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Week in Review

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04/02/2016

For the week 3/28-4/1

[Posted 11:00 PM ET, Friday]

Note: There are substantial costs associated with the site.  If you haven’t already done so, please click on the gofundme link or send a check to PO Box 990, New Providence, NJ 07974.  It’s greatly appreciated.  Special thanks this week to J. D. for his ongoing support.

*I apologize for last week and not warning those who may print this out that it was 40 pages.  This one is more like 30.

Edition 886

Washington and Wall Street

The crazy first quarter is now history in terms of market returns, which I detail below, while this was a week where we focused anew on the Federal Reserve and the state of the U.S. economy.

Chair Janet Yellen, in a speech to the Economic Club of New York on Tuesday, tried to retake control of her Open Market Committee, whose members have been in mini-revolt over the next Fed rate hike, with some of the governors recently talking of the possibility of an April increase when just weeks earlier at the March FOMC meeting, Yellen made clear that no more than two hikes were in the offing for 2016, rather than the four the Fed hinted at back in December, and April clearly wasn’t one of them.

Enough of such talk, Yellen essentially said to her audience, in reiterating that any increase in the benchmark Funds rate will be gradual, and that it was appropriate for U.S. central bankers to “proceed cautiously,” given unfavorable market conditions, including weaker than expected overseas growth and an uncertain inflation outlook.

Yellen said the pick-up in core inflation “may not be durable,” voicing concern inflation is not “stable,” citing subdued inflation expectations.

“To the extent that recent financial market turbulence signals an increased chance of a further slowing of growth abroad, oil prices could resume falling and the dollar could start rising again.

“And if foreign developments were to adversely affect the U.S. economy by more than I expect, then the pace of labor market improvement would probably be slower, which would also tend to restrain growth in both wages and prices.” [Financial Times]

Yellen added inflation could take longer to get to the Fed’s 2% target, even though their preferred inflation barometer, the PCE (personal consumption expenditures index) came in at 1.7% (which is darn close to 2%) for February this week, the same as January, while I have been arguing when you look at items such as the core CPI, and wages, we are already at 2%, not that this then means the Fed should be hiking interest rates, it’s just that the Fed is treating us like schmucks, while consistently getting it wrong themselves.

But in squashing any potential for a rate hike until June at the earliest, Yellen helped fuel another rally in global equities, at least for a few days, as Europe rallied on her dovishness plus the expansion of the European Central Bank’s own quantitative easing program.

Only in the case of Europe, at week’s end all was not as cheery as Yellen’s words helped lead to a weaker dollar, and a stronger euro, the latter the last thing European exporters, and ECB President Mario Draghi, want to see.

But continuing with the U.S. economy, Friday’s jobs report for March was another solid one, 215,000, with the unemployment rate ticking up to 5.0% from 4.9%, while average hourly earnings rose 0.3%, or 2.3% year over year. [I feel compelled to add each time I cite this last number that, yes, you want wage growth to be closer to 3.5% to 4.0% in a normal post-recession expansion, but this hasn’t been one.]

The thing is the majority of the job gains in March continue the basic trend...lower-paying retail and services, while the higher-paying manufacturing sector lost jobs last month.

And another key figure, U6, or those who are underemployed, ticked up to 9.8% from 9.7%, though 9.7% was the lowest for this reading since 2008.

Separately, personal income in February rose 0.2%, a tick better than expected, while consumption was up 0.1%, the same as a sharply revised downward January number, so not too great.

But the March Chicago manufacturing PMI was a far better than expected 53.6 (50 being the dividing line between growth and contraction), while the ISM manufacturing reading also exceeded forecasts at 51.8, the first above 50 in seven months. 

February construction, on the other hand, came in -0.5%.

On the housing front, the S&P / Case-Shiller home price index for January showed the 20-city benchmark rising 5.7% over January 2015, which isn’t exactly healthy for those looking to buy.  Portland, Oregon saw the greatest appreciation, 11.8% year over year, while Chicago had the smallest at 2.1%.

So looking back at the just-completed first quarter, it was dominated by fears the global economy was weakening, with crashing energy prices, before the big bounce back in both stocks and commodities (classic short-covering).  It helped that there wasn’t another incident on the terror front after the Brussels attacks, which has essentially been the case since 9/11.  Nothing to shatter confidence for any real length of time.

But now we focus on earnings, with S&P 500 eps expected to decline 7%, or a third straight quarter of weakness, though energy represents a lion’s share of the red ink.

As for the first-quarter GDP forecast, the Atlanta Fed’s GDPNow indicator is at just 0.7%, down from a 1.4% estimate one week earlier.  Recall Q4 was only 1.4% (ann.).  Ergo, the Fed isn’t acting soon.

Europe and Asia

Markit released its latest manufacturing PMI data for the eurozone and the figure was 51.6 in March vs. 51.2 in February, still far from robust but growth nonetheless.

Germany came in at 50.7 vs. 50.5 the prior month; France 49.6, the lowest in 7 months; Italy 53.5; Spain 53.4; and Greece 49.0.

Howard Archer at IHS (Markit’s new partner following their merger), said:

“The Eurozone manufacturing sector is clearly suffering as export orders are limited by muted global growth.”

Chris Williamson, chief economist at Markit:

“Policymakers will also be worried by the further intensification of deflationary pressures in manufacturing supply chains, with prices charged at the factory gate falling at the steepest rate since late 2009.    Discounting was widespread as firms competed on price amid weak demand.”

On the inflation front, a flash reading from Eurostat had inflation in the euro area at -0.1% annualized in March vs. -0.2% in February, though ex-food and energy the figure was 0.9%, with the core generally being in the 0.8% to 1.0% range in recent months, still far below the ECB’s 2.0% target.

Spain’s budget deficit was 5.2% of GDP in 2015, far worse than the deficit goal set by the European Commission, which makes it impossible for Spain to hit its EC target of 3% this year.

Remember, Spain has been without a formal government since December’s election and they are headed to a new vote in June as party leaders have been unable to forge a workable majority.

So why is Spain’s 10-year yielding 1.43%?  And Italy, with its massive deficit, 1.22%?  Unless these two economies have robust growth in the near future (yes, Spain has, but it better continue), I don’t care what kind of bond-buying program the ECB enacts, there is a day of reckoning approaching for both.

On the migrant front, the new process is slated to commence this Monday, with Turkey taking back illegal migrants from Greece under the deal with the European Union, though neither side is fully ready. Turkey agreed with the EU to take back all migrants and refugees who cross illegally to Greece in exchange for financial aid, faster visa-free travel for Turks and slightly accelerated EU membership talks. We’ll see what happens over the next two or three weeks.

Turkey has already spent almost $10 billion on refugees from Syria since the start of the conflict, much of it on camps close to the Syrian border.

As for the Brussels attacks, the following series of stories gives you a good sense of the utter incompetence of local officials.

Sunday, March 27, you had this from the Wall Street Journal:

“European authorities said they suspect that several men detained in a number of countries over the Easter weekend all had connections to perpetrators of the deadly attacks.  This has prompted French and Belgian prosecutors to seek closer U.S. assistance, according to Western officials, as they try to map the extent of the network responsible for killing 130 people in Paris in November and at least 31 in Brussels on Tuesday.

“The immediate effort is centering on Faycal Cheffou, a Brussels resident of Moroccan origin who was detained in front of the office of Belgium’s federal prosecutor Thursday as police were trailing him by car.  Belgian authorities say they suspect Mr. Cheffou, who has been charged and is in custody, is the man seen pushing a cart on security footage captured at Brussels Airport minutes before two suicide bombers detonated their explosives.”

This was “Faycal C,” as authorities labeled him.  “The man in the hat.”

So a few days later he was released for lack of evidence.  If it wasn’t so tragic, it would be laughable.

And we also learned that Paris attack suspect Salah Abdeslam, arrested four days prior to the Brussels attacks and the Paris ringleader, wasn’t interviewed the first day because he was receiving treatment for a leg wound suffered during his arrest and the first interview, conducted the following day, March 19, only concerned the Paris attacks, and then he was asked about a European arrest warrant issued against him, upon which he went silent.  He was never questioned about any knowledge he might have had about future attacks!

Then, immediately after Brussels, he was interviewed on March 22, whereupon he “declined to make any statement at all,” according to the Belgium prosecutor’s office.

Meanwhile, according to a letter from Belgium police warning authorities of poor security at the airport in the run-up to the attacks, “serious” criminals were working in sensitive parts of the facility.  Airport police were convinced a terrorist group was busy scouting the airport to identify weak spots in the security.

Michael Leiter / Washington Post

“Brussels would mark the first time since 9/11 that a terrorist cell in the West survived to launch more than a single attack. And this despite four months of Europe’s most intensive counterterrorism operations of the past 15 years by France, Belgium and other partner nations.

“If confirmed, the significance of this network’s ability to survive cannot be underestimated and is likely driven by three factors: volume, sophistication and communications.  With respect to volume, the sheer number of potential terrorists, especially ones who have received training thanks to the proximity of the Syrian conflict, is simply overwhelming European security services.  With this volume has also come a level of sophistication – in planning, in staying ‘below the radar’ and in creation of effective improvised explosive devices – that would have allowed this cell to survive the disruption of network safe houses and leadership and still move forward successfully....

“I fear what we shall find in the Paris-Brussels network is that the group’s communications were effectively hidden or sufficiently ephemeral to prevent security services from fully mapping the network that lived – post-Paris – to fight another day.

“Brussels does not simply represent change in the terrorists, it also portends great change (or future failure) for European security services.  Post-Paris, the European Union’s open borders were on life support; post-Brussels, the Schengen Agreement that requires such reliance on European counterparts is all but dead.”

Wolfgang Munchau / Financial Times

“For the first time in my life, there is a chance that European integration may take a step backwards.  I cannot forecast whether there will be further terrorist attacks, whether the British will leave the EU, how many refugees will come this year or next, or whether the eurozone crisis will return. But I am confident that the probability of at least one of these crises spinning out of control is very high indeed.

“With hindsight, the EU was wrong to construct a single currency without a proper banking union.  It was wrong to create a passport-free travel zone without a common border police force and immigration policy.  I would add EU enlargement to this list – not the principle but the haste with which it was pursued.

“The cardinal mistake of our time was the decision to muddle through the eurozone crisis.  Europe’s political leadership failed to generate the public support for what was needed: creating a political and economic union. Instead, the European Council did the minimum necessary for the system to survive to the next day....

“With each unresolved crisis, the degree of Euroscepticism in the population rises.  If the EU is seen as failing to resolve problems, people naturally become reluctant to bestow the bloc with new powers.  Populist parties on the left and the right are exploiting the union’s failures. I would not be surprised to see one of these parties win an election in a big European country one day....

“If the EU had not messed up the previous crises, people would look at a European immigration policy or an antiterrorism task force with a more open mind.  But would you trust with your own security somebody who cannot even contain a medium-sized financial crisis?  I personally would not, which is why my own preference is for the Schengen system of passport-free travel to be suspended indefinitely, or at least until the sovereignty over borders, immigration and the fight against terrorism are fully shifted to EU level – something I do not expect to happen.

“Economic history has shown time and again that efforts to muddle through financial crises never work – think of the Great Depression or Japan’s lost decades.  For the EU it was a catastrophic policy error.  It has not only given us an economic depression from which many countries have not yet recovered.  It has also destroyed public confidence in the EU and in the very idea of European integration.”

Lastly, in Asia....

There were distinct signs of stabilization in China this week. Industrial profits rose 4.8% year over year for the January-February period, according to the National Bureau of Statistics, snapping a 7-month losing streak.  The official PMI for manufacturing was 50.2 in March, the highest since November 2014, with non-manufacturing/services at 53.8 vs. 52.7 for February.  And the Caixin/Markit private manufacturing PMI was 49.7 last month vs. 48.0 in February, the highest for this reading in 13 months.  The new order component was above 50, so it seems some of the government’s stimulus programs could be working.

But in Japan, retail sales for February fell 2.3% month on month, the worst since April 2014, though were up 0.5% year on year.  The jobless rate ticked up to 3.3% in February, while the manufacturing PMI in March fell to 49.1 vs. 50.1.

But a reading on business sentiment, released Friday, came in at its lowest level in three years and the Tokyo Nikkei stock index fell 3.5% on the news.  Both the Tokyo and Shanghai market benchmarks are off 15% for 2016 (local currencies).

[Taiwan’s March manufacturing PMI was 51.1, which dovetails with improvement in China after a 49.4 reading in February, while in South Korea it was 49.5 vs. 48.7.]

Street Bytes

--Stocks rallied for a sixth week in seven, with the Dow Jones up 1.6% to 17792, while the S&P 500 rose 1.8% to 2072, just 58 points shy of its all-time high.  Nasdaq advanced 3%.  Thank Janet Yellen if you are ‘long.’

--After being down 11% for the year in February, the Dow staged its biggest quarterly comeback since 1933.  The Dow was up 1.5% for Q1, while the S&P 500 eked out a 0.8% gain.  The S&P and Dow were up 6.6% and 7.1% for March, respectively.

Nasdaq, on the other hand, still finished down for the quarter, falling 2.8%, but it was also up 6.8% in March.

The Stoxx Euro 600 index fell 7.7% in Q1.

Gold had its best quarter since 1986, rising 16.5%. 

--U.S. Treasury Yields

6-mo. 0.38%  2-yr. 0.72%  10-yr. 1.77%  30-yr. 2.60%

Treasuries rallied on Yellen’s dovish tone.  For the quarter, the yield on the 10-year dropped from 2.27% to 1.78%, the lowest quarter-end level since the end of 2012.

--U.S. auto sales rose 3% in March over a year earlier, though the adjusted annual rate of 16.57 million light vehicles was well below analysts’ expectation and the record 17.5 million clip the industry reported in February.  Detroit’s Big Three all reported sales gains, but below forecasts, sending shares lower.

Ford and Fiat Chrysler saw gains of 8%, while GM’s rose just 0.9% as the company continues to cut back on sales to rental car companies.  GM said sales to individual buyers rose 6%.

Nissan’s sales were up 13%, hitting a record for any month in its history.  Toyota’s fell 2.7% on slumped demand for its sedans and coupes.  But Honda Motor Co.’s sales jumped 9.4% on record results for the Civic.

At Fiat Chrysler, car sales were actually down 34% on the month, but truck and SUV sales rose 23%.  The company sold 178,400 SUVs vs. 34,780 cars.

--Meanwhile, I have been critical of Tesla Motors from a valuation standpoint but the stock surged anew at week’s end on word there are as many as 198,000 pre-orders  for the new Model 3, promoted as the electric vehicle for the masses at $35,000.

The Model 3 will be able to travel at least 215 miles on a single charge and can go from 0 to 60 miles per hour in less than six seconds.

But the likes of General Motors and Renault-Nissan have also begun manufacturing electric vehicles.

Plus, delivery of the Model 3 is still a ways off, the end of 2017 at the earliest, and the $1,000 reservation fees are refundable.

And Tesla delivered just 50,000 vehicles for all of 2015. 

--The Financial Times reported that global investment banks suffered declines of as much as 56 percent in their trading operations in the first quarter, auguring further layoffs. An example is Credit Suisse’s admission last week its trading revenue fell 40-45 percent in the period.

FT: “Wall Street’s biggest banks are suffering too, with analysts predicting first-quarter falls in trading revenue of up to 48 percent for Goldman Sachs and 56 percent for Morgan Stanley as slowing Chinese growth, stubbornly low oil prices and fading hopes of a U.S. interest rate rise weigh heavily on client activity and market performance.”

--The Street had its first sub-billion dollar quarter in initial public offerings since Q1 2009, according to S&P Global Market Intelligence.

The six companies that priced raised a measly $521 million, compared with 32 companies that raised $4.8bn in the year ago quarter; let alone the $7.1bn from 31 companies in the fourth quarter. [Mamta Badkar / Financial Times]

--Timothy W. Martin and Rob Copeland / Wall Street Journal

“Pension funds, insurers and university endowments helped pump up hedge funds to a record $3 trillion in assets over the last decade. But with results falling behind a more traditional mix of stocks and bonds for six straight years and the high-fee structure now politically sensitive in some states due to uneven results, many of them are pulling back.”

According to HFR Inc., the fourth quarter of 2015 saw the first net quarterly withdrawal in four years.  Big investors, pensions funds and the like pulled an additional $15.3 billion in this year’s first two months, according to eVestment.

American International Group Inc. said last month it was cutting the $11 billion it had earmarked for hedge funds in half.

At the same time, asset managers are offering hedge fund-like products at far less cost than the traditional 2% of assets under management and 20% of profits that the hedgies charge.

--Meanwhile, I was surprised to see venture-capital firms raising about $13 billion in the first quarter, according to data from Dow Jones VentureSource, which is at the highest pace in more than 15 years.

That’s shocking, given how the values of start-ups are cooling.

As Rolfe Winkler writes in the Wall Street Journal: “Investors have stayed excited about venture capital because it offers higher growth in a low-return environment.  The 10-year return by venture funds for the period ended Sept. 30 was 11% versus 6.8% for the S&P 500 index, according to investment adviser Cambridge Associates.”

--The U.S. Department of Agriculture reported that a survey of farmers in March signaled they will plant 93.6m acres of corn this spring, up 6 percent from last year and the highest since 2013, even with lower prices.  Soybean plantings will be down fractionally from last year.

Farmers, despite the second-highest inventories of corn on record for this time of year, are planting even more to maintain cash flow.

--Barclays warned this week that the rally in the price of many commodities “does not seem to be very well founded in improving fundamentals and that upward trend may prove difficult to sustain.”

The investment bank added that it’s not long-term investors bidding up commodities, and that the likes of oil and copper are at risk of falling as much as 25 percent.

U.S. oil inventories remain at “historically high levels for this time of year,” the Energy Department said this week as stocks rose a little less than expected.

And then on Friday, Saudi Arabia’s deputy crown prince told Bloomberg that the kingdom will only freeze production if Iran and other major producers do, this being the topic of an upcoming oil ministers meeting on April 17, so oil collapsed 4% on Friday to $36.79 on WTI, down nearly $3 on the week.

Nice call by Barclays, at least short term.  [I totally agree with them.  I have consistently said, I’m not getting excited until WTI trades above $40 for a decent period of time and we have yet to finish a week above that level despite the nice rally off $26.  Plus Southwest pilot Bobby C. told us all that he was observing the loaded oil tankers in Los Angeles and Long Beach as a further clue on the tremendous glut.]

--AAA said Americans paid the cheapest quarterly gas prices in 12 years during the first quarter, saving nearly $10 billion on gas so far in 2016 vs. the same period in 2015.

The national average price of gas today is $2.06, the lowest heading into April since 2009.

It’s also estimated that Americans drove 240.7bn miles in January 2016, which was the most ever for the month.

My state of New Jersey currently has the second-lowest average gas prices at $1.84, with Missouri first at $1.83.

California is tops at $2.79, followed by Hawaii ($2.59).

--On Monday the government said it had cracked the iPhone from the San Bernardino terror attack without Apple’s help and announced it would seek to drop its legal case to force Apple to unlock the device.

It’s being reported that an Israeli company unlocked it, but now Apple wants the government to tell them how these guys did it, so there could be a counter suit.

As for Apple’s new product launches, it was whoopty-damn-do.  Actually, I’m heading to the Short Hills Mall today, Saturday, to see what kind of crowds there are at the Apple store.  [The same mall has a Tesla dealership and I need to try to remember to ask them how many pre-orders they received.]

--Boeing Co. said it planned to cut more than 4,500 jobs by June, even as it has booked record orders for its jets.  But the company has been losing market share to rival Airbus Group SE.

4,000 of the 4,500 cuts are expected to come through attrition and voluntary layoffs. 

Boeing’s workforce stood at 161,000 on Dec. 31.  It appears most of the reductions will occur in Washington state.

--It would appear Virgin America could be taken out by either JetBlue Airways or Alaska Air Group, according to initial reports from the Wall Street Journal, based on a source.

So further consolidation is possible, even as just four big carriers control more than 80% of the U.S. domestic market: American Airlines, Delta, United Continental and Southwest.

Virgin America is now the ninth-largest U.S. airline by traffic. But its CEO, David Cush, has complained Virgin can’t get the gates it needs for expansion because they are taken up by the big boys.

JetBlue is No. 5, with Alaska Air No. 6.

--Giant Chinese insurance company Anbang came back with a second sweetened offer for Starwood Hotels, after Marriott International had issued an enhanced second offer of its own.

Marriott first bid about $65 a share for Starwood (which includes the St. Regis, Sheraton and Westin brands).

Anbang then countered with $76, Marriott moved to $79.50, and then Anbang returned serve.

But I said last week that word was out Chinese regulators wouldn’t allow the Starwood deal because Anbang was exceeding the allowable percentage on foreign assets.  And then on Thursday, Anbang suddenly walked away, with the insurance giant and its private-equity firms saying in a statement that they decided to abandon the bid “due to various market considerations,” without elaborating.

Starwood now will stick with Marriott’s most recent offer in a merger that could generate $250 million in cost savings from the overlap.

As for moi, your editor, I’m proud I brought you the angle last week that the deal was probably going to get squashed, and reading between the lines that is clearly the case (aside from the fact Anbang and its partners likely couldn’t raise the needed funding).

--Hong Kong’s retail sales plunged in February, dropping a whopping 20.6 percent on an annual basis, the sharpest decline since January 1999.

It’s all about the slowdown in China and fewer visitors, as well as reduced sales of luxury items, like jewelry and watches, down 24.2 percent.  [Financial Times]

--There do not appear to be any terrorism-related fears in the cruise industry as yet, with Carnival, the world’s biggest cruise company by market share, reporting first quarter earnings that beat expectations, while noting advance bookings for the rest of the year were “well ahead” of 2015.

Carnival (which operates the Costa and Princess brands) also secured approval from the Cuban government to sail from the U.S. to the island, the first such permission granted a U.S.-based operator in more than 50 years.  [This will be through the Fathom brand.]

--The World Health Organization said the Zika virus would spread to all countries in the Americas except Canada and Chile.  Some Latin American nations, such as Colombia, have seen declines in the number of infections in recent weeks, but it is still expanding in Brazil, the epicenter.

Much of the U.S. is going to see a bumper crop of mosquitoes this summer owing to our warm winter, let alone all the rain in parts of the south, so if I see one of those spotted beasts that are carriers of the virus, I’m pulling out my bazooka, though I should probably check with my insurance carrier as to collateral damage.

--Public unions achieved a major victory in a case that ended in a 4-4 tie at the Supreme Court on Tuesday.

Before the death of Justice Antonin Scalia, it appeared the court’s conservative majority was ready to say that forcing public workers to support unions they had declined to join violated the First Amendment.

But the tie means the case, brought by California public schoolteachers who objected to paying for the unions’ collective bargaining activities on their behalf, reverts to a prior ruling by an appeals court that upheld the requirement that the objecting teachers’ pay fees.  [I think I’m describing this right...not being a constitutional scholar, you understand.]

--California’s state Assembly approved a bill raising the minimum wage to $15 an hour over the next six years, and Gov. Jerry Brown will sign it on Monday.

The plan passed 48 to 26.  No Republicans voted in favor of the increase, saying it was rushed.  [2 Dems voted against.]  The Senate vote was then 26-12.

New York officials also struck a deal on Thursday to bring the $15-an-hour minimum to New York City by 2019 and the rest of the state later on.

Restaurant owners are already talking sizable layoffs, as well as reduced menus with fewer workers.  And of course prices will rise.

--McDonald’s announced it would add more than 1,500 restaurants in China and Korea with local partners over the next five years.  Once the outlets are opened, McDonald’s would have more than 4,300 restaurants across the two countries.  The fast-food giant is looking for local partners to expedite growth and decision-making, as well as help with funding.

--Sonic Corp.’s fiscal second-quarter profit rose 41% on continued strong sales, with the fast-food joint expecting same-store sales to climb between 4% and 6% for the year, better than a prior forecast.

Revenue rose 5.5% to $133.2 million in the quarter.  Same-store sales were up 6.5%, which is super.

I forgot Sonic was founded in Shawnee, Okla., where I once sold books door-to-door. 

[I was the world’s worst book salesman, by the way...but I was good at getting glasses of water as I walked around in 100-degree heat that summer of ’78...I also had Ponca City, Okla., in my territory for a long spell.  Guys, what was Ponca City known for that year?  Candy Loving!  Playboy’s 25th Anniversary Playmate ...she had attended Ponca City High School...but I digress...]

--Experts say California’s critical snowpack in the Sierra Nevada is just below average, a huge improvement over last year, but not enough to declare the drought anywhere close to being over.

This particular report by the California Cooperative Snow Surveys Program, has the snowpack in the mid-90s percentage of average when last year at this time it was a mere 5 percent.

Actually, in a separate report, Lake Shasta, “a keystone reservoir of the Central Valley project, which serves California growers,” has exceeded its average for this time of year, and that’s a great thing, sports fans.  [Matt Stevens / Los Angeles Times]

Lake Shasta is the biggest reservoir in the state. Shasta Beverages is a company, having just looked it up, named after a spring originating in Mount Shasta, California.

And that’s a memo....Charles Krauthammer is here....

--“Batman v Superman: Dawn of Justice” took in a whopping $170m in the U.S. and Canada its opening weekend, the largest pre-summer debut; this despite poor reviews from the critics, though the movie-going public gave it solid marks, according to polling firm CinemaScore.

Internationally, the movie opened to $254 million, making it the fourth-biggest global opening ever at a total of $424.1 million.

Foreign Affairs

Iraq/Syria/ISIS/Turkey: Syrian government forces, with the help of Russia, Iran and Hizbullah, retook the ancient city of Palmyra last weekend, after ISIS had taken control of it last May.  A significant defeat for Islamic State.

The damage to Palmyra’s artifacts, a major tourist attraction prior to the civil war, was substantial, but much of it remains intact, while some treasures had been secreted away prior to ISIS’ takeover.

One report had 417 ISIS fighters dying in the campaign to retake the city, with 194 killed on the government side.

The city itself was heavily damaged, just like virtually all of Syria these days.  It’s yet another reason why I say “it’s over.”  It will take decades and decades to rebuild the country, assuming peace breaks out at some point.

Meanwhile, Assad proposed to form a unity government including independent and opposition figures, with British Foreign Secretary Philip Hammond saying this was a non-starter.

“Bashar al-Assad talks about a unity government, by which he means bringing one or two handpicked, regime-friendly oppositionists into minor posts in the government,” Hammond said from Beirut.

Hammond said there must be a “change of direction” in Syria.  “There has to be the creation of a government that represents all the people, all the communities, all the faiths in Syria and it has to be a government that is not – or at least in the future will not – be led by Bashar al-Assad.”  [Reuters]

In Iraq, Shiite cleric Moqtada al-Sadr called off a weeks-long antigovernment protest in Baghdad after Prime Minister Haider al-Abadi proposed replacing virtually his entire cabinet, including his finance and foreign ministers.

So Abadi submitted 14 new names for parliamentary approval, retaining only his defense and interior ministers, citing security reasons. Sadr said that if parliament didn’t accept the list (lawmakers having ten days to decide), he would press for a no-confidence vote in Abadi’s government.

So while it seems that Sadr, in some respects, has become more of a moderate, he is on the verge of gaining far more influence at a time when the U.S. is bringing more troops and advisers to help fight ISIS.  Having launched a major attack on U.S. and Iraqi forces in 2004, he is not exactly our ally.  He should have been taken out then, a huge mistake.

Separately, Iraqi troops (counterterrorism forces trained by the U.S.), with the help of U.S.-led coalition airstrikes, are advancing toward the western town of Hit in an attempt to dislodge ISIS 80 miles west of Baghdad, while thousands have been fleeing the towns south of the IS capital city of Mosul, where Iraqi and Kurdish forces are preparing an assault for later this spring.

More than 3.3 million people have been displaced by conflict in Iraq since the start of 2014, according to the UN.

As for the horrific attack by an ISIS suicide bomber at a soccer stadium last weekend south of Baghdad, the death toll hit at least 42, mostly youth.

And in Turkey, the U.S. government ordered hundreds of Americans to leave the country because of increased security concerns; specifically family members of U.S. military personnel working in southeastern Turkey, close to the Syrian border, as well as other parts of the country (but not Istanbul).

Benny Avni / New York Post

“With the retaking of Syria’s ancient city of Palmyra, we seem to finally have made tangible, on-the-ground gains against ISIS – that is, if ‘we’ refers to Syrian President Bashar al-Assad, Russia, Iran and Hizbullah.

“President Obama and several of his would-be successors are satisfied: The terrorists of ISIS are losing ground. America exerts little treasure and sheds no blood.  Our allies in Syria are on the march.  What’s not to like?

“Wait, ‘allies’?

“During the half-decade Syrian civil war, the White House has repeatedly deemed Assad unfit to lead the country.

“If anything, administration officials stress again and again, he should stand trial for war crimes.  Meanwhile, Hizbullah tops the State Department’s list of foreign terrorist organizations.  Despite Obama’s endless overtures to Iran, the administration still considers it, at least officially, an adversary.

“And Russia?  Well, it’s complicated, but a trusted friend they’re not.

“Over the weekend, Syrian army troops loyal to Assad took Palmyra, supported by Russian warplanes.  (Strange – while Vladimir Putin announced earlier this month that Russia is getting out of Syria, he keeps pouring military assets into the country.)  Hizbullah and Iranian Revolutionary Guards Corps fighters helped out....

“Beyond its value to Indiana Jones types, by the way, Palmyra is a strategic asset, located between Damascus and the country’s eastern deserts and the Iraqi border.  So how come Assad waited so long before instructing his army to take back the city?

“Because Assad never really saw ISIS as his main enemy.  Rather, the group was his insurance card: The scarier and stronger it seemed to the West, the more we’d see the war as a choice between him and ISIS – and choose him. So he went easy on ISIS, and attacked all other Sunni groups that vied to overthrow him....

“And so, with Russia, Iran’s Revolutionary Guards and Hizbullah, Assad wrestles Palmyra away from those ISIS goons who shocked the world by ruining its beautiful ancient artifacts, and the world is impressed.

“Publicly, official Washington maintains the ‘Assad must go’ mantra.  But behind the scenes, we welcome his latest maneuvering  After all, anyone who’d weaken ISIS is welcome.

“Except ISIS will be fine.  Indeed, it’s already moved assets to Libya....

“So, no.  ‘We’ didn’t gain in Palmyra. We farmed the battle out to others, who are no allies.  Thus, we’re guaranteed intensified mayhem, which sooner or later can reach our shores, too....

“One of the lessons of the Syria mess is that when America sheds responsibilities, our allies won’t pick up the baton.  Instead, the void tends to be filled with the worst of the worst.”

Fred Hiatt / Washington Post

“(Barack) Obama has presided over an experiment in withdrawal from the Middle East, a region that the United States had long considered vital....

“Circumstances have forced Obama to undo or reverse aspects of his experiment, but at one point it included pulling all U.S. troops from Iraq, with plans to do the same in Afghanistan; abandoning Libya after intervening to depose its dictator; tepid support for the democracy movement that emerged in the Arab Spring; and a refusal to help those fighting Syrian dictator Bashar al-Assad, whose overthrow Obama said he favored.

“Obama designed this policy because he was convinced, as Atlantic magazine national correspondent Jeffrey Goldberg put it following hours of conversation with the president, ‘that the Middle East could not be fixed – not on his watch, and not for a generation to come.’

“The nations of the region, in other words, are unlikely to become democratic or economically successful.  U.S. resources can be better spent on what Obama has called ‘nation-building at home’ and on more important relationships in Asia.  War-weary U.S. voters oppose keeping our troops in the region.

“Now imagine if Truman had applied similar tests at the end of World War II.  After that devastating conflict, Americans were far more war-weary than they were when Obama became president....

“Yet Truman kept U.S. troops in both Germany and Japan – a deployment that persists after seven decades, to only occasional complaint from U.S. voters.  Congress and the president devoted millions of taxpayer dollars to rebuilding both countries. They committed to a years-long occupation that imposed democratic institutions.

“When the Korean War ended in 1953, it seemed even more outlandish to imagine that South Korea could one day become an important trading partner and ally of the United States, let alone a vibrant democracy.  Yet Eisenhower and Congress kept U.S. troops there, too, a deployment that persists six decades later, again with little domestic objection....

“The continued presence of U.S. forces helped preserve an unprecedented era of peace in Europe and East Asia.

“By contrast, the consequences of Obama’s retrenchment have been disastrous.  A tenuous stability in Iraq gave way to renewed sectarian warfare and the emergence of a vicious terrorist state. Syria disintegrated in fighting that has killed hundreds of thousands, displaced millions, sparked what the United States has officially termed a genocide and, thanks to terrorism and refugee flows, threatens the stability of the entire European continent. Libya, just across the Mediterranean Sea from Italy, is in chaos, too, with a new Islamic State outpost putting down roots there....

“The temptation to withdraw has never been far below the surface of U.S. politics.  Americans have been complaining for decades that allies haven’t been paying their fair share....

“But always there were politicians who would take up the hard work of making the case for U.S. leadership, beginning with presidents such as Truman and Kennedy, Reagan and Clinton.  That’s a tradition that stands in danger today.”

Lee Smith / The Weekly Standard

“Last week marked the fifth anniversary of what started as a peaceful uprising in Syria. A bunch of teenagers scrawled on a wall in their hometown of Deraa the slogan of the Arab spring: ‘The people,’ they wrote, ‘want to topple the regime.’

“Syrian security forces caught the boys and tortured them.  When news of the regime’s crime spread, thousands around the country filled the streets of their cities, towns, and villages to make their voices heard. Their protests were peaceful, but the response of Bashar al-Assad’s troops was not.  They slaughtered unarmed demonstrators and tortured others in jail.  Eventually, the people picked up arms to defend themselves.

“Those whom President Obama later deprecated as ‘former doctors, farmers, pharmacists, and so forth’ with no chance against ‘a well-armed state backed by Russia, backed by Iran, a battle-hardened Hizbullah,’ nonetheless fought back.  The leader of the free world disdained to help them because he had his eyes on a nuclear deal with Iran, and the clerical regime in Tehran was helping its Syrian ally Assad to crush the opposition like insects.  If he helped the farmers and pharmacists to defend themselves and their families, Obama reasoned, it would damage his chances of doing a deal with the cruel regime that was Assad’s partner in slaughter.

“Because the White House saw no strategic logic to arming the opposition, or setting up a no-fly zone or a buffer zone to protect them, malign forces filled the vacuum.  First there was the Islamic State and later Russia, and the death toll mounted.  Five years and hundreds of thousands of deaths into what has become the most devastating conflict of the 21st century, the war shows no signs of ending....

“Five years on and the Syria conflict has become a three-headed monster – a genocide, an increasingly large multi-power war involving states and non-state actors, and a refugee crisis....What makes the Syria conflict even more dire, even more consequential is that it affects two major regions of the world, the Middle East and Europe.  Indeed, according to some European officials, the Syrian refugee crisis is an existential threat to the EU....

“Obama says he has as much to lose as anyone if the Iran deal goes wrong.  It’s got his name on it, he says.  So does the war in Syria.”

Iran: Addressing a meeting of religious figures on Wednesday, Supreme Leader Ayatollah Khamenei said, “Those who say the future is in negotiations, not in missiles, are either ignorant or traitors.” 

The Ayatollah stressed the Islamic system would have to retreat from its positions against any “pretty country” which would threaten it if it lacks defense power.  [IRNA]

Pakistan: At least 72 people were killed, 300 injured in an explosion at a public park in the eastern city of Lahore last Sunday.  The attack, carried out by a Pakistani Taliban faction, targeted Christians celebrating Easter, with many of the victims being children.  Absolutely sickening.

The Pakistani government has been heavily criticized for not going after Islamist groups using the Punjab as their base.  Kill ‘em, Sharif.

China: Chinese President Xi Jinping met with Barack Obama on Thursday on the sidelines of the Nuclear Security Summit* and Xi urged his counterpart to cast aside confrontation and to manage the differences between the two powers.

The two then agreed that they remained committed to the denuclearization of the Korean Peninsula, agreeing on new UN sanctions to punish Pyongyang for its recent nuclear and rocket tests. 

But Xi and Obama remained at odds on the South China Sea, with Xi warning China would not accept violations of its sovereignty in the name of freedom of navigation – a reference to air and naval patrols Washington has sent within areas that Beijing considers its territorial waters.

Xi also urged the U.S. to stick to the “one China” policy when it comes to promoting peaceful cross-strait relationships between mainland China and Taiwan.

Separately, the Chinese government continues to tighten its grip over the Internet as it rolls out draft rules that will ban many web domains not approved by local authorities, a further tightening of the so-called Great Firewall.

Editorial / Washington Post

“As Chinese President Xi Jinping visits Washington this week, a kind of guerrilla war is underway between his repressive security apparatus and what appears to be a growing legion of critics.  It’s a lopsided contest: Journalist and other activists who dare to challenge the Communist leader for his concentration of power and assault on dissent quickly disappear. Those outside the country risk abduction or the arrest of family members in China.  And yet, the resistance continues, driven by Mr. Xi’s own excesses.”

Wen Yunchao, a New York-based human rights campaigner, said three of his family members had been detained by police in China after he was accused of helping publish a letter calling for Xi to resign – a claim he denies.  [I discussed this letter last WIR.]

And at Hong Kong International Airport, where I have literally lived a few times (at the hotel connected to the main terminal), one of the joys is the excellent bookstores / newsstands that carry major publications, which helped me with my work immensely while traveling.

So I just saw that the airport is cutting back sharply on the establishments and replacing them with outlets run by a mainland-based firm, instead of the French- and Singapore-based chains that have been there for years.

Which means travelers will clearly have their options restricted, including the kinds of books sold in the stores, i.e., no politically sensitive titles. 

Remember when I blasted Jack Ma of Alibaba fame for taking over the South China Morning Post last December?  Just wait.  I haven’t noticed any great changes to the paper yet but I know they are coming.

Editorial / The Economist

“ ‘If our party can’t even handle food-safety issues properly, and keeps on mishandling them, then people will ask whether we are fit to keep ruling China.’ So Xi Jinping warned officials in 2013, a year after he became the country’s leader.  It was a remarkable statement for the chief of a Communist Party that has always claimed to have the backing of ‘the people.’  It suggested that Mr. Xi understood how grievances about official incompetence and corruption risked boiling over.  Mr. Xi rounded up tens of thousands of erring officials, waging a war on corruption of an intensity not seen since the party came to power in 1949. Many thought he was right to do so.

“Today, however, China is enduring its biggest public-health scandal in years. Tens of millions of dollars-worth of black-market, out-of-date and improperly stored vaccines have been sold to government health centers, which have in turn been making money by selling them to patients.

“Mr. Xi’s anti-graft has often made little difference to ordinary people. Their life – and health – is still blighted by corruption.  In recent days there have also been signs of discontent with Mr. Xi among the elite: official media complaining openly about reporting restrictions, a prominent businessman attacking him on his microblog, a senior editor resigning in disgust....

“In three and a half years in charge, (Xi) has accumulated titles at an astonishing pace.  He is not only party leader, head of state and commander-in-chief, but is also running reform the security services and the economy.  In effect, the party’s hallowed notion of ‘collective’ leadership has been jettisoned.  Mr. Xi is, one analyst says, ‘Chairman of Everything.’....

“By cracking down and puffing himself up, Mr. Xi is neither buying himself security nor helping to keep China stable.  He is using the party’s own thuggish investigators to take on graft....By cowing the media, Mr. Xi created a press reluctant to challenge officials by exposing the dodgy-vaccine trade as soon as it was discovered at least a year ago....

“Mr. Xi has pledged to give market forces a ‘decisive role,’ and put ‘power in a cage’ by establishing the rule of law. But he is providing neither the country with prosperity and freedom, nor reassuring the rest of the world with stability.  Abroad, anxieties about him keep growing: his muscular efforts to assert control in the South China Sea have been driving countries across Asia closer to the American camp....

“In the past 66 years of Communist rule in China, the most troubled times have usually come about when tensions break out within the elite.  Mr. Xi’s style of rule is only serving to stoke them.  The more Mr. Xi tries to fight off enemies using scare tactics and brute force, the more enemies he is likely to make.”

*At the aforementioned Nuclear Security Summit in Washington, President Obama said the threat from terrorists trying to launch a nuclear attack that would “change our world” is real.

ISIS obtaining a nuclear weapon is “one of the greatest threats to global security,” he added.

Vladimir Putin refused to attend, which speaks to his relationship with Obama.

North / South Korea: Friday, Seoul warned Pyongyang to stop disrupting GPS signal receptions which it said had forced its fishing boats to return to port, vowing to take action if it continued; just another example of escalating tensions as the North pushes the envelope, including with further missile tests this week.

For good reason, South Korea is on edge not just from a military standpoint, but also because of the possibility of major cyberattacks from the North.

We aren’t talking an isolated incident in this recent case; hundreds of fishing boats suffered GPS malfunctions, according to the coast guard.

It was in 2014 that North Korea launched an attack against Sony Pictures.

Russia: President Putin extended the rule of Chechen leader Ramzan Kadyrov, telling him to run in September elections.  Kadyrov, one of the worst people on the planet, has been accused of being involved in killings, disappearances and torture in Chechnya.  Opposition and rights activists also want him questioned in the assassination of opposition leader and former deputy Prime Minister Boris Nemtsov near the Kremlin last year.

Brazil: President Dilma Rousseff’s largest coalition partner deserted the government, so Rousseff is scrambling to get smaller centrist parties on board to avoid impeachment. An effort in the lower house of congress to jettison her is expected as early as mid-April.

The vice president, Michel Temer, is head of the PMDB, the party that abandoned Rousseff, so he takes over as acting president if two-thirds of the lower house votes for impeachment, and then officially as president if the senate supports the motion, also by a two-thirds vote.

But many of the key figures in the PMDB are also said to be part of the Petrobras corruption investigation that has severely damaged Rousseff’s administration.

As noted in a piece by the Financial Times, there are some who think the PMDB wants to speed up impeachment so that its key players can curb the investigation before it consumes them.

Separately, the government announced the economy shrank 3.8% last year and faces a similar contraction in 2016.

Cuba: Sadly, Fidel Castro is still alive and on Monday, he responded to President Obama’s historic trip to Cuba the week before with a 1,500-word letter recounting the history of U.S. aggression against Cuba, writing that “we don’t need the empire to give us any presents.”

The letter titled “Brother Obama” was Fidel’s first response to the visit.  Obama did not meet with the 89-year-old, but had several encounters with 84-year-old brother Raul, the current president.

Fidel went over crucial sections of Obama’s speech to the people in Havana, engaging in an ex-post-facto dialogue with him with pointed slights and insults.

Quoting Obama’s declaration that “it is time, now, for us to leave the past behind,” Fidel writes that “I imagine that any one of us ran the risk of having a heart attack on hearing these words from the President of the United States.”

Castro then returns to a review of a half-century of U.S. aggression, ending with a dig at the administration’s drive to increase business ties.

“No one should pretend that the people of this noble and selfless country will renounce its glory and its rights,” Fidel writes.  “We are capable of producing the food and material wealth that we need with work and intelligence of our people.”

You haven’t come close thus far, Fidel.

Random Musings

--Democrat primary results this week...

Alaska: Bernie Sanders 82 percent, Hillary Clinton 18
Hawaii: Sanders 71-29
Washington: Sanders 73-27

Delegates: 1243 Clinton, 975 Sanders [Including superdelegates: Clinton 1712, Sanders 1011...source: AP]

--For the Republicans (and Democrats), next Tuesday is a big one, Wisconsin, with all the top GOP players in the state, including Gov. Scott Walker, lining up against Donald Trump.

A Marquette University poll had Ted Cruz receiving 40% of the vote, Trump 30% and John Kasich 21%.  [Sanders leading Clinton 49-45.]

A Fox Business poll of the state has it 42-32-19.  [This one has Sanders leading Clinton 48-43.]

So these are both amazingly consistent all around.

--A Quinnipiac University poll for New York’s now critical April 19 affair has Trump at 56%, Cruz 20% and Kasich 19%.

In the same survey, Clinton leads Sanders just 54-42, with the margin narrowing.

In head-to-head contests within the Quinnipiac poll, Hillary defeats Trump 53-33, Cruz 53-32, and Kasich 46-41. Sanders beats Trump 56-32.

--Granted, it’s not until June 7, but a Los Angeles Times/USC Dornsife statewide poll of California primary voters has Hillary Clinton with a 45-37 lead over Bernie Sanders, including Democrat-leaning independents.

This is not good for Sanders since he needs to win California, and by a lot, from a delegate standpoint.

Clinton would slaughter Trump 52-22 in a hypothetical (which included Sanders and Cruz, not Kasich).

Separately, President Obama’s approval rating in California is 65%, the highest level since early in his tenure.

So Republicans don’t have a chance in hell of winning California in November, but for now it’s just about getting delegates and securing the nomination so in the same poll  of Republicans or Republican-leaning independents, Trump takes 37% to Cruz’ 30%, with Kasich at 12%.  [If you look only at ‘voters most likely to turn out,’ it’s a dead heat, 36-35 Trump.]

--I subscribe to Army Times, which is a Military Times publication, and the latter just published a survey of 931 active-duty troops on the presidential campaign, though while it is in the current issue, it was conducted before Marco Rubio dropped out.

Total Service

Clinton 11.2%
Sanders 21.9%
Cruz 16.7%
Kasich 7.7%
Rubio 9.3%
Trump 26.9%
Other 6.3%

Marine Corps only

Clinton 7.0%
Sanders 15.8%
Cruz 15.8%
Kasich 7.9%
Rubio 11.4%
Trump 30.7%
Other 11.4%

Kind of fascinating.

--Trump, in a hypothetical, was forced to withdraw a call for women who have abortions to be punished after being questioned by MSNBC’s Chris Mathews.  Hours later, after a firestorm of criticism from all sides, he repeated the Republican party line that only the person performing the abortion should be punished, not the woman.

And then you had the situation involving Trump’s campaign manager Corey Lewandowski, who was charged with misdemeanor battery against reporter Michelle Fields, formerly of Breitbart News.

Fields claims Lewandowski roughly grabbed her arm as she tried to question Trump at a recent event.

Let me just say I can’t stand Lewandowski, from what I’ve observed and from what I’ve heard him say, and frankly can’t stand Trump’s entire staff, though I like some of his surrogates that pop up on the news shows (like Kayleigh McEnany).  I actually thought way back that the Trump campaign had a lot of potential as long as he surrounded himself with the right people, and got serious on some of the issues, but that has been far from the case. 

But this particular charge against Lewandowski is bogus.

Editorial / New York Post

“(Fields) didn’t officially report the incident for days. But meanwhile, the anti-Trump camp went wild, adding inflated claims that she never made – for example, that Lewandowski had all but thrown her toward the ground.

“Team Trump fought back hard against the fast-expanding media narrative – and Breitbart wouldn’t stand by its reporter. That left her no choice but to quit. Then, in a bid to restore her reputation, she filed charges – and the investigation turned up the video that proved her right.

“Right, again, about an arm-grab – an ‘assault’ that happens countless times a day.

“How, exactly, does the four-second incident rise to the level of criminal charges?

“Why not just release the video – giving Fields the basic vindication she wanted – without bringing a near-meaningless misdemeanor charge to help clog the courts?

“Reporters get jostled all the time, especially on the campaign trail; it goes with the territory.

“OK: Maybe Lewandowski should’ve said, Sorry, I was running on too little sleep – I certainly didn’t mean to be rough, and the whole thing would’ve died.

“Or maybe even that simple concession would’ve triggered a media frenzy of its own – a drive to make Trump fire his key aide.

“The nation’s in the middle of one of the most consequential campaigns in decades, with control of the White House, Congress and the Supreme Court up for grabs.  Obsessed political insiders may see this incident as carrying higher meaning, but it’s absurd to think the voters care.”

By Friday, no one did.

--Also this week, in an interview with the New York Times, Donald Trump spelled out his “America First” foreign policy, saying many nations, including allies, “ripped off” the U.S.

Trump said he would consider pulling troops out of Japan and South Korea if they didn’t pay the U.S. more, and that he might stop buying oil from Saudi Arabia if it did not send troops to fight ISIS.

Trump tied the U.S. debt to the fact the U.S. has “defended the world.”

Later, in a CNN town hall, he said he wouldn’t take the use of nuclear weapons off the table.

--And the three remaining Republican presidential contenders retracted their pledges to support whomever becomes the eventual Republican nominee during the same CNN town hall Tuesday.

John Kasich said of the loyalty oath, “Frankly, all of us shouldn’t have even answered that question.  I’ve got to see what happens.  If the nominee is somebody that I think is really hurting the country, and dividing the country, I can’t stand behind him.”

--Daniel Henninger / Wall Street Journal

“Barack Obama will retire a happy man. He is now close to destroying his political enemies – the Republican Party, the American conservative movement and the public-policy legacy of Ronald Reagan.

“Today, the last men standing amidst the debris of the Republican presidential competition are Donald Trump, a political independent who is using the Republican Party like an Uber car; Ted Cruz, who used the Republican Party as a footstool; and John Kasich, a remnant of the Reagan revolution, who is being told by Republicans to quit.

“History may quibble, but this death-spiral began with Barack Obama’s health-care summit at Blair House on Feb. 25, 2010.  For a day, Republicans gave detailed policy critiques of the proposed Affordable Care Act.  When it was over, the Democrats, including Mr. Obama, said they had heard nothing new.

“That meeting was the last good-faith event in the Obama presidency.  Barack Obama killed politics in Washington that day because he had no use for it, and has said so many times.  The Democrats survived the Obama desert by going to ground. But frustrated Republicans outside Congress eventually started tearing each other apart.

“After Mr. Obama won in 2008, Democrats controlled the Senate and House with large majorities....

“The minority Republicans began well. In 2010, ObamaCare passed with zero Republican Senate votes, and Dodd-Frank with only one Republican Senate vote.  It was a remarkable display of party discipline.

“In the first term, Republicans and conservatives fought Barack Obama.  In the second term, they decided it made more sense to fight each other....

“With no party spokesman for conservatism, an ideological vacuum existed. Freelance operators filled it.

“They included two hyper-ambitious Senate freshman, Marco Rubio and Ted Cruz.  They also included a movement to purge and cleanse conservatism, led by groups such as Heritage Action and by talk radio hosts....

“Conservatives complain constantly about the bias of the mainstream media. With the bar so low on website entry, members-only media alternatives emerged, such as RedState and Breitbart News.

“But the hated MSM is essentially a Roman phalanx.  It stays in formation and protects the progressive castle. The conservative alternatives showed no such discipline.  Early into the second Obama term, they commenced an internecine political war.

“The right began demanding that congressional Republicans conduct ritualist suicide raids on the Obama presidency. The MSM would have depicted these as hapless defeats by presidential veto, but some wanted the catharsis of constant public losses – on principle....

“With his Cheshire Cat grin, Barack Obama faded into the background and let the conservatives’ civil war rip. For Republicans, every grievance, slight or loss became a scab to be picked, day after day.

“In time, the attacks on ‘the establishment’ and ‘donor class’ became indiscriminate, ostracizing good people in the party and inside the conservative movement. The anti-establishment offensive created a frenzy faction inside the Republican base. And of course, it produced Donald Trump.

“The Trumpians and Cruzians, who of late have been knifing one another in a blind rage, say this is a rebirth. So was Rosemary’s baby....

“(Obama’s) presidency produced a moribund U.S. economy for eight years.  In a response so bizarre that future historians will gape, the Republicans decided to destroy each other.”

Bret Stephens / Wall Street Journal

“Donald Trump is Barack Obama squared....

“The president and The Donald are two epic narcissists who see themselves as singularly suited to redeem an America that is not only imperfect but fundamentally broken. Both men revel in their disdain for the political system and the rules governing it. Both men see themselves not as politicians but as movement leaders.  Both are prone to telling fairy tales about their lives and careers.

“And both believe they are better than everyone else....

“Historians may mark the early 21st century as the moment when Americans stopped seeking probity or at least predictability in their leaders and started shopping for ecstasy and transformation; a politics beyond words. Republicans mocked the grandiosity of Mr. Obama’s first run for the presidency – the Doric columns; the pledge to make the seas recede – but is that so different from the pompous iconography of the Trump jet or his manifestly absurd promises to get foreign countries to pay for his political boondoggles?

“More to the point, Mr. Obama was a cult-of-personality candidate.  His admirers projected on him whatever they wanted to see: passionate liberal; post-ideological pragmatist; philosopher king; cool cat.  Politically, he was the equivalent of a non-falsifiable hypothesis.  No evidence could disprove his rightness.

“Mr. Trump inspires similar fancies among his supporters.  Either he’s the Great Negotiator who will know how to bargain with Congress and cut better trade and security deals with the Saudis, Chinese, Europeans and so on.  Or he’s the immovable man of principle who will remain unbowed when, for instance, troubles mount with his mass deportation of los ilegales.  Both interpretations can’t be true. But it’s in the nature of cult personalities that followers rarely ask hard questions because they are seeking leaders who square circles....

“One man wants to shrink America’s role in the world for the sake of a bigger state; the other man for the sake of shrinking the debt.  In either case, the prescription is to put America in retreat.  In neither case do they want to address the real driver of the U.S.’s long-term fiscal problems, which are entitlements and welfare (59% of the federal budget), not defense and international security (16%)....

“There’s a tendency among pundits to offer high-toned explanations for why Mr. Trump has risen this far, despite political expectations and ordinary good sense.  Many of those pundits performed similarly opportunistic services when Mr. Obama’s star was rising.  We repeat our mistakes when we think we’re doing the opposite.”

--New York City Police Commissioner Bill Bratton / New York Daily News

“There seems to be a widespread belief among certain members of the political class that protecting the country against terrorism is a matter of ideology. According to them, the strong leaders in this area are the ones who are willing to insult Muslims, advocate torture, and engage in various other provocations. They claim that other leaders are paralyzed by political correctness and that they alone have the ideological fortitude to guard against the terrorist threat.

“Terrorism is ideologically driven but counterterrorism, like other kinds of police work, has no ideological component whatsoever.  It is about stopping the terrorists before they strike.  That requires intelligence gathering, analysis and focused investigative work.

“In the event of a terrorist attack, police also need the capacity to respond swiftly and with effective tactics.  It is a matter of consistent, determined, targeted detective work, of highly trained and well-equipped operational units, and of intelligence analysts who can interpret the data, decipher the chatter and distinguish the real threats from the bluster and the noise.

“Recently, Republican presidential candidate Ted Cruz called for police to ‘patrol and secure Muslim communities before they become radicalized.’  We already patrol and secure Muslim neighborhoods, the same way we patrol and secure other neighborhoods.

“When people call the police, we rush to help them.  When people break the law, we move to arrest them.  But no, we do not single out any populace, black, white, yellow or brown for selective enforcement. We do not ‘patrol and secure’ neighborhoods based on selective enforcement because of race or religion, nor will we use the police and an occupying force to intimidate a populace or a religion to appease the provocative chatter of politicians seeking to exploit fear.”

Bratton goes on to blister Cruz, and rightfully so, for “the false reports surrounding the NYPD Demographics Unit” and Bratton’s decision to abolish it because the work of mapping the ethnic makeup of the city to better understand the New York metropolitan area “was finished.”

--President Obama’s national approval rating has been inching up and is now at 53 percent, according to Gallup, a three-year high, which should be a huge help for Hillary Clinton (assuming she isn’t indicted) come the fall as long as it sticks.  Though one big terror incident here before then would cause the rating to crater. 

--In a new report published in the journal Nature, scientists now predict sea levels could rise nearly twice as much as previously projected by the end of this century without a major reduction in carbon dioxide emissions, which would devastate many coastal communities.

The authors of the study believe we could see a sea level rise of more than six feet rather than three.  This would have a profound effect on South Florida, parts of Virginia, New York City, Bangladesh, Shanghai, and other far-flung coastal communities.  [But not my building, which is all I care about, frankly.]

The key is preserving Antarctica in roughly its current state and the study concludes this is only possible by sharply reducing emissions.

--Georgia Republican Gov. Nathan Deal vetoed a “religious freedom” bill that would have allowed faith-based organizations to refuse service to gay and transgender people.

The likes of Coca-Cola, Disney and the NFL threatened to pull business out of the state.

Gov. Deal said: “I believe it is a matter of character for our state.  I do not think that we have to discriminate against anyone to protect the faith-based community in Georgia.”

Disney, for one, threatened to pull its very substantial movie shoots in the state. AMC threatened to stop filming “The Walking Dead” there.

Atlanta Falcons owner Arthur Blank said passage of the bill would clearly have hurt Atlanta’s chances of hosting the Super Bowl.

Now it’s North Carolina feeling the heat for legislation there.

--So the city of New Orleans is attempting to remove prominent Confederate monuments, but there has been quite a backlash, including death threats.  Things are so nasty the city hasn’t found a contractor willing to bear the risk of tearing down the monuments; the city itself not having any equipment to do the job.

Back in December, the majority-black City Council voted 6-1 to approve the mayor’s plan to take down monuments to the likes of Gens. Robert E. Lee and P.G.T. Beauregard, which many view as symbols of racism.

Initially, the city hired a contractor out of Baton Rouge to remove the monuments, but then a Lamborghini belonging to the owner of the company was set on fire at company headquarters.

So that’s one side of New Orleans. Then you have this, from Don Kaplan of the New York Daily News.

“Maybe their brains were steamed by the spicy food or the oppressive humidity of New Orleans.

“How else to explain why a group of entitled Tulane University students would create a petition to protest the school’s selection of decorated journalist Hoda Kotb, who was chosen to give a commencement speech this year?

“ ‘We deserve better,’ the soon-to-be college grads whined in their petty online protest.  ‘Given the amount of money, work, and passion we have poured into our educational careers at Tulane, we think we deserve better than this.’

“They rambled on.

“ ‘Hoda Kotb is hardly an inspirational figure, and despite the fact that she has had a successful career in journalism, we feel that we deserve a more recognizable and more prominent figure than her.  Commencement speeches are supposed to inspire students before they are thrown into the real world.  Hoda Kotb spends her time sipping wine on talk shows, and discussing which dog breed is trendiest in 2016. There’s hardly anything inspirational about that.  This is an embarrassment not only to the entire class of 2016, but also the school as a whole.’

“Hey kids: just shut up.  This woman has paid her dues. And despite your pricey education, it seems you’ve learned nothing.

“So here’s a bit of advice you can consider in your haughty, tiny minds – once your mommy and daddy have finished paying off your tuition, room, board and booze.

“Kotb is beloved in New Orleans for her time spent at WWL-TV.  But she’s also a best-selling author, a war correspondent, breast cancer survivor and a 51-year-old woman who has enjoyed wild success in a fickle, ageist, sexist, shallow industry.  It’s one where many TV newswomen are out of a job by the time they are 40 years old.

“She was once given the key to New Orleans; worked endless hours broadcasting the plight of her favorite city after Hurricane Katrina destroyed it; and she has been a defender and champion of the city for years.

“If all of that is not inspirational, then please explain to us what is....

“The good thing is Kotb also had her defenders in New Orleans – and she will go ahead with the speech....

“WWL-TV anchor Karen Swensen, a longtime colleague and friend...wrote a passionate response on Facebook....

“ ‘Deserve better? There is none....

“ ‘She has integrity, grit, unfailing optimism, the most generous soul and the most humble heart.  I, for one, hope my daughter, my only child, grows up to be just like her.’

“Kotb, always a class act, responded to all the hoopla in an emailed response to WWL-TV.  ‘Forget the petition, I love the response,’ she wrote.  ‘I love New Orleans!  See you soon!’

“It’s a lesson those little Tulane snobs should take to heart.”

I’d put the jerks on a skiff and send them adrift in the middle of the bayou.

--Two television recommendations from the past week.  Michael Ware’s documentary on HBO of his seven years covering the Iraq war is outstanding; ditto PBS’ “Frontline” on Saudi Arabia, the latter easily available on pbs.org.

--So I’m reading an interview with Steven Tyler of Aerosmith in Rolling Stone and the question is asked, “What rules do you live by?”

Tyler starts out: “You are what you eat.  Sleep with one eye open.  Follow your dreams. There’s a lot of them.  Also, people today are dying slowly. They’re either on the Internet too much and they lose their job, or they’re (eating) too much. All that stuff is going to take you down.”

Ah yes...“Sleep with one eye open.”  Just as we have always recommended here at StocksandNews.

---

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

God bless America.

---

Gold  $1222
Oil $36.79

Returns for the week 3/28-4/1

Dow Jones  +1.6%  [17792]
S&P 500  +1.8%  [2072]
S&P MidCap  +2.7%
Russell 2000  +3.5%
Nasdaq  +3.0%  [4914]

Returns for the period 1/1/16-4/1/16

Dow Jones  +2.1%
S&P 500  +1.4%
S&P MidCap  +3.8%
Russell 2000  -1.6%
Nasdaq  -1.9%

Bulls  43.3
Bears  28.9  [Source: Investors Intelligence]

Have a great week.  I appreciate your support.

Dr. Bortrum posted a new column.  Loyal Dr. B reader Jack C. informed me he had a huge bear in his Chatham, N.J., backyard the other day that tore down his bird feeder.  No lives were lost that we know of. 

Brian Trumbore



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Week in Review

04/02/2016

For the week 3/28-4/1

[Posted 11:00 PM ET, Friday]

Note: There are substantial costs associated with the site.  If you haven’t already done so, please click on the gofundme link or send a check to PO Box 990, New Providence, NJ 07974.  It’s greatly appreciated.  Special thanks this week to J. D. for his ongoing support.

*I apologize for last week and not warning those who may print this out that it was 40 pages.  This one is more like 30.

Edition 886

Washington and Wall Street

The crazy first quarter is now history in terms of market returns, which I detail below, while this was a week where we focused anew on the Federal Reserve and the state of the U.S. economy.

Chair Janet Yellen, in a speech to the Economic Club of New York on Tuesday, tried to retake control of her Open Market Committee, whose members have been in mini-revolt over the next Fed rate hike, with some of the governors recently talking of the possibility of an April increase when just weeks earlier at the March FOMC meeting, Yellen made clear that no more than two hikes were in the offing for 2016, rather than the four the Fed hinted at back in December, and April clearly wasn’t one of them.

Enough of such talk, Yellen essentially said to her audience, in reiterating that any increase in the benchmark Funds rate will be gradual, and that it was appropriate for U.S. central bankers to “proceed cautiously,” given unfavorable market conditions, including weaker than expected overseas growth and an uncertain inflation outlook.

Yellen said the pick-up in core inflation “may not be durable,” voicing concern inflation is not “stable,” citing subdued inflation expectations.

“To the extent that recent financial market turbulence signals an increased chance of a further slowing of growth abroad, oil prices could resume falling and the dollar could start rising again.

“And if foreign developments were to adversely affect the U.S. economy by more than I expect, then the pace of labor market improvement would probably be slower, which would also tend to restrain growth in both wages and prices.” [Financial Times]

Yellen added inflation could take longer to get to the Fed’s 2% target, even though their preferred inflation barometer, the PCE (personal consumption expenditures index) came in at 1.7% (which is darn close to 2%) for February this week, the same as January, while I have been arguing when you look at items such as the core CPI, and wages, we are already at 2%, not that this then means the Fed should be hiking interest rates, it’s just that the Fed is treating us like schmucks, while consistently getting it wrong themselves.

But in squashing any potential for a rate hike until June at the earliest, Yellen helped fuel another rally in global equities, at least for a few days, as Europe rallied on her dovishness plus the expansion of the European Central Bank’s own quantitative easing program.

Only in the case of Europe, at week’s end all was not as cheery as Yellen’s words helped lead to a weaker dollar, and a stronger euro, the latter the last thing European exporters, and ECB President Mario Draghi, want to see.

But continuing with the U.S. economy, Friday’s jobs report for March was another solid one, 215,000, with the unemployment rate ticking up to 5.0% from 4.9%, while average hourly earnings rose 0.3%, or 2.3% year over year. [I feel compelled to add each time I cite this last number that, yes, you want wage growth to be closer to 3.5% to 4.0% in a normal post-recession expansion, but this hasn’t been one.]

The thing is the majority of the job gains in March continue the basic trend...lower-paying retail and services, while the higher-paying manufacturing sector lost jobs last month.

And another key figure, U6, or those who are underemployed, ticked up to 9.8% from 9.7%, though 9.7% was the lowest for this reading since 2008.

Separately, personal income in February rose 0.2%, a tick better than expected, while consumption was up 0.1%, the same as a sharply revised downward January number, so not too great.

But the March Chicago manufacturing PMI was a far better than expected 53.6 (50 being the dividing line between growth and contraction), while the ISM manufacturing reading also exceeded forecasts at 51.8, the first above 50 in seven months. 

February construction, on the other hand, came in -0.5%.

On the housing front, the S&P / Case-Shiller home price index for January showed the 20-city benchmark rising 5.7% over January 2015, which isn’t exactly healthy for those looking to buy.  Portland, Oregon saw the greatest appreciation, 11.8% year over year, while Chicago had the smallest at 2.1%.

So looking back at the just-completed first quarter, it was dominated by fears the global economy was weakening, with crashing energy prices, before the big bounce back in both stocks and commodities (classic short-covering).  It helped that there wasn’t another incident on the terror front after the Brussels attacks, which has essentially been the case since 9/11.  Nothing to shatter confidence for any real length of time.

But now we focus on earnings, with S&P 500 eps expected to decline 7%, or a third straight quarter of weakness, though energy represents a lion’s share of the red ink.

As for the first-quarter GDP forecast, the Atlanta Fed’s GDPNow indicator is at just 0.7%, down from a 1.4% estimate one week earlier.  Recall Q4 was only 1.4% (ann.).  Ergo, the Fed isn’t acting soon.

Europe and Asia

Markit released its latest manufacturing PMI data for the eurozone and the figure was 51.6 in March vs. 51.2 in February, still far from robust but growth nonetheless.

Germany came in at 50.7 vs. 50.5 the prior month; France 49.6, the lowest in 7 months; Italy 53.5; Spain 53.4; and Greece 49.0.

Howard Archer at IHS (Markit’s new partner following their merger), said:

“The Eurozone manufacturing sector is clearly suffering as export orders are limited by muted global growth.”

Chris Williamson, chief economist at Markit:

“Policymakers will also be worried by the further intensification of deflationary pressures in manufacturing supply chains, with prices charged at the factory gate falling at the steepest rate since late 2009.    Discounting was widespread as firms competed on price amid weak demand.”

On the inflation front, a flash reading from Eurostat had inflation in the euro area at -0.1% annualized in March vs. -0.2% in February, though ex-food and energy the figure was 0.9%, with the core generally being in the 0.8% to 1.0% range in recent months, still far below the ECB’s 2.0% target.

Spain’s budget deficit was 5.2% of GDP in 2015, far worse than the deficit goal set by the European Commission, which makes it impossible for Spain to hit its EC target of 3% this year.

Remember, Spain has been without a formal government since December’s election and they are headed to a new vote in June as party leaders have been unable to forge a workable majority.

So why is Spain’s 10-year yielding 1.43%?  And Italy, with its massive deficit, 1.22%?  Unless these two economies have robust growth in the near future (yes, Spain has, but it better continue), I don’t care what kind of bond-buying program the ECB enacts, there is a day of reckoning approaching for both.

On the migrant front, the new process is slated to commence this Monday, with Turkey taking back illegal migrants from Greece under the deal with the European Union, though neither side is fully ready. Turkey agreed with the EU to take back all migrants and refugees who cross illegally to Greece in exchange for financial aid, faster visa-free travel for Turks and slightly accelerated EU membership talks. We’ll see what happens over the next two or three weeks.

Turkey has already spent almost $10 billion on refugees from Syria since the start of the conflict, much of it on camps close to the Syrian border.

As for the Brussels attacks, the following series of stories gives you a good sense of the utter incompetence of local officials.

Sunday, March 27, you had this from the Wall Street Journal:

“European authorities said they suspect that several men detained in a number of countries over the Easter weekend all had connections to perpetrators of the deadly attacks.  This has prompted French and Belgian prosecutors to seek closer U.S. assistance, according to Western officials, as they try to map the extent of the network responsible for killing 130 people in Paris in November and at least 31 in Brussels on Tuesday.

“The immediate effort is centering on Faycal Cheffou, a Brussels resident of Moroccan origin who was detained in front of the office of Belgium’s federal prosecutor Thursday as police were trailing him by car.  Belgian authorities say they suspect Mr. Cheffou, who has been charged and is in custody, is the man seen pushing a cart on security footage captured at Brussels Airport minutes before two suicide bombers detonated their explosives.”

This was “Faycal C,” as authorities labeled him.  “The man in the hat.”

So a few days later he was released for lack of evidence.  If it wasn’t so tragic, it would be laughable.

And we also learned that Paris attack suspect Salah Abdeslam, arrested four days prior to the Brussels attacks and the Paris ringleader, wasn’t interviewed the first day because he was receiving treatment for a leg wound suffered during his arrest and the first interview, conducted the following day, March 19, only concerned the Paris attacks, and then he was asked about a European arrest warrant issued against him, upon which he went silent.  He was never questioned about any knowledge he might have had about future attacks!

Then, immediately after Brussels, he was interviewed on March 22, whereupon he “declined to make any statement at all,” according to the Belgium prosecutor’s office.

Meanwhile, according to a letter from Belgium police warning authorities of poor security at the airport in the run-up to the attacks, “serious” criminals were working in sensitive parts of the facility.  Airport police were convinced a terrorist group was busy scouting the airport to identify weak spots in the security.

Michael Leiter / Washington Post

“Brussels would mark the first time since 9/11 that a terrorist cell in the West survived to launch more than a single attack. And this despite four months of Europe’s most intensive counterterrorism operations of the past 15 years by France, Belgium and other partner nations.

“If confirmed, the significance of this network’s ability to survive cannot be underestimated and is likely driven by three factors: volume, sophistication and communications.  With respect to volume, the sheer number of potential terrorists, especially ones who have received training thanks to the proximity of the Syrian conflict, is simply overwhelming European security services.  With this volume has also come a level of sophistication – in planning, in staying ‘below the radar’ and in creation of effective improvised explosive devices – that would have allowed this cell to survive the disruption of network safe houses and leadership and still move forward successfully....

“I fear what we shall find in the Paris-Brussels network is that the group’s communications were effectively hidden or sufficiently ephemeral to prevent security services from fully mapping the network that lived – post-Paris – to fight another day.

“Brussels does not simply represent change in the terrorists, it also portends great change (or future failure) for European security services.  Post-Paris, the European Union’s open borders were on life support; post-Brussels, the Schengen Agreement that requires such reliance on European counterparts is all but dead.”

Wolfgang Munchau / Financial Times

“For the first time in my life, there is a chance that European integration may take a step backwards.  I cannot forecast whether there will be further terrorist attacks, whether the British will leave the EU, how many refugees will come this year or next, or whether the eurozone crisis will return. But I am confident that the probability of at least one of these crises spinning out of control is very high indeed.

“With hindsight, the EU was wrong to construct a single currency without a proper banking union.  It was wrong to create a passport-free travel zone without a common border police force and immigration policy.  I would add EU enlargement to this list – not the principle but the haste with which it was pursued.

“The cardinal mistake of our time was the decision to muddle through the eurozone crisis.  Europe’s political leadership failed to generate the public support for what was needed: creating a political and economic union. Instead, the European Council did the minimum necessary for the system to survive to the next day....

“With each unresolved crisis, the degree of Euroscepticism in the population rises.  If the EU is seen as failing to resolve problems, people naturally become reluctant to bestow the bloc with new powers.  Populist parties on the left and the right are exploiting the union’s failures. I would not be surprised to see one of these parties win an election in a big European country one day....

“If the EU had not messed up the previous crises, people would look at a European immigration policy or an antiterrorism task force with a more open mind.  But would you trust with your own security somebody who cannot even contain a medium-sized financial crisis?  I personally would not, which is why my own preference is for the Schengen system of passport-free travel to be suspended indefinitely, or at least until the sovereignty over borders, immigration and the fight against terrorism are fully shifted to EU level – something I do not expect to happen.

“Economic history has shown time and again that efforts to muddle through financial crises never work – think of the Great Depression or Japan’s lost decades.  For the EU it was a catastrophic policy error.  It has not only given us an economic depression from which many countries have not yet recovered.  It has also destroyed public confidence in the EU and in the very idea of European integration.”

Lastly, in Asia....

There were distinct signs of stabilization in China this week. Industrial profits rose 4.8% year over year for the January-February period, according to the National Bureau of Statistics, snapping a 7-month losing streak.  The official PMI for manufacturing was 50.2 in March, the highest since November 2014, with non-manufacturing/services at 53.8 vs. 52.7 for February.  And the Caixin/Markit private manufacturing PMI was 49.7 last month vs. 48.0 in February, the highest for this reading in 13 months.  The new order component was above 50, so it seems some of the government’s stimulus programs could be working.

But in Japan, retail sales for February fell 2.3% month on month, the worst since April 2014, though were up 0.5% year on year.  The jobless rate ticked up to 3.3% in February, while the manufacturing PMI in March fell to 49.1 vs. 50.1.

But a reading on business sentiment, released Friday, came in at its lowest level in three years and the Tokyo Nikkei stock index fell 3.5% on the news.  Both the Tokyo and Shanghai market benchmarks are off 15% for 2016 (local currencies).

[Taiwan’s March manufacturing PMI was 51.1, which dovetails with improvement in China after a 49.4 reading in February, while in South Korea it was 49.5 vs. 48.7.]

Street Bytes

--Stocks rallied for a sixth week in seven, with the Dow Jones up 1.6% to 17792, while the S&P 500 rose 1.8% to 2072, just 58 points shy of its all-time high.  Nasdaq advanced 3%.  Thank Janet Yellen if you are ‘long.’

--After being down 11% for the year in February, the Dow staged its biggest quarterly comeback since 1933.  The Dow was up 1.5% for Q1, while the S&P 500 eked out a 0.8% gain.  The S&P and Dow were up 6.6% and 7.1% for March, respectively.

Nasdaq, on the other hand, still finished down for the quarter, falling 2.8%, but it was also up 6.8% in March.

The Stoxx Euro 600 index fell 7.7% in Q1.

Gold had its best quarter since 1986, rising 16.5%. 

--U.S. Treasury Yields

6-mo. 0.38%  2-yr. 0.72%  10-yr. 1.77%  30-yr. 2.60%

Treasuries rallied on Yellen’s dovish tone.  For the quarter, the yield on the 10-year dropped from 2.27% to 1.78%, the lowest quarter-end level since the end of 2012.

--U.S. auto sales rose 3% in March over a year earlier, though the adjusted annual rate of 16.57 million light vehicles was well below analysts’ expectation and the record 17.5 million clip the industry reported in February.  Detroit’s Big Three all reported sales gains, but below forecasts, sending shares lower.

Ford and Fiat Chrysler saw gains of 8%, while GM’s rose just 0.9% as the company continues to cut back on sales to rental car companies.  GM said sales to individual buyers rose 6%.

Nissan’s sales were up 13%, hitting a record for any month in its history.  Toyota’s fell 2.7% on slumped demand for its sedans and coupes.  But Honda Motor Co.’s sales jumped 9.4% on record results for the Civic.

At Fiat Chrysler, car sales were actually down 34% on the month, but truck and SUV sales rose 23%.  The company sold 178,400 SUVs vs. 34,780 cars.

--Meanwhile, I have been critical of Tesla Motors from a valuation standpoint but the stock surged anew at week’s end on word there are as many as 198,000 pre-orders  for the new Model 3, promoted as the electric vehicle for the masses at $35,000.

The Model 3 will be able to travel at least 215 miles on a single charge and can go from 0 to 60 miles per hour in less than six seconds.

But the likes of General Motors and Renault-Nissan have also begun manufacturing electric vehicles.

Plus, delivery of the Model 3 is still a ways off, the end of 2017 at the earliest, and the $1,000 reservation fees are refundable.

And Tesla delivered just 50,000 vehicles for all of 2015. 

--The Financial Times reported that global investment banks suffered declines of as much as 56 percent in their trading operations in the first quarter, auguring further layoffs. An example is Credit Suisse’s admission last week its trading revenue fell 40-45 percent in the period.

FT: “Wall Street’s biggest banks are suffering too, with analysts predicting first-quarter falls in trading revenue of up to 48 percent for Goldman Sachs and 56 percent for Morgan Stanley as slowing Chinese growth, stubbornly low oil prices and fading hopes of a U.S. interest rate rise weigh heavily on client activity and market performance.”

--The Street had its first sub-billion dollar quarter in initial public offerings since Q1 2009, according to S&P Global Market Intelligence.

The six companies that priced raised a measly $521 million, compared with 32 companies that raised $4.8bn in the year ago quarter; let alone the $7.1bn from 31 companies in the fourth quarter. [Mamta Badkar / Financial Times]

--Timothy W. Martin and Rob Copeland / Wall Street Journal

“Pension funds, insurers and university endowments helped pump up hedge funds to a record $3 trillion in assets over the last decade. But with results falling behind a more traditional mix of stocks and bonds for six straight years and the high-fee structure now politically sensitive in some states due to uneven results, many of them are pulling back.”

According to HFR Inc., the fourth quarter of 2015 saw the first net quarterly withdrawal in four years.  Big investors, pensions funds and the like pulled an additional $15.3 billion in this year’s first two months, according to eVestment.

American International Group Inc. said last month it was cutting the $11 billion it had earmarked for hedge funds in half.

At the same time, asset managers are offering hedge fund-like products at far less cost than the traditional 2% of assets under management and 20% of profits that the hedgies charge.

--Meanwhile, I was surprised to see venture-capital firms raising about $13 billion in the first quarter, according to data from Dow Jones VentureSource, which is at the highest pace in more than 15 years.

That’s shocking, given how the values of start-ups are cooling.

As Rolfe Winkler writes in the Wall Street Journal: “Investors have stayed excited about venture capital because it offers higher growth in a low-return environment.  The 10-year return by venture funds for the period ended Sept. 30 was 11% versus 6.8% for the S&P 500 index, according to investment adviser Cambridge Associates.”

--The U.S. Department of Agriculture reported that a survey of farmers in March signaled they will plant 93.6m acres of corn this spring, up 6 percent from last year and the highest since 2013, even with lower prices.  Soybean plantings will be down fractionally from last year.

Farmers, despite the second-highest inventories of corn on record for this time of year, are planting even more to maintain cash flow.

--Barclays warned this week that the rally in the price of many commodities “does not seem to be very well founded in improving fundamentals and that upward trend may prove difficult to sustain.”

The investment bank added that it’s not long-term investors bidding up commodities, and that the likes of oil and copper are at risk of falling as much as 25 percent.

U.S. oil inventories remain at “historically high levels for this time of year,” the Energy Department said this week as stocks rose a little less than expected.

And then on Friday, Saudi Arabia’s deputy crown prince told Bloomberg that the kingdom will only freeze production if Iran and other major producers do, this being the topic of an upcoming oil ministers meeting on April 17, so oil collapsed 4% on Friday to $36.79 on WTI, down nearly $3 on the week.

Nice call by Barclays, at least short term.  [I totally agree with them.  I have consistently said, I’m not getting excited until WTI trades above $40 for a decent period of time and we have yet to finish a week above that level despite the nice rally off $26.  Plus Southwest pilot Bobby C. told us all that he was observing the loaded oil tankers in Los Angeles and Long Beach as a further clue on the tremendous glut.]

--AAA said Americans paid the cheapest quarterly gas prices in 12 years during the first quarter, saving nearly $10 billion on gas so far in 2016 vs. the same period in 2015.

The national average price of gas today is $2.06, the lowest heading into April since 2009.

It’s also estimated that Americans drove 240.7bn miles in January 2016, which was the most ever for the month.

My state of New Jersey currently has the second-lowest average gas prices at $1.84, with Missouri first at $1.83.

California is tops at $2.79, followed by Hawaii ($2.59).

--On Monday the government said it had cracked the iPhone from the San Bernardino terror attack without Apple’s help and announced it would seek to drop its legal case to force Apple to unlock the device.

It’s being reported that an Israeli company unlocked it, but now Apple wants the government to tell them how these guys did it, so there could be a counter suit.

As for Apple’s new product launches, it was whoopty-damn-do.  Actually, I’m heading to the Short Hills Mall today, Saturday, to see what kind of crowds there are at the Apple store.  [The same mall has a Tesla dealership and I need to try to remember to ask them how many pre-orders they received.]

--Boeing Co. said it planned to cut more than 4,500 jobs by June, even as it has booked record orders for its jets.  But the company has been losing market share to rival Airbus Group SE.

4,000 of the 4,500 cuts are expected to come through attrition and voluntary layoffs. 

Boeing’s workforce stood at 161,000 on Dec. 31.  It appears most of the reductions will occur in Washington state.

--It would appear Virgin America could be taken out by either JetBlue Airways or Alaska Air Group, according to initial reports from the Wall Street Journal, based on a source.

So further consolidation is possible, even as just four big carriers control more than 80% of the U.S. domestic market: American Airlines, Delta, United Continental and Southwest.

Virgin America is now the ninth-largest U.S. airline by traffic. But its CEO, David Cush, has complained Virgin can’t get the gates it needs for expansion because they are taken up by the big boys.

JetBlue is No. 5, with Alaska Air No. 6.

--Giant Chinese insurance company Anbang came back with a second sweetened offer for Starwood Hotels, after Marriott International had issued an enhanced second offer of its own.

Marriott first bid about $65 a share for Starwood (which includes the St. Regis, Sheraton and Westin brands).

Anbang then countered with $76, Marriott moved to $79.50, and then Anbang returned serve.

But I said last week that word was out Chinese regulators wouldn’t allow the Starwood deal because Anbang was exceeding the allowable percentage on foreign assets.  And then on Thursday, Anbang suddenly walked away, with the insurance giant and its private-equity firms saying in a statement that they decided to abandon the bid “due to various market considerations,” without elaborating.

Starwood now will stick with Marriott’s most recent offer in a merger that could generate $250 million in cost savings from the overlap.

As for moi, your editor, I’m proud I brought you the angle last week that the deal was probably going to get squashed, and reading between the lines that is clearly the case (aside from the fact Anbang and its partners likely couldn’t raise the needed funding).

--Hong Kong’s retail sales plunged in February, dropping a whopping 20.6 percent on an annual basis, the sharpest decline since January 1999.

It’s all about the slowdown in China and fewer visitors, as well as reduced sales of luxury items, like jewelry and watches, down 24.2 percent.  [Financial Times]

--There do not appear to be any terrorism-related fears in the cruise industry as yet, with Carnival, the world’s biggest cruise company by market share, reporting first quarter earnings that beat expectations, while noting advance bookings for the rest of the year were “well ahead” of 2015.

Carnival (which operates the Costa and Princess brands) also secured approval from the Cuban government to sail from the U.S. to the island, the first such permission granted a U.S.-based operator in more than 50 years.  [This will be through the Fathom brand.]

--The World Health Organization said the Zika virus would spread to all countries in the Americas except Canada and Chile.  Some Latin American nations, such as Colombia, have seen declines in the number of infections in recent weeks, but it is still expanding in Brazil, the epicenter.

Much of the U.S. is going to see a bumper crop of mosquitoes this summer owing to our warm winter, let alone all the rain in parts of the south, so if I see one of those spotted beasts that are carriers of the virus, I’m pulling out my bazooka, though I should probably check with my insurance carrier as to collateral damage.

--Public unions achieved a major victory in a case that ended in a 4-4 tie at the Supreme Court on Tuesday.

Before the death of Justice Antonin Scalia, it appeared the court’s conservative majority was ready to say that forcing public workers to support unions they had declined to join violated the First Amendment.

But the tie means the case, brought by California public schoolteachers who objected to paying for the unions’ collective bargaining activities on their behalf, reverts to a prior ruling by an appeals court that upheld the requirement that the objecting teachers’ pay fees.  [I think I’m describing this right...not being a constitutional scholar, you understand.]

--California’s state Assembly approved a bill raising the minimum wage to $15 an hour over the next six years, and Gov. Jerry Brown will sign it on Monday.

The plan passed 48 to 26.  No Republicans voted in favor of the increase, saying it was rushed.  [2 Dems voted against.]  The Senate vote was then 26-12.

New York officials also struck a deal on Thursday to bring the $15-an-hour minimum to New York City by 2019 and the rest of the state later on.

Restaurant owners are already talking sizable layoffs, as well as reduced menus with fewer workers.  And of course prices will rise.

--McDonald’s announced it would add more than 1,500 restaurants in China and Korea with local partners over the next five years.  Once the outlets are opened, McDonald’s would have more than 4,300 restaurants across the two countries.  The fast-food giant is looking for local partners to expedite growth and decision-making, as well as help with funding.

--Sonic Corp.’s fiscal second-quarter profit rose 41% on continued strong sales, with the fast-food joint expecting same-store sales to climb between 4% and 6% for the year, better than a prior forecast.

Revenue rose 5.5% to $133.2 million in the quarter.  Same-store sales were up 6.5%, which is super.

I forgot Sonic was founded in Shawnee, Okla., where I once sold books door-to-door. 

[I was the world’s worst book salesman, by the way...but I was good at getting glasses of water as I walked around in 100-degree heat that summer of ’78...I also had Ponca City, Okla., in my territory for a long spell.  Guys, what was Ponca City known for that year?  Candy Loving!  Playboy’s 25th Anniversary Playmate ...she had attended Ponca City High School...but I digress...]

--Experts say California’s critical snowpack in the Sierra Nevada is just below average, a huge improvement over last year, but not enough to declare the drought anywhere close to being over.

This particular report by the California Cooperative Snow Surveys Program, has the snowpack in the mid-90s percentage of average when last year at this time it was a mere 5 percent.

Actually, in a separate report, Lake Shasta, “a keystone reservoir of the Central Valley project, which serves California growers,” has exceeded its average for this time of year, and that’s a great thing, sports fans.  [Matt Stevens / Los Angeles Times]

Lake Shasta is the biggest reservoir in the state. Shasta Beverages is a company, having just looked it up, named after a spring originating in Mount Shasta, California.

And that’s a memo....Charles Krauthammer is here....

--“Batman v Superman: Dawn of Justice” took in a whopping $170m in the U.S. and Canada its opening weekend, the largest pre-summer debut; this despite poor reviews from the critics, though the movie-going public gave it solid marks, according to polling firm CinemaScore.

Internationally, the movie opened to $254 million, making it the fourth-biggest global opening ever at a total of $424.1 million.

Foreign Affairs

Iraq/Syria/ISIS/Turkey: Syrian government forces, with the help of Russia, Iran and Hizbullah, retook the ancient city of Palmyra last weekend, after ISIS had taken control of it last May.  A significant defeat for Islamic State.

The damage to Palmyra’s artifacts, a major tourist attraction prior to the civil war, was substantial, but much of it remains intact, while some treasures had been secreted away prior to ISIS’ takeover.

One report had 417 ISIS fighters dying in the campaign to retake the city, with 194 killed on the government side.

The city itself was heavily damaged, just like virtually all of Syria these days.  It’s yet another reason why I say “it’s over.”  It will take decades and decades to rebuild the country, assuming peace breaks out at some point.

Meanwhile, Assad proposed to form a unity government including independent and opposition figures, with British Foreign Secretary Philip Hammond saying this was a non-starter.

“Bashar al-Assad talks about a unity government, by which he means bringing one or two handpicked, regime-friendly oppositionists into minor posts in the government,” Hammond said from Beirut.

Hammond said there must be a “change of direction” in Syria.  “There has to be the creation of a government that represents all the people, all the communities, all the faiths in Syria and it has to be a government that is not – or at least in the future will not – be led by Bashar al-Assad.”  [Reuters]

In Iraq, Shiite cleric Moqtada al-Sadr called off a weeks-long antigovernment protest in Baghdad after Prime Minister Haider al-Abadi proposed replacing virtually his entire cabinet, including his finance and foreign ministers.

So Abadi submitted 14 new names for parliamentary approval, retaining only his defense and interior ministers, citing security reasons. Sadr said that if parliament didn’t accept the list (lawmakers having ten days to decide), he would press for a no-confidence vote in Abadi’s government.

So while it seems that Sadr, in some respects, has become more of a moderate, he is on the verge of gaining far more influence at a time when the U.S. is bringing more troops and advisers to help fight ISIS.  Having launched a major attack on U.S. and Iraqi forces in 2004, he is not exactly our ally.  He should have been taken out then, a huge mistake.

Separately, Iraqi troops (counterterrorism forces trained by the U.S.), with the help of U.S.-led coalition airstrikes, are advancing toward the western town of Hit in an attempt to dislodge ISIS 80 miles west of Baghdad, while thousands have been fleeing the towns south of the IS capital city of Mosul, where Iraqi and Kurdish forces are preparing an assault for later this spring.

More than 3.3 million people have been displaced by conflict in Iraq since the start of 2014, according to the UN.

As for the horrific attack by an ISIS suicide bomber at a soccer stadium last weekend south of Baghdad, the death toll hit at least 42, mostly youth.

And in Turkey, the U.S. government ordered hundreds of Americans to leave the country because of increased security concerns; specifically family members of U.S. military personnel working in southeastern Turkey, close to the Syrian border, as well as other parts of the country (but not Istanbul).

Benny Avni / New York Post

“With the retaking of Syria’s ancient city of Palmyra, we seem to finally have made tangible, on-the-ground gains against ISIS – that is, if ‘we’ refers to Syrian President Bashar al-Assad, Russia, Iran and Hizbullah.

“President Obama and several of his would-be successors are satisfied: The terrorists of ISIS are losing ground. America exerts little treasure and sheds no blood.  Our allies in Syria are on the march.  What’s not to like?

“Wait, ‘allies’?

“During the half-decade Syrian civil war, the White House has repeatedly deemed Assad unfit to lead the country.

“If anything, administration officials stress again and again, he should stand trial for war crimes.  Meanwhile, Hizbullah tops the State Department’s list of foreign terrorist organizations.  Despite Obama’s endless overtures to Iran, the administration still considers it, at least officially, an adversary.

“And Russia?  Well, it’s complicated, but a trusted friend they’re not.

“Over the weekend, Syrian army troops loyal to Assad took Palmyra, supported by Russian warplanes.  (Strange – while Vladimir Putin announced earlier this month that Russia is getting out of Syria, he keeps pouring military assets into the country.)  Hizbullah and Iranian Revolutionary Guards Corps fighters helped out....

“Beyond its value to Indiana Jones types, by the way, Palmyra is a strategic asset, located between Damascus and the country’s eastern deserts and the Iraqi border.  So how come Assad waited so long before instructing his army to take back the city?

“Because Assad never really saw ISIS as his main enemy.  Rather, the group was his insurance card: The scarier and stronger it seemed to the West, the more we’d see the war as a choice between him and ISIS – and choose him. So he went easy on ISIS, and attacked all other Sunni groups that vied to overthrow him....

“And so, with Russia, Iran’s Revolutionary Guards and Hizbullah, Assad wrestles Palmyra away from those ISIS goons who shocked the world by ruining its beautiful ancient artifacts, and the world is impressed.

“Publicly, official Washington maintains the ‘Assad must go’ mantra.  But behind the scenes, we welcome his latest maneuvering  After all, anyone who’d weaken ISIS is welcome.

“Except ISIS will be fine.  Indeed, it’s already moved assets to Libya....

“So, no.  ‘We’ didn’t gain in Palmyra. We farmed the battle out to others, who are no allies.  Thus, we’re guaranteed intensified mayhem, which sooner or later can reach our shores, too....

“One of the lessons of the Syria mess is that when America sheds responsibilities, our allies won’t pick up the baton.  Instead, the void tends to be filled with the worst of the worst.”

Fred Hiatt / Washington Post

“(Barack) Obama has presided over an experiment in withdrawal from the Middle East, a region that the United States had long considered vital....

“Circumstances have forced Obama to undo or reverse aspects of his experiment, but at one point it included pulling all U.S. troops from Iraq, with plans to do the same in Afghanistan; abandoning Libya after intervening to depose its dictator; tepid support for the democracy movement that emerged in the Arab Spring; and a refusal to help those fighting Syrian dictator Bashar al-Assad, whose overthrow Obama said he favored.

“Obama designed this policy because he was convinced, as Atlantic magazine national correspondent Jeffrey Goldberg put it following hours of conversation with the president, ‘that the Middle East could not be fixed – not on his watch, and not for a generation to come.’

“The nations of the region, in other words, are unlikely to become democratic or economically successful.  U.S. resources can be better spent on what Obama has called ‘nation-building at home’ and on more important relationships in Asia.  War-weary U.S. voters oppose keeping our troops in the region.

“Now imagine if Truman had applied similar tests at the end of World War II.  After that devastating conflict, Americans were far more war-weary than they were when Obama became president....

“Yet Truman kept U.S. troops in both Germany and Japan – a deployment that persists after seven decades, to only occasional complaint from U.S. voters.  Congress and the president devoted millions of taxpayer dollars to rebuilding both countries. They committed to a years-long occupation that imposed democratic institutions.

“When the Korean War ended in 1953, it seemed even more outlandish to imagine that South Korea could one day become an important trading partner and ally of the United States, let alone a vibrant democracy.  Yet Eisenhower and Congress kept U.S. troops there, too, a deployment that persists six decades later, again with little domestic objection....

“The continued presence of U.S. forces helped preserve an unprecedented era of peace in Europe and East Asia.

“By contrast, the consequences of Obama’s retrenchment have been disastrous.  A tenuous stability in Iraq gave way to renewed sectarian warfare and the emergence of a vicious terrorist state. Syria disintegrated in fighting that has killed hundreds of thousands, displaced millions, sparked what the United States has officially termed a genocide and, thanks to terrorism and refugee flows, threatens the stability of the entire European continent. Libya, just across the Mediterranean Sea from Italy, is in chaos, too, with a new Islamic State outpost putting down roots there....

“The temptation to withdraw has never been far below the surface of U.S. politics.  Americans have been complaining for decades that allies haven’t been paying their fair share....

“But always there were politicians who would take up the hard work of making the case for U.S. leadership, beginning with presidents such as Truman and Kennedy, Reagan and Clinton.  That’s a tradition that stands in danger today.”

Lee Smith / The Weekly Standard

“Last week marked the fifth anniversary of what started as a peaceful uprising in Syria. A bunch of teenagers scrawled on a wall in their hometown of Deraa the slogan of the Arab spring: ‘The people,’ they wrote, ‘want to topple the regime.’

“Syrian security forces caught the boys and tortured them.  When news of the regime’s crime spread, thousands around the country filled the streets of their cities, towns, and villages to make their voices heard. Their protests were peaceful, but the response of Bashar al-Assad’s troops was not.  They slaughtered unarmed demonstrators and tortured others in jail.  Eventually, the people picked up arms to defend themselves.

“Those whom President Obama later deprecated as ‘former doctors, farmers, pharmacists, and so forth’ with no chance against ‘a well-armed state backed by Russia, backed by Iran, a battle-hardened Hizbullah,’ nonetheless fought back.  The leader of the free world disdained to help them because he had his eyes on a nuclear deal with Iran, and the clerical regime in Tehran was helping its Syrian ally Assad to crush the opposition like insects.  If he helped the farmers and pharmacists to defend themselves and their families, Obama reasoned, it would damage his chances of doing a deal with the cruel regime that was Assad’s partner in slaughter.

“Because the White House saw no strategic logic to arming the opposition, or setting up a no-fly zone or a buffer zone to protect them, malign forces filled the vacuum.  First there was the Islamic State and later Russia, and the death toll mounted.  Five years and hundreds of thousands of deaths into what has become the most devastating conflict of the 21st century, the war shows no signs of ending....

“Five years on and the Syria conflict has become a three-headed monster – a genocide, an increasingly large multi-power war involving states and non-state actors, and a refugee crisis....What makes the Syria conflict even more dire, even more consequential is that it affects two major regions of the world, the Middle East and Europe.  Indeed, according to some European officials, the Syrian refugee crisis is an existential threat to the EU....

“Obama says he has as much to lose as anyone if the Iran deal goes wrong.  It’s got his name on it, he says.  So does the war in Syria.”

Iran: Addressing a meeting of religious figures on Wednesday, Supreme Leader Ayatollah Khamenei said, “Those who say the future is in negotiations, not in missiles, are either ignorant or traitors.” 

The Ayatollah stressed the Islamic system would have to retreat from its positions against any “pretty country” which would threaten it if it lacks defense power.  [IRNA]

Pakistan: At least 72 people were killed, 300 injured in an explosion at a public park in the eastern city of Lahore last Sunday.  The attack, carried out by a Pakistani Taliban faction, targeted Christians celebrating Easter, with many of the victims being children.  Absolutely sickening.

The Pakistani government has been heavily criticized for not going after Islamist groups using the Punjab as their base.  Kill ‘em, Sharif.

China: Chinese President Xi Jinping met with Barack Obama on Thursday on the sidelines of the Nuclear Security Summit* and Xi urged his counterpart to cast aside confrontation and to manage the differences between the two powers.

The two then agreed that they remained committed to the denuclearization of the Korean Peninsula, agreeing on new UN sanctions to punish Pyongyang for its recent nuclear and rocket tests. 

But Xi and Obama remained at odds on the South China Sea, with Xi warning China would not accept violations of its sovereignty in the name of freedom of navigation – a reference to air and naval patrols Washington has sent within areas that Beijing considers its territorial waters.

Xi also urged the U.S. to stick to the “one China” policy when it comes to promoting peaceful cross-strait relationships between mainland China and Taiwan.

Separately, the Chinese government continues to tighten its grip over the Internet as it rolls out draft rules that will ban many web domains not approved by local authorities, a further tightening of the so-called Great Firewall.

Editorial / Washington Post

“As Chinese President Xi Jinping visits Washington this week, a kind of guerrilla war is underway between his repressive security apparatus and what appears to be a growing legion of critics.  It’s a lopsided contest: Journalist and other activists who dare to challenge the Communist leader for his concentration of power and assault on dissent quickly disappear. Those outside the country risk abduction or the arrest of family members in China.  And yet, the resistance continues, driven by Mr. Xi’s own excesses.”

Wen Yunchao, a New York-based human rights campaigner, said three of his family members had been detained by police in China after he was accused of helping publish a letter calling for Xi to resign – a claim he denies.  [I discussed this letter last WIR.]

And at Hong Kong International Airport, where I have literally lived a few times (at the hotel connected to the main terminal), one of the joys is the excellent bookstores / newsstands that carry major publications, which helped me with my work immensely while traveling.

So I just saw that the airport is cutting back sharply on the establishments and replacing them with outlets run by a mainland-based firm, instead of the French- and Singapore-based chains that have been there for years.

Which means travelers will clearly have their options restricted, including the kinds of books sold in the stores, i.e., no politically sensitive titles. 

Remember when I blasted Jack Ma of Alibaba fame for taking over the South China Morning Post last December?  Just wait.  I haven’t noticed any great changes to the paper yet but I know they are coming.

Editorial / The Economist

“ ‘If our party can’t even handle food-safety issues properly, and keeps on mishandling them, then people will ask whether we are fit to keep ruling China.’ So Xi Jinping warned officials in 2013, a year after he became the country’s leader.  It was a remarkable statement for the chief of a Communist Party that has always claimed to have the backing of ‘the people.’  It suggested that Mr. Xi understood how grievances about official incompetence and corruption risked boiling over.  Mr. Xi rounded up tens of thousands of erring officials, waging a war on corruption of an intensity not seen since the party came to power in 1949. Many thought he was right to do so.

“Today, however, China is enduring its biggest public-health scandal in years. Tens of millions of dollars-worth of black-market, out-of-date and improperly stored vaccines have been sold to government health centers, which have in turn been making money by selling them to patients.

“Mr. Xi’s anti-graft has often made little difference to ordinary people. Their life – and health – is still blighted by corruption.  In recent days there have also been signs of discontent with Mr. Xi among the elite: official media complaining openly about reporting restrictions, a prominent businessman attacking him on his microblog, a senior editor resigning in disgust....

“In three and a half years in charge, (Xi) has accumulated titles at an astonishing pace.  He is not only party leader, head of state and commander-in-chief, but is also running reform the security services and the economy.  In effect, the party’s hallowed notion of ‘collective’ leadership has been jettisoned.  Mr. Xi is, one analyst says, ‘Chairman of Everything.’....

“By cracking down and puffing himself up, Mr. Xi is neither buying himself security nor helping to keep China stable.  He is using the party’s own thuggish investigators to take on graft....By cowing the media, Mr. Xi created a press reluctant to challenge officials by exposing the dodgy-vaccine trade as soon as it was discovered at least a year ago....

“Mr. Xi has pledged to give market forces a ‘decisive role,’ and put ‘power in a cage’ by establishing the rule of law. But he is providing neither the country with prosperity and freedom, nor reassuring the rest of the world with stability.  Abroad, anxieties about him keep growing: his muscular efforts to assert control in the South China Sea have been driving countries across Asia closer to the American camp....

“In the past 66 years of Communist rule in China, the most troubled times have usually come about when tensions break out within the elite.  Mr. Xi’s style of rule is only serving to stoke them.  The more Mr. Xi tries to fight off enemies using scare tactics and brute force, the more enemies he is likely to make.”

*At the aforementioned Nuclear Security Summit in Washington, President Obama said the threat from terrorists trying to launch a nuclear attack that would “change our world” is real.

ISIS obtaining a nuclear weapon is “one of the greatest threats to global security,” he added.

Vladimir Putin refused to attend, which speaks to his relationship with Obama.

North / South Korea: Friday, Seoul warned Pyongyang to stop disrupting GPS signal receptions which it said had forced its fishing boats to return to port, vowing to take action if it continued; just another example of escalating tensions as the North pushes the envelope, including with further missile tests this week.

For good reason, South Korea is on edge not just from a military standpoint, but also because of the possibility of major cyberattacks from the North.

We aren’t talking an isolated incident in this recent case; hundreds of fishing boats suffered GPS malfunctions, according to the coast guard.

It was in 2014 that North Korea launched an attack against Sony Pictures.

Russia: President Putin extended the rule of Chechen leader Ramzan Kadyrov, telling him to run in September elections.  Kadyrov, one of the worst people on the planet, has been accused of being involved in killings, disappearances and torture in Chechnya.  Opposition and rights activists also want him questioned in the assassination of opposition leader and former deputy Prime Minister Boris Nemtsov near the Kremlin last year.

Brazil: President Dilma Rousseff’s largest coalition partner deserted the government, so Rousseff is scrambling to get smaller centrist parties on board to avoid impeachment. An effort in the lower house of congress to jettison her is expected as early as mid-April.

The vice president, Michel Temer, is head of the PMDB, the party that abandoned Rousseff, so he takes over as acting president if two-thirds of the lower house votes for impeachment, and then officially as president if the senate supports the motion, also by a two-thirds vote.

But many of the key figures in the PMDB are also said to be part of the Petrobras corruption investigation that has severely damaged Rousseff’s administration.

As noted in a piece by the Financial Times, there are some who think the PMDB wants to speed up impeachment so that its key players can curb the investigation before it consumes them.

Separately, the government announced the economy shrank 3.8% last year and faces a similar contraction in 2016.

Cuba: Sadly, Fidel Castro is still alive and on Monday, he responded to President Obama’s historic trip to Cuba the week before with a 1,500-word letter recounting the history of U.S. aggression against Cuba, writing that “we don’t need the empire to give us any presents.”

The letter titled “Brother Obama” was Fidel’s first response to the visit.  Obama did not meet with the 89-year-old, but had several encounters with 84-year-old brother Raul, the current president.

Fidel went over crucial sections of Obama’s speech to the people in Havana, engaging in an ex-post-facto dialogue with him with pointed slights and insults.

Quoting Obama’s declaration that “it is time, now, for us to leave the past behind,” Fidel writes that “I imagine that any one of us ran the risk of having a heart attack on hearing these words from the President of the United States.”

Castro then returns to a review of a half-century of U.S. aggression, ending with a dig at the administration’s drive to increase business ties.

“No one should pretend that the people of this noble and selfless country will renounce its glory and its rights,” Fidel writes.  “We are capable of producing the food and material wealth that we need with work and intelligence of our people.”

You haven’t come close thus far, Fidel.

Random Musings

--Democrat primary results this week...

Alaska: Bernie Sanders 82 percent, Hillary Clinton 18
Hawaii: Sanders 71-29
Washington: Sanders 73-27

Delegates: 1243 Clinton, 975 Sanders [Including superdelegates: Clinton 1712, Sanders 1011...source: AP]

--For the Republicans (and Democrats), next Tuesday is a big one, Wisconsin, with all the top GOP players in the state, including Gov. Scott Walker, lining up against Donald Trump.

A Marquette University poll had Ted Cruz receiving 40% of the vote, Trump 30% and John Kasich 21%.  [Sanders leading Clinton 49-45.]

A Fox Business poll of the state has it 42-32-19.  [This one has Sanders leading Clinton 48-43.]

So these are both amazingly consistent all around.

--A Quinnipiac University poll for New York’s now critical April 19 affair has Trump at 56%, Cruz 20% and Kasich 19%.

In the same survey, Clinton leads Sanders just 54-42, with the margin narrowing.

In head-to-head contests within the Quinnipiac poll, Hillary defeats Trump 53-33, Cruz 53-32, and Kasich 46-41. Sanders beats Trump 56-32.

--Granted, it’s not until June 7, but a Los Angeles Times/USC Dornsife statewide poll of California primary voters has Hillary Clinton with a 45-37 lead over Bernie Sanders, including Democrat-leaning independents.

This is not good for Sanders since he needs to win California, and by a lot, from a delegate standpoint.

Clinton would slaughter Trump 52-22 in a hypothetical (which included Sanders and Cruz, not Kasich).

Separately, President Obama’s approval rating in California is 65%, the highest level since early in his tenure.

So Republicans don’t have a chance in hell of winning California in November, but for now it’s just about getting delegates and securing the nomination so in the same poll  of Republicans or Republican-leaning independents, Trump takes 37% to Cruz’ 30%, with Kasich at 12%.  [If you look only at ‘voters most likely to turn out,’ it’s a dead heat, 36-35 Trump.]

--I subscribe to Army Times, which is a Military Times publication, and the latter just published a survey of 931 active-duty troops on the presidential campaign, though while it is in the current issue, it was conducted before Marco Rubio dropped out.

Total Service

Clinton 11.2%
Sanders 21.9%
Cruz 16.7%
Kasich 7.7%
Rubio 9.3%
Trump 26.9%
Other 6.3%

Marine Corps only

Clinton 7.0%
Sanders 15.8%
Cruz 15.8%
Kasich 7.9%
Rubio 11.4%
Trump 30.7%
Other 11.4%

Kind of fascinating.

--Trump, in a hypothetical, was forced to withdraw a call for women who have abortions to be punished after being questioned by MSNBC’s Chris Mathews.  Hours later, after a firestorm of criticism from all sides, he repeated the Republican party line that only the person performing the abortion should be punished, not the woman.

And then you had the situation involving Trump’s campaign manager Corey Lewandowski, who was charged with misdemeanor battery against reporter Michelle Fields, formerly of Breitbart News.

Fields claims Lewandowski roughly grabbed her arm as she tried to question Trump at a recent event.

Let me just say I can’t stand Lewandowski, from what I’ve observed and from what I’ve heard him say, and frankly can’t stand Trump’s entire staff, though I like some of his surrogates that pop up on the news shows (like Kayleigh McEnany).  I actually thought way back that the Trump campaign had a lot of potential as long as he surrounded himself with the right people, and got serious on some of the issues, but that has been far from the case. 

But this particular charge against Lewandowski is bogus.

Editorial / New York Post

“(Fields) didn’t officially report the incident for days. But meanwhile, the anti-Trump camp went wild, adding inflated claims that she never made – for example, that Lewandowski had all but thrown her toward the ground.

“Team Trump fought back hard against the fast-expanding media narrative – and Breitbart wouldn’t stand by its reporter. That left her no choice but to quit. Then, in a bid to restore her reputation, she filed charges – and the investigation turned up the video that proved her right.

“Right, again, about an arm-grab – an ‘assault’ that happens countless times a day.

“How, exactly, does the four-second incident rise to the level of criminal charges?

“Why not just release the video – giving Fields the basic vindication she wanted – without bringing a near-meaningless misdemeanor charge to help clog the courts?

“Reporters get jostled all the time, especially on the campaign trail; it goes with the territory.

“OK: Maybe Lewandowski should’ve said, Sorry, I was running on too little sleep – I certainly didn’t mean to be rough, and the whole thing would’ve died.

“Or maybe even that simple concession would’ve triggered a media frenzy of its own – a drive to make Trump fire his key aide.

“The nation’s in the middle of one of the most consequential campaigns in decades, with control of the White House, Congress and the Supreme Court up for grabs.  Obsessed political insiders may see this incident as carrying higher meaning, but it’s absurd to think the voters care.”

By Friday, no one did.

--Also this week, in an interview with the New York Times, Donald Trump spelled out his “America First” foreign policy, saying many nations, including allies, “ripped off” the U.S.

Trump said he would consider pulling troops out of Japan and South Korea if they didn’t pay the U.S. more, and that he might stop buying oil from Saudi Arabia if it did not send troops to fight ISIS.

Trump tied the U.S. debt to the fact the U.S. has “defended the world.”

Later, in a CNN town hall, he said he wouldn’t take the use of nuclear weapons off the table.

--And the three remaining Republican presidential contenders retracted their pledges to support whomever becomes the eventual Republican nominee during the same CNN town hall Tuesday.

John Kasich said of the loyalty oath, “Frankly, all of us shouldn’t have even answered that question.  I’ve got to see what happens.  If the nominee is somebody that I think is really hurting the country, and dividing the country, I can’t stand behind him.”

--Daniel Henninger / Wall Street Journal

“Barack Obama will retire a happy man. He is now close to destroying his political enemies – the Republican Party, the American conservative movement and the public-policy legacy of Ronald Reagan.

“Today, the last men standing amidst the debris of the Republican presidential competition are Donald Trump, a political independent who is using the Republican Party like an Uber car; Ted Cruz, who used the Republican Party as a footstool; and John Kasich, a remnant of the Reagan revolution, who is being told by Republicans to quit.

“History may quibble, but this death-spiral began with Barack Obama’s health-care summit at Blair House on Feb. 25, 2010.  For a day, Republicans gave detailed policy critiques of the proposed Affordable Care Act.  When it was over, the Democrats, including Mr. Obama, said they had heard nothing new.

“That meeting was the last good-faith event in the Obama presidency.  Barack Obama killed politics in Washington that day because he had no use for it, and has said so many times.  The Democrats survived the Obama desert by going to ground. But frustrated Republicans outside Congress eventually started tearing each other apart.

“After Mr. Obama won in 2008, Democrats controlled the Senate and House with large majorities....

“The minority Republicans began well. In 2010, ObamaCare passed with zero Republican Senate votes, and Dodd-Frank with only one Republican Senate vote.  It was a remarkable display of party discipline.

“In the first term, Republicans and conservatives fought Barack Obama.  In the second term, they decided it made more sense to fight each other....

“With no party spokesman for conservatism, an ideological vacuum existed. Freelance operators filled it.

“They included two hyper-ambitious Senate freshman, Marco Rubio and Ted Cruz.  They also included a movement to purge and cleanse conservatism, led by groups such as Heritage Action and by talk radio hosts....

“Conservatives complain constantly about the bias of the mainstream media. With the bar so low on website entry, members-only media alternatives emerged, such as RedState and Breitbart News.

“But the hated MSM is essentially a Roman phalanx.  It stays in formation and protects the progressive castle. The conservative alternatives showed no such discipline.  Early into the second Obama term, they commenced an internecine political war.

“The right began demanding that congressional Republicans conduct ritualist suicide raids on the Obama presidency. The MSM would have depicted these as hapless defeats by presidential veto, but some wanted the catharsis of constant public losses – on principle....

“With his Cheshire Cat grin, Barack Obama faded into the background and let the conservatives’ civil war rip. For Republicans, every grievance, slight or loss became a scab to be picked, day after day.

“In time, the attacks on ‘the establishment’ and ‘donor class’ became indiscriminate, ostracizing good people in the party and inside the conservative movement. The anti-establishment offensive created a frenzy faction inside the Republican base. And of course, it produced Donald Trump.

“The Trumpians and Cruzians, who of late have been knifing one another in a blind rage, say this is a rebirth. So was Rosemary’s baby....

“(Obama’s) presidency produced a moribund U.S. economy for eight years.  In a response so bizarre that future historians will gape, the Republicans decided to destroy each other.”

Bret Stephens / Wall Street Journal

“Donald Trump is Barack Obama squared....

“The president and The Donald are two epic narcissists who see themselves as singularly suited to redeem an America that is not only imperfect but fundamentally broken. Both men revel in their disdain for the political system and the rules governing it. Both men see themselves not as politicians but as movement leaders.  Both are prone to telling fairy tales about their lives and careers.

“And both believe they are better than everyone else....

“Historians may mark the early 21st century as the moment when Americans stopped seeking probity or at least predictability in their leaders and started shopping for ecstasy and transformation; a politics beyond words. Republicans mocked the grandiosity of Mr. Obama’s first run for the presidency – the Doric columns; the pledge to make the seas recede – but is that so different from the pompous iconography of the Trump jet or his manifestly absurd promises to get foreign countries to pay for his political boondoggles?

“More to the point, Mr. Obama was a cult-of-personality candidate.  His admirers projected on him whatever they wanted to see: passionate liberal; post-ideological pragmatist; philosopher king; cool cat.  Politically, he was the equivalent of a non-falsifiable hypothesis.  No evidence could disprove his rightness.

“Mr. Trump inspires similar fancies among his supporters.  Either he’s the Great Negotiator who will know how to bargain with Congress and cut better trade and security deals with the Saudis, Chinese, Europeans and so on.  Or he’s the immovable man of principle who will remain unbowed when, for instance, troubles mount with his mass deportation of los ilegales.  Both interpretations can’t be true. But it’s in the nature of cult personalities that followers rarely ask hard questions because they are seeking leaders who square circles....

“One man wants to shrink America’s role in the world for the sake of a bigger state; the other man for the sake of shrinking the debt.  In either case, the prescription is to put America in retreat.  In neither case do they want to address the real driver of the U.S.’s long-term fiscal problems, which are entitlements and welfare (59% of the federal budget), not defense and international security (16%)....

“There’s a tendency among pundits to offer high-toned explanations for why Mr. Trump has risen this far, despite political expectations and ordinary good sense.  Many of those pundits performed similarly opportunistic services when Mr. Obama’s star was rising.  We repeat our mistakes when we think we’re doing the opposite.”

--New York City Police Commissioner Bill Bratton / New York Daily News

“There seems to be a widespread belief among certain members of the political class that protecting the country against terrorism is a matter of ideology. According to them, the strong leaders in this area are the ones who are willing to insult Muslims, advocate torture, and engage in various other provocations. They claim that other leaders are paralyzed by political correctness and that they alone have the ideological fortitude to guard against the terrorist threat.

“Terrorism is ideologically driven but counterterrorism, like other kinds of police work, has no ideological component whatsoever.  It is about stopping the terrorists before they strike.  That requires intelligence gathering, analysis and focused investigative work.

“In the event of a terrorist attack, police also need the capacity to respond swiftly and with effective tactics.  It is a matter of consistent, determined, targeted detective work, of highly trained and well-equipped operational units, and of intelligence analysts who can interpret the data, decipher the chatter and distinguish the real threats from the bluster and the noise.

“Recently, Republican presidential candidate Ted Cruz called for police to ‘patrol and secure Muslim communities before they become radicalized.’  We already patrol and secure Muslim neighborhoods, the same way we patrol and secure other neighborhoods.

“When people call the police, we rush to help them.  When people break the law, we move to arrest them.  But no, we do not single out any populace, black, white, yellow or brown for selective enforcement. We do not ‘patrol and secure’ neighborhoods based on selective enforcement because of race or religion, nor will we use the police and an occupying force to intimidate a populace or a religion to appease the provocative chatter of politicians seeking to exploit fear.”

Bratton goes on to blister Cruz, and rightfully so, for “the false reports surrounding the NYPD Demographics Unit” and Bratton’s decision to abolish it because the work of mapping the ethnic makeup of the city to better understand the New York metropolitan area “was finished.”

--President Obama’s national approval rating has been inching up and is now at 53 percent, according to Gallup, a three-year high, which should be a huge help for Hillary Clinton (assuming she isn’t indicted) come the fall as long as it sticks.  Though one big terror incident here before then would cause the rating to crater. 

--In a new report published in the journal Nature, scientists now predict sea levels could rise nearly twice as much as previously projected by the end of this century without a major reduction in carbon dioxide emissions, which would devastate many coastal communities.

The authors of the study believe we could see a sea level rise of more than six feet rather than three.  This would have a profound effect on South Florida, parts of Virginia, New York City, Bangladesh, Shanghai, and other far-flung coastal communities.  [But not my building, which is all I care about, frankly.]

The key is preserving Antarctica in roughly its current state and the study concludes this is only possible by sharply reducing emissions.

--Georgia Republican Gov. Nathan Deal vetoed a “religious freedom” bill that would have allowed faith-based organizations to refuse service to gay and transgender people.

The likes of Coca-Cola, Disney and the NFL threatened to pull business out of the state.

Gov. Deal said: “I believe it is a matter of character for our state.  I do not think that we have to discriminate against anyone to protect the faith-based community in Georgia.”

Disney, for one, threatened to pull its very substantial movie shoots in the state. AMC threatened to stop filming “The Walking Dead” there.

Atlanta Falcons owner Arthur Blank said passage of the bill would clearly have hurt Atlanta’s chances of hosting the Super Bowl.

Now it’s North Carolina feeling the heat for legislation there.

--So the city of New Orleans is attempting to remove prominent Confederate monuments, but there has been quite a backlash, including death threats.  Things are so nasty the city hasn’t found a contractor willing to bear the risk of tearing down the monuments; the city itself not having any equipment to do the job.

Back in December, the majority-black City Council voted 6-1 to approve the mayor’s plan to take down monuments to the likes of Gens. Robert E. Lee and P.G.T. Beauregard, which many view as symbols of racism.

Initially, the city hired a contractor out of Baton Rouge to remove the monuments, but then a Lamborghini belonging to the owner of the company was set on fire at company headquarters.

So that’s one side of New Orleans. Then you have this, from Don Kaplan of the New York Daily News.

“Maybe their brains were steamed by the spicy food or the oppressive humidity of New Orleans.

“How else to explain why a group of entitled Tulane University students would create a petition to protest the school’s selection of decorated journalist Hoda Kotb, who was chosen to give a commencement speech this year?

“ ‘We deserve better,’ the soon-to-be college grads whined in their petty online protest.  ‘Given the amount of money, work, and passion we have poured into our educational careers at Tulane, we think we deserve better than this.’

“They rambled on.

“ ‘Hoda Kotb is hardly an inspirational figure, and despite the fact that she has had a successful career in journalism, we feel that we deserve a more recognizable and more prominent figure than her.  Commencement speeches are supposed to inspire students before they are thrown into the real world.  Hoda Kotb spends her time sipping wine on talk shows, and discussing which dog breed is trendiest in 2016. There’s hardly anything inspirational about that.  This is an embarrassment not only to the entire class of 2016, but also the school as a whole.’

“Hey kids: just shut up.  This woman has paid her dues. And despite your pricey education, it seems you’ve learned nothing.

“So here’s a bit of advice you can consider in your haughty, tiny minds – once your mommy and daddy have finished paying off your tuition, room, board and booze.

“Kotb is beloved in New Orleans for her time spent at WWL-TV.  But she’s also a best-selling author, a war correspondent, breast cancer survivor and a 51-year-old woman who has enjoyed wild success in a fickle, ageist, sexist, shallow industry.  It’s one where many TV newswomen are out of a job by the time they are 40 years old.

“She was once given the key to New Orleans; worked endless hours broadcasting the plight of her favorite city after Hurricane Katrina destroyed it; and she has been a defender and champion of the city for years.

“If all of that is not inspirational, then please explain to us what is....

“The good thing is Kotb also had her defenders in New Orleans – and she will go ahead with the speech....

“WWL-TV anchor Karen Swensen, a longtime colleague and friend...wrote a passionate response on Facebook....

“ ‘Deserve better? There is none....

“ ‘She has integrity, grit, unfailing optimism, the most generous soul and the most humble heart.  I, for one, hope my daughter, my only child, grows up to be just like her.’

“Kotb, always a class act, responded to all the hoopla in an emailed response to WWL-TV.  ‘Forget the petition, I love the response,’ she wrote.  ‘I love New Orleans!  See you soon!’

“It’s a lesson those little Tulane snobs should take to heart.”

I’d put the jerks on a skiff and send them adrift in the middle of the bayou.

--Two television recommendations from the past week.  Michael Ware’s documentary on HBO of his seven years covering the Iraq war is outstanding; ditto PBS’ “Frontline” on Saudi Arabia, the latter easily available on pbs.org.

--So I’m reading an interview with Steven Tyler of Aerosmith in Rolling Stone and the question is asked, “What rules do you live by?”

Tyler starts out: “You are what you eat.  Sleep with one eye open.  Follow your dreams. There’s a lot of them.  Also, people today are dying slowly. They’re either on the Internet too much and they lose their job, or they’re (eating) too much. All that stuff is going to take you down.”

Ah yes...“Sleep with one eye open.”  Just as we have always recommended here at StocksandNews.

---

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

God bless America.

---

Gold  $1222
Oil $36.79

Returns for the week 3/28-4/1

Dow Jones  +1.6%  [17792]
S&P 500  +1.8%  [2072]
S&P MidCap  +2.7%
Russell 2000  +3.5%
Nasdaq  +3.0%  [4914]

Returns for the period 1/1/16-4/1/16

Dow Jones  +2.1%
S&P 500  +1.4%
S&P MidCap  +3.8%
Russell 2000  -1.6%
Nasdaq  -1.9%

Bulls  43.3
Bears  28.9  [Source: Investors Intelligence]

Have a great week.  I appreciate your support.

Dr. Bortrum posted a new column.  Loyal Dr. B reader Jack C. informed me he had a huge bear in his Chatham, N.J., backyard the other day that tore down his bird feeder.  No lives were lost that we know of. 

Brian Trumbore