautical miles south of the contested Spratly Islands when Carter spoke after 10 days of high-stakes diplomatic activity by the U.S. in the region, moves designed to reassure nervous allies.

Last week the U.S. sent the USS Lassen, a destroyer, within 12 miles of one of the artificial islands built by China in the South China Sea, an appearance that Beijing bitterly opposed.

China says the presence of U.S. warships is threatening stability, while the U.S. is saying China is militarizing the region through its artificial islands.

The Chinese ambassador to the U.S., Cui Tiankai, told CNN: “I think what the United States is doing is a very serious provocation politically and militarily. It is a clear attempt to escalate the situation and to militarize the region.”

On a separate and truly historic issue, China’s Xi Jinping and Taiwan’s Ma Ying-jeou are meeting in Singapore Saturday, the first such summit between leaders from across the Taiwan Strait since the end of the Chinese civil war in 1949.

Ma’s Kuomintang party is expected to lose its hold on the presidency in the Taiwanese elections in January, which makes the meeting even more of a surprise, but it’s assumed it will still set a tone for future relations between the two.

As one analyst told the South China Morning Post: “It is a breakthrough in relations as it marks Beijing’s recognition of Taiwanese government.”

Lin Chong-pin added: “With the summit, Beijing has tacitly recognized Taipei as a sovereign government and Ma Ying-jeou as Taiwan’s leader.”

Escalating tensions in the South China Sea are said to be behind Xi Jinping’s move.

The summit would help Beijing press its case for closer relations with Taiwan in order to gain Taipei’s help in dealing with territorial disputes, seeing as Taiwan possesses crucial historic evidence linked to territorial claims.

Apparently there will be no agreements signed or joint statements issued.

As to Taiwan’s opposition party, the DPP, it has benefited from public sentiment turning against closer relations with the mainland.

Also this week, leaders of China, Japan and South Korea held their first three-way summit since 2012 on Sunday, with Chinese Premier Li Keqiang, Japanese Prime Minister Shinzo Abe and South Korean President Park Geun-hye agreeing to accelerate talks for a trilateral free-trade agreement.  The three also agreed to push to resume stalled talks with the U.S., Russia and North Korea on Pyongyang’s nuclear program.

But none of the leaders mentioned tensions in the South China Sea.

Turkey: President Recep Tayyip Erdogan’s Justice and Development Party, or AKP, scored a huge election victory on Sunday, the re-vote of June’s election that led to a hung parliament, with AKP winning a majority that returns Erdogan to one-party rule.

The president said the results showed voters’ desire to build a “new Turkey” and its rejection of terrorism.

Erdogan became Turkey’s first directly elected president last year after 12 years as prime minister and now he is calling for a new constitution to shift the parliament’s executive powers to his office, creating an American-style presidency and preserving his role as the dominant figure.

Erdogan also vowed to annihilate Kurdish separatists.

“We will continue this fight until the terrorist organization lays down weapons, buries them in the ground, and pours concrete over them – until all its members surrender or are eliminated.  The period ahead of us is not one of talks and discussions; it’s a period to achieve results,” he said in his first major speech following the vote. [Wall Street Journal]

Russia: The new head of the U.S. Navy, Admiral John Richardson, told the Financial Times that the navy was reassessing its global posture in the face of significantly increased naval activity by Russia in Europe.

“Their submarine force and their navy are as active as they have been in a long time, 20 years or so,” Adm. Richardson said in the interview. 

U.S. officials are particularly alarmed by signs Russian submarines are monitoring critical telecommunications cables on the Atlantic seabed, as noted last week.

Romania: Prime Minister Victor Ponta was forced to resign a day after some 20,000 people took to the streets to protest the nightclub fire I wrote of last time that left 32 people dead.

Demonstrators complained of government corruption and poor safety supervision.  Ponta is already facing trial on corruption charges.

Random Musings

--I’ve said this on more than one occasion but it cracks me up when people talk about how long our political campaigns are.  Good!  You don’t have to follow them, but it often takes a long time until we fully know our candidates...and even then we still make massive mistakes.

I can’t help but bring this up with this week’s controversy over Ben Carson’s credibility.  We’ll see how it plays out.

--Polls....

In the latest Fox News national poll, Donald Trump polls 26% to Ben Carson’s 23%.  Then you have Ted Cruz and Marco Rubio with 11% each.  But from there it’s down to Jeb Bush, Mike Huckabee, John Kasich and Rand Paul, all receiving 4% each.  Carly Fiorina is at 3%, Chris Christie 2%.

In a Quinnipiac University national poll released Wednesday, Trump leads Carson 24% to 23%, with Rubio at 14%, followed by Cruz at 13%, and Bush way back at 4%.  No other candidate tops 3%.

In an Ipsos/Reuters national poll, Trump leads Carson 31-18.  Rubio is tied for third with Bush at 10%.

But in a new NBC/Wall Street Journal national survey, Carson leads Trump 29-22, then down to Rubio at 11%, Cruz 10% and Bush 8%.

In hypothetical matchups, Clinton is tied with Carson, 47-47, but leads Trump (50-42), Rubio (47-44) and Bush (47-43).

In a Monmouth University poll of New Hampshire voters, Trump continues to lead Carson 26-16, though Rubio moved into third at 13%, followed by Kasich 11%, Cruz 9%, Bush 7%, and Fiorina and Christie at 5% each.

And in a new CNN/ORC poll of Iowa caucusgoers, Trump leads Carson 25-23 (after leading 22-14 in August), with Rubio third at 13%, Cruz at 11% and Bush at 5%.

On the Democratic side....

In the Fox News national poll, Hillary Clinton leads Bernie Sanders by a 56-31 margin.

In the Quinnipiac national poll, Clinton receives 53% to Sanders’ 35%.

But Carson leads a hypothetical matchup against Clinton, 50-40, with women going for Clinton by a 45-44 margin (men backing Carson 55-35).

Clinton tops Trump 46-43, while Rubio tops Clinton 46-41.  Even Ted Cruz tops Clinton 46-43.  [Sanders’ numbers are similar to Hillary’s.]

In the NBC/WSJ survey, Clinton cleans Sanders’ clock, 62-31.  55% of all voters rate her highly for possessing the knowledge and experience to be president, compared with 26% who don’t.  But more Americans view her negatively than positively, 47% to 40%.

In the Monmouth N.H. poll, Clinton leads Sanders 48% to 45%.  In September, Sanders led 43-36, but that was with Joe Biden in the poll.  Sanders leads Clinton among men, 54-37, while Clinton leads among women in the Granite State, 56-37.

The next Republican debate is on Tuesday and Chris Christie and Mike Huckabee have been booted to the cocktail hour, a big blow to both.

--Some Election Day notes....

Tea Party Republican Matt Bevin pulled off a big upset in the Kentucky governor’s race, becoming just the second Republican to govern the Bluegrass State in four decades in defeating Democrat Jack Conway.

Democrats failed to take Virginia’s state senate in a big blow to Gov. Terry McAuliffe.  Democrats needed just one seat and Republicans kept all of theirs.

But Republican Gov. Chris Christie suffered a big blow in New Jersey as at least three (possibly four) Republicans lost in the state Assembly.  Democrats currently hold 48 of 80 seats and Republicans had hopes of cutting into this margin, not lose more ground.

Ohio rejected marijuana legalization by a two-to-one margin.

The San Francisco sheriff who steadfastly defended the city’s “sanctuary city” policy went down to defeat.

--Writing in his Wall Street Journal op-ed, Karl Rove talks of the possibility of a multi-ballot Republican National Convention.  If you believe there are five serious candidates who have the money, organization and poll numbers to survive well into March – Trump, Carson, Rubio, Cruz and Bush:

“What complicates the picture is the GOP’s rule requiring the 28 jurisdictions (states, territories and the District of Columbia) that vote before March 15 to award their delegates proportionally.  The exception is South Carolina, whose winner-take-all primary was grandfathered in. Add in the eight states voting on or after March 15 that also award their delegates proportionally, and some 60% of the convention’s likely total of 2,470 will be allotted that way.

“Of these delegates awarded on a proportional basis, some states require a candidate to hit a floor – say, 20% or 15% of the vote.  Others have lower thresholds or none at all.  For example, Iowa’s 30 delegates will be divvied up proportionately with no minimum, meaning candidates win a delegate for each 3.3% of the vote they receive.  The upshot is that by mid-March the top three or four candidates may be separated by only a small number of delegates, giving the leader a plurality, not a majority.

“Then comes the Ides of March, when winner-take-all contests kick off.  On March 15 five states and one territory, awarding 361 delegates, will vote.  Of these, 292 will be winner-take-all.  This day could play a critical role in culling the field.  The four final March contests that follow could cut the contenders to two.”

April through early June you then have scattered contests, including Pennsylvania, New Jersey and California.  But even with many of the bigger ones being winner-take-all, the total still may be splintered enough that no candidate has a majority, plus 8% of the delegates arriving at the convention are “unbound, free to vote for their choice of candidate.”

But wait...there’s more!

GOP rules allow for the creation of “superdelegates,” such as state party chairman and national committeeman/woman automatic delegates that could number up to 210 in all.

So there is a chance we could have some exciting television viewing next summer.

--Paul Singer, a billionaire New York investor, is throwing his support to Marco Rubio, when it was assumed he would support Jeb Bush (with others seeking Singer’s blessing).

Singer sent a letter to fellow donors that was obtained by the New York Times wherein he touts Rubio as the only candidate who can “navigate this complex primary process, and still be in a position to defeat” Hillary Clinton.

Singer added: “He is accustomed to thinking about American foreign policy as a responsible policy maker.  He is ready to be an informed and assertive decision-maker.”

Singer gave more money to Republican candidates and causes last year than any donor in the country, according to the Center for Responsive Politics.

--And as if Jeb Bush didn’t already have enough problems, along comes his father’s new biography, where he harshly criticizes those around George W. Bush, such as Donald Rumsfeld and Dick Cheney, both of whom Bush 41 calls “iron-ass,” with Rumsfeld being an “arrogant fellow” full of “swagger” and Cheney being “very hard line” and too eager to “use force to get our way.”

The comments are included in Jon Meacham’s “Destiny and Power: The American Odyssey of George Herbert Walker Bush,” to be published by Random House next week.

Rumsfeld said on Thursday, “Bush 41 is getting up in years and misjudges Bush 43,” while George W. defended his advisers.  “I am proud to have served with Dick Cheney and Don Rumsfeld.”

For his part, Cheney viewed “iron-ass” as a compliment.

In the middle of the family tussle over legacy is Jeb, who wants voters to believe he is his own man, one that just happens to have the Bush name.

--Charles Krauthammer / Washington Post

“Where do Republicans get that special talent for turning gold to dross? They score an electoral ‘massacre’ (the Economist) in 2014 and, a year later, what do they have to show for it other than another threat to shut down the government?  Hillary Clinton is caught in e-mail flagrante and Benghazi mendacity and yet, with one Kevin McCarthy gaffe and a singularly ineffective 11-hour Benghazi hearing, Republicans render her sanitized.

“And now their latest feat.  They win a stunning victory over their perennial nemesis, the mainstream media – a slam-dunk rim-rattling exposure of the media bias they have been complaining about for a half-century – and within a week they so overplayed their hand as to dissipate whatever sympathetic advantage they gained.

“The CNBC debate was a gift for the GOP, so unadorned a demonstration of liberal condescension, hostility and arrogance that the rest of the media – their ideological cover exposed – were forced to denounce and ridicule their ham-handed colleagues.  What happened then?  Instead of quitting while they were ahead, the Republicans plunged into a week of meetings and statements, whining and complaining, bouncing around a series of demands, including control of the kind of questions that may or may not be asked at future debates.

“Who’s the genius who thought up that one? First, it instantly allowed the liberal media to turn the tables and play defenders of journalistic independence against GOP bullies.

“Second, it made the Republicans look small....

“Third, this continues the season-long GPO diversion from what should be its real target – the wreckage wrought by seven years of Barack Obama.”

--I noted the other week that former Democratic Sen. Jim Webb, who dropped out of the Democratic presidential field, was considering an attempt as a third-party candidate.  I said at the time that while I like and admire Webb’s vast experience, if we were to have a viable third-party candidate, it’s just not him.  If I had to guess today, I can’t see him getting more than 3% nationally.

But over the weekend, Webb wrote an opinion piece in the Washington Post laying out why he is considering such a run, and I liked this passage concerning our many foreign policy challenges.

“Republicans try to outdo one another over who would be the quickest to use military force in an era that increasingly resembles the Cold War in our need for both strength and strategic patience.  Our almost-certain Democratic nominee has failed every major foreign policy test of the past 13 years.  She voted in favor of the Iraq war, one of the greatest strategic blunders in our history. She has touted her role as a principal architect of the predictably disastrous intervention in Libya.  She supports the nuclear agreement with Iran, which has further destabilized the balance of power among Iran, Saudi Arabia and Israel and encouraged Russia’s greater role in the region.

“The miscalculations of the Arab Spring unleashed regional chaos and created power vacuums soon filled by the likes of the Islamic State.  Combined with the Iraq invasion, these have taken the United States’ focus away from other strategic priorities and caused our leaders to ignore serious obligations here at home.  Since 2001, we have spent $109 billion on reconstruction projects in Afghanistan alone, as our country has slid downward in addressing the needs of everyday citizens for high-quality public education; a modernized infrastructure of roads, bridges, airports and water systems; and forward-looking energy policies.”

Well, good luck, Senator....should you choose to give it a go.

--In a new WSJ-NBC4 New York-Marist poll, New York City Mayor Bill de Blasio’s approval rating among registered voters is down to 38%, six points lower than May and his lowest yet.  Nearly half...49%...said he doesn’t deserve re-election, while 42% said he does.

But former Mayor Michael Bloomberg was at 40% at the same time of his first term, while Rudy Giuliani was just at 35%, according to Marist.  De Blasio has also fared better in other recent polls, including a 45% approval rating in a Quinnipiac survey.

Separately, only 32% of white voters approve of his performance, the same as this spring, but his approval rating among blacks is down to 50% from 59%.

55% of New Yorkers think the city is headed in the wrong direction.

--Ted Koppel / Washington Post

“To begin, a conclusion: The Internet, whatever its many virtues, is also a weapon of mass destruction.

“We have been distracted from focusing on that potential by a succession of high-profile cyberattacks, including China vacuuming up more than 22 million federal employee records, North Korea’s humiliating shot across the bow of Sony Pictures Entertainment and a barrage of cyberlarceny directed at the U.S. and businesses, much of which has originated in Russia and Ukraine.  Each of these targets was protected by firewalls and other defenses.  But the Internet is inherently vulnerable.  It was never intended to keep intruders out.  It was designed to facilitate the unimpeded exchange of information, giving attackers a built-in advantage over defenders.  If that constitutes an ongoing threat to commerce (and it does), it also represents a potentially catastrophic threat to our national security – and not just in the area of intelligence-gathering.  The United States’ physical infrastructure is vulnerable.  Our electric power grids, in particular, are highly susceptible to cyberattacks, the consequences of which would be both devastating and long-lasting....

“When I asked former secretary of homeland security Janet Napolitano what the chances are that an aggressor could knock out one of our power grids with a cyberattack, she replied, ‘Very high – 80 percent, 90 percent.’  Yet she acknowledged that there is no specific plan to respond to a disaster of that magnitude.  Jeh Johnson, the current homeland security secretary, was unable or unwilling to provide even the outline of a plan to deal with the aftermath of such an attack.  When asked if he was aware that such a plan even exists and why it wouldn’t make sense to share it with the public, Johnson gestured in the direction of several white binders on a shelf in his office, indicating that there was probably something in one of them.  He kept returning to the importance of having a battery-powered radio.

“The military would be expected to provide support and security in the event of longer-lasting disasters.  Nothing has been done, however, to prepare the greater public.  FEMA’s recommendations entail having a two- to three-day supply of food and water, prescribed medicines, an unspecified amount of cash, flashlights, extra batteries and – as Johnson stressed – a portable radio. Beyond that there is the prudent recommendation that families agree on a pre-determined emergency meeting place and the phone number of an out-of-state friend or relative as a common point of contact.

“It is difficult to imagine what counsel Homeland Security will broadcast after the fact that it is unable to share now.  The first man to head that agency, Tom Ridge, summarized the problem.   ‘We are not a preemptive democracy,’ he told me.  ‘We are a reactive one.  Rare are the occasions on which we act in anticipation of a potential problem.’”

I’m sure many of you have seen Koppel as he promotes his book, “Lights Out: A Cyberattack, a Nation Unprepared, Surviving the Aftermath,” and this topic is nothing new, as I’ve pointed out countless times in this space, but Koppel’s noting of Jeh Johnson’s response to his inquiry is more than disturbing.

We all know we’re screwed.  But it’s time for Congress to hold President Obama’s feet to the fire, note Johnson’s indifference, and fire the jerk.

I also can’t help but note that Koppel, who has as much credibility as anyone in his profession, is readily telling everyone he has purchased months’ worth of freeze-dried food and water for his loved ones, including his grandkids.  Me?  I’m going to become a hobo and ride the rails.....

Oops...you need power and energy for that.  I’m heading to the Koppels.

--Arizona Sens. John McCain and Jeff Flake released a joint oversight report this week that showed taxpayers have been footing the bill for the military tributes seen in sports stadiums; paid advertisements by the U.S. Department of Defense you and I pay for.

Roughly $6.8 million in taxpayer-funded marketing contracts with professional sports teams since 2012 have included “paid patriotism” events.

“Unsuspecting audience members became the subjects of paid marketing campaigns rather than simply bearing witness to teams’ authentic, voluntary shows of support for the brave men and women who wear our nation’s uniform,” the two stated in the introduction to the report.  “It is hard to understand how  a team accepting taxpayer funds to sponsor a military appreciation game, or to recognize wounded warriors or returning troops, can be construed as anything other than paid patriotism.”

For example, the Milwaukee Brewers received $49,000 for the Wisconsin Army National Guard to sponsor each Sunday performance of “God Bless America” during home games with announcement and logo recognition on the video board.

Three NFL teams were the biggest beneficiaries: the Atlanta Falcons ($879,000), New England Patriots ($700,000) and Buffalo Bills ($650,000).

The Defense Department argues the contracts are used for recruitment purposes, but DoD can’t prove a return on their investment, the report found. 

NFL Commissioner Roger Goodell said the league will give back any proceeds from paid patriotism.  [Tim Baysinger / Adweek]

--We note the passing of former U.S. senator and actor, Fred Thompson, 73.

What a great life he had, moving back and forth from Hollywood to national politics.  In 2008 he ran for president and initially was seen as a frontrunner, but he flamed out.  He played an authoritative character in his television and movie roles, but he often seemed ambivalent as a politico.  He will forever be known, however, not only for the preceding but for his critical role in the Watergate hearings where he served as Republican counsel on the Senate Watergate Committee...Thompson’s mentor, Sen. Howard Baker Jr., having selected him over more experienced lawyers.

It was Thompson’s questioning of Alexander Butterfield, a former aide to Richard Nixon, that led to the revelation of recording devices in the Oval Office.

I liked Fred Thompson, a lot.  It’s in these columns, somewhere, how I thought he would make for a good president.   But he once was selected to give the Republican response to a State of the Union speech and some of you will remember the heavy breathing as he was doing so, because he was improperly mic’d; at the time that was a killer. [Worse than Marco Rubio’s water bottle while performing in the same role years later.]

--There’s a good reason why I don’t comment on every ‘national’ story, such as the supposed murder of Lt. Gliniewicz of Fox Lake, Illinois.  It’s not always germane to this column and often we have zero facts.

But now we’ve learned this guy and members of his family were true dirtballs.  And for that he deserves to have his name on the Net forever.

My sympathies to the Fox Lake community for having to put up with this whole debacle.

--In an extraordinary development the Vatican arrested two members of a papal reform commission on suspicion of leaking classified information.  As of this writing, one of the two remains under guard.  This was part of a months-long investigation carried out by the Vatican gendarmerie* and is part of the big rift between Pope Francis and his allies against his opponents who want to squelch his reform agenda.

A book by the author of 2012’s “Vatileaks,” the scandal that rocked the papacy of Pope Benedict XVI, is going to reveal fresh allegations of fraud and mismanagement, as well as challenges to Francis’ push for change.  [Anthony Faiola / Washington Post]

*The Vatican gendarmes control security, law enforcement and firefighting coordination in the city-state, while the Swiss Guard is responsible for the pope’s direct protection.  Can’t say I knew this distinction until reading Faiola’s piece.

--According to a new Pew Research Center survey, the share of U.S. adults who say they believe in God slipped to 89% in 2014 from 92% in 2007, while the proportion of Americans who say they are “absolutely certain” God exists fell even more, to 63% in ’14 from 71% in ’07.

Only half of Millennials are absolutely certain of their belief in God, compared to 71% of the “silent generation,” or those born from 1928 to 1945.

Younger people are also less likely to pray daily and attend religious services.

I think God is going to have to break down and appear on Fallon for that resultant viral video impact. 

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

God bless America.

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Gold $1089...lowest weekly close since 7/24
Oil $44.29...lowest weekly close since 8/21

Returns for the week 11/2-11/6

Dow Jones  +1.4%  [17910]
S&P 500  +0.95% [2099]
S&P MidCap  +1.3%
Russell 2000  +3.3%
Nasdaq  +1.85%  [5147]

Returns for the period 1/1/15-11/6/15

Dow Jones  +0.5%
S&P 500  +2.0%
S&P MidCap  +0.8%
Russell 2000  -0.4%
Nasdaq  +8.7%

Bulls 46.9
Bears 28.1 [Source: Investors Intelligence...Bull figure was 24.7 on 9/29...report released Wednesdays, using data as of Tuesday...and this was the cycle low in the S&P...exactly as this contrarian indicator is supposed to work.  The S&P closed at 1867 on 8/25 but that was but a blip.  I have this data going back to 1990!  But it’s in crayon so don’t ask for it.]

Dr. Bortrum posted a new column.

Have a great week.  I appreciate your support.

Brian Trumbore